<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
REGISTRATION NO. 333-05359
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AUTOBOND ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
TEXAS 6141 75-2487218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ADRIAN KATZ, VICE CHAIRMAN
AUTOBOND ACCEPTANCE CORPORATION
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GLENN S. ARDEN, ESQ. PHILLIP M. RENFRO, ESQ.
DEWEY BALLANTINE FULBRIGHT & JAWORSKI L.L.P.
1301 AVENUE OF THE AMERICAS 300 CONVENT STREET, SUITE 2200
NEW YORK, NEW YORK 10019 SAN ANTONIO, TEXAS 78205
(212) 259-8000 (210) 224-5575
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(A) AND ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting
6. Dilution............................................. Dilution; Risk Factors
7. Selling Security Holders............................. Principal and Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities To Be Registered........... Prospectus Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Capitalization;
Selected Consolidated Financial and Operating Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Description of
Capital Stock; Shares Eligible for Future Sale;
Change in Accountants; Consolidated Financial
Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
</TABLE>
- ------------
* Not applicable.
<PAGE>
<PAGE>
PROSPECTUS
1,000,000 SHARES
[LOGO]
COMMON STOCK
Of the shares of common stock, no par value (the 'Common Stock'), offered
hereby, 750,000 shares are being sold by AutoBond Acceptance Corporation (the
'Company'), and 250,000 shares are being sold by certain shareholders (the
'Selling Shareholders'). See 'Principal and Selling Shareholders.' The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that any active trading market will
develop. See 'Underwriting' for information relating to the factors considered
in determining the public offering price.
The Common Stock has been approved for quotation on the Nasdaq Stock
Market's National Market System ('Nasdaq') under the symbol 'ABND.'
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' ON PAGES 8-15.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share................................. $10.00 $0.70 $9.30 $9.30
Total(3).................................. $10,000,000 $700,000 $6,975,000 $2,325,000
</TABLE>
(1) Does not include (a) a non-accountable expense allowance payable to The
Boston Group, L.P. (the 'Representative') and (b) the value of five-year
warrants granted to the Representative to purchase up to 100,000 shares of
Common Stock at 120% of the initial public offering price per share of
Common Stock (the 'Representative's Warrants'). For indemnification and
contribution arrangements with the Underwriters, see 'Underwriting.'
(2) Before deducting expenses of the offering estimated at $1,400,000 payable by
the Company, including a non-accountable expense allowance payable to the
Underwriters. See 'Underwriting'.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 150,000 additional shares of
Common Stock at the Price to Public per share, less the Underwriting
Discount, solely for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $11,500,000, $805,000
and $8,370,000, respectively. See 'Underwriting.'
The shares of Common Stock are offered by the Underwriters, when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares will be made
against payment on or about November 14, 1996.
------------------------
THE BOSTON GROUP, L.P.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 8, 1996
<PAGE>
<PAGE>
HEADQUARTERS AND STATES OF OPERATIONS
[MAP]
HEADQUARTERS * AUSTIN, TX
Pictured above is a line drawn map of the 48 contiguous states of the
United States of America, with dark shading of those states where the Company
has recently conducted notable finance contract acquisition activity, light
shading of those states where the Company is expanding its activity, and a
five-pointed star indicating the location of the Company's headquarters in
Austin, Texas.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless indicated
otherwise, all information contained in this Prospectus (i) reflects the
767.8125-for-1 stock split effected by the Company on June 4, 1996 and (ii)
assumes no exercise of the Underwriters' over-allotment option or the
Representative's Warrants. See 'Description of Capital Stock' and
'Underwriting.'
THE COMPANY
AutoBond Acceptance Corporation (the 'Company') is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ('finance contracts') originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ('subprime consumers'). Subprime consumers generally are borrowers unable
to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit,
employment or residence histories or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts directly from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company also acquires finance contracts from
third parties other than dealers, for which the Company reunderwrites and
collects such finance contracts in accordance with the Company's standard
guidelines. The Company securitizes portfolios of these retail automobile
installment contracts to efficiently utilize limited capital to allow continued
growth and to achieve sufficient finance contract volume to allow profitability.
The Company markets a single finance contract acquisition program to automobile
dealers which adheres to consistent underwriting guidelines involving the
purchase of primarily late-model used vehicles. This enables the Company to
securitize those contracts into investment grade securities with similar terms
from one issue to another providing consistency to investors. Through June 30,
1996, the finance contracts acquired by the Company had, upon acquisition, an
average initial principal balance of $11,941, a weighted average annual
percentage rate ('APR') of 19.5%, a weighted average finance contract
acquisition discount of 8.6% and a weighted average maturity of 53.0 months.
The Company was formed to capitalize on senior management's experience in
the consumer auto finance industry, including in the securitization of subprime
automobile finance contracts. From 1989 to 1994, the Company's chairman
structured 20 investment-grade securitizations of subprime consumer automobile
finance contract portfolios, aggregating approximately $190 million in principal
amount, which were originated, underwritten and serviced by third party
intermediaries. The Company has developed the necessary experience and
relationships to underwrite, acquire, securitize and service finance contracts
by assembling a team of experienced professionals. The Company's senior
operating management averages 23 years of experience in the consumer finance
industry, including in the operation of automobile dealerships, underwriting and
acquiring consumer finance contracts, collections, and investment banking and
securitizations. The Company's credit underwriters average 13 years of
experience in the auto finance industry, and its sales representatives and
collections professionals average ten and seven years of industry experience,
respectively. While securitization is a relatively new financing technique, the
Company's executives in that area average ten years of securitization
experience.
The Company commenced operations in August 1994 and through June 30, 1996
had acquired 5,714 finance contracts (91.0% with obligors who resided in Texas)
with an aggregate initial principal balance of $68.2 million, of which $60.7
million have been securitized in three investment-grade transactions. In the six
month period ended June 30, 1996, the Company underwrote and acquired 2,856
finance contracts with an aggregate initial principal balance of $33.9 million.
At June 30, 1996, the Company had 492 dealer relationships in 16 states,
substantially all of which were franchised dealers of major automobile
manufacturers. The Company earned net income of $873,487 for the fiscal year
ended December 31, 1995, compared to a loss of $544,605 for the period from
inception through December 31, 1994. The Company earned net income of $1.9
million for the six months ended June 30, 1996,
3
<PAGE>
<PAGE>
compared to a loss of $931,372 for the six months ended June 30, 1995. As of
June 30, 1996, the Company conducted notable business in 7 states (defined as
those states that each represent at least 1.0% of the total number of finance
contracts acquired during the first half of 1996).
The Company's growth strategy anticipates the acquisition of an increasing
number of finance contracts. The key elements of this strategy include: (i)
increasing the number of finance contracts acquired per automobile dealer; (ii)
expanding the Company's presence within existing markets; (iii) penetrating new
markets that meet the Company's economic, demographic and business criteria, and
(iv) securitizing portfolios of acquired finance contracts.
To foster its growth and increase profitability, the Company will continue
to pursue a business strategy based on the following principles:
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the subprime auto
finance market because it believes that subprime finance presents greater
opportunities than does prime lending. This greater opportunity stems from
a number of factors, including the relative newness of sub-prime auto
finance, the range of finance contracts that various subprime auto finance
companies provide, the relative lack of competition compared to traditional
automotive financing and the potential returns sustainable from large
interest rate spreads. The Company focuses on late-model used rather than
new vehicles, as management believes the risk of loss is lower on used
vehicles due to lower depreciation rates, while interest rates are
typically higher than on new vehicles. For the period from inception
through June 30, 1996, new vehicles and used vehicles represented 10.7% and
89.3%, respectively, of the finance contract portfolio measured by dollar
value of amounts financed and 8.0% and 92.0%, respectively, as a percentage
of units acquired. In addition, the Company concentrates on acquiring
finance contracts from dealerships franchised by major automobile
manufacturers because they typically offer higher quality vehicles, are
better capitalized than used car dealers, and have good service facilities.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade warehouse
facility and a quarterly securitization program, the Company increases its
liquidity, redeploys its capital and reduces its exposure to interest rate
fluctuations. The Company has also developed the ability to borrow funds on
a non-recourse basis, collateralized by excess spread cash flows from its
securitization trusts. The net effect of the Company's funding and
securitization program is to provide more capital than the Company consumes
in funding loans, resulting in positive cash flow, lower overall costs of
funding, and permitting loan volume to increase without requiring
additional equity capital.
UNIFORM UNDERWRITING CRITERIA -- To manage the risk of delinquency or
defaults associated with subprime consumers, the Company has utilized since
inception a single set of underwriting criteria which are consistently
applied in evaluating credit applications. This evaluation process is
conducted on a centralized basis utilizing experienced personnel. These
uniform underwriting criteria create consistency in the securitized
portfolios of finance contracts that make them more easily analyzed by the
rating agencies and more marketable and permit static pool analysis of loan
defaults to optimally structure securitizations. See 'Management's
Discussion and Analysis -- Repossession Experience -- Static Pool
Analysis.'
CENTRALIZED OPERATING STRUCTURE -- While the Company establishes and
maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's
day-to-day operations are centralized at the Company's offices in Austin,
Texas. This centralized structure allows the Company to closely monitor its
marketing, funding, underwriting and collections operations and eliminates
the expenses associated with full-service branch or regional offices.
EXPERIENCED MANAGEMENT TEAM -- The Company actively recruits and retains
experienced personnel at the executive, supervisory and managerial levels.
The senior operating management of the Company consists of seasoned
automobile finance professionals with an average of 23 years' experience in
underwriting, collecting and financing automobile finance contracts.
4
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<PAGE>
INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of subprime
finance contracts and to mitigate losses. The Company's collections
managers contact delinquent accounts frequently, working cooperatively with
customers to get full or partial payments, but will initiate repossession
of financed vehicles no later than the 90th day of delinquency. As of June
30, 1996, a total of 85, or 1.5%, of the Company's finance contracts
outstanding were between 60 and 90 days past due. Since inception through
June 30, 1996, the Company repossessed approximately 5.1% of its financed
vehicles.
LIMITED LOSS EXPOSURE -- To reduce its potential losses on defaulted
finance contracts, the Company insures each finance contract it funds
against damage and fraud to the financed vehicle through a vender's
comprehensive single interest physical damage insurance policy (the 'VSI
Policy'). In addition, the Company purchases credit default insurance
through a deficiency balance endorsement (the 'Credit Endorsement') to the
VSI Policy. Moreover, the Company limits loan-to-value ratios and applies a
purchase price discount to the finance contracts it acquires. The Company's
combination of underwriting criteria, intensive collection efforts and the
VSI Policy and Credit Endorsement has resulted in net charge-offs (after
receipt of liquidation and insurance proceeds) of 7.6% of the principal
balance outstanding on disposed repossessed vehicles as of June 30, 1996.
See 'Management's Discussion and Analysis & Financial Condition and Results
of Operations -- Net Loss per Repossession.'
The Company is a Texas corporation. The Company's principal executive
office and mailing address is 301 Congress Avenue, 9th Floor, Austin, Texas
78701, and its telephone number is (512) 435-7000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 750,000 shares
Common Stock offered by the Selling
Shareholders....................... 250,000 shares
Total Common Stock offered(1)... 1,000,000 shares
Common Stock to be outstanding after
the Offering(1)(2)................. 6,456,311 shares
Use of proceeds...................... The Company intends to use the net proceeds received by it to: acquire new
finance contracts; repay subordinated indebtedness of $300,000; repay
certain outstanding indebtedness under revolving warehouse credit
facilities; and for general corporate purposes.
The Selling Shareholders have agreed to use the net proceeds received by
them to repay in full the outstanding balance under a working capital
facility previously guaranteed by the Company, and certain indebtedness to
the Company. See 'Use of Proceeds' and 'Certain Transactions.'
Nasdaq National Market symbol........ ABND
</TABLE>
- ------------
(1) Excludes 150,000 additional shares which may be issued pursuant to exercise
of the Underwriters' over-allotment option. See 'Underwriting.'
(2) Includes 18,811 shares of Common Stock reserved for issuance pursuant to the
exercise of outstanding warrants. See 'Description of Capital
Stock -- Warrants.' Excludes (i) 300,000 shares of Common Stock reserved for
issuance pursuant to the exercise of options to be outstanding at the time
of the Offering and (ii) 100,000 shares which may be issued and sold upon
the exercise in full of the Representative's Warrants. See
'Management -- Option Plan' and 'Underwriting.'
5
<PAGE>
<PAGE>
RECENT DEVELOPMENTS
On September 30, 1996, the Company completed its most recent securitization
of finance contracts. $22,296,719 in aggregate principal amount of Class A
Certificates were issued out of AutoBond Receivables Trust 1996-C, with a coupon
of 7.45%. In addition, the Company financed $2,403,027 in aggregate principal
amount of Class B Certificates, with a coupon of 15%, issued through the trust.
The third quarter securitization included $8,618,441 in aggregate principal
amount of finance contracts purchased by the Company from Greenwich Capital
Financial Products, Inc. ('GCFP'), pursuant to a loan sale agreement among the
Company, GCFP and First Fidelity Acceptance Corp. ('FFAC'), the originator of
the finance contracts. The Company reunderwrote the finance contracts, paid
premiums under the VSI Policy, and will service the finance contracts. In the
fourth quarter of 1996, the Company intends to purchase approximately $6.5
million of additional finance contracts from GCFP under the loan sale agreement.
The Company acquired 1,469 finance contracts from dealers, totalling $16,916,971
in aggregate principal amount, during the third quarter of 1996, compared with
2,856 finance contracts acquired from dealers, totalling $33,358,000 during the
first six months of 1996.
6
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------------------
1994(1) 1995 1995 1996
---------- ---------- ---------------- ----------------
(DOLLARS IN THOUSANDS EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income.......................... $ 19 $ 781 $ 417 $ 333
Servicing fee income......................... 0 0 9 277
Gain on sale of finance contracts............ 0 4,086 134 5,744
Net income (loss) before taxes and
extraordinary loss......................... (545) 1,072 (931) 2,996
Net income (loss)............................ (545) 873 (931) 1,876
Net income (loss) per share.................. (0.11) 0.17 (0.18) 0.33
Weighted average shares outstanding.......... 5,118,753 5,190,159 5,118,753 5,698,367
Pro forma net income(2)...................... $ -- $ 953 $ -- $ 1,894
Pro forma net income per share(2)............ -- 0.17 -- 0.32
PORTFOLIO DATA:
Number of finance contracts acquired......... 202 2,659 1,042 2,856
Principal balance of finance contracts
acquired................................... $ 2,454 $ 31,200 $ 12,207 $ 33,358
Principal balance of finance contracts
securitized................................ 0 26,261 0 34,396
Average initial finance contract principal
balance.................................... $ 12.2 $ 12.0 $ 12.0 $ 11.9
Weighted average initial contractual term
(months)................................... 54.3 53.3 53.0 52.7
Weighted average APR of finance contracts.... 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition
discount................................... 8.6% 8.8% 8.7% 8.6%
Number of finance contracts outstanding (end
of period)................................. 197 2,774 1,219 5,485
Principal balance of finance contracts
outstanding (end of period)................ $ 2,450 $ 31,311 $ 14,125 $ 59,392
OPERATING DATA:
Number of enrolled dealers (end of period)... 50 280 169 492
Number of active states (end of period)...... 2 7 5 12
Total expenses as a percentage of total
principal balance of finance contracts
acquired in period......................... 23.0% 12.2% 12.2% 10.1%
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a
percentage of principal balance of finance
contracts (end of period).................. 0.30% 2.30% 1.39% 2.48%
Net charge-offs as a percentage of average
finance contract balances(3)(4)(5)......... 0.00% 0.66% 0.39% 1.45%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Finance contracts held for sale, net......... $ 546 $ 546
Excess servicing receivable.................. 1,575 1,575
Total assets................................. 16,292 21,766
Short term debt.............................. 537 0
Long term debt............................... 6,248 6,248
Shareholders' equity......................... 4,645 10,656
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Pro forma net income and pro forma net income per share are based on the
number of shares of common stock assumed to be outstanding after the
issuance in this offering of 274,239 and 208,311 shares at December 31, 1995
and June 30, 1996, respectively (based on the number of shares to be sold at
the initial public offering price necessary to raise net proceeds to pay the
offering expenses and to repay certain indebtedness of the Company, as
described in 'Use of Proceeds'), and the application of such proceeds to
repay such indebtedness in the amount outstanding at the end of the
respective periods.
(3) Averages are based on daily balances.
(4) Six month figures are annualized.
(5) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
loss rates.
(6) As adjusted to give effect to (i) estimated net proceeds of the Offering of
$5.6 million (at an initial public offering price of $10.00 per share) and
(ii) the application of such net proceeds. See 'Use of Proceeds.'
7
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<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the information contained elsewhere in this
Prospectus, prospective purchasers should carefully consider the following risk
factors concerning the Company and its business in evaluating an investment in
the Common Stock offered hereby.
LIMITED OPERATING HISTORY
The Company was incorporated in June 1993 and commenced operations in
August 1994 and, accordingly, has only a limited operating history. Although the
Company has experienced substantial growth in dealer relationships, finance
contract acquisitions and revenues, there can be no assurance that this growth
is sustainable or that historical results are indicative of future results. In
addition, the Company's results of operations, financial condition and liquidity
depend, to a material extent, on the performance of its finance contracts.
Because of the Company's limited operating history, its finance contract
portfolio is relatively unseasoned. Thus, the Company's portfolio performance,
including historical delinquency and loss experience, is not necessarily
indicative of future results. Furthermore, the Company's ability to achieve and
maintain profitability on both a quarterly and an annual basis will depend, in
part, upon its ability to implement its business strategy and to securitize
quarterly on a profitable basis. See 'Selected Consolidated Financial and
Operating Data.'
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY
The Company's business strategy is principally dependent upon its ability
to increase the number of finance contracts it acquires while maintaining
favorable interest rate spreads and effective underwriting and collection
efforts. Implementation of this strategy will depend in large part on the
Company's ability to: (i) expand the number of dealerships involved in its
financing program and maintain favorable relationships with these dealerships;
(ii) increase the volume of finance contracts purchased from its dealer network;
(iii) obtain adequate financing on favorable terms to fund its acquisition of
finance contracts; (iv) profitably securitize its finance contracts on a regular
basis; (v) maintain appropriate procedures, policies and systems to ensure that
the Company acquires finance contracts with an acceptable level of credit risk
and loss; (vi) hire, train and retain skilled employees; and (vii) continue to
expand in the face of increasing competition from other automobile finance
companies. The Company's failure to obtain or maintain any or all of these
factors could impair its ability to implement its business strategy
successfully, which could have a material adverse effect on the Company's
results of operations and financial condition. See 'Business -- Growth and
Business Strategy.'
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company requires access to significant sources and amounts
of cash to fund its operations and to acquire and securitize finance contracts.
As a result of the initial period required to accumulate finance contracts prior
to securitizing such contracts, until the first quarter of 1996, the Company's
cash requirements exceeded cash generated from operations. The Company's primary
operating cash requirements include the funding of (i) the acquisition of
finance contracts prior to securitization, (ii) the initial cash deposits to
reserve accounts in connection with the warehousing and securitization of
contracts in order to obtain lower financing rates, (iii) fees and expenses
incurred in connection with the warehousing and securitization of contracts and
(iv) ongoing administrative and other operating expenses. The Company has
traditionally obtained these funds in three ways: (a) loans and warehouse
financing arrangements, pursuant to which acquisitions of finance contracts are
funded on a temporary basis; (b) securitizations or sales of finance contracts,
pursuant to which finance contracts are funded on a permanent basis; and (c)
general working capital, which if not obtained from operations, may be obtained
through the issuance of debt or equity. Failure to procure funding from all or
any one of these sources could have a material adverse effect on the Company.
See 'Use of Proceeds' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
8
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<PAGE>
Cash Flows Associated With Financings. Under the financial structures the
Company has used to date in its warehousing and securitizations, certain excess
cash flows generated by the finance contracts are retained in a cash reserve or
'spread' account to provide liquidity and credit enhancement. While the specific
terms and mechanics of the cash reserve account can vary depending on each
transaction, the relevant agreement generally provides that the Company is not
entitled to receive certain excess cash flows unless certain reserve account
balances have been attained and the delinquency or losses related to the
contracts in the pool are below certain predetermined levels. In the event
delinquencies and losses on the contracts exceed such levels, the terms of the
warehouse facility or securitization may require increased cash reserve account
balances to be accumulated for the particular pool or, in certain circumstances,
may require the transfer of the Company's collection function to another
servicer. The imposition of any of the above-referenced conditions could
materially adversely affect the Company's liquidity and financial condition.
Dependence on Warehouse Credit Facilities. The Company's two primary
sources of financing for the acquisition of finance contracts are its (i) $20.0
million warehouse revolving line of credit with Peoples Security Life Insurance
Company (an affiliate of Providian Capital Management) and (ii) $10.0 million
warehouse revolving line of credit with Sentry Financial Corporation (together,
the 'Revolving Credit Facilities') which expire in December 1996 and July 1998,
respectively. To the extent that the Company is unable to maintain the Revolving
Credit Facilities or is unable to arrange new warehouse lines of credit, the
Company may have to curtail its finance contract acquisition activities, which
would have a material adverse effect on its operations and cash position. These
warehouse lines are typically repaid with the proceeds received by the Company
when its finance contracts are securitized. The Company's ability to continue to
borrow under the Revolving Credit Facilities is dependent upon its compliance
with the terms thereof, including the maintenance by the Company of certain
minimum capital levels and of the VSI Policy, or the establishment of an
acceptable self-insurance program. There can be no assurance that such
facilities will be extended or that substitute facilities will be available on
terms acceptable to the Company. The Company's ability to obtain a successor
facility or similar financing will depend on, among other things, the
willingness of financial organizations to participate in funding subprime
finance contracts and the Company's financial condition and results of
operations. The Company's growth is dependent upon its ability to obtain
sufficient financing under its Revolving Credit Facilities, and any additional
or successor facilities, at rates and upon terms acceptable to the Company. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and
'Business -- Funding/Securitization of Finance Contracts.'
Dependence on Securitization Transactions. The Company relies significantly
on a strategy of periodically selling finance contracts through asset-backed
securitizations. Proceeds from securitizations are typically used to repay
borrowings under the warehouse credit facilities, thereby making such facilities
available to acquire additional finance contracts. The Company's ability to
access the asset-backed securities market is affected by a number of factors,
some of which are beyond the Company's control and any of which could cause
substantial delays in securitization, including, among other things, conditions
in the securities markets in general, conditions in the asset-backed securities
market and investor demand for subprime auto paper. Moreover, because of the
similarity of the Company's name with those of certain securitization issuers
sponsored by William Winsauer, the Company could be adversely affected if the
ratings of securitizations completed by such issuers were downgraded.
Additionally, gain on sale of finance contracts represents a significant portion
of the Company's total revenues and, accordingly, net income. If the Company
were unable to securitize finance contracts or account for any securitization as
a sale transaction in a financial reporting period, the Company would likely
incur a significant decline in total revenues and net income or report a loss
for such period. Moreover, the Company's ability to borrow funds on a
non-recourse basis, collateralized by excess spread cash flows, is an important
factor in providing the Company with substantial liquidity. If the Company were
unable to securitize its finance contracts and did not have sufficient credit
available, either under warehouse credit facilities or from other sources, the
Company would have to sell portions of its portfolio directly to whole loan
buyers or curtail its finance contract acquisition activities. See
'Business -- Funding/Securitization of Finance Contracts.'
Dependence on the VSI Policy. In order to limit potential losses on finance
contracts, the Company has purchased, and expects to continue to purchase,
insurance under the VSI Policy (including the
9
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Credit Endorsement) for each contract at the time of its acquisition. The VSI
Policy currently in effect includes physical damage and loss coverage with
respect to the financed vehicles as well as loss coverage pursuant to the Credit
Endorsement with respect to unpaid amounts under the related finance contract,
subject in each case to certain conditions and limitations. The protections
afforded by the VSI Policy (including the Credit Endorsement) are not complete
and depend on the Company's compliance with the terms and conditions of the
policy. Coverage under the VSI Policy (and the Credit Endorsement) is currently
required under the Company's Revolving Credit Facilities and its securitizations
to date. There can be no assurance that such insurance will be available in the
future at reasonable rates. The VSI Policy (including the Credit Endorsement)
may be cancelled prospectively, without cause, upon 30 days' prior written
notice to the Company and, for cause, upon ten days' prior written notice. The
unavailability of such insurance, coupled with the absence of alternative forms
of credit enhancement, could adversely affect the Company's ability to
profitably acquire and securitize finance contracts. See
'Business -- Insurance.'
Need for Additional Capital. The Company's ability to implement its
business strategy will depend upon its ability to continue to effect
securitizations or to establish alternative long-term financing arrangements and
to obtain sufficient financing under warehousing facilities on acceptable terms.
There can be no assurance that such financing will be available to the Company
on favorable terms. If such financing were not available or the Company's
capital requirements exceeded anticipated levels, then the Company would be
required to obtain additional equity financing, which would dilute the interests
of shareholders who invest in this offering. Although the Company has no
specific plans for additional equity financings due to the liquidity provided by
securitizations and financings of excess spread cash flows, the Company cannot
estimate the amount and timing of additional equity financing requirements
because such requirements are tied to, among other things, the growth of the
Company's finance contract acquisitions, which cannot be definitively forecast
for future periods. If the Company were unable to raise such additional capital,
its results of operations and financial condition could be adversely affected.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Business -- Financing
Program.'
DETERMINATION OF GAIN FROM SECURITIZATION TRANSACTIONS
The gain from securitization transactions recognized by the Company in each
securitization and the value of the future excess spread cash flows in each
transaction reflect management's estimate of future credit losses and
prepayments for the finance contracts included in that securitization. If actual
rates of credit loss or prepayments, or both, on such finance contracts exceeded
those estimated, the value of the excess servicing receivables would be
impaired. The Company periodically reviews its credit loss and prepayment
assumptions relative to the performance of the securitized contracts and to
market conditions. If necessary, the Company would adjust the carrying value of
the future excess spread cash flows by writing down the asset and recording a
charge to servicing fee income. The Company's results of operations and
liquidity could be adversely affected if credit loss or prepayment levels on
securitized finance contracts substantially exceeded anticipated levels. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Revenues/Credit Loss Experience' and Note 1 to Notes to
Consolidated Financial Statements.
ECONOMIC CONSIDERATIONS
The Company's business is directly related to sales of new and used
automobiles, which are affected by employment rates, prevailing interest rates
and other domestic economic conditions. Delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on subprime borrowers, the actual rates of delinquencies,
repossessions and losses on such contracts under adverse conditions could be
higher than those currently experienced. Any sustained period of economic
slowdown or recession could adversely affect the Company's ability to sell or
securitize pools of finance contracts. The timing of any economic changes is
uncertain. Decreased sales of automobiles and weakness in the economy could have
an adverse effect on the Company's business and that of the dealers from which
it purchases finance contracts.
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DEFAULTS ON CONTRACTS; PREPAYMENTS
The Company is engaged in acquiring automobile finance contracts entered
into by dealers with subprime borrowers who have limited access to traditional
sources of consumer credit. The inability of a borrower to finance an automobile
purchase by means of traditional credit sources generally is due to various
factors, including the borrower's past credit experience and the absence or
limited extent of the borrower's credit history. Consequently, the contracts
acquired by the Company generally bear a higher rate of interest than finance
contracts of borrowers with favorable credit profiles, but also involve a higher
probability of default, may involve higher delinquency rates and involve greater
servicing costs. The majority of the Company's borrowers are classified as
subprime consumers due to negative credit history, including history of
charge-offs, bankruptcies, repossessions or unpaid judgments. Generally,
subprime consumers are those that do not qualify for financing from traditional
lending sources. The Company's continued profitability depends upon, among other
things, its ability to evaluate the creditworthiness of customers, to prevent
defaults through proactive collection efforts and to minimize losses following
defaults with proceeds from the sale of repossessed collateral and with
insurance proceeds. Because of the Company's limited operating history, its
finance contract portfolio is somewhat unseasoned. Accordingly, delinquency and
loss rates in the portfolio may not fully reflect the rates that may apply when
the average holding period for finance contracts in the portfolio is longer.
Increases in delinquency and net charge-off rates in the portfolio could have a
material adverse effect on the Company's operations and profitability, and its
ability to obtain credit or securitize its finance contracts. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business -- Borrower Characteristics,' ' -- Contract Acquisition Process,'
' -- Funding/Securitization of Finance Contracts' and ' -- Contract Servicing
and Collection.'
The Company's servicing income also can be adversely affected by
prepayments or defaults on contracts in the servicing portfolio. The Company's
servicing revenue is based on the number of outstanding contracts. If contracts
are prepaid or charged-off, the Company's servicing revenue will decline to the
extent of such prepaid or charged-off contracts. There can be no assurance as to
what level of prepayment, if any, will occur on the finance contracts.
Prepayments may be influenced by a variety of economic, geographic, social and
other factors. Factors affecting prepayment of motor vehicle finance contracts
include borrowers' job transfers, unemployment, casualty, trade-ins, changes in
available interest rates, net equity in the motor vehicles and servicing
decisions.
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE RETAINED CASH FLOWS
The Company is entitled to receive servicing fee income only while it acts
as collection agent for securitized contracts. Any loss of these collection fees
could have an adverse effect on the Company's results of operations and
financial condition. The Company's right to act as collection agent under the
servicing agreements and as administrator under the trust agreements, and
accordingly to receive collection fees, can be terminated by the trustee upon
the occurrence of certain events of administrator termination (as defined in the
servicing agreements and the trust agreements). See 'Business --
Funding/Securitization of Finance Contracts.'
Under the terms of each of the trust agreements, upon the occurrence of
certain amortization events, the Company's rights to receive payments of its
collection fees and payments in respect of its retained interest in the
securitization excess spread cash flows would be suspended unless and until all
payments of principal and interest due on the investor certificates are made.
Such amortization events include (i) the occurrence of any event of
administrator termination referred to in the immediately preceding paragraph or
(ii) the institution of certain bankruptcy or liquidation proceedings against
any of the securitization subsidiaries of the Company.
Upon the occurrence of certain trigger events under the trust agreements,
the amount required to be retained in the cash reserve accounts is increased
such that future residual cash flows would be retained in such accounts rather
than paid to the Company. Such cash reserve trigger events include: (i)
increases in the net loss ratio and delinquency ratios above certain levels for
each pool of securitized finance contracts; or (ii) the occurrence of an event
of administrator termination resulting from a bankruptcy event of the Company.
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In addition to the foregoing, the trust agreement provides that, upon the
occurrence of any amortization event, a greater portion of the excess spread
cash flows available for funding the cash reserve account be directed to such
account than would be required in the absence of an amortization event, and that
payment to the Company of its retained interest in such excess spread cash flows
be withheld until payments of principal and interest then due the holders of the
investor certificates are paid in full. See 'Business -- Funding/Securitization
of Finance Contracts.'
The Company's loss of rights to collection fees under the trust agreements
or the occurrence of a trigger event that limited release of future residual
cash flows from the pooled contracts and cash reserve accounts could have an
adverse effect on the Company's results of operations and financial condition.
VARIABLE QUARTERLY EARNINGS
The Company's revenues and income have fluctuated in the past and may
fluctuate in the future. Several factors affecting the Company's business can
cause significant variations in its quarterly results of operations. In
particular, variations in the volume of the Company's contract acquisitions, the
interest rate spreads between the Company's cost of funds and the average
interest rate of purchased contracts, the certificate rate for securitizations,
and the timing and size of securitizations can result in significant increases
or decreases in the Company's revenues from quarter to quarter. Any significant
decrease in the Company's quarterly revenues could have a material adverse
effect on the Company's results of operations and its financial condition. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
In addition, income in any quarterly period may be affected by the
revaluation of excess servicing receivables, which are valued at the present
value of the expected future excess spread cash flows using the same discount
rate as was appropriate at the time of securitization. If actual prepayment or
default rates on securitized finance contracts exceed those assumed in the
Company's calculation of the gain from securitization transactions, the Company
could be required to record a charge to earnings. As a result of these factors,
the Company's operating results may vary from quarter to quarter, and the
results of operations for any particular quarter are not necessarily indicative
of results that may be expected for any subsequent quarter or related fiscal
year. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and Note 1 to Notes to Consolidated Financial Statements.
COMPETITION
The market in which the Company operates is highly competitive and
fragmented, consisting of many national, regional and local competitors, and is
characterized by relative ease of entry and the recent arrival of a number of
new competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these competitors are substantially
larger and better capitalized than the Company and may have other competitive
advantages over the Company. Competition by existing and future competitors
would result in competitive pressures, including reductions in the Company's
finance contract acquisitions or reduced interest spreads, that would materially
adversely affect the Company's profitability. Further, as the Company seeks to
increase its market penetration, its success will depend, in part, on its
ability to gain market share from established competitors. See
'Business -- Competition.'
RELATIONSHIPS WITH DEALERS
The Company's business depends in large part upon its ability to maintain
and service its relationships with automobile dealers. There can be no assurance
the Company will be successful in maintaining such relationships or increasing
the number of dealers with which it does business or that its existing dealer
base will continue to generate a volume of finance contracts comparable to the
volume historically generated by such dealers. For the period from inception
through June 30, 1996 a group of six dealerships with substantial common
ownership (including Charlie Thomas Ford, Inc. of
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Houston, Texas) accounted for 14.8% (17.5% for the first six months of 1996) of
the finance contracts acquired by the Company during the period, and Charlie
Thomas Ford accounted for 11.2% (14.0% for the first six months of 1996) of the
finance contracts acquired by the Company. See 'Business -- Dealer Network.'
INTEREST RATE RISK
The Company's profitability is dependent upon the difference, or 'spread,'
between the effective rate of interest received by the Company on the finance
contracts it acquires and the interest rates payable either under its warehouse
credit facilities or on securities issued in securitizations. Several factors
affect the Company's ability to manage interest rate risk. First, finance
contracts are purchased at fixed rates, while amounts borrowed under certain of
the Company's credit facilities bear interest at variable rates that are subject
to frequent adjustment to reflect prevailing rates for short-term borrowings.
Second, the interest rate demanded by investors in securitizations is a function
of prevailing market rates for comparable transactions and of the general
interest rate environment. Because the finance contracts purchased by the
Company have fixed rates, the Company bears the risk of spreads narrowing
because of interest rate increases during the period from the date the finance
contracts are purchased until the closing of its securitization of such finance
contracts. Narrowing spreads would adversely affect the net interest income
earned by the Company while finance contracts are held for sale. In addition,
increases in interest rates prior to the securitization or sale of finance
contracts may reduce the gain realized by the Company. The Company does not
currently hedge its interest rate exposure. While the Company may consider
hedging strategies to attempt to limit such exposure in the future, there can be
no assurance that any such strategy, if adopted, will be successful. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
GEOGRAPHIC CONCENTRATION AND EXPANSION
For the period from inception in August 1994 through June 30, 1996,
approximately 91.0% of the Company's finance contracts, as a percentage of the
aggregate nominal principal balance of such finance contracts, had been
originated in the State of Texas. Such geographic concentration could have an
adverse effect on the Company should negative economic and other factors occur
in Texas that would cause the finance contracts to experience delinquencies and
losses in excess of those experienced historically. It is the Company's current
intention to expand the number and proportion of finance contracts acquired from
dealers in states other than Texas. Such geographic expansion may entail greater
risks as the Company does business in areas and with dealers with which it is
less familiar than in Texas. Such expansion also entails risks associated with
the adequate retention and training of sufficient personnel and the need for
sufficient financing sources. See 'Business -- Growth and Business Strategy.'
REGULATION
The Company's business is subject to numerous federal and state consumer
laws and regulations, which, among other things: (i) require the Company to
obtain and maintain certain licenses and qualifications; (ii) limit the interest
rates, fees and other charges the Company is allowed to charge; (iii) limit or
prescribe certain other terms of the Company's contracts; (iv) require the
Company to provide specified disclosure; and (v) define the Company's rights to
collect on finance contracts and to repossess and sell collateral. A change in
existing laws or regulations, or in the creation or enforcement thereof, or the
promulgation of any additional laws or regulations could have a material adverse
effect on the Company's business. See 'Business -- Regulation.'
DEPENDENCE ON KEY EXECUTIVES
The success of the Company's operations is dependent upon the experience
and ability of William O. Winsauer, the Chairman of the Board and Chief
Executive Officer, and Adrian Katz, the Vice Chairman of the Board and Chief
Operating Officer. The loss of the services of Messrs. Winsauer or Katz could
have an adverse effect on the Company's business. In addition, if the loss of
either Mr.
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<PAGE>
Winsauer or Mr. Katz constituted a 'change in control,' it could result in an
amortization event under the trust agreements relating to the Company's
securitizations, reducing future cash flows from securitizations or an event of
funding termination under its Providian Facility (as defined herein). The
Company does not maintain key man life insurance on any of its officers,
directors or employees at the present time. See
'Business -- Funding/Securitization of Finance Contracts' and 'Management --
Employment Agreements.'
CONTROL BY CERTAIN SHAREHOLDERS
Upon completion of the Offering, William O. Winsauer will beneficially own
an aggregate of approximately 56.59% of the outstanding shares of Common Stock
(55.30% if the Underwriters' over-allotment option is exercised in full).
Accordingly, Mr. Winsauer would have majority control of the Company, with the
potential ability to elect the Board of Directors and to approve or prevent
certain fundamental corporate transactions (including mergers, consolidations
and sales of all or substantially all of the Company's assets). See 'Certain
Transactions,' 'Principal and Selling Shareholders' and 'Description of Capital
Stock.'
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its Common Stock to date and
currently does not intend to pay dividends in the future. The payment of
dividends, if any, will be contingent upon the Company's financial condition,
results of operations, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors. See 'Dividend Policy.'
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that a regular trading market for
the Common Stock will develop after this Offering or that, if developed, it will
be sustained. The Company has applied for quotation of the Common Stock on
Nasdaq, subject to official notice of issuance. The initial public offering
price of the Common Stock will be determined by negotiations among the Company
and the Representatives (as defined herein) of the Underwriters and may not be
indicative of the price at which the Common Stock will trade after completion of
the Offering. In addition, market prices for securities of many emerging
companies have experienced wide fluctuations not necessarily related to the
operating performance of such companies. See 'Underwriting.'
PREFERRED STOCK
The Board of Directors, without further vote or action by the Company's
shareholders, is authorized to issue shares of Preferred Stock in one or more
series and to fix the terms and provisions of each series, including dividend
rights and preferences over dividends on the Common Stock, conversion rights,
voting rights (in addition to those provided by law) which may be senior to the
voting rights of the Common Stock, redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, including preferences over
the Common Stock. Under certain circumstances, the issuance of a series of
Preferred Stock could have the effect of delaying, deferring or preventing a
change of control of the Company and could adversely affect the rights of the
holders of the Common Stock. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
See 'Description of Capital Stock.'
DILUTION
Purchasers of Common Stock pursuant to the Offering will experience
immediate and substantial dilution. The purchase price of the Common Stock
offered hereby substantially exceeds the net tangible book value per share of
Common Stock at June 30, 1996 (as adjusted to give effect to the Offering) of
$0.80 per share, resulting in immediate dilution to new investors in the amount
of $8.42 per share. See 'Dilution.'
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 6,456,311 shares
of Common Stock outstanding (6,606,311 shares if the Underwriters'
over-allotment option is exercised in full). Of such shares, the shares sold in
the Offering (other than shares which may be purchased by 'affiliates' of the
Company) will be freely tradeable without restriction or further registration
under the Securities Act. The 5,456,311 remaining shares of Common Stock are
'restricted securities,' as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144 and 144A
thereunder. Approximately 64,500 shares of Common Stock will be eligible for
sale pursuant to Rule 144 immediately after the Offering, subject to compliance
with such Rule and the contractual provisions described below. The Company and
all holders of Common Stock prior to the Offering have agreed with the
Underwriters not to, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of any securities of the Company or any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Common Stock prior to the expiration of 180 days from the date of this
Prospectus without the prior written consent of the Representative. No
predictions can be made as to the effect, if any, that market sales of shares of
existing shareholders or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
The prevailing market price of the Common Stock after the Offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing shareholders or the perception that such sales could occur. See
'Certain Transactions,' 'Principal and Selling Shareholders,' 'Shares Eligible
for Future Sale' and 'Underwriting.'
RECENTLY FORMED REPRESENTATIVE
The Representative is recently formed and does not have extensive
experience as an underwriter of securities. The Representative, which was formed
in March 1995, has acted as the managing underwriter for six public offerings
and has been involved in over 30 underwriting syndicates. No assurance can be
given that the Representative will be able to participate as a market maker for
the Common Stock, or that any other broker dealer will do so. See
'Underwriting.'
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USE OF PROCEEDS
The aggregate net proceeds from the sale of the Common Stock being offered
by the Company in the Offering (after deducting underwriting discount and
estimated offering expenses) will be approximately $5.6 million (approximately
$7.0 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to apply the net proceeds from the sale of the Common
Stock offered hereby primarily toward the acquisition of finance contracts. In
addition, net proceeds will be used (i) to prepay subordinated indebtedness of
$300,000, which bears interest at the rate of 10.0% per annum and matures in
March 1997, (ii) to repay advances outstanding under the Revolving Credit
Facilities, which currently bear interest at a blended rate of 8.1% per annum
and mature within 120 days of incurrence, (iii) to invest in short-term
investment grade securities and (iv) for general corporate and working capital
purposes.
The Selling Shareholders have agreed to use the net proceeds of
approximately $2.3 million to be received by them from the Offering for the
repayment in full of the outstanding balance, and accrued interest of the
Working Capital Facility, which amounts to $1,910,000 and was guaranteed by the
Company through September 26, 1996 (at which date the Company was released from
its guarantee), and for the repayment of certain other indebtedness to the
Company. Such other indebtedness totalled $436,034 as of June 30, 1996. The
Selling Shareholders have submitted undertaking letters to the Company
obligating them to pay such amounts. See 'Certain Transactions' and Note 12 to
Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. The
Company's current policy is to retain earnings to provide funds for the
operation and expansion of its business and for the repayment of indebtedness.
Any determination in the future to pay dividends will depend on the Company's
financial condition, capital requirements, results of operations, contractual
limitations and other factors deemed relevant by the Board of Directors.
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DILUTION
At June 30, 1996, the Company had an aggregate of 5,687,500 shares of
Common Stock outstanding with a net tangible book value of $4,584,100 or $0.80
per share. Net tangible book value per share represents the amount of total
tangible assets less total liabilities of the Company divided by the number of
shares of Common Stock outstanding. Without taking into account any changes in
such net tangible book value after June 30, 1996, other than to give effect to
the Offering (after deducting underwriting discount and estimated offering
expenses) and the receipt by the Company of the net proceeds to it, the net
tangible book value at June 30, 1996 would have been $10,159,100 or $1.58 per
share. This represents an immediate increase in net tangible book value of $0.78
per share to existing shareholders and an immediate dilution in net tangible
book value of $8.42 per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................................... $10.00
Net tangible book value per share before the Offering(1)............................ $0.80
Increase per share attributable to new investors.................................... 0.78
-----
Net tangible book value per share after the Offering..................................... 1.58
------
Dilution per share to new investors...................................................... 8.42
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the existing shareholders and new investors in the
Offering with respect to: (i) the number of shares of Common Stock purchased
from the Company; (ii) the total consideration paid to the Company; and (iii)
the average price per share paid by existing shareholders and by the new
investors purchasing shares in the Offering (before deducting underwriting
discount and estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)......................... 5,687,500 88.35% $ 2,913,603 27.98% $ 0.51
New investors.................................... 750,000 11.65 7,500,000 72.02 10.00
--------- ------- ----------- -------
Total....................................... 6,437,500 100.0% $10,413,603 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ------------
(1) Net tangible book value gives effect to the exercise of all dilutive common
stock equivalents, calculated under the treasury stock method.
(2) The information with respect to net tangible book value per share in the
table set forth above does not include (i) 300,000 shares issuable upon the
exercise of stock options to be outstanding as of the Offering exercisable
at the initial public offering price of $10.00, (ii) 18,811 shares issuable
upon the exercise of an outstanding warrant with an exercise price of $0.53
per share, or (iii) 100,000 shares which may be issued and sold upon the
exercise in full of the Representative's Warrants. As of June 30, 1996,
515,000 shares of Common Stock were reserved for issuance under the
Company's Option Plan (as defined herein). See 'Management -- Option Plan'
and 'Description of Capital Stock -- Warrants.' To the extent such options
and warrants are exercised, there will be further dilution to the new
investors.
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CAPITALIZATION
The following table sets forth information regarding the short-term debt
and capitalization of the Company as of June 30, 1996 (i) on an actual basis and
(ii) on an as adjusted basis to give effect to the sale of 750,000 shares of
Common Stock offered by the Company (after deducting the underwriting discount
and estimated offering expenses) and the application of the estimated net
proceeds therefrom. See 'Use of Proceeds.'
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term Debt:
Revolving credit agreements......................................................... $ 237 $ 0
Subordinated debt................................................................... 300 0
------- -----------
Total short-term debt............................................................... $ 537 $ 0
------- -----------
------- -----------
Long-term Debt -- Notes payable.......................................................... $ 6,248 $ 6,248
------- -----------
Shareholders' Equity:
Common Stock, no par value, 25,000,000 shares authorized; 5,687,500 shares issued
and outstanding, actual; and 6,437,500 shares issued and outstanding, as
adjusted(1)........................................................................ $ 1 $ 1
Additional paid-in capital.......................................................... 2,912 8,487
Retained earnings................................................................... 2,205 2,205
Deferred compensation............................................................... (37) (37)
Loans to shareholders............................................................... (436) 0
------- -----------
Total shareholders' equity..................................................... 4,645 10,656
------- -----------
Total short-term debt and capitalization....................................... $11,430 $16,904
------- -----------
------- -----------
</TABLE>
- ------------
(1) Excludes (i) 515,000 shares of Common Stock reserved for issuance under the
Option Plan, (ii) 18,811 shares of Common Stock issuable upon the exercise
of a warrant granted in connection with the issuance of subordinated debt,
and (iii) 100,000 shares which may be issued and sold upon the exercise in
full of the Representative's Warrants. See 'Description of Capital
Stock -- Warrants,' and 'Management -- Option Plan.'
18
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries for the periods and at the dates indicated. The
selected income statement and balance sheet data for or at the end of each of
the full fiscal years presented below were derived from the financial statements
of the Company which were audited by Coopers & Lybrand L.L.P. independent
auditors, as indicated in their report thereon appearing elsewhere in this
Prospectus, and are qualified by reference to such consolidated financial
statements. The financial data as of and for the six months ended June 30, 1995
and June 30, 1996 have been derived from the Company's unaudited interim
financial statements, prepared in conformity with generally accepted accounting
principles, and include all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. The operating data and selected portfolio data are derived from the
Company's accounting records. Results of operations for the six months ended
June 30, 1996 are not necessarily indicative of results to be expected for the
fiscal year ended December 31, 1996. The data presented below should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------------------------------
1994(1) 1995 1995 1996
------ ------- ------------------ ------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income......................................... $ 19 $ 781 $ 417 $ 333
Servicing fee income........................................ 0 0 9 277
Gain on sale of finance contracts........................... 0 4,086 134 5,744
------ ------- ---------- ----------
Total revenues......................................... 19 4,867 560 6,354
------ ------- ---------- ----------
Provision for credit losses................................. 45 49 205 64
Salaries and benefits....................................... 226 1,320 380 1,846
General and administrative.................................. 245 1,463 582 884
Other operating expenses.................................... 48 963 324 564
------ ------- ---------- ----------
Total expenses......................................... 564 3,795 1,491 3,358
------ ------- ---------- ----------
Net income (loss) before taxes and extraordinary loss....... (545) 1,072 (931) 2,996
Provision for income taxes.................................. 0 199 0 1,020
Extraordinary loss net of tax effect........................ -- -- -- 100
------ ------- ---------- ----------
Net income (loss)........................................... (545) 873 (931) 1,876
------ ------- ---------- ----------
------ ------- ---------- ----------
Net income (loss) per share................................. $(0.11) $ 0.17 $ (0.18) $ 0.33
Weighted average shares outstanding......................... 5,118,753 5,190,159 5,118,753 5,698,367
Pro forma net income(2)..................................... $ -- $ 953 $-- $ 1,894
Pro forma net income per share(2)........................... -- 0.17 -- 0.32
PORTFOLIO DATA:
Number of finance contracts acquired........................ 202 2,659 1,042 2,856
Principal balance of finance contracts acquired............. $2,454 $31,200 $ 12,207 $ 33,358
Principal balance of finance contracts securitized.......... 0 26,261 0 34,396
Average initial finance contract principal balance.......... $ 12.2 $ 12.0 $ 12.0 $ 11.9
Weighted average initial contractual term (months).......... 54.3 53.3 53.0 52.7
Weighted average APR of finance contracts(3)................ 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition discount(3)... 8.6% 8.8% 8.7% 8.6%
Number of finance contracts outstanding (end of
period)(3)................................................ 197 2,774 1,219 5,485
Principal balance of finance contracts (end of period)(3)... $2,450 $31,311 $ 14,125 $ 59,392
</TABLE>
(table continued on next page)
19
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------------------------------
1994(1) 1995 1995 1996
------ ------- ------------------ ------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Number of enrolled dealers (end of period).................. 50 280 169 492
Number of active states (end of period)..................... 2 7 5 12
Total expenses as a percentage of total principal balance of
finance contracts acquired in period...................... 23.0% 12.2% 12.2% 10.1%
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a percentage of principal
balance of finance contract portfolio (end of
period)(3)................................................ 0.30% 2.30% 1.39% 2.48%
Net charge-offs as a percentage of average finance contract
balances(3)(4)(5)(6)...................................... 0.00% 0.66% 0.39% 1.45%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- JUNE 30,
1994 1995 1996
------------------ ------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 0 $ 93 $ 1,823
Cash held in escrow................ 0 1,323 1,667
Finance contracts held for sale,
net.............................. 2,361 3,355 546
Excess servicing receivable........ 0 847 1,575
Total assets....................... 2,500 11,065 16,292
Notes payable...................... 0 2,675 6,248
Repurchase agreement............... 0 1,061 0
Revolving credit agreement......... 2,055 1,150 237
Subordinated debt.................. 0 0 300
------- ---------- ---------
Total debt.................... 2,055 4,886 6,785
Shareholders' equity............... (109) 3,026 4,645
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Pro forma net income and pro forma net income per share are based on the
number of shares of common stock assumed to be outstanding after the
issuance in this offering of 274,239 and 208,311 shares at December 31, 1995
and June 30, 1996, respectively (based on the number of shares to be sold at
the initial public offering price necessary to raise net proceeds to pay the
offering expenses and to repay certain indebtedness of the Company, as
described in 'Use of Proceeds'), and the application of such proceeds to
repay such indebtedness in the amount outstanding at the end of the
respective periods.
(3) Includes the Company's entire finance contract portfolio of contracts held
and contracts securitized.
(4) Averages are based on daily balances.
(5) Six-Month figures are annualized.
(6) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
loss rates.
20
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding 'Selected
Consolidated Financial and Operating Data' and the Company's Consolidated
Financial Statements and Notes thereto and the other financial data included
herein. The financial information set forth below has been rounded in order to
simplify its presentation. However, the ratios and percentages set forth below
are calculated using the detailed financial information contained in the
Financial Statements and the Notes thereto, and the financial data included
elsewhere in this Prospectus. The unaudited results for the six months ended
June 30, 1996 are not necessarily indicative of results to be expected for the
entire fiscal year ended December 31, 1996.
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by automobile dealers in
connection with the sale of used and new vehicles to subprime consumers. The
Company has experienced significant growth in its finance contract portfolio
since it commenced operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components: net
interest income, gain on sale of finance contracts and servicing and collection
fees.
Net Interest Income. Net interest income consists of the sum of two
components: (i) the difference between interest income earned on finance
contracts held for sale and interest expense incurred by the Company pursuant to
borrowings under its warehouse and other credit facilities; and (ii) the
accretion of finance contract acquisition discounts. Other factors influencing
net interest income during a given fiscal period include (a) the annual
percentage rate of the finance contracts acquired, (b) the aggregate principal
balance of finance contracts acquired and funded through the Company's warehouse
and other credit facilities prior to securitization, (c) the length of time such
contracts are funded by the warehouse and other credit facilities prior to
securitization and (d) the average cost of funds under the warehouse and other
credit facilities. Finance contract acquisition growth has had a significant
impact on the amount of net interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization, the
Company recognizes a gain on sale of finance contracts equal to the present
value of future excess spread cash flows from the securitization trust, and the
difference between the net proceeds from the securitization and the net carrying
cost (including the cost of VSI Policy premiums) to the Company of the finance
contracts sold. The Class B Certificates and the excess servicing receivable are
determined based on the estimated present value of excess spread cash flows from
a securitization trust. Excess spread cash flows represent the difference
between the weighted average contract rate earned and the rate paid on Class A
Certificates issued to third party investors in the securitization, less
servicing fees and other costs, over the life of the securitization. Excess
spread cash flows are computed by taking into account certain assumptions
regarding prepayments, defaults, proceeds from disposal of repossessed assets,
and servicing and other costs. The Class B Certificates and excess servicing
receivable are determined by discounting the excess spread cash flows at a rate
based on assumptions that market participants would use for similar financial
instruments subject to prepayment, default, collateral value and interest rate
risks. The Class B Certificates are then formed by carving out 80% of the
discounted excess spread cash flows. The remaining 20% of the discounted excess
spread cash flows represent excess servicing receivable. All excess spread cash
flows are paid by the securitization Trustee to the Class B Certificateholders
until such time as all accrued interest at 15% together with principal have been
paid in full. Subsequently, all remaining excess spread cash flows are paid to
the Company and are referred to as the 'Transferor's Interest.' The discounted
Transferor's Interest is reported in the balance sheets as excess servicing
receivable. In each securitization, all of the Class B Certificates and
Transferor's Interest are retained by the Company. The Class B Certificates are
used by the Company as collateral on its non-recourse term loans entered into
with investors. Each quarter, the Company performs an impairment review of the
excess servicing receivable by calculating the net present value of the expected
future excess spread cash flows to the Company from the securitization trust
utilizing the same
21
<PAGE>
<PAGE>
discount rate used to record the initial excess servicing receivable. To the
extent that market and economic changes occur which adversely impact the
assumptions utilized in determining the excess servicing receivable, the Company
would record a charge against servicing fee income and write down the asset
accordingly. Impairment is determined on a disaggregated basis consistent with
the risk characteristics of the underlying finance contracts, consisting
principally of origination date and originating dealership, as well as the
performance of the pool to date. There were no adjustments required as a result
of impairment reviews during any of the periods presented in the financial
statements. Should the Company be unable to securitize finance contracts in the
form of a sale in a financial reporting period, the Company would likely incur a
significant decline in total revenues and net income or report a loss for such
period. To date, the Company's securitizations have been characterized as debt
for tax purposes. Since the Company records a provision for income taxes on
securitizations, alternatively characterizing securitizations as sales for tax
purposes would have no effect on net income, although the timing of tax payments
by the Company would be accelerated.
Gain on sale of finance contracts was $3,951,706, $2,749,612 and $2,972,804
for each of the securitizations occurring in December 1995, March 1996 and June
1996 respectively. This represents approximately 15.05%, 16.60% and 16.67% of
the outstanding balances of the finance contracts at each of the respective
securitization dates. Gain on sale can be broken into three major components:
the amount by which the proceeds from the sale of Class A Certificates exceeds
the Company's cost basis in the contracts, costs of sale (primarily placement,
rating agent, and legal and accounting fees), and discounted excess spread cash
flows (the Class B Certificates and Transferor's Interests).
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 98.0% of the value of the Class A Certificates. This
portion of recognized gain on sale will vary based on the Company's cost of
insurance covering the finance contracts and discount obtained upon acquisition
of the finance contracts.
Additionally, costs of sale reduce the total gain recognized. As the
Company's securitization program matures, placement fees and other costs
associated with the sale should shrink as a percentage of the size of the
securitization. For example, costs of sale for the March transaction were
$280,000 (or 1.7%), while costs for the June transaction were about $208,000 (or
1.2%).
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the Class A
Certificates and the age of the finance contracts in the pool, as the excess
spread cashflow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts at approximately an 8.5% discount.
The gain on sale of finance contracts is affected by the aggregate
principal balance of contracts securitized and the gross interest spread on
those contracts. The following table illustrates the gross interest spread for
each of the Company's securitizations:
<TABLE>
<CAPTION>
REMAINING WEIGHTED
BALANCE AT AVERAGE
ORIGINAL JUNE 30, CONTRACT CERTIFICATE GROSS
SECURITIZATION BALANCE(1) 1996 RATE RATE RATINGS(2) SPREAD(3)
- ----------------------------------------- ---------- ----------- -------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A........................... $ 26,261 $26,261(4) 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A........................... 16,563 16,563(4) 19.7 7.15 A/A3 12.5
AutoBond Receivables Trust 1996-B........ 17,833 17,833(4) 19.7 7.73 A/A3 12.0
---------- -----------
Total............................... $ 60,657 $60,657
---------- -----------
---------- -----------
</TABLE>
(footnotes on next page)
22
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Refers only to balances on Class A investor certificates.
(2) Indicates ratings by Fitch Investors Service, L.P. and Moody's Investors
Service, Inc., respectively.
(3) Difference between weighted average contract rate and senior Class A
Certificate rate.
(4) Before expiration of the revolving period for each trust.
Servicing Fee Income. The Company earns substantially all of its servicing
fee income on the contracts it services on behalf of securitization trusts.
Servicing fee income consists of: (i) contractual servicing fees received
through securitizations, equal to $7.00 per month per contract included in each
trust (excluding amounts paid to third-party servicers by the trust); (ii)
Transferor's Interest, reduced by the amortization of the excess servicing
receivable; and (iii) fee income earned as servicer for such items as late
charges and documentation fees, which are earned whether or not a securitization
has occurred.
Servicing fee income, excess spread cash flows and the value of the excess
servicing receivable may be affected by changes in the levels of prepayments,
defaults, delinquencies, recoveries and interest rates from those assumed by the
Company at the time of securitization. To the extent the assumptions used
materially differ from actual results, the amount of cash received by the
Company over the remaining life of the securitization could be significantly
affected, and the Company would be required to take a charge against earnings,
which could have a material adverse effect on the Company's financial condition
and operating results. To date, no such charge has been required. See 'Risk
Factors -- Defaults on Contracts; Prepayments' and ' -- Loss of Servicing Rights
and Suspension of Future Retained Cash Flows.'
EXPENSE ALLOCATIONS
The Company has shared certain general and administrative expenses with
AutoBond, Inc. ('ABI'), a corporation wholly-owned by William Winsauer.
Historically, each entity's expenses have been allocated based on the estimated
utilization of resources, including employees, office space, equipment rentals
and other miscellaneous expenses. The office, equipment and furniture leases at
the Company's headquarters are in ABI's name, and accordingly, approximately 75%
of ABI's lease expense for the year ended December 31, 1995 was allocated to the
Company. As of July 1996, such leases were assigned to the Company. As of
January 1, 1996, the Company has been and will be compensated for services
rendered and reimbursed for expenses incurred on behalf of ABI, pursuant to a
management agreement. See 'Certain Transactions' and Note 12 to Notes to
Consolidated Financial Statements. ABI has no material current operations other
than to manage its investment in, and its shareholder's investments in,
securitizations unrelated to the Company. It is anticipated that ABI will wind
down as the outstanding principal of such investments is retired.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD FROM JUNE 30,
INCEPTION THROUGH YEAR ENDED -------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
----------------- ----------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of finance contracts acquired................ 202 2,659 1,042 2,856
Principal balance of finance contracts.............. $ 2,464 $31,915 $12,468 $33,902
Number of active dealerships(1)..................... 50 222 119 252
Number of enrolled dealerships...................... 50 280 169 492
</TABLE>
- ------------
(1) Dealers who have sold at least one finance contract to the Company during
the period.
23
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
Period-to-period comparisons of operating results may not be meaningful,
and results of operations from prior periods may not be indicative of future
results. Because results of operations for 1994 are based on a five-month period
from the inception of the Company's operations through December 31, 1994, a
comparison of those results to results of operations for fiscal 1995 may not be
meaningful. Additionally, comparisons of the six-month periods ended June 30,
1995 and 1996 may not be meaningful as there were no securitization
transactions, and only a small whole-loan sale transaction during the first half
of 1995. The following discussion and analysis should be read in conjunction
with 'Selected Consolidated Financial and Operating Data' and the Company's
Consolidated Financial Statements and the Notes thereto.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total Revenues
Total revenues increased $5.8 million to $6.4 million for the six months
ended June 30, 1996 from $560,000 for the comparable period ended June 30, 1995.
Net Interest Income. Net interest income decreased $84,597 to $332,831 for
the six months ended June 30, 1996 from $417,428 for the six months ended June
30, 1995. The decrease in net interest income was primarily due to an increase
in overall net borrowing costs and fees associated with Revolving Credit
Facilities. The average balance of finance contracts held for sale increased
$1.5 million to $8.9 million for the six months ended June 30, 1996, from $7.4
million for the six month period ended June 30, 1995. The average APR of
outstanding finance contracts was 19.7% at June 30, 1996, compared with 19.2% at
June 30, 1995.
Gain on Sale of Finance Contracts. For the six months ended June 30, 1996,
gain on sale of finance contracts amounted to $5.7 million. For the six months
ended June 30, 1996, the Company completed two securitizations aggregating
approximately $34.4 million in principal amount of finance contracts and the
gain on sale of finance contracts accounted for 90.4% of total revenues. For the
six months ended June 30, 1995, there were no securitization transactions and
only a small whole-loan sale.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are transferred to a securitization trust. In
the six months ended June 30, 1996, servicing fee income was $277,208, of which
$166,020 was collection agent fees and $111,188 arose from excess spread cash
flows net of amortization of the excess servicing receivable. The Company had
completed no securitizations and only a small whole-loan sale as of June 30,
1995 and reported no servicing fee income for such period.
Total Expenses
Total expenses of the Company increased $1.9 million to $3.4 million for
the six months ended June 30, 1996 from $1.5 million for the six months ended
June 30, 1995. Although operating expenses increased during the six months ended
June 30, 1996, the Company's finance contract portfolio grew at a faster rate
than the rate of increase in operating expenses. As a result, total expenses as
a percentage of total principal balance of finance contracts acquired in period
decreased to 10.1% in the six months ended June 30, 1996 from 12.2% in the six
months ended June 30, 1995.
Salaries and Benefits. Salaries and benefits increased $1.5 million to $1.8
million for the six months ended June 30, 1996 from $380,000 for the six months
ended June 30, 1995. This increase was due primarily to an increase in the
number of the Company's employees. Salaries and benefits are expected to
increase due to compensation of the Company's Chief Executive Officer, which the
Company began paying in May 1996. See Note 13 to Notes to Consolidated Financial
Statements.
General and Administrative Expenses. General and administrative expenses
increased $302,459 to $884,348 for the six months ended June 30, 1996 from
$581,889 for the six months ended June 30, 1995. This increase was due primarily
to growth in the Company's operations. General and administrative expenses
consist principally of office, furniture and equipment leases, professional
fees, communications and office supplies, and are expected to increase, upon
completion of the Offering, due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting principally
of servicing fees, credit bureau reports and insurance) increased $240,162 to
$564,237 for the six months ended June 30, 1996
24
<PAGE>
<PAGE>
from $324,075 for the six months ended June 30, 1995. This increase was due to
increased finance contract acquisition volume.
Net Income
In the six months ended June 30, 1996, net income increased to $1.9 million
from a loss of $931,372 for the six months ended June 30, 1995. The increase was
primarily attributable to the two securitization transactions completed in the
first quarter of 1996, while there was no securitization transaction and only
one small whole-loan sale during the first half of 1995, as well as growth in
finance contract acquisitions.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO PERIOD FROM AUGUST 1, 1994
(INCEPTION) THROUGH DECEMBER 31, 1994
Total Revenues
Total revenues increased to $4.9 million for the fiscal year ended December
31, 1995 from $19,001 for the period from inception through December 31, 1994.
Although the Company was incorporated in June 1993, it did not commence
operations until August 1994; thus the period from inception through December
31, 1994 reflects only five months of start-up operations.
Net Interest Income. Net interest income increased $762,093 to $781,094 for
the fiscal year ended December 31, 1995 from $19,001 for the period from
inception through December 31, 1994. The increase in net interest income was
primarily due to an increase in average balance of finance contracts held for
sale. The average daily balance of outstanding finance contracts increased $13.8
million to $14.7 million for the fiscal year ended December 31, 1995 from
$855,640 for the period from inception through December 31, 1994. The average
APR of finance contracts outstanding was 19.3% at December 31, 1995 as compared
to 19.1% at December 31, 1994.
Gain on Sale of Finance Contracts. In the fiscal year ended December 31,
1995, the gain on sale of finance contracts was $4.1 million, or 83.9% of total
revenues, from the securitization of approximately $26.2 million in finance
contracts and the sale of finance contracts to a third party. For the period
from inception through December 31, 1994, there were no securitizations.
Servicing Fee Income. The Company completed its first securitization
transaction on December 29, 1995; therefore prior to 1996 there was no servicing
fee income collected by the Company.
Total Expenses
Total expenses of the Company increased $3.2 million to $3.8 million for
the fiscal year ended December 31, 1995 from $563,606 for the five-month period
ended December 31, 1994. Although operating expenses increased during the year
ended December 31, 1995, the Company's finance contract portfolio grew at a
faster rate than the rate of increase in operating expenses. As a result, total
expenses as a percentage of total principal balance of finance contracts
acquired in period decreased to 12.2% in the year ended December 31, 1995 from
23.0% in the five months ended December 31, 1994.
Provision for Credit Losses. Provision for credit losses increased $3,702
to $48,702 for the fiscal year ended December 31, 1995, from $45,000 for the
period from inception through December 31, 1994. This increase was due primarily
to increased acquisition volume and does not reflect any change in expected
defaults as a percentage of finance contracts purchased.
Salaries and Benefits. Salaries and benefits increased $1.1 million to $1.3
million for the fiscal year ended December 31, 1995 from $225,351 for the
five-month period ended December 31, 1994. This increase was due primarily to an
increase in the number of the Company's employees.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million to $1.5 million for the fiscal year ended December 31,
1995 from $244,974 for the five-month period ended December 31, 1994. This
increase was due primarily to growth in the Company's operations.
25
<PAGE>
<PAGE>
Other Operating Expenses. Other operating expenses increased $914,736 to
$963,017 for the fiscal year ended December 31, 1995, from $48,281 for the
five-month period ended December 31, 1994, due to the increase in finance
contracts acquired.
Net Income
Net income increased to $873,487 for the fiscal year ended December 31,
1995 from a net loss of $544,605 for the period from inception through December
31, 1994. This increase was primarily attributable to the Company's initial
securitization transaction having been completed in December 1995, as well as
growth in finance contract acquisitions.
FINANCIAL CONDITION
Finance Contracts Held for Sale, Net. Finance contracts held for sale, net
of allowance for credit losses, decreased $11.8 million to $545,681 at June 30,
1996, from $12.3 million at June 30, 1995; and increased $1.0 million to $3.4
million at December 31, 1995, from $2.4 million at December 31, 1994. The number
and principal balance of contracts held for sale are largely dependent upon the
timing and size of the Company's securitizations. The Company plans to
securitize finance contracts on a regular quarterly basis. See Note 1 to the
Notes to Consolidated Financial Statements for a discussion of finance contracts
held for sale and allowance for credit losses.
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior trust certificates.
Additionally, depending on the structure of the securitization, a portion of the
future excess spread cash flows from the trust is required to be deposited in
the cash reserve account to increase the initial deposit to a specified level.
Amounts on deposit in cash reserve accounts are also reflected as advances to
the relevant trust under the item 'Cash flows from investing activities' in the
Company's consolidated statements of cash flows. The initial cash reserve
deposits for the December 1995, March 1996 and June 1996 securitizations were
$525,220, $331,267 and $356,658, respectively, equivalent to 2% of the initial
principal amount of the senior trust certificates. A portion of excess spread
cash flows will increase such reserves until they reach 6%.
Excess Servicing Receivable. The following table provides historical data
regarding the excess servicing receivable:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION YEAR ENDED JUNE 30,
THROUGH DECEMBER 31, DECEMBER 31, ------------------------------------------
1994 1995 1995 1996
-------------------- ------------ ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance...................... $0 $ 0 $ 0 $ 847
Additions.............................. 0 895 0 1,262
Amortization........................... 0 (48) 0 (534)
-- ------ -- -------
Ending balance......................... $0 $847 $ 0 $ 1,575
-- ------ -- -------
-- ------ -- -------
</TABLE>
26
<PAGE>
<PAGE>
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the Company's
finance contract portfolio at December 31, 1994 and 1995 and at June 30, 1995
and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------------------
1994 1995 1995 1996
-------------- ---------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal balance of finance contracts
outstanding........................... $2,450 $31,311 $14,125 $59,392
Delinquent finance contracts(1):
31-59 days past due................ 60 2.46% 1,440 4.60% 597 4.23% 3,075 5.18%
60-89 days past due................ 7 0.30 474 1.51 129 0.91 933 1.57
90 days past due and over.......... 0 0.00 246 0.79 68 0.48 532 0.89
------ ---- ------- ----- ------- ---- ------- ----
Total......................... $ 67 2.76% $ 2,160 6.90% $ 794 5.62% $ 4,540 7.64%
------ ---- ------- ----- ------- ---- ------- ----
------ ---- ------- ----- ------- ---- ------- ----
</TABLE>
- ------------
(1) Percentage based on outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or
there are insurance claims filed.
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for all contracts held for
sale. See Notes 1 and 3 to Notes to Consolidated Financial Statements. The
Company reports a provision for credit losses on finance contracts held for
sale. Management evaluates the reasonableness of the assumptions employed by
reviewing credit loss experience, delinquencies, repossession trends, the size
of the finance contract portfolio and general economic conditions and trends. If
necessary, assumptions will be changed in the future to reflect historical
experience to the extent it deviates materially from that which was assumed.
Since inception, the Company's assumptions have been consistent and are adequate
based upon actual experience. Accordingly, no additional charges to earnings to
date have been necessary to accommodate more adverse experience than
anticipated.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency (as required by the VSI Policy), the Company's Collections
Department will initiate the repossession of the financed vehicle. Bonded,
insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, notice to the borrower of the Company's
intention to sell the repossessed vehicle is required, whereupon the borrower
may exercise certain rights to cure his or her default or redeem the automobile.
Following the expiration of the legally required notice period, the repossessed
vehicle is sold at a wholesale auto auction (or in limited circumstances,
through dealers), usually within 60 days of the repossession. The Company
closely monitors the condition of vehicles set for auction, and procures an
appraisal under the VSI Policy prior to sale. Liquidation proceeds are applied
to the borrower's outstanding obligation under the finance contract and loss
deficiency claims under the VSI Policy and Credit Endorsement are then filed.
The physical damage and loss provisions of the VSI Policy insures each financed
vehicle against losses relating to (i) physical damage to repossessed vehicles,
(ii) failure to file or record necessary instruments or documents, and (iii)
loss or confiscation of the vehicle. Generally the amount of coverage will not
exceed (i) the vehicle's replacement value, (ii) its cash value less salvage
value, (iii) the unpaid Finance Contract balance, (iv) $40,000 per vehicle
($25,000 per occurrence for repossessed vehicles), or (v) the lesser of the
amounts under clauses (i)-(iv) above less other insurance coverage on the
vehicle. The Company also has obtained credit deficiency balance coverage
through the Credit Endorsement of the VSI Policy. See 'Business -- Insurance.'
Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned. Accordingly, delinquency and charge-off rates
in the portfolio may not fully reflect the rates that may apply when the average
holding period for finance contracts in the portfolio is longer. Increases in
the delinquency and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its receivables.
27
<PAGE>
<PAGE>
The following table summarizes the Company's credit loss experience from
inception through June 30, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 1, 1994 (INCEPTION)
THROUGH JUNE 30, 1996
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cumulative initial finance contract principal balances acquired........................ $ 68,218
Gross charge-offs...................................................................... 3,299
Recoveries(1).......................................................................... (2,980)
----------
Net charge-offs(1)..................................................................... $ 319
----------
----------
Gross charge-offs as a percentage of cumulative initial finance contract principal
balances acquired.................................................................... 4.84%
Recoveries as a percentage of gross charge-offs(1)..................................... 90.3%
Net charge-offs as a percentage of cumulative initial finance contract principal
balances acquired(1)................................................................. 0.47%
</TABLE>
- ------------
(1) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
rates. See ' -- Net Loss Per Repossession.' This table is presented for
industry comparison purposes and does not reflect the Company's method of
accounting for charge-offs and recoveries for financial reporting purposes.
REPOSSESSION EXPERIENCE -- STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage delinquency or losses on the basis of a
percentage of the Company's finance contract portfolio, because percentages can
be favorably affected by large balances of recently acquired finance contracts.
Management monitors actual dollar levels of delinquencies and charge-offs and
analyzes the data on a 'static pool' basis.
The following table provides static pool repossession frequency analysis of
the Company's portfolio performance from inception through June 30, 1996. In
this table, all finance contracts have been segregated by quarter of
acquisition. All repossessions have been segregated by the quarter in which the
repossessed contract was originally acquired by the Company. Cumulative
repossessions equals the ratio of repossessions as a percentage of finance
contracts acquired for each segregated quarter. Annualized repossessions equals
an annual equivalent of the cumulative repossession ratio for each segregated
quarter. This table provides information regarding the Company's repossession
experience over time. For example, recently acquired finance contracts
demonstrate very few repossessions because properly underwritten finance
contracts to subprime consumers generally do not default during the initial term
of the contract. After approximately one year of seasoning, frequency of
repossessions on an annualized basis appear to reach a plateau. Based on
industry statistics and the performance experience of the Company's finance
contract portfolio, the Company believes that finance contracts seasoned in
excess of approximately 18 months will start to demonstrate declining
repossession frequency.
<TABLE>
<CAPTION>
REPOSSESSION FREQUENCY
YEAR AND QUARTER OF REPOSSESSIONS BY ------------------------------
ACQUISITION QUARTER ACQUIRED CUMULATIVE(1) ANNUALIZED(2) CONTRACTS ACQUIRED
- -------------------------------------------- ---------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1994
Q3..................................... 1 11.11% 5.56% 9
Q4..................................... 24 12.44 7.11 193
1995
Q1..................................... 69 13.22% 8.81% 522
Q2..................................... 61 11.71 9.37 521
Q3..................................... 49 7.99 7.99 613
Q4..................................... 62 6.18 8.24 1,003
1996
Q1..................................... 20 1.53% 3.06% 1,310
Q2..................................... 3 0.19 0.76 1,550
</TABLE>
(footnotes on next page)
28
<PAGE>
<PAGE>
(footnotes from previous page)
(1) For each quarter, cumulative repossession frequency equals the number of
repossessions divided by contracts acquired.
(2) Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, 24 repossessions divided by
193 contracts acquired, divided by 7 quarters outstanding times four equals
an annualized repossession frequency of 7.11%).
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent to
complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
FROM
AUGUST 1, 1994
(INCEPTION) TO
JUNE 30, 1996
--------------
<S> <C>
Number of finance contracts acquired.............................................................. 5,714
Number of finance vehicles repossessed............................................................ 289
Repossessed units disposed of................................................................ 144
Repossessed units in inventory awaiting disposition.......................................... 145
Cumulative gross charge-offs(1)................................................................... $1,643,679
Costs of repossession(1).......................................................................... 33,861
Proceeds from auction, physical damage insurance and refunds(1)................................... (1,178,170)
--------------
Net loss..................................................................................... 499,370
Deficiency insurance settlement received(1).................................................. (340,247)
--------------
Net charge-offs(1)................................................................................ $ 159,123
--------------
--------------
Net charge-off per unit disposed.................................................................. $1,105
Recoveries as a percentage of cumulative gross charge-offs........................................ 92.4%
</TABLE>
- ------------
(1) Amounts are based on actual liquidation and repossession proceeds (including
insurance proceeds) received on units for which the repossession process had
been completed as of June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily funded its operations and the
growth of its finance contract portfolio through six principal sources of
capital: (i) cash flows from operating activities; (ii) funds provided from
borrowers' payments received under finance contracts held for sale; (iii)
borrowings under various warehouse and working capital facilities; (iv) proceeds
from securitization transactions; (v) cash flows from servicing fees; and (vi)
proceeds from the issuances of subordinated debt and capital contributions of
principal shareholders.
Cash Flows. Significant cash flows related to the Company's operating
activities include the use of cash for purchases of finance contracts, and cash
provided by payments on finance contracts and sales of finance contracts. For
the year ended December 31, 1995 and the six months ended June 30, 1996, $31.2
million and $33.4 million, respectively, was used by the Company to purchase
finance contracts, $2.7 million and $324,957, respectively, was received as
payments on finance contracts, and $27.4 million and $35.8 million,
respectively, was received from sales of finance contracts, primarily through
securitizations. The Company used $525,220 and $687,925 to fund cash reserve
accounts for the securitizations completed in the year ended December 31, 1995
and the six months ended June 30, 1996, respectively.
Significant activities comprising cash flows from financing activities
include net repayments under revolving warehouse credit facilities ($904,355 for
the year ended December 31, 1995 and $913,129 for the six months ended June 30,
1996) and net proceeds from borrowings against excess spread cash flows
29
<PAGE>
<PAGE>
($2.7 million for the year ended December 31, 1995 and $3.6 million for the six
months ended June 30, 1996).
Warehouse Credit Facilities. The Company obtains a substantial portion of
its working capital for the acquisition of finance contracts through warehouse
credit facilities. Under a warehouse facility, the lender generally advances
amounts requested by the borrower on a periodic basis, up to an aggregate
maximum credit limit for the facility, for the acquisition and servicing of
finance contracts or other similar assets. Until proceeds from a securitization
transaction are used to pay down outstanding advances, as principal payments are
received on the finance contracts, the principal amount of the advances may be
paid down incrementally or reinvested in additional finance contracts on a
revolving basis.
At June 30, 1996, the Company had approximately $237,000 outstanding on a
$10.0 million revolving credit facility (the 'Sentry Facility') with Sentry
Financial Corporation ('Sentry'), which expires on July 31, 1998. The proceeds
from borrowings under the Sentry Facility are used to acquire finance contracts,
to pay credit default insurance premiums and to make deposits to a reserve
account with Sentry. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance under the Sentry Facility. The Sentry
Facility also requires the Company to pay up to 0.62% per quarter on the average
unused balance. Interest is payable monthly and accrues at a per annum rate of
prime plus 1.75% (which was approximately 10.25% at June 30, 1996).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company paid interest of $412,000 for the year ended December 31, 1995. In April
1996, the Company agreed to pay a one-time commitment fee of $700,000 to Sentry.
On May 22, 1996, the Company, through its wholly-owned subsidiary AutoBond
Funding Corporation II, entered into a $20.0 million warehouse facility (the
'Providian Facility') with Peoples Security Life Insurance Company (an affiliate
of Providian Capital Management), which expires December 15, 1996. The proceeds
from the borrowings under the Providian Facility are to be used to acquire
finance contracts, to pay credit default insurance premiums and to make deposits
to a reserve account. Interest is payable monthly at a per annum rate of LIBOR
plus 2.60% with a maximum rate of 11.0% and a minimum rate of 7.60%. The
Providian Facility also requires the Company to pay a monthly fee on the average
unused balance at a per annum rate of 0.25%. Borrowings under the Providian
Facility are rated investment-grade by a nationally recognized statistical
rating organization. The Providian Facility contains certain covenants and
representations similar to those in the agreements governing the Company's
existing securitizations.
The Company's wholly-owned subsidiary, AutoBond Funding Corporation I
('AutoBond Funding'), entered into a warehouse credit facility (the 'Nomura
Facility') with Nomura Asset Capital Corporation, pursuant to a credit agreement
dated as of June 16, 1995, with a final maturity date of June 16, 2005. This
facility was terminated at the lender's option, and no new advances were made
after February 6, 1996. The Nomura Facility provided advances to AutoBond
Funding up to a maximum aggregate principal amount of $25.0 million for the
acquisition of finance contracts. On March 29, 1996, the remaining total
outstanding balance of advances of $9.0 million, and interest of $89,000, were
paid by AutoBond Funding. As of June 30, 1996 no advances were outstanding with
respect to the Nomura Facility.
Securitization Program. In its securitization transactions, the Company
sells pools of finance contracts to a special purpose subsidiary, which then
sells the finance contracts to a trust in exchange for cash and certain retained
beneficial interests in future excess spread cash flows. The trust issues two
classes of fixed income investor certificates: 'Class A Certificates,' which are
sold to investors, generally at par with a fixed coupon, and subordinated excess
spread certificates ('Class B Certificates'), representing a senior interest in
excess spread cash flows from the finance contracts, which are typically
retained by the Company's securitization subsidiary and which collateralize
borrowings on a non-recourse basis. The Company also funds a cash reserve
account that provides credit support to the Class A Certificates. The Company's
securitization subsidiaries also retain a 'Transferor's Interest' in the
contracts that is subordinate to the interest of the investor
certificateholders. The retained interests entitle the Company to receive the
future cash flows from the trust after payment to investors,
30
<PAGE>
<PAGE>
absorption of losses, if any, that arise from defaults on the transferred
finance contracts and payment of the other expenses and obligations of the
trust.
Securitization transactions impact the Company's liquidity primarily in two
ways. First, the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. In December 1995, March 1996 and June 1996 the
Company securitized approximately $26.2 million, $16.6 million and $17.8
million, respectively, in nominal principal amount of finance contracts and used
the net proceeds to pay down borrowings under its warehouse credit facilities.
Second, additional working capital is obtained through the Company's practice of
borrowing funds, on a non-recourse basis, collateralized by its interest in
future excess spread cash flows from its securitization trusts. At June 30,
1996, the Company held excess servicing receivables and Class B Certificates
totalling $7.7 million, substantially all of which had been pledged to secure
notes payable of $6.2 million.
Subordinated Debt. The Company issued subordinated debt in the principal
amount of $300,000 to an individual investor pursuant to a subordinated note
dated as of March 12, 1996. The subordinated note has a final maturity date of
March 12, 1997 and provides for payment of interest at a per annum rate of 10.0%
and includes a warrant to purchase 18,811 shares of Common Stock at a price of
$0.53 per share.
Continued availability of funding from the Company's securitization program
cannot be guaranteed. However, borrowings under the Company's warehouse facility
are rated investment grade by a nationally recognized statistical rating
organization. Although the Company currently has only one long-term warehouse
facility, management believes that the investment grade rating should allow the
Company successfully to obtain additional warehouse financing.
The warehouse facility provides the short-term cash needed to accumulate
loan pools for securitizations. Under the Company's practice of borrowing funds,
on a non-recourse basis, collateralized by its interest in future excess spread
cash flows, working capital is thereby provided for the cashflow needs of the
Company. The structure of the excess spread cashflow and related note payable
provides for self-amortization of such debt. The Company's excess spread
cashflow projections indicate that the excess spread cashflows will be
sufficient to retire the related debt within approximately 30 months of its
incurrence. Cash from the excess spread retained by the Company is received
monthly, commencing immediately upon completion of the securitization
transaction. Interest and principal payments are made first to the Class A
Certificateholders, then Trust operating expenses are paid. Excess cashflow,
comprised of interest and fees from the loans reduced by interest on Class A
Certificates and trust operating expenses, is then distributed in two manners.
If the cash reserve account is less than the required amount, 35% of the excess
cashflow is retained in the trust to build the cash reserves until required
levels are met. The remaining 65% of excess spread cashflow is utilized to first
pay down any non-recourse borrowing in full, and then distributed to the Company
for operating purposes. The final cash flows for each transaction should be
released at the expected maturity of 72 months.
The Company has entered into a commitment with a private investment
management company for financing collateralized by the senior excess spread
interests to be created in the Company's next five proposed securitization
transactions. Timing and amount of payments of interest and principal on the
loans will correspond to distributions from the securitization trusts on the
Class B Certificates. The interest rate on such loans will be 15% per annum,
payable monthly. The commitment also provides that the Class B Certificates
evidencing the interests in such senior excess spread cash flows be rated 'BB'
by Fitch.
The Company expects that the proceeds of this Offering, proceeds from
finance contracts, securitization proceeds and borrowings under its warehouse
facilities will be sufficient to fund expansion of the Company's business
through the end of 1997. The Company has no specific plans or arrangements for
additional equity financings, due to the liquidity provided by securitizations
and financings of excess spread cash flows. The Company believes it will be able
to obtain additional funding through an increase in the maximum amount available
for borrowings under its warehouse facilities and through
31
<PAGE>
<PAGE>
securitizations. There can be no assurance, however, that the Company will be
able to obtain such additional funding. See 'Risk Factors -- Liquidity and
Capital Resources.'
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 114, 'Accounting by
Creditors for Impairment of a Loan' ('SFAS 114'), does not apply to the Company
because the Company's finance contract portfolio is comprised of
smaller-balance, homogeneous contracts that are collectively evaluated for
impairment.
Statement of Financial Accounting Standards No. 122, 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') requires that upon sale or
securitization of servicing-retained finance contracts, the Company capitalize
the cost associated with the right to service the finance contracts based on
their relative fair values. Fair value is determined by the Company based on the
present value of estimated net future cash flows related to servicing income.
The cost allocated to the servicing right is amortized in proportion to and over
the period of estimated net future servicing fee income. SFAS No. 122 had no
impact on the Company's financial statements for the six-month period ended June
30, 1996 and would have had no material impact on any of the prior periods
presented as servicing fees approximate cost.
Statement of Financial Accounting Standards No. 123, 'Accounting for
Stock-Based Compensation' ('SFAS 123'), was issued by the Financial Accounting
Standards Board in October 1995. SFAS 123 provides for companies to recognize
compensation expense associated with stock based compensation plans over the
anticipated service period based on the fair value of the award on the date of
grant. SFAS 123 is effective for fiscal years beginning after December 15, 1995.
As allowed under SFAS 123, the Company has elected to adopt SFAS 123's
disclosure-only alternative and will continue to account for stock-based
compensation as prescribed by Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees.'
32
<PAGE>
<PAGE>
BUSINESS
GENERAL
AutoBond Acceptance Corporation (the 'Company') is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ('finance contracts') originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ('subprime consumers'). Subprime consumers generally are borrowers unable
to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit,
employment or residence histories or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts directly from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company also acquires finance contracts from
third parties other than dealers, for which the Company reunderwrites and
collects such finance contracts in accordance with the Company's standard
guidelines. See 'Recent Developments.' The Company securitizes portfolios of
these retail automobile installment contracts to efficiently utilize limited
capital to allow continued growth and to achieve sufficient finance contract
volume to allow profitability. The Company markets a single finance contract
acquisition program to automobile dealers which adheres to consistent
underwriting guidelines involving the purchase of primarily late-model used
vehicles. This enables the Company to securitize those contracts into investment
grade securities with similar terms from one issue to another providing
consistency to investors. Through June 30, 1996, the finance contracts acquired
by the Company had, upon acquisition, an average initial principal balance of
$11,941, a weighted average annual percentage rate ('APR') of 19.5%, a weighted
average finance contract acquisition discount of 8.6% and a weighted average
maturity of 53.0 months.
The Company was formed to capitalize on senior management's experience in
the consumer auto finance industry, including in the securitization of subprime
automobile finance contracts and to fulfill the founders' desire to create an
ongoing business that controlled the dealer origination, underwriting and
collection functions. From 1989 to 1994, the Company's chairman, William O.
Winsauer, structured 20 investment-grade securitizations of subprime consumer
automobile finance contract portfolios, aggregating approximately $190 million
in principal amount, which were originated, underwritten and serviced by third
party intermediaries. The Company has developed the necessary experience and
relationships to underwrite, acquire, securitize and service finance contracts
by assembling a team of experienced professionals. The Company's senior
operating management averages 23 years of experience in the consumer finance
industry, including in the operation of automobile dealerships, underwriting and
acquiring consumer finance contracts, collections, and investment banking and
securitizations. The Company's credit underwriters average 13 years of
experience in the auto finance industry, and its sales representatives and
collections professionals average ten and seven years of industry experience,
respectively. While securitization is a relatively new financing technique, the
Company's executives in that area average ten years of securitization
experience.
The Company commenced operations in August 1994 and through June 30, 1996
had acquired 5,714 finance contracts (91.0% with obligors who resided in Texas)
with an aggregate initial principal balance of $68.2 million, of which $60.7
million have been securitized in three investment-grade transactions. In the six
month period ended June 30, 1996, the Company underwrote and acquired 2,856
finance contracts with an aggregate initial principal balance of $33.9 million.
At June 30, 1996, the Company had 492 dealer relationships in 16 states,
substantially all of which were franchised dealers of major automobile
manufacturers. The Company earned net income of $873,487 for the fiscal year
ended December 31, 1995, compared to a loss of $544,605 for the period from
inception through December 31, 1994. The Company earned net income of $1.9
million for the six months ended June 30, 1996, compared to a loss of $931,372
for the six months ended June 30, 1995. As of June 30, 1996, the Company
conducted notable business in 7 states (defined as those states that each
represent at least 1.0% of the total number of finance contracts acquired during
the first half of 1996). The Company generally finances vehicles ranging in age
from zero to seven years. The average age of financed vehicles
33
<PAGE>
<PAGE>
at the time the related finance contracts were acquired has been approximately
two years. Vehicles older than seven years with below-average mileage or
superior service histories are occasionally approved by the Company for
financing.
GROWTH AND BUSINESS STRATEGY
The Company's growth strategy anticipates the acquisition of an increasing
number of finance contracts. The key elements of this strategy include: (i)
increasing the number of finance contracts acquired per automobile dealer; (ii)
expanding the Company's presence within existing markets; (iii) penetrating new
markets that meet the Company's economic, demographic and business criteria, and
(iv) securitizing portfolios of acquired finance contracts.
To foster its growth and increase profitability, the Company will continue
to pursue a business strategy based on the following principles:
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the subprime auto
finance market because it believes that subprime finance presents greater
opportunities than does prime lending. This greater opportunity stems from
a number of factors, including the relative newness of sub-prime auto
finance, the range of finance contracts that various subprime auto finance
companies provide, the relative lack of competition compared to traditional
automotive financing and the potential returns sustainable from large
interest rate spreads. The Company focuses on late-model used rather than
new vehicles, as management believes the risk of loss is lower on used
vehicles due to lower depreciation rates, while interest rates are
typically higher than on new vehicles. For the period from inception
through June 30, 1996, new vehicles and used vehicles represented 10.7% and
89.3%, respectively, of the finance contract portfolio measured by dollar
value of amounts financed and 8.0% and 92.0%, respectively, as a percentage
of units acquired. In addition, the Company concentrates on acquiring
finance contracts from dealerships franchised by major automobile
manufacturers because they typically offer higher quality vehicles, are
better capitalized than used car dealers, and have good service facilities.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade warehouse
facility and a quarterly securitization program, the Company increases its
liquidity, redeploys its capital and reduces its exposure to interest rate
fluctuations. The Company has also developed the ability to borrow funds on
a non-recourse basis, collateralized by excess spread cash flows from its
securitization trusts. The net effect of the Company's funding and
securitization program is to provide more capital than the Company consumes
in funding loans, resulting in positive cash flow, lower overall costs of
funding, and permitting loan volume to increase without requiring
additional equity capital.
UNIFORM UNDERWRITING CRITERIA -- To manage the risk of delinquency or
defaults associated with subprime consumers, the Company has utilized since
inception a single set of underwriting criteria which are consistently
applied in evaluating credit applications. This evaluation process is
conducted on a centralized basis utilizing experienced personnel. These
uniform underwriting criteria create consistency in the securitized
portfolios of finance contracts that make them more easily analyzed by the
rating agencies and more marketable and permit static pool analysis of loan
defaults to optimally structure securitizations. See 'Management's
Discussion and Analysis -- Repossession Experience -- Static Pool
Analysis.'
CENTRALIZED OPERATING STRUCTURE -- While the Company establishes and
maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's
day-to-day operations are centralized at the Company's offices in Austin,
Texas. This centralized structure allows the Company to closely monitor its
marketing, funding, underwriting and collections operations and eliminates
the expenses associated with full-service branch or regional offices.
EXPERIENCED MANAGEMENT TEAM -- The Company actively recruits and retains
experienced personnel at the executive, supervisory and managerial levels.
The senior operating management of the Company consists of seasoned
automobile finance professionals with an average of 24 years' experience in
underwriting, collecting and financing automobile finance contracts.
34
<PAGE>
<PAGE>
INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of subprime
finance contracts and to mitigate losses. The Company's collections
managers contact delinquent accounts frequently, working cooperatively with
customers to get full or partial payments, but will initiate repossession
of financed vehicles no later than the 90th day of delinquency. As of June
30, 1996, a total of 85, or 1.5%, of the Company's finance contracts
outstanding were between 60 and 90 days past due. Since inception through
June 30, 1996, the Company repossessed approximately 5.1% of its financed
vehicles.
LIMITED LOSS EXPOSURE -- To reduce its potential losses on defaulted
finance contracts, the Company insures each finance contract it funds
against damage and fraud to the financed vehicle through a vender's
comprehensive single interest physical damage insurance policy (the 'VSI
Policy'). In addition, the Company purchases credit default insurance
through a deficiency balance endorsement (the 'Credit Endorsement') to the
VSI Policy. The Credit Endorsement reimburses the Company for the
difference between the unpaid finance contract balance and the net proceeds
received in connection with the sale of the repossessed vehicle. Moreover,
the Company limits loan-to-value ratios and applies a purchase price
discount to the finance contracts it acquires. The Company's combination of
underwriting criteria, intensive collection efforts and the VSI Policy and
Credit Endorsement has resulted in net charge-offs (after receipt of
liquidation and insurance proceeds) of 7.6% of the principal balance
outstanding on disposed repossessed vehicles as of June 30, 1996. See
'Management's Discussion and Analysis & Financial Condition and Results of
Operations -- Net Loss per Repossession.'
BORROWER CHARACTERISTICS
Borrowers under finance contracts in the Company's finance contract
portfolio are generally sub-prime consumers. Subprime consumers are purchasers
of financed vehicles with limited access to traditional sources of credit and
are generally individuals with weak or no credit histories. Based on a
randomly-selected representative sample of 107 finance contracts in the finance
contract portfolio, the Company has determined the following characteristics
with respect to its finance contract borrowers. The average borrower's monthly
income is $2,605, with an average payment-to-income ratio of 13.9% and an
average debt-to-income ratio of 35.8%. The Company's guidelines permit a maximum
payment-to-income ratio and debt-to-income ratio of 22% and 50%, respectively.
The average borrower's time spent at current residence is 42 months, while the
average time of service at current employer is 47 months. The average down
payment is 18.5% of the amount financed. The age of the average borrower is 34
years.
CONTRACT PROFILE
From inception to June 30, 1996, the Company acquired 5,714 finance
contracts with an aggregate initial principal balance of $68.2 million. Of the
finance contracts acquired, approximately 8.0% have related to the sale of new
automobiles and approximately 92.0% have related to the sale of used
automobiles. The average age of used financed vehicles was approximately two
years at the time of sale. The finance contracts had, upon acquisition, an
average initial principal balance of $11,941; a weighted average APR of 19.5%; a
weighted average finance contract acquisition discount of 8.6%; and a weighted
average contractual maturity of 53.0 months. As of June 30, 1996, the finance
contracts in the finance contract portfolio had a weighted average remaining
maturity of 47.8 months. Since inception, the Company's cumulative net
charge-offs have been $319,345 or 0.47% of the portfolio's aggregate initial
principal balance. With respect to repossessions where full disposition proceeds
have not been received, these cumulative net charge-off calculations assume
immediate recovery of disposition proceeds (including insurance proceeds) and
realization of loss at average historic loss rates.
DEALER NETWORK
General. The Company acquires finance contracts originated by automobile
dealers in connection with the sale of late-model used and, to a lesser extent,
new cars to subprime borrowers. Accordingly, the Company's business development
strategy depends on enrolling and promoting active participation by automobile
dealers in the Company's financing program. Dealers are selected on the basis of
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geographic location, financial strength, experience and integrity of management,
stability of ownership, quality of used car inventory, participation in subprime
financing programs, and the anticipated quality and quantity of finance
contracts which they originate. The Company principally targets dealers
operating under franchises from major automobile manufacturers, rather than
independent used car dealers. The Company believes that franchised dealers are
generally more stable and offer higher quality vehicles than independent
dealers. This is due, in part, to careful initial screening and ongoing
monitoring by the automobile manufacturers and to the level of financial
commitment necessary to secure and maintain a franchise. As of June 30, 1996,
the Company was licensed or qualified to do business in 26 states. Over the near
term, the Company intends to focus its proposed geographical expansion on states
in the midwest and mid-Atlantic regions.
The following table sets forth information about the Company's acquisitions
from its dealer network.
<TABLE>
<CAPTION>
ACQUISITION OF FINANCE CONTRACTS
----------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------------
1994 1995 1995 1996
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Number of active dealers during
period(1)............................. 50 222 119 252
Total number of dealers subject to
dealer agreements(2).................. 50 280 169 492
Number of active states(3).............. 2 7 5 12
Number of finance contracts acquired
during period......................... 202 2,659 1,042 2,856
Aggregate principal balance of finance
contracts acquired during period
(dollars in thousands)................ $ 2,454 $ 31,200 $ 12,207 $ 33,358
</TABLE>
- ------------
(1) Based upon those dealers from which the Company acquired finance contracts
during the related period.
(2) Aggregate number of dealers based upon signed agreements with dealers from
whom the Company will accept applications for finance contracts.
(3) Based upon those states in which the Company has acquired more than one
finance contract during the related period.
Location of Dealers. Approximately 52.8% of the Company's dealer network
consists of dealers located in Texas, where the Company has operated since 1994.
During the six months ended June 30, 1996, the Company acquired finance
contracts from dealers in fifteen states.
The following table summarizes, with respect to each state in which the
Company operates, the date operations commenced, the number of dealers with whom
the Company had dealer agreements in such state as of June 30, 1996 and the
number of finance (and percentage of total finance) contracts acquired by the
Company from dealers in such state during the last fiscal year and for the six
months ended June 30, 1996:
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<TABLE>
<CAPTION>
FINANCE CONTRACTS ACQUIRED
----------------------------------
NUMBER OF YEAR ENDED SIX MONTHS
DEALERS AT DECEMBER 31, ENDED
JUNE 30, 1996 1995 JUNE 30, 1996
DATE BUSINESS --------------- --------------- ---------------
STATES COMMENCED NUMBER % NUMBER % NUMBER %
- ----------------------------------- -------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Texas.............................. September 1994 260 52.8% 2,425 91.2% 2,523 88.3%
Oklahoma........................... November 1994 50 10.2 94 3.5 8 0.3
Connecticut........................ January 1995 12 2.4 63 2.4 0 0.0
New Mexico......................... May 1995 17 3.5 44 1.6 57 2.0
Utah............................... June 1995 15 3.0 18 0.7 1 0.0
Georgia............................ October 1995 47 9.6 10 0.4 44 1.6
Arizona............................ November 1995 10 2.0 5 0.2 15 0.5
Missouri........................... January 1996 2 0.4 0 0.0 1 0.0
Colorado........................... January 1996 9 1.8 0 0.0 58 2.0
Maryland........................... February 1996 12 2.4 0 0.0 37 1.3
Ohio............................... March 1996 19 3.9 0 0.0 20 0.7
Florida............................ April 1996 14 2.9 0 0.0 53 1.9
Virginia........................... April 1996 3 0.6 0 0.0 6 0.2
Pennsylvania....................... May 1996 19 3.9 0 0.0 27 1.0
North Carolina..................... June 1996 1 0.2 0 0.0 1 0.0
South Carolina..................... June 1996 2 0.4 0 0.0 5 0.2
------ ----- ------ ----- ------ -----
Total......................... 492 100.0% 2,659 100.0% 2,856 100.0%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
A group of six dealerships (including Charlie Thomas Ford) under
substantial common ownership accounted for 14.8% (12.3% and 17.5% for the fiscal
year ended 1995 and the first half of 1996 respectively) of finance contracts
acquired during the same period. One dealership, Charlie Thomas Ford, Inc. of
Houston, Texas, accounted for 11.2% of the finance contracts acquired by the
Company for the period from inception through June 30, 1996 (8.7% and 14.0% for
the fiscal year ended 1995 and the first half of 1996 respectively).
DEALER SOLICITATION
Marketing Representatives. As of June 30, 1996, the Company utilized
thirteen marketing representatives, eight of which were individuals employed by
the Company and five of which were marketing organizations serving as
independent representatives. These representatives have an average of ten years
experience in the automobile financing industry. Each marketing representative
reports to, and is supervised by, the Company's Vice President -- Marketing. The
Company is currently evaluating candidates for additional marketing
representative positions. The marketing representatives reside in the region for
which they are responsible. Marketing representatives are compensated on the
basis of a salary plus commissions based on the number of finance contracts
purchased by the Company in their respective areas. The Company maintains an
exclusive relationship with the independent marketing representatives and
compensates such representatives on a commission basis. All marketing
representatives undergo training and orientation at the Company's Austin
headquarters.
The Company's marketing representatives establish financing relationships
with new dealerships, and maintain existing dealer relationships. Each marketing
representative endeavors to meet with the managers of the finance and insurance
('F&I') departments at each targeted dealership in his or her territory to
introduce and enroll dealers in the Company's financing program, educating the
F&I managers about the Company's underwriting philosophy, its practice of using
experienced underwriters (rather than computerized credit scoring) to review
applications, and the Company's commitment to a single lending program that is
easy for dealers to master and administer. The marketing representatives offer
training to dealership personnel regarding the Company's program guidelines,
procedures and philosophy.
After each dealer relationship is established, a marketing representative
continues to actively monitor the relationship with the objective of maximizing
the volume of applications received from the dealer that meet the Company's
underwriting standards. Due to the non-exclusive nature of the
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Company's relationships with dealers, the dealers retain discretion to determine
whether to seek financing from the Company or another financing source. Each
representative submits a weekly call report describing contacts with prospective
and existing dealers during the preceding week and a monthly competitive survey
relating to the competitive situation and possible opportunities in the region.
The Company provides each representative a weekly report detailing applications
received and finance contracts purchased from all dealers in the region. The
marketing representatives regularly telephone and visit F&I managers to remind
them of the Company's objectives and to answer questions. To increase the
effectiveness of these contacts, the marketing representatives can obtain
real-time information from the Company's newly installed management information
systems, listing by dealership the number of applications submitted, the
Company's response to such applications and the reasons why a particular
application was rejected. The Company believes that the personal relationships
its marketing representatives establish with the F&I managers are an important
factor in creating and maintaining productive relationships with its dealership
customer base.
The role of the marketing representatives is generally limited to marketing
the Company's financing program and maintaining relationships with the Company's
dealer network. The marketing representatives do not negotiate, enter into or
modify dealer agreements on behalf of the Company, do not participate in credit
evaluation or loan funding decisions and do not handle funds belonging to the
Company or its dealers. Over the last several months, the Company has added
marketing representatives in additional states, including Colorado, Maryland,
Virginia, Florida, Ohio, South Carolina, North Carolina and Pennsylvania. The
Company intends to develop notable finance contract volume in each state in
which it initiates coverage. The Company has elected not to establish full
service branch offices, believing that the expenses and administrative burden of
such offices are generally unjustified. The Company has concluded that the
ability to closely monitor the critical functions of finance contract approval
and contract administration and collection are best performed and controlled on
a centralized basis from its Austin facility.
Dealer Agreements. Each dealer with which the Company establishes a
financing relationship enters into a non-exclusive written dealer agreement (a
'Dealer Agreement') with the Company, governing the Company's acquisition of
finance contracts from the dealer. A Dealer Agreement generally provides that
the dealer shall indemnify the Company against any damages or liabilities,
including reasonable attorney's fees, arising out of (i) any breach of a
representation or warranty of the dealer set forth in the Dealer Agreement or
(ii) any claim or defense that a borrower may have against a dealer relating to
a financing contract. Representations and warranties in a Dealer Agreement
generally relate to such matters as whether (a) the financed automobile is free
of all liens, claims and encumbrances except the Company's lien, (b) the down
payment specified in the finance contract has been paid in full and whether any
part of the down payment was loaned to the borrower by the dealer and (c) the
dealer has complied with applicable law. If the dealer violates the terms of the
Dealer Agreement with respect to any finance contract, the dealer must
repurchase such contract on demand for an amount equal to the unpaid balance and
all other indebtedness due to the Company from the borrower.
FINANCING PROGRAM
Unlike certain competitors who offer numerous marketing programs that the
Company believes serve to confuse dealers and borrowers, the Company markets a
single financing contract acquisition program to its dealers. The Company
believes that by focusing on a single program, it realizes consistency in
achieving its contract acquisition criteria, which aids the funding and
securitization process. The finance contracts purchased by the Company must meet
several criteria, including that each contract: (i) meets the Company's
underwriting guidelines; (ii) is secured by a new or late-model used vehicle of
a type on the Company's approved list; (iii) was originated in a jurisdiction in
the United States in which the Company was licensed or qualified to do business,
as appropriate; (iv) provides for level monthly payments (collectively, the
'Scheduled Payments') that fully amortize the amount financed over the finance
contract's original contractual term; (v) has an original contractual term from
24 to 60 months; (vi) provides for finance charges at an APR between 14% and
30%; (vii) provides for a verifiable down payment of 10% or more of the cash
selling price; and (viii) is not past due or does not finance a vehicle which is
in repossession at the time the finance contract is presented to the Company for
acquisition. Although the Company has in the past acquired a substantial number
of
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finance contracts for which principal and interest are calculated according to
the Rule of 78s, the Company's present policy is to acquire primarily finance
contracts calculated using the simple interest method.
The amount financed with respect to a finance contract will generally equal
the aggregate amount advanced toward the purchase price of the financed vehicle,
which equals the net selling price of the vehicle (cash selling price less down
payment and trade-in), plus the cost of permitted automotive accessories (e.g.,
air conditioning, standard transmission, etc.), taxes, title and license fees,
credit life, accident and health insurance policies, service and warranty
contracts and other items customarily included in retail automobile installment
contracts and related costs. Thus, the amount financed may be greater than the
Manufacturers Suggested Retail Price ('MSRP') for new vehicles or the market
value quoted for used vehicles. Down payments must be in cash or real value of
traded-in vehicles. Dealer-assisted or deferred down payments are not permitted.
The Company's VSI Policy limits the net selling price of a vehicle to be
financed to a maximum of 95% of the vehicle's retail book value. In addition,
the Company's current purchase criteria limit acceptable finance contracts to a
maximum (a) net selling price of the lesser of (i) 112% of wholesale book value
(or dealer invoice for new vehicles) or (ii) 95% of retail book value (or MSRP
for new vehicles) and (b) amount financed of 120% of retail book value in the
case of a used vehicle, or 120% of MSRP in the case of a new vehicle. In
assessing the value of a trade-in for purposes of determining the vehicle's net
selling price, the Company uses the published wholesale book value without
regard to the value assigned by the dealer.
The following table sets forth the characteristics of a typical finance
contract originated by a dealer and the application of the Company's acquisition
guidelines to such contract.
SAMPLE CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
ITEM DOLLAR VALUE COMMENTS
- --------------------------------- ------------ ----------------------------------------------------------------
<S> <C> <C>
Cash selling price............... $ 12,000
Down payment..................... (1,800) 15% down, using real trade equity and/or cash
Net selling price................ 10,200 Also defined as 'Base Advance'
Allowed add-ons:
Tax, title and license...... 700
Credit life insurance....... 500 Rates established by state insurance departments
Disability insurance........ 700 Rates established by state insurance departments
Service contract............ 1,200
------------
Amount financed.................. 13,300
------------
Acquisition discount............. (1,130) Typical 8.5% discount
------------
------------
Acquisition price................ $ 12,170 Advance to dealer
------------
Wholesale book (or dealer invoice
for new vehicles): $10,000 (for example shown)
Retail book (or MSRP for new
vehicles): $12,000 (for example shown)
</TABLE>
<TABLE>
<CAPTION>
COMPANY ACQUISITION GUIDELINES EXAMPLE SHOWN
- -------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
Minimum down payment: 10% of cash selling price: $ 1,200 $1,800/$12,000=15%
Maximum base advance: lesser of: (1) 112% of wholesale book: $11,200 $10,200/$10,000=102.0%
or (2) 95% of retail book: $11,400
Maximum amount financed: 120% of retail book (used vehicle): $14,400 $13,300/$12,000=110.8%
</TABLE>
The credit characteristics of an application approved by the Company for
acquisition generally consist of the following: (i) stability of applicant's
employment, (ii) stability of applicant's residence history, (iii) sufficient
borrower income, (iv) credit history, and (v) payment of down payment.
The Company applies a loan-to-value ratio in selecting finance contracts
for acquisition calculated as equaling the quotient of: (a) The cash selling
price less the down payment on the vehicle, divided by
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(b) the wholesale value of the vehicle (net of additions or subtractions for
mileage and equipment additions listed in the applicable guide book). For new
vehicles, wholesale value is based on the invoice amount, including destination
charges. For used vehicles, wholesale value is computed using the applicable
guide book (Kelley or NADA) in use within the market in which the vehicle is
located.
All of the Company's finance contracts are prepayable at any time. Finance
contracts acquired by the Company must prohibit the sale or transfer of the
financed vehicle without the Company's prior consent and provide for
acceleration of the maturity of the finance contract in the absence of such
consent. For an approved finance contract, the Company will agree to acquire
such finance contract from the originating dealer at a non-refundable contract
acquisition discount of approximately 8.5% to 12% of the amount financed.
CONTRACT ACQUISITION PROCESS
General. Having selected an automobile for purchase, the subprime consumer
typically meets with the dealership's F&I manager to discuss options for
financing the purchase of the vehicle. If the subprime consumer elects to
finance the vehicle's purchase through the dealer, the dealer will typically
submit the borrower's credit application to a number of potential financing
sources to find the most favorable terms. In general, an F&I department's
potential sources of financing will include banks, thrifts, captive finance
companies and independent finance companies.
For the six months ended June 30, 1996, 29,412 credit applications were
submitted to the Company. Of these 29,412 applications, as of June 30, 1996,
approximately 36% were approved and 10% were acquired by the Company.(1) The
difference between the number of applications approved and the number of finance
contracts acquired is attributable to a common industry practice in which
dealers often submit credit applications to more than one finance company and
select on the basis of the most favorable terms offered. The prospective
customer may also decide not to purchase the vehicle notwithstanding approval of
the credit application.
Contract Processing. Dealers send credit applications along with other
information to the Company's Credit Department in Austin via facsimile. Upon
receipt, the credit application and other relevant information is entered into
the Company's computerized contract administration system by the Company's
credit verification personnel and a paper-based file with the original documents
is created. Once logged into the system, the applicant's credit bureau reports
are automatically accessed and retrieved directly into the system. At this
stage, the computer assigns the credit application to the specific credit
manager assigned to the submitting dealer for credit evaluation.
Credit Evaluation. The Company applies uniform underwriting standards. In
evaluating the applicant's creditworthiness and the collateral value of the
vehicle, the credit underwriter reviews each application in accordance with the
Company's guidelines and procedures, which take into account, among other
things, the individual's stability of residence, employment history, credit
history, ability to pay, income, discretionary income and debt ratio. In
addition, the credit underwriter evaluates the applicant's credit bureau report
in order to determine if the applicant's (i) credit quality is deteriorating,
(ii) credit history suggests a high probability of default or (iii) credit
experience is too limited for the Company to assess the probability of
performance. The Company also assesses the value and useful life of the
automobile that will serve as collateral under the finance contract. Moreover,
the credit underwriters consider the suitability of a proposed loan under its
financing program in light of the (a) proposed contract term and (b) conformity
of the proposed collateral coverage to the Company's underwriting guidelines.
Verification of certain applicant-provided information (e.g., employment
and residence history) is required before the Company makes its credit decision.
Such verification typically requires submission of supporting documentation,
such as a paycheck stub or other substantiation of income, or a telephone bill
evidencing a current address. In addition, the Company does not normally approve
any applications from persons who have been the subject of two or more
bankruptcy proceedings or two or more repossessions.
- ------------
(1) Applications and approvals for May and June are based on estimates due to
loss of data incurred in recent changeover of application processing
systems.
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The Company's underwriting standards are applied by experienced credit
underwriters with a personal analysis of each application, utilizing experienced
judgment. These standards have been developed and refined by the Company's
senior operating management who, on average, possess more than 24 years in the
automobile finance industry. The Company believes that having its credit
underwriters personally review and communicate to the submitting dealership the
decision with respect to each application, including the reasons why a
particular application may have been declined, enhances the Company's
relationship with such dealers. This practice encourages F&I managers to submit
contracts meeting the Company's underwriting standards, thereby increasing the
Company's operating efficiency by eliminating the need to process applications
unlikely to be approved. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition.'
The Company's Credit Department personnel undergo ongoing internal training
programs that are scheduled on a weekly basis and are attended by such personnel
depending on their responsibilities. All of these personnel are located in the
Company's offices in Austin where they are under the supervision of the Vice
President -- Credit and the credit manager. The credit manager and the Vice
President -- Credit have an aggregate of more than 30 years of experience in the
automobile finance business. In addition, the Company reviews all repossessions
to identify factors that might require refinements in the Company's credit
evaluation procedures.
Approval Process. The time from receipt of application to final credit
approval is a significant competitive factor, and the Company seeks to complete
its funding approval decision in an average of two to three hours. When the
Company approves the purchase of a finance contract, the credit manager notifies
the dealer by facsimile or telephone. Such notice specifies all pertinent
information relating to the terms of approval, including the interest rate, the
term, information about the automobile to be sold and the amount of discount
that the Company will deduct from the amount financed prior to remitting the
funds to the dealer. The discount is not refundable to the dealer.
Contract Purchase and Funding. Upon final confirmation of the terms by the
borrower, the dealer completes the sale of the automobile to the borrower. After
the dealer delivers all required documentation (including an application for
title or a dealer guaranty of title, naming the Company as lienholder) to the
Company, the Company remits funds to the dealer via overnight delivery service,
generally within 48 hours of having received the complete loan funding package.
As a matter of policy, the Company takes such measures as it deems necessary to
obtain a perfected security interest in the related financed vehicles under the
laws of the states in which such vehicles are originated. This generally
involves taking the necessary steps to obtain a certificate of title which names
the Company as lienholder. Each finance contract requires that the automobile be
adequately insured and that the Company be named as loss payee, and compliance
with these requirements is verified prior to the remittance of funds to the
dealer. Upon funding of the finance contract and payment of the required
premium, the financed vehicle is insured under the Company's VSI Policy, which
includes coverage of property damages in the event that the borrower does not
maintain insurance.
CONTRACT SERVICING AND COLLECTION
Contract servicing includes contract administration and collection. Because
the Company believes that an active collection program is essential to success
in the subprime automobile financing market, the Company retains responsibility
for finance contract collection. The Company currently contracts with CSC
Logic/MSA L.L.P. (a Texas limited liability partnership doing business as 'Loan
Servicing Enterprises') ('LSE') to provide contract administration. The Company
may in the future assume certain of the servicing functions performed by LSE,
but there can be no assurance that this will occur.
Contract Administration. LSE provides certain finance contract
administration functions in connection with warehouse facilities and in
connection with finance contracts sold to securitization trusts, including
payment processing, statement rendering, insurance tracking, data reporting and
customer service for finance contracts. LSE inputs newly originated finance
contracts on the contract system daily. Finance contract documentation is sent
by the Company to LSE as soon as dealer funding occurs. LSE then mails a welcome
letter to the borrower and subsequently mails monthly billing statements to each
borrower approximately ten days prior to each payment due date. Any borrower
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remittances are directed to a lock box. Remittances received are then posted to
the proper account on the system. All borrower remittances are reviewed under
LSE's quality control process to assure its proper application to the correct
account in the proper amount. LSE also handles account inquiries from borrowers
and performs insurance tracking services. LSE also sends out notices to
borrowers for instances where proper collateral insurance is not documented.
Contract Collection. As collection agent, the Company is responsible for
pursuing collections from delinquent borrowers. The Company utilizes proactive
collection procedures, which include making early and frequent contact with
delinquent borrowers, educating borrowers as to the importance of maintaining
good credit, and employing a consultative and customer service approach to
assist the borrower in meeting his or her obligations. The Company's ability to
monitor performance and collect payments owed by contract obligors is a function
of its collection approach and support systems. The Company's approach to the
collection of delinquent contracts is to minimize repossessions and charge-offs.
The Company maintains a computerized collection system specifically designed to
service sub-prime automobile finance contracts. The Company believes that if
problems are identified early, it is possible to correct many delinquencies
before they deteriorate further.
The Company currently employs 19 people full-time, including twelve
collections specialists and other support personnel, in the Collections
Department. Each employee is devoted exclusively to collection functions. The
Company attempts to maintain a ratio of between 500 and 600 finance contracts
per collections specialist. As of June 30, 1996, there were 460 finance
contracts in the Company's finance contract portfolio for every collections
specialist. The Collections Department is managed by the Vice
President -- Collections, who possesses 30 years experience in the automotive
industry. The Company hires additional collections specialists in advance of
need to ensure adequate staffing and training.
The Company's collectors have real-time computer access to LSE's database.
Accounts reaching five days past due are assigned to collectors who have
specific responsibility for those accounts. These collectors contact the
customer frequently, both by phone and in writing. Accounts that reach 60 days
past due are assigned to two senior collectors who handle those accounts until
resolved. To facilitate collections from borrowers, the Company has increased
its utilization of Western Union's 'Quick Collect,' which allows borrowers to
pay from remote locations, with a check printed at the Company's office.
Consistent with the Company's internal policies and securitization documents,
finance contract provisions, such as term, interest rate, amount, maturity date
or payment schedule will not be amended, modified or otherwise changed, except
when required by applicable law or court order or where permitted under the VSI
Policy.
Payment extensions may be granted if, in the opinion of management, such
extension provides a permanent solution to resolve a temporary problem. An
extension fee must be paid by the customer prior to the extension. Normally,
there can be only one extension during the first 18 months of a finance
contract. Additional extensions may be granted if allowed under the VSI Policy,
although the Company's securitization documents restrict permitted extensions to
no longer than one month and not more than once per year. Payment due dates can
be modified once during the term of the contract to facilitate current payment
by the customer.
Repossessions and Recoveries. If a delinquency exists and a default is
deemed inevitable or the collateral is in jeopardy, and in no event later than
the 90th day of delinquency (as required by the VSI Policy), the Company's
Collections Department will initiate the repossession of the financed vehicle.
Bonded, insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, the Company is required to give notice to
the borrower of the Company's intention to sell the repossessed vehicle,
whereupon the borrower may exercise certain rights to cure his or her default or
redeem the automobile. Following the expiration of the legally required notice
period, the repossessed vehicle is sold at a wholesale auto auction (or in
limited circumstances, through dealers), usually within 60 days of the
repossession. The Company closely monitors the condition of vehicles set for
auction, and procures an appraisal under the VSI Policy prior to sale.
Liquidation proceeds are applied to the borrower's outstanding obligation under
the finance contract and loss deficiency claims under the VSI Policy and Credit
Endorsement are then filed. See ' -- Insurance.'
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INSURANCE
Each finance contract requires the borrower to obtain comprehensive and
collision insurance with respect to the related financed vehicle with the
Company named as a loss payee. The Company relies on a written representation
from the selling dealer and independently verifies that a borrower in fact has
such insurance in effect when it purchases contracts. Each finance contract
acquired by the Company is covered from the moment of its purchase by the VSI
Policy, including the Credit Endorsement. The VSI Policy has been issued to the
Company by Interstate Fire & Casualty Company ('Interstate'). Interstate is an
indirect wholly-owned subsidiary of Fireman's Fund Insurance Company.
Physical Damage and Loss Coverage. The Company initially relies on the
requirement, set forth in its underwriting criteria, that each borrower maintain
adequate levels of physical damage loss coverage on the respective financed
vehicles. LSE tracks the physical damage insurance of borrowers, and contacts
borrowers in the event of a lapse in coverage or inadequate documentation.
Moreover, LSE is obligated, as servicer, subject to certain conditions and
exclusions, to assist the processing of claims under the VSI Policy. Interstate
will insure each financed vehicle securing a contract against: (i) all risk of
physical loss or damage from any external cause to financed vehicles which the
Company holds as collateral; (ii) any direct loss which the Company may sustain
by unintentionally failing to record or file the instrument evidencing each
contract with the proper public officer or public office, or by failing to cause
the proper public officer or public office to show the Company's encumbrance
thereon, if such instrument is a certificate of title; (iii) any direct loss
sustained during the term of the VSI Policy by reason of the inability of the
Company to locate the borrower, the related financed vehicle, or by reason of
confiscation of the financed vehicle by a public officer or public office; and
(iv) all risk of physical loss or damage from any external cause to a
repossessed financed vehicle for a period of 60 days while such financed vehicle
is (subject to certain exceptions) held by or being repossessed by the Company.
The physical damage provisions of the VSI Policy generally provide coverage
for losses sustained on the value of the financed vehicle securing a contract,
but in no event is the coverage to exceed: (i) the cost to repair or replace the
financed vehicle with material of like kind and quality; (ii) the actual cash
value of the financed vehicle at the date of loss, less its salvage value; (iii)
the unpaid balance of the contract; (iv) $40,000 per financed vehicle (or, in
the case of losses or damage sustained on repossessed financed vehicles, $25,000
per occurrence); or (v) the lesser of the amounts due the Company under clauses
(i) through (iv) above, less any amounts due under all other valid insurance on
the damaged financed vehicle less its salvage value. No assurance can be given
that the insurance will cover the amount financed with respect to a financed
vehicle.
All claim settlements for physical damage and loss coverage are subject to
a $500 deductible per loss. There is no aggregate limitation or other form of
cap on the number of claims under the VSI Policy. Coverage on a financed vehicle
is for the term of the related contract and is noncancellable. The VSI Policy
requires that, prior to filing a claim, a reasonable attempt be made to
repossess the financed vehicle and, in the case of claims on skip losses, every
professional effort be made to locate the financed vehicle and the related
borrower.
Credit Deficiency Endorsement. In addition to physical damage and loss
coverage, the VSI Policy contains a Credit Endorsement which provides that
Interstate shall indemnify the Company for certain losses incurred due to a
deficiency balance following the repossession and resale of financed vehicles
securing defaulted finance contracts eligible for coverage. Coverage under the
Credit Endorsement is strictly conditioned upon the Company's maintaining and
adhering to the credit underwriting criteria set forth in the Credit
Endorsement. Losses on each eligible contract are covered in an amount equal to
the deficiency balance resulting from the Net Payoff Balance less the sum of (i)
the Actual Cash Value of the financed vehicle plus (ii) the total amount
recoverable from all other applicable insurance, including refunds from
cancelable add-on products. The maximum coverage under the Credit Endorsement is
$15,000 per contract.
'Actual Cash Value' for the purposes of the Credit Endorsement only, means
the greater of (i) the price for which the subject financed vehicle is sold or
(ii) the wholesale market value at the time of the loss as determined by an
automobile guide approved by Interstate applicable to the region in which the
financed vehicle is sold.
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'Net Payoff Balance' for the purposes of the Credit Endorsement, means the
outstanding principal balance as of the default date plus late fees and
corresponding interest no more than 90 days after the date of default. In no
event shall Net Payoff Balance include non-approved fees, taxes, penalties or
assessments included in the original instrument, or repossession, disposition,
collection, remarketing expenses and fees or taxes incurred.
MANAGEMENT INFORMATION SYSTEMS
Management believes that a high level of real-time information flow and
analysis is essential to manage the Company's informational and reporting needs
and to maintain the Company's competitive position. As stated above, the Company
has contracted with a third party servicer, LSE, to provide data processing for
the Company's portfolio of finance contracts. LSE provides on-line information
processing services with terminals located in the Company's offices that are
connected to LSE's main computer center in Dallas.
In addition, management uses customized reports, with a download of
information to personal computers, to issue investor reports and to analyze the
Company's finance contract portfolio on a monthly basis. The system's
flexibility allows the Company to achieve productivity improvements with
enhanced data access. Management believes that it has sufficient systems in
place to permit significant growth in the Company's finance contract portfolio
without the need for material additional investment in management information
systems.
FUNDING/SECURITIZATION OF FINANCE CONTRACTS
Warehouse Credit Facilities. The Company obtains a substantial portion of
its working capital for the acquisition of finance contracts through warehouse
credit facilities. Under a warehouse facility, generally the lender advances
amounts requested by the borrower on a periodic basis, up to an aggregate
maximum credit limit for the facility, for the acquisition and servicing of
finance contracts or other similar assets. Until proceeds from a securitization
transaction are used to pay down outstanding advances, as principal payments are
received on the finance contracts, the principal amount of the advances may be
paid down incrementally or reinvested in additional finance contracts on a
revolving basis.
At June 30, 1996, the Company had approximately $237,000 outstanding under
the $10.0 million Sentry Facility, which expires on July 31, 1998. The proceeds
from borrowings under the Sentry Facility are used to acquire finance contracts,
to pay credit default insurance premiums and to make deposits to a reserve
account with Sentry. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance under the Sentry Facility. The Sentry
Facility also requires the Company to pay up to 0.62% per quarter on the average
unused balance. Interest is payable monthly and accrues at a per annum rate of
prime plus 1.75% (which was approximately 10.25% at June 30, 1996).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve account. Under the Sentry Facility, the
Company paid interest of $412,000 for the year ended December 31, 1995. In April
1996, the Company agreed to pay a commitment fee of $700,000 under the Sentry
Facility.
On May 22, 1996 the Company, through its wholly-owned subsidiary AutoBond
Funding Corporation II, entered into the Providian Facility, which expires
December 15, 1996. The proceeds from the borrowings under the Providian Facility
are to be used to acquire finance contracts, to pay credit default insurance
premiums and to make deposits to a reserve account. Interest is payable monthly
with a delay of 15 days and accrues at a per annum rate of LIBOR plus 2.60%
(which was 8.0375% when initially determined on May 17, 1996). The Providian
Facility also requires the Company to pay a monthly fee on the average unused
balance at a per annum rate of 0.25%. Borrowings under the Providian Facility
are rated investment-grade by a nationally recognized statistical rating
organization. The Providian Facility contains certain conditions and imposes
certain requirements similar to those in the agreements relating to the
Company's existing securitizations including, among other things, delinquency
and default triggers.
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The Company's wholly-owned subsidiary, AutoBond Funding Corporation I,
entered into the Nomura Facility, pursuant to a credit agreement dated as of
June 16, 1995, with a final maturity date of June 16, 2005. This facility was
terminated at the lender's option, and no new advances were made after February
6, 1996. The Nomura Facility provided for advances to AutoBond Funding up to a
maximum aggregate principal amount of $25 million, for the acquisition of
finance contracts. On March 29, 1996, the remaining total outstanding balance of
advances of $9.0 million, and interest of $89,000, were paid by AutoBond
Funding. As of June 30, 1996 no advances were outstanding with respect to the
Nomura Facility.
Securitization Program. The periodic securitization of finance contracts is
an integral part of the Company's business. Securitizations enable the Company
to monetize its assets and redeploy its capital resources and warehouse credit
facilities for the purchase of additional finance contracts. To date, the
Company has completed four securitizations involving approximately $83.0 million
in aggregate principal amount of finance contracts.
In its securitization transactions, the Company sells pools of finance
contracts to a special purpose subsidiary, which then sells the finance
contracts to a trust in exchange for cash and certain retained beneficial
interests in the trust. The trust issues two classes of fixed income investor
certificates: Class A Certificates which are sold to investors, generally at par
with a fixed coupon, and subordinated excess spread certificates (representing a
senior interest in excess spread cash flows from the finance contracts) which
are typically retained by the Company's securitization subsidiary and which
collateralize borrowings on a non-recourse basis. The Company also funds a cash
reserve account that provides credit support to the Class A Certificates. The
Company's securitization subsidiaries also retain an interest in the contracts
that is subordinate to the interest of the investor certificateholder. The
retained interests entitle the Company to receive the future excess spread cash
flows from the trust after payment to investors, absorption of losses, if any,
that arise from defaults on the transferred finance contracts and payment of the
other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in two
ways. First, the application of proceeds toward payment of the outstanding
advances on warehouse credit facilities makes additional borrowing available, to
the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. Second, additional working capital is obtained
through the Company's practice of borrowing, through the issuance of
non-recourse debt, against the value of the senior interest in the retained
excess spread.
Upon each securitization, the Company recognizes the sale of finance
contracts and records a gain or loss in an amount which takes into account the
amounts expected to be received as a result of its retained interests. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Revenues -- Gain on Sale of Finance Contracts.' At June 30, 1996,
the Company held excess servicing receivables and Class B Certificates totalling
$7.7 million, a portion of which had been pledged to secure notes payable of
$6.2 million.
If the Company were unable to securitize contracts in a financial reporting
period, the Company would incur a significant decline in total revenues and net
income or report a loss for such period. If the Company were unable to
securitize its contracts and did not have sufficient credit available, either
under its warehouse credit facilities or from other sources, the Company would
have to sell portions of its portfolio directly to investors or curtail its
finance contract acquisition activities. See 'Risk Factors -- Dependence on
Securitization Transactions' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
When the Company securitizes finance contracts, it repays a portion of its
outstanding warehouse indebtedness, making such portion available for future
borrowing. As finance contract volume increases, the Company expects to
securitize its assets at least quarterly, although there can be no assurance
that the Company will be able to do so.
The securitization trust agreements and the servicing agreement contain
certain events of administrator termination, the occurrence of which entitle the
trustee to terminate the Company's right to act as collection agent and
administrator. Events of administrator termination include: (i) defaults in
payment obligations under the trust agreements; (ii) unremedied defaults in the
performance of certain
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terms or covenants under the trust agreements, the servicing agreements or
related documents; (iii) the institution of certain bankruptcy or liquidation
proceedings against the Company; (iv) material breaches by the Company of
representations and warranties made by it under the servicing agreements and the
sale agreements pursuant to which it has sold the securitized finance contracts;
(v) the occurrence of a trigger event whereby the ratio of delinquent finance
contracts to total securitized finance contracts for each transaction exceeds
the percentage set forth in the servicing agreements; (vi) a material adverse
change in the consolidated financial condition or operations of the Company, or
the occurrence of any event which materially adversely affects the
collectibility of a material amount of the securitized finance contracts or
which materially adversely affects the ability of the Company to collect a
material amount of the finance contracts or to perform in all material respects
its obligations under the servicing agreements, trust agreements and related
documents; or (vii) any of the rating agencies rating the securitization
transactions determines that the Company's serving as collection agent under the
servicing agreement would prevent such agency from maintaining the required
ratings on such transactions, or would result in such transactions' being placed
on negative review, suspension or downgrade.
The trust agreements contain amortization events, the occurrence of any of
which may affect the Company's rights to receive payments in respect of the
future excess spread cash flows otherwise payable to it until principal and
interest payments due the holders of all investor certificates are paid in full.
Such amortization events include: (i) defaults in certain payments or repurchase
obligations under the trust agreements; (ii) unremedied defaults in the
performance of any covenants or terms of the trust agreements by a
securitization subsidiary; (iii) the occurrence of certain bankruptcy or
insolvency events of a securitization subsidiary; (iv) unremedied material
breaches of representations or warranties of a securitization subsidiary; (v)
occurrence of an event of administrator termination; (vi) failure of a
securitization subsidiary to transfer certain required amounts of unpaid
principal balance of finance contracts to each securitization trust or to retain
the resulting shortfall in the collection accounts; (vii) failure of any
transfer under the trust agreements to create, or failure of any investor
certificates to evidence, a valid and perfected first priority undivided
ownership or security interest in the pool of securitized finance contracts and
related collateral; (viii) failure of the Company to own, directly or
indirectly, 100% of the outstanding shares of common stock of any securitization
subsidiary; (ix) entry of unpaid and unstayed judgments aggregating in excess of
$25,000 are entered against any securitization subsidiary; or (x) occurrence of
a 'change in control' with respect to the Company.
COMPETITION
The subprime credit market is highly fragmented, consisting of many
national, regional and local competitors, and is characterized by relative ease
of entry and the recent arrival of a number of well capitalized publicly-held
competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these financial organizations do
not consistently solicit business in the subprime credit market. The Company
believes that captive finance companies generally focus their marketing efforts
on this market only when inventory control and/or production scheduling
requirements of their parent organizations dictate a need to enhance sales
volumes and exit the market once such sales volumes are satisfied. The Company
also believes that increased regulatory oversight and capital requirements
imposed by market conditions and governmental agencies have limited the
activities of many banks and savings and loans in the subprime credit market. In
many cases, those organizations electing to remain in the automobile finance
business have migrated toward higher credit quality customers to allow
reductions in their overhead cost structures.
As a result, the subprime credit market is primarily serviced by smaller
finance organizations that solicit business when and to the extent their capital
resources permit. The Company believes no one of its competitors or group of
competitors has a dominant presence in the market. The Company's strategy is
designed to capitalize on the market's relative lack of major national financing
sources. Nonetheless, several of these competitors have greater financial
resources than the Company and may have a significantly lower cost of funds.
Many of these competitors also have long-standing relationships with automobile
dealerships and may offer dealerships or their customers other forms of
financing or services not provided by the Company. Furthermore, during the past
two years, a number of automobile finance
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companies have completed public offerings of common stock, the proceeds of which
are being used, at least in part, to fund expansion and finance increased
purchases of finance contracts. The Company's ability to compete successfully
depends largely upon its relationships with dealerships and the willingness of
dealerships to offer finance contracts to the Company that meet the Company's
underwriting criteria. There can be no assurance that the Company will be able
to continue successfully in the markets it serves.
REGULATION
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. As of June 30, 1996, the
Company's business operations were conducted with dealers located in sixteen
states, and, accordingly, the laws and regulations of such states govern the
Company's operations. Most states where the Company operates (i) limit the
interest rates, fees and other charges that may be imposed by, or prescribe
certain other terms of, the finance contracts that the Company purchases and
(ii) define the Company's rights to repossess and sell collateral. In addition,
the Company is required to be licensed or registered to conduct its finance
operations in certain states in which the Company purchases finance contracts.
As the Company expands its operations into other states, it will be required to
comply with the laws of such states.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in automobile financing. Some of the federal laws and regulations include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Credit Billing Act, the
Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z and the Soldiers' and Sailors' Civil Relief
Act.
In addition, the Federal Trade Commission ('FTC') has adopted a
holder-in-due-course rule which has the effect of subjecting persons that
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a Buyer's Guide which explains
the warranty coverage for such automobiles. The Credit Practices Rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. In
addition, due to the consumer-oriented nature of the industry in which the
Company operates and the unclear application of various truth-in-lending laws
and regulations to certain products offered by companies in the industry,
industry participants are sometimes named as defendants in litigation involving
alleged violations of federal and state consumer lending or other similar laws
and regulation. A significant judgment against the Company or within the
industry in connection with any litigation could have a material adverse effect
on the Company's financial condition and results of operations.
In the event of default by a borrower under a finance contract, the Company
is entitled to exercise the remedies of a secured party under the Uniform
Commercial Code ('UCC'). The UCC remedies of a secured party include the right
to repossession by self-help means, unless such means would constitute a breach
of the peace. Unless the borrower voluntarily surrenders a vehicle, self-help
repossession by an independent repossession agent engaged by the Company is
usually employed by the Company when a borrower defaults. Self-help repossession
is accomplished by retaking possession of the vehicle. If a breach of the peace
is likely to occur, or if applicable state law so requires, the Company must
obtain a court order from the appropriate state court and repossess the vehicle
in accordance with that order. None of the states in which the Company presently
does business has any law that would require the Company, in the absence of a
probable breach of the peace, to obtain a court order before it attempts to
repossess a vehicle.
In most jurisdictions, the UCC and other state laws require a secured party
to provide an obligor with reasonable notice of the date, time and place of any
public sale or the date after which any private sale of collateral may be held.
Unless the obligor waives his rights after default, the obligor in most
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circumstances has a right to redeem the collateral prior to actual sale (i) by
paying the secured party all unpaid installments on the obligation, plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus in some jurisdictions, reasonable
attorneys' fees or (ii) in some states, by paying the secured party past-due
installments. Repossessed vehicles are generally resold by the Company through
wholesale auctions which are attended principally by dealers.
LITIGATION
The Company is currently not a party to any material litigation, although
it is involved from time to time in routine litigation incident to its business.
PROPERTIES AND FACILITIES
The Company's headquarters are located in approximately 18,900 square feet
of leased space at 301 Congress Avenue, Austin, Texas, for a monthly rent of
$22,838. The lease for such facility expires in June 1998. The Company's
headquarters contain the Company's executive offices as well as those related to
automobile finance contract acquisition. In addition, the Company leases
approximately 520 square feet of office space at 1010 Woodman Drive, Suite 240,
Dayton, Ohio, for its midwest regional marketing office at a rent of $550 per
month. The lease for the Ohio facility expires on February 28, 1998.
EMPLOYEES
As of June 30, 1996, the Company employed 79 persons, none of which was
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, director designees and executive officers of the Company,
their respective ages and their present positions with the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
William O. Winsauer(1).................... 36 Chairman of the Board and Chief Executive Officer and
Director
Adrian Katz............................... 32 Vice Chairman of the Board and Chief Operating
Officer and Director
Charley A. Pond........................... 51 President
John S. Winsauer(1)....................... 34 Secretary and Director
William J. Stahl.......................... 48 Vice President and Chief Financial Officer
Robert G. Barfield........................ 42 Vice President -- Marketing
Alan E. Pazdernik......................... 56 Vice President -- Credit
Robert R. Giese........................... 57 Vice President -- Collections
Robert S. Kapito.......................... 39 Director Designee(2)
Manuel A. Gonzalez........................ 45 Director Designee(2)
Stuart A. Jones........................... 41 Director Designee(2)
Thomas I. Blinten......................... 39 Director Designee(2)
</TABLE>
- ------------
(1) Messrs. William and John Winsauer are brothers.
(2) Each Director Designee has consented to become a Director on or before
completion of the Offering.
Directors serve for annual terms. Officers are elected by the Board of
Directors and serve at the discretion of the Board.
MANAGEMENT BACKGROUND
William O. Winsauer, Chairman of the Board and Chief Executive Officer
Mr. Winsauer has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation in 1993. Mr. Winsauer has
been involved in arranging and developing various sources of financing for
subprime finance contracts since 1989. Mr. Winsauer was the founder of ABI in
1989 and served full time as its President and sole shareholder from 1989
through 1993, and remains its President and sole shareholder to date. ABI has no
material current operations other than to manage its and Mr. Winsauer's
investments in securitizations sponsored by Mr. Winsauer. In the late 1980s, Mr.
Winsauer began selling whole loan packages of contracts originated by the
Gillman Companies, a large dealership group based in Houston, Texas and worked
with his brother, John S. Winsauer, in certain of the transactions placed
through The Westcap Corporation in 1991 and 1992. Subsequently, Mr. Winsauer was
directly responsible for initiating, negotiating, coordinating and completing a
number of transactions involving the issuance of over $235 million of both
public and private asset-backed securities backed by subprime automobile finance
contracts, $190 million of which were sponsored by Mr. Winsauer. Mr. Winsauer
was among the first individuals to be involved in the structuring and marketing
of securitization transactions involving subprime finance contracts.
Adrian Katz, Vice Chairman, Chief Operating Officer and Director
Mr. Katz joined the Company in November 1995 and was elected Vice Chairman
of the Board of Directors and appointed Chief Operating Officer in December
1995. Immediately prior to that, from February 1995 he was employed as a
managing director at Smith Barney, Inc. (a broker/dealer), where he was
responsible for structuring asset-backed, commercial and residential
mortgage-backed securities. From 1989 through 1994, Mr. Katz was employed by
Prudential Securities Incorporated (a
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broker/dealer), where he was appointed a managing director in 1992 and where he
served as a co-head of the Mortgage and Asset Capital Division with
corresponding sales, trading, banking and research management responsibilities.
From 1985 to 1989, Mr. Katz worked for The First Boston Corporation developing
software and managing the structuring of new securitizations. Mr. Katz has been
involved in the sale and financing through securitization of consumer assets
since 1985.
Charley A. Pond, President
Mr. Pond joined the Company in January 1996 as its President and is
responsible for various day-to-day operations of the Company. From June 1995 to
November 1995, Mr. Pond served as President of AutoLend Group, Inc., an
automobile finance company. Prior to that, from August 1989 to June 1995, Mr.
Pond served Mercury Finance Company, an automobile finance company, as its Vice
President and Chief Financial Officer. Prior to his tenure at Mercury, Mr. Pond
was involved with the corporate finance divisions of several New York-based
banks.
John S. Winsauer, Secretary and Director
Mr. Winsauer has served as Secretary and a Director of the Company since
October 1995. In addition, Mr. Winsauer has been a shareholder of the Company
since June 1993. Mr. Winsauer's primary responsibilities have included the
development and implementation of the Company's computer and communications
systems. From January 1993 until present, Mr. Winsauer has been employed by
Amherst Securities Group (a broker/dealer previously known as USArbour
Financial) as a Senior Vice President, prior to which he served as a Senior Vice
President of The Westcap Corporation (a broker/dealer) from April 1989 to
January 1993. From June 1989 through August 1992, in his position as Senior Vice
President with The Westcap Corporation, Mr. Winsauer participated in the
successful marketing of whole-loan packages of finance contracts placed by the
Gillman Companies.
William J. Stahl, Vice President and Chief Financial Officer
Mr. Stahl joined the Company in March 1995 as its Vice President and Chief
Financial Officer. From August 1991 to March 1995, Mr. Stahl was Senior Vice
President and Director of the financial strategies group of The Westcap
Corporation, a broker/dealer which specialized in structured investment products
for institutional investors. Prior to that, Mr. Stahl was employed in a similar
capacity at Kemper Securities, Inc. and its predecessor Underwood Neuhaus & Co.
from January 1989 until August 1991. Mr. Stahl is a CPA with approximately
thirteen years experience in public accounting, including six years as a partner
in his own firm. In addition, Mr. Stahl has ten years experience with
broker/dealers of fixed income investments as a financial analyst.
Robert G. Barfield, Vice President -- Marketing
Mr. Barfield joined the Company in 1994 as Regional Marketing Manager and
was promoted to his present position in February 1995. Previously, Mr. Barfield
was the finance director at Archer Motor Co. (an automobile dealership) from
August 1993 to September 1994. Mr. Barfield was General Manager of the Gullo
Auto Center (an automobile dealership) from March 1992 to August 1993 and he
served as General Sales Manager to Charlie Thomas Auto World (an automobile
dealership) from January 1990 to March 1992. Mr. Barfield has eleven years
experience working in the automotive finance industry.
Alan E. Pazdernik, Vice President -- Credit
Mr. Pazdernik joined the Company in September 1995 as Vice
President -- Credit. From October 1991 until he joined the Company, Mr.
Pazdernik was employed as Credit Manager by E-Z Plan, Inc., a company he created
to handle the internal financing of subprime automobile paper. Prior to October
1991, Mr. Pazdernik served over 18 years as the Director of Finance and
Insurance Operations for Red McCombs Automotive (an automobile dealership),
handling the credit, collection, and finance contract administration functions
for a $70 million portfolio of automobile finance contracts. In his present
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capacity with the Company, Mr. Pazdernik manages the credit and funding
departments, and has been involved in the Company's efforts to increase market
share in the San Antonio area.
Robert R. Giese, Vice President -- Collections
Mr. Giese joined the Company in April 1994 as Vice
President -- Collections. From 1984 to April 1994, he served as Vice President
in Retail Credit Administration with First Interstate Bank of Texas, with
responsibility for controlling the performance of the consumer loan portfolio in
Texas. Mr. Giese has more than 30 years experience in sales, finance and
banking, including management experience coordinating credit underwriting,
collections, asset disposal, centralized loss recovery and loan workout
functions. His experience in sales, credit and collections supports the Company
in its management of delinquency and loss performance.
Robert S. Kapito -- Director Designee
Mr. Kapito has been nominated and has agreed to serve as a Director of the
Company upon the consummation of the offering. Since May 1990, Mr. Kapito has
been Vice Chairman of BlackRock Financial Management, an investment advisory
firm ('BlackRock'). Mr. Kapito is a member of BlackRock's Management Committee
and Investment Strategy Committee and Co-Head of the Portfolio Management Group.
Mr. Kapito also serves as Vice President for BlackRock's family of mutual funds
and for the Smith Barney Adjustable Rate Government Income Fund. Mr. Kapito has
also served since May 1987 as President of the Board of Directors of Periwinkle
National Theatre.
Manuel A. Gonzalez -- Director Designee
Mr. Gonzalez has been nominated and has agreed to serve as a Director of
the Company upon the consummation of the Offering. From September 1993 to
December 1994, Mr. Gonzalez was Executive Vice President of the Company and ABI.
Mr. Gonzalez is currently Dealer Principal/Owner of NorthPoint Pontiac Buick
GMC, an automobile dealership located in Kingwood, Texas. Since March 1991, Mr.
Gonzalez has been President of Equifirst Financial Services, Inc., a consulting
firm specializing in the automobile dealership industry. From 1988 through 1990,
Mr. Gonzalez was Chief Financial Officer for the Gillman Companies, prior to
which he served as a Vice President at First City Bank, Texas where he managed
the banking relationships of a large number of automobile dealers.
Stuart A. Jones -- Director Designee
From March 1989, to the present, Stuart Jones has been self-employed as
head of Stuart A. Jones Finance and Investments, Dallas, Texas, a
privately-owned consultancy specializing in investment banking and real estate
financing. From January, 1990 to January, 1994, Mr. Jones also served as Counsel
to the Brock Group, Ltd., Washington, D.C., an international trade and
investment strategies consulting firm, where he represented clients in various
real estate, energy and environmental matters.
Thomas I. Blinten -- Director Designee
Since November 1995, Thomas Blinten has been a Managing Director and
executive management Committee member of Nomura Capital Services, Inc., New
York, New York, a majority-owned subsidiary of Nomura Securities Company,
responsible for interest rate swap and OTC derivative sales and trading. From
March 1993 to November 1995, Mr. Blinten was a Principal and management
committee member of General Re Financial Products, a wholly-owned subsidiary of
General Re Corporation. From July 1990 through March 1993 he was a Manager in
the Derivative Products department for Kemper Securities, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to consummation of the Offering, the Board of Directors shall have
established a Compensation Committee and an Audit Committee comprised of outside
directors. The Company's
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bylaws provide that each such committee shall have three or more members, who
serve at the pleasure of the Board of Directors.
The Compensation Committee will be responsible for administering incentive
grants under the Company's incentive stock option plan (the 'Option Plan') and
reviewing and making recommendations to the Board of Directors with respect to
the administration of the salaries, bonuses and other compensation of executive
officers, including the terms and conditions of their employment, and other
compensation matters.
The Audit Committee will be responsible for making recommendations to the
Board concerning the engagement of the Company's independent auditors and
consulting with independent auditors concerning the audit plan and, thereafter,
concerning the auditors' report and management letter.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company,
as well as certain other compensation paid or accrued, for the fiscal year ended
December 31, 1995 to the Company's Chief Executive Officer, and each of the
other three most highly compensated executive officers of the Company:
1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
NAME AND PRESENT POSITION TOTAL SALARY BONUS COMPENSATION
- --------------------------------------------------------------- -------- ------- ------- ------------
<S> <C> <C> <C> <C>
William O. Winsauer ........................................... $ 0(1) $ 0 $ 0 $ 0(1)
Chairman of the Board and Chief Executive Officer
Robert G. Barfield ............................................ 107,675 75,500 32,175 0
Vice President -- Marketing
Adrian Katz ................................................... 94,492 18,750 0 75,742(2)
Vice Chairman and Chief Operating Officer
William J. Stahl .............................................. 85,000 85,000 0 0
Vice President and Chief Financial Officer
</TABLE>
- ------------
(1) Although Mr. Winsauer received no compensation in the fiscal year 1995, he
received loans from the Company in the aggregate amount of $132,359. See
'Certain Transactions.'
(2) Stated value of compensation in the form of stock issuance.
Under the Company's compensation structure for fiscal 1996, the five
highest paid officers will be as follows (annual base salary in parentheses):
William O. Winsauer ($240,000); Charley A. Pond ($180,000); Adrian Katz
($150,000); William J. Stahl ($120,000); and John S. Winsauer ($120,000).
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. Three members of the Company's Board of Directors, Messrs. William
and John Winsauer and Adrian Katz, participated in the Board's deliberations
regarding executive compensation.
EMPLOYMENT AGREEMENTS
Messrs. William Winsauer, Katz and Pond have entered into employment
agreements with the Company on substantially the following terms:
William O. Winsauer. Mr. Winsauer entered into an employment agreement with
the Company dated May 1, 1996. Under the terms of this agreement, Mr. Winsauer
has agreed to serve as Chief Executive Officer of the Company for a period of
five years and, during such time, to devote his full business time and attention
to the business of the Company. The agreement provides for compensation of Mr.
Winsauer at a base salary of $240,000 per annum, which may be increased or
decreased from time to time in the sole discretion of the Board, but in no event
less than $240,000 per annum. The agreement entitles Mr. Winsauer to receive the
benefits of any cash incentive compensation as may be
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granted by the Board to employees, and to participate in any executive bonus or
incentive plan established by the Board from time to time.
The agreement provides Mr. Winsauer with additional benefits including (i)
the right to participate in the Company's medical benefit plan, (ii) entitlement
to benefits under the Company's executive disability insurance coverage, (iii) a
monthly automobile allowance of $1,500 plus fees, maintenance and insurance,
(iv) six weeks paid vacation and (v) all other benefits granted to full-time
executive employees of the Company.
The agreement automatically terminates upon (i) the death of Mr. Winsauer,
(ii) disability of Mr. Winsauer which continues for a period of six months,
following expiration of such six months, (iii) termination of Mr. Winsauer 'for
cause' (which termination requires the vote of a majority of the Board) or (iv)
the occurrence of the five-year expiration date, provided, however, that the
agreement may be extended for successive one-year intervals unless either party
elects to terminate the agreement in a prior written notice. Mr. Winsauer may
terminate his employment under the agreement for good reason as set forth below.
In the event of Mr. Winsauer's termination for cause, the agreement provides
that the Company shall pay Mr. Winsauer his base salary through the date of
termination and the vested portion of any incentive compensation plan to which
Mr. Winsauer may be entitled.
Mr. Winsauer may terminate his employment under the agreement for 'good
reason,' including: (i) removal of, or failure to re-elect Mr. Winsauer as Chief
Executive Officer; (ii) change in scope of responsibilities; (iii) reduction in
salary; (iv) relocation of the Company outside Austin, Texas; (v) breach by the
Company of the agreement; (vi) certain changes to the Company's compensation
plans; (vii) failure to provide adequate insurance and pension benefits; (viii)
failure to obtain similar agreement from any successor or parent of the Company;
or (ix) termination of Mr. Winsauer other than by the procedures specified in
the agreement.
Other than following a change in control, and upon termination of Mr.
Winsauer in breach of the agreement or termination by Mr. Winsauer for good
reason, the Company must pay Mr. Winsauer: (i) his base salary through the date
of termination; (ii) a severance payment equal to the base salary multiplied by
the number of years remaining under the agreement; and (iii) in the case of
breach by the Company of the agreement, all other damages to which Mr. Winsauer
may be entitled as a result of such breach, including lost benefits under
retirement and incentive plans.
In the event of Mr. Winsauer's termination following a change in control,
the Company is required to pay Mr. Winsauer an amount equal to three times the
sum of (i) his base salary, (ii) his annual management incentive compensation
and (iii) his planned level of annual perquisites. The agreement also provides
for indemnification of Mr. Winsauer for any costs or liabilities incurred by Mr.
Winsauer in connection with his employment.
Adrian Katz. Mr. Katz entered into an employment agreement with the Company
dated November 15, 1995. Under the terms of this agreement, Mr. Katz has agreed
to serve as Vice Chairman and Chief Operating Officer of the Company for a
period of three years and, during such time, to devote his full business time
and attention to the business of the Company. The agreement grants Mr. Katz a
base salary of $12,500 per full calendar month of service, which amount may be
increased from time to time at the sole discretion of the Board. The agreement
terminates upon the death of Mr. Katz. In the event of any disability of Mr.
Katz which continues for a period of six months, the agreement may be terminated
by the Company at the expiration of such six-month period. The agreement
automatically terminates upon the discharge of Mr. Katz for cause.
Mr. Katz has agreed not to disclose certain confidential proprietary
information of the Company to unauthorized parties, except as required by law,
and to hold such information for the benefit of the Company. The agreement
contains standard non-competition covenants whereby Mr. Katz has agreed not to
conduct or solicit business with any competitors or clients of the Company
within certain restricted geographic areas for a period of two years following
the termination of his employment. The restriction also applies to the
solicitation of any current or recent employees of the Company. The restricted
areas include any territory within a 40-mile radius of an automobile dealership
with which the Company has done business during the term of the agreement.
Pursuant to the terms of the agreement,
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Mr. Katz received 568,750 shares of the Company's Common Stock on January 1,
1996, equal to 10% of the Company's outstanding shares of Common Stock following
the issuance of such shares to Mr. Katz.
Charley A. Pond. Mr. Pond entered into an employment agreement with the
Company dated February 15, 1996. Under the terms of this agreement, Mr. Pond has
agreed to serve as President of the Company for a period of three years and,
during such time, to devote his full business time and attention to the business
of the Company.
The agreement grants Mr. Pond a base salary of $15,000 per full calendar
month of service, which amount may be increased from time to time at the sole
discretion of the Board. In addition, upon the Company's successful completion
of an initial public offering of its common stock, the Company is obligated to
pay Mr. Pond a bonus of $90,000. An additional performance bonus is payable to
Mr. Pond in the event the Company meets certain sales and income targets set
forth in the agreement. Such bonus is equal to $4,500 for each 10% increase in
the Company's sales or income over each of the specified targets. As an officer
of the Company, Mr. Pond shall be entitled to participate in its stock option
plan.
The agreement terminates upon the death of Mr. Pond. In the event of any
disability of Mr. Pond which continues for a period of six months, the agreement
may be terminated by the Company at the expiration of such six-month period. The
agreement automatically terminates upon the discharge of Mr. Pond for cause. If
Mr. Pond's employment with the Company terminates prior to February 15, 1997 for
any reason other than termination for cause or voluntary termination by the
employee, the Company is obligated to pay Mr. Pond's salary for the remainder of
the first year of the agreement.
Mr. Pond has agreed not to disclose certain confidential proprietary
information of the Company to unauthorized parties, except as required by law,
and to hold such information for the benefit of the Company. The agreement
contains standard non-competition covenants whereby Mr. Pond has agreed not to
conduct or solicit business with any competitors or clients of the Company
within certain restricted geographic areas for a period of two years following
the termination of his employment. The restriction also applies to the
solicitation of any current or recent employees of the Company. The restricted
areas include any territory within a 40-mile radius of any automobile dealership
with which the Company has done business during the term of the agreement.
OPTION PLAN
Prior to completion of the Offering, management expects the Board of
Directors of the Company to adopt and the shareholders of the Company to
approve, the Company's proposed 1996 Stock Option Plan (the 'Option Plan'),
under which stock options may be granted to directors, officers and employees of
the Company and its subsidiaries. The Option Plan permits the grant of stock
options that qualify as incentive stock options ('ISOs') under Section 422 of
the Internal Revenue Code of 1986, as amended, and nonqualified stock options
('NSOs'), which do not so qualify. The Company will authorize and reserve
515,000 shares (8% of the Company's outstanding shares of Common Stock without
giving effect to outstanding warrants) for issuance under the Option Plan. The
shares may be unissued shares or treasury shares. If an option expires or
terminates for any reason without having been exercised in full, the unpurchased
shares subject to such option will again be available for grant under the Option
Plan. In the event of certain corporate reorganizations, recapitalizations or
other specified corporate transactions affecting the Company or the Common
Stock, proportionate adjustments shall be made to the number of shares available
for grant and to the number of shares and prices under outstanding option grants
made before the event.
The Option Plan will be administered by the Compensation Committee of the
Board of Directors (the 'Committee'). Subject to the limitations set forth in
the Option Plan, the Committee has the authority to determine the persons to
whom options will be granted, the time at which options will be granted, the
number of shares subject to each option, the exercise price of each option, the
time or times at which the options will become exercisable and the duration of
the exercise period. The Committee may provide for the acceleration of the
exercise period of an option at any time prior to its termination or upon the
occurrence of specified events, subject to limitations set forth in the Option
Plan. Subject to the consent of optionees, the Committee has the authority to
cancel and replace stock options previously granted with new options for the
same or a different number of shares and having a
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<PAGE>
higher or lower exercise price, and may amend the terms of any outstanding stock
option to provide for an exercise price that is higher or lower than the current
exercise price.
All directors, officers and employees of the Company and its subsidiaries
are eligible to receive a grant of a stock option under the Option Plan, as
selected by the Committee. The exercise price of shares of Common Stock subject
to options granted under the Option Plan may not be less than the fair market
value of the Common Stock on the date of grant. Options granted under the Option
Plan will generally become vested and exercisable over a three-year period in
equal annual installments, unless the Committee specifies a different vesting
schedule. The maximum term of options granted under the Option Plan is ten years
from the date of grant. ISOs granted to any employee who is a 10% shareholder of
the Company are subject to special limitations relating to the exercise price
and term of the options. The value of Common Stock (determined at the time of
grant) that may be subject to ISOs that become exercisable by any one employee
in any one year is limited by the Internal Revenue Code to $100,000. All options
granted under the Option Plan are nontransferable by the optionee, except upon
the optionee's death in accordance with his will or applicable law. In the event
of an optionee's death or permanent and total disability, outstanding options
that have become exercisable will remain exercisable for a period of one year,
and the Committee will have the discretion to determine the extent to which any
unvested options shall become vested and exercisable. In the case of any other
termination of service, outstanding options that have previously become vested
will remain exercisable for a period of 90 days, except for a termination 'for
cause' (as defined), in which case all unexercised options will be immediately
forfeited. Under the Option Plan, the exercise price of an option is payable in
cash or, in the discretion of the Committee, in Common Stock or a combination of
cash and Common Stock. An optionee must satisfy all applicable tax withholding
requirements at the time of exercise.
In the event of a 'change in control' of the Company (as defined in the
Option Plan) each option will become fully and immediately vested and the
optionee may surrender the option and receive, with respect to each share of
Common Stock issuable under such option, a payment in cash equal to the excess
of the fair market value of the Common Stock at the time of the change in
control over the exercise price of the option. However, there will be no
acceleration of vesting and cash payment if the change in control is approved by
two-thirds of the members of the Board of Directors of the Company and provision
is made for the continuation or substitution of the options on equivalent terms.
The Option Plan has a term of ten years, subject to earlier termination or
amendment by the Board of Directors, and all options granted under the Option
Plan prior to its termination remain outstanding until they have been exercised
or are terminated in accordance with their terms. The Board may amend the Option
Plan at any time.
The grant of a stock option under the Option Plan will not generally result
in taxable income for the optionee, nor in a deductible compensation expense for
the Company, at the time of grant. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
NSO, the optionee will recognize ordinary income in the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the exercise
price, and the Company will generally be entitled to a corresponding deduction.
The treatment of an optionee's disposition of shares of Common Stock acquired
upon the exercise of an option is dependent upon the length of time the shares
have been held and whether such shares were acquired by exercising an ISO or an
NSO. Generally, there will be no tax consequence to the Company in connection
with the disposition of shares acquired under an option except that the Company
may be entitled to a deduction in the case of a disposition of shares acquired
upon exercise of an ISO before the applicable ISO holding period has been
satisfied.
The Committee will make initial grants of stock options under the Option
Plan to certain of the Company's directors, executive officers and other
employees to purchase an aggregate of 300,000 shares of Common Stock at a per
share exercise price equal to the Offering Price. Under this initial phase of
the Option Plan, effective upon completion of the Offering, William O. Winsauer
will be granted options to purchase a total of 40,000 shares, and John S.
Winsauer, Charley A. Pond and Adrian Katz will each be granted options to
purchase 20,000 shares. The remaining options to purchase 200,000 shares will be
granted to other employees and non-employee directors prior to the end of 1996.
The employee options will become vested and exercisable over a three-year period
in equal annual
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installments beginning on the first anniversary of the grant date. The
non-employee director options to purchase 12,000 shares are described below
under 'Director Compensation.' The number of shares of Common Stock that may be
subject to options granted in the future under the Option Plan to executive
officers and other employees of the Company is not determinable at this time.
DIRECTOR COMPENSATION
In return for their services to the Company, each of the non-employee
directors will be compensated in the following manner: (i) an annual payment of
$5,000 cash; (ii) payment of $500 per meeting of the Board of Directors attended
and $500 for each committee meeting attended (plus reimbursement of
out-of-pocket expenses); and (iii) an option granted under the Option Plan to
purchase 3,000 shares of the Company's Common Stock, exercisable at the initial
public offering price hereunder, on or after the date commencing one year
following the date of the Offering.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that, pursuant to Texas
law, no director of the Company shall be liable to the Company or its
shareholders for monetary damages for an act or omission in such director's
capacity as a director except for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) any act or omission not in good
faith or that involves intentional misconduct or a knowing violation of law,
(iii) any transaction from which the director derived an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (iv) any act or omission for which the liability of a
director is expressly provided for by statute. The effect of this provision in
the Articles of Incorporation is to eliminate the right of the Company and its
shareholders (through shareholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
These provisions will not affect the liability of directors under other laws,
such as federal securities laws.
Under Section 2.02-1 of the Texas Business Corporation Act, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, subject to certain limitations. The Company's Articles of
Incorporation provide that the Company will indemnify its directors and officers
to the fullest extent permitted by law.
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CERTAIN TRANSACTIONS
The following is a summary of certain transactions to which the Company was
or is a party and in which certain executive officers, directors or shareholders
of the Company had or have a direct or indirect material interest. The Company
believes that the terms contained in each of such transactions are comparable to
those which could have been obtained by the Company from unaffiliated third
parties.
William O. Winsauer entered into a Secured Working Capital Loan Agreement
dated as of July 31, 1995 (the 'Sentry Working Capital Line') with Sentry, which
provides for a line of credit of up to $2.25 million. Proceeds from the Sentry
Working Capital Line were contributed to the Company as paid-in capital. The
obligations of Mr. Winsauer under the Sentry Working Capital Line, including all
payment obligations, are guaranteed by the Company and its affiliate, ABI, whose
sole shareholder is William O. Winsauer, pursuant to a Working Capital Guarantee
and Waiver dated as of July 31, 1995. All amounts outstanding under the Sentry
Working Capital Line ($1,910,000 at June 30, 1996), and reimbursement of a
payment of $89,000 made by the Company to Sentry in April 1996 on behalf of Mr.
Winsauer, will be paid from the sale of shares by William Winsauer as part of
the Offering. Effective September 26, 1996 the Company was released from its
guarantee of the shareholder's debt. See 'Use of Proceeds.'
During 1995, the Company made loans to William O. Winsauer and John S.
Winsauer in the amount of $132,359 and $21,000, respectively. As of June 30,
1996, the outstanding amounts of these loans increased to $304,861 and $131,173,
respectively. Such loans bear no interest and have no repayment terms, but will
be repaid out of the proceeds of the sale of Common Stock by the Selling
Shareholders in the Offering. To date, the full amount on each of these loans
remains outstanding. See Note 12 to Notes to Consolidated Financial Statements.
The Company had net advances due from ABI of $86,700 as of June 30, 1996,
which funds were utilized by ABI prior to 1996 to cover expenses incurred in
connection with the management of ABI's investments in securitization trusts.
The Company and ABI entered into a management agreement dated as of January 1,
1996 (the 'ABI Management Agreement') which provides for repayment of such
advances together with interest at 10% per annum on or before May 31, 1998, the
reimbursement of expenses incurred on behalf of ABI and for an annual fee
payable by ABI to the Company for services rendered by it or the Company's
employees on behalf of ABI. The ABI Management Agreement states that the Company
shall provide the following management services for ABI on an ongoing basis: (i)
day-to-day management of ABI's portfolio of partnership interests in the
securitization trusts sponsored by ABI between 1992 and 1994, including various
monitoring and reporting functions; (ii) certain cash management services,
including the advancing of funds to pay ABI's ordinary business expenses and
(iii) providing advice as to regulatory compliance. The ABI Management Agreement
also provides that the Company will perform certain accounting functions on
behalf of ABI including (i) maintenance of financial books and records, (ii)
monitoring of cash management functions, (iii) preparation of financial
statements and tax returns and (iv) providing advice in connection with
retention of independent accountants. As compensation for services rendered
thereunder, the ABI Management Agreement provides that ABI shall pay the Company
an annual fee of $50,000, payable quarterly. In addition, the agreement provides
for the quarterly reimbursement of advances made by the Company of out-of-pocket
costs and expenses on behalf of ABI.
The Company entered into a shareholders' agreement (the 'Shareholder
Agreement'), with Messrs. John and William Winsauer and Adrian Katz, dated as of
January 1, 1996. The Shareholder Agreement provides, among other things, that in
the event any party to the Shareholder Agreement, other than William Winsauer,
shall receive a bona fide offer to purchase any or all of his shares of Common
Stock of the Company, such selling shareholder shall first offer such shares for
sale to the Company upon the same terms and at the same price as are set forth
in the offer received by such selling shareholder. In the event the Company
declines to purchase such shares, the selling shareholder is obligated to offer
such shares for sale to William Winsauer upon the same terms and at the same
price. On or before the effective date of the Offering, the Shareholder
Agreement will be terminated.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of November 8, 1996
and as adjusted to reflect the sale of the shares of Common Stock in the
Offering (assuming no exercise of the Underwriters' over-allotment option),
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director and each officer of the Company with beneficial
ownership of Common Stock and (iii) all officers and directors as a group.
Unless otherwise indicated, all shares are owned directly and the indicated
owner has sole voting and dispositive power with respect thereto.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING SHARES OFFERING
----------------------- OFFERED IN -----------------------
NAME AND ADDRESS NUMBER PERCENTAGE THE OFFERING NUMBER PERCENTAGE
- ------------------------------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
William O. Winsauer ............................. 3,839,062 67.50% 196,000 3,643,062 56.59%
301 Congress Avenue
Austin, Texas 78701
John S. Winsauer ................................ 1,279,688 22.50 54,000 1,225,688 19.04
301 Congress Avenue
Austin, Texas 78701
Adrian Katz ..................................... 568,750 10.00 0 568,750 8.84
301 Congress Avenue
Austin, Texas 78701
Total (all officers and directors as a
group).................................... 5,687,500 100.00% 250,000 5,437,500 84.47%
</TABLE>
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DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value.
Common Stock. As of November 8, 1996, there were 5,687,500 shares of Common
Stock outstanding. Holders of Common Stock are not entitled to any preemptive
rights. The Common Stock is neither redeemable nor convertible into any other
securities. All outstanding shares of Common Stock are fully paid and
nonassessable. All shares of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of shareholders,
including the election of directors. Shares of Common Stock do not have
cumulative voting rights.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share equally and ratably in all of the
assets remaining, if any, after satisfaction of all debts and liabilities of the
Company.
Preferred Stock. The Board of Directors, without further shareholder
action, is authorized to issue shares of Preferred Stock in one or more series
and to fix the terms and provisions of each series, including dividend rights
and preferences over dividends on the Common Stock, conversion rights, voting
rights (in addition to those provided by law), redemption rights and the terms
of any sinking fund therefor, and rights upon liquidation, including preferences
over the Common Stock. Under certain circumstances, the issuance of a series of
Preferred Stock could have the effect of delaying, deferring or preventing a
change of control of the Company and could adversely affect the rights of the
holders of the Common Stock. As of November 8, 1996 there were no issued and
outstanding shares of Preferred Stock and there is no current intention to issue
any Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
WARRANTS
The Company currently has one outstanding Warrant (the 'Warrant') with
respect to its Common Stock, which was issued on March 12, 1996, in favor of a
private investor (the 'Warrant Holder'). The Warrant entitles the Warrant
Holder, upon its exercise, to purchase from the Company 18,811 shares of its
Common Stock (the 'Warrant Shares') at $0.53 per share. The exercise price per
share may be adjusted over time due to certain adjustments that are to be made
to the number of shares constituting a 'Warrant Share' in the event of Common
Stock splits, dilutive issuances of additional Common Stock, issuance of
additional warrants or other rights, or issuance of securities convertible into
Common Stock by the Company.
The Warrant provides the Warrant Holder with certain registration rights
that arise upon the Company's proposal to register, subsequent to its initial
public offering, its Common Stock for sale to the public under the Securities
Act. In such event, the Warrant obligates the Company to give written notice to
the Warrant Holder of its intention to register shares in a public offering.
Upon the written request of the Warrant Holder, received by the Company within
20 days after the giving of any such notice by the Company, to register any of
its Warrant Shares and/or Warrant Shares issuable upon exercise of a Warrant
held by such Warrant Holder, the Company must use its best efforts to cause the
Warrant Shares as to which registration shall have been so requested to be
included in the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by the Warrant
Holder (in accordance with its written request) of such Warrant Shares.
Alternatively, the Company may include the Warrant Shares as to which
registration shall have been requested by a Warrant Holder in a separate
registration statement to be filed concurrently with the registration statement
proposed to be filed by the Company. The Warrant also provides that in the event
that any registration statement filed by the Company shall relate, in whole or
in part, to an underwritten
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public offering, the number of Warrant Shares to be included in such
registration statement may be reduced or no Warrant Holders may be included in
such registration, subject to certain conditions, if and to the extent that the
managing underwriters shall give their written opinion that such inclusion would
materially and adversely affect the marketing of the securities to be sold
therein by the Company. Except as set forth above, the Warrant sets no limit on
the number of registrations that may be requested pursuant to the terms of the
Warrant.
For a description of the Representative's Warrants, see 'Underwriting.'
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND TEXAS
CORPORATION LAW
GENERAL
The provisions of the Articles of Incorporation, the Bylaws and the Texas
Business Corporation Act (the 'TBCA') described in this section may affect the
rights of the Company's shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION
Under the TBCA, a corporation's articles of incorporation may be amended by
the affirmative vote of the holders of two-thirds of the total outstanding
shares entitled to vote thereon, unless a different amount, not less than a
majority, is specified in the articles of incorporation. The Company's Articles
of Incorporation reduces such amount to a majority.
CUMULATIVE VOTING
Under the TBCA, cumulative voting is available unless prohibited by a
corporation's articles of incorporation. The Company's Articles of Incorporation
expressly prohibits cumulative voting.
CLASSIFIED BOARD
The TBCA permits but does not require, the adoption of a classified board
of directors consisting of any number of directors with staggered terms, with
each class having a term of office longer than one year but not longer than
three years. The TBCA also provides that no classification of directors shall be
effective for any corporation if any shareholder has the right to cumulate his
vote unless the board of directors consists of nine or more members. The Company
has not adopted a classified board of directors.
REMOVAL OF DIRECTORS
The TBCA provides that if a corporation's articles of incorporation or
bylaws so provide, at a meeting of shareholders called for that purpose, any
director or the entire board of directors may be removed with or without cause,
by the vote of the holders of the portion of shares specified in the
corporation's articles of incorporation or bylaws, but not less than a majority
of the shares entitled to vote at an election of directors. Neither the
Company's Articles of Incorporation nor its Bylaws provide for the removal of
directors; under the TBCA removal of directors is permitted by majority with or
without cause.
INSPECTION OF BOOKS AND RECORDS
The TBCA permits any person who shall have been a shareholder for at least
six months immediately preceding his demand, or who is the holder of at least 5%
of the outstanding stock of the corporation, to examine the books and records of
the Company, provided that a written demand setting forth a proper purpose of
such examination is made.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Under the TBCA a special meeting of shareholders of a corporation may be
called by the president, board of directors or shareholders as may be authorized
in the articles of incorporation or bylaws of the corporation or by the holders
of at least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting, unless the articles of incorporation
provide for a lesser or greater percentage (but not more than 50%). The
Company's Articles of Incorporation do not provide for a lesser or a greater
percentage. In addition, the Company's Bylaws provide that such a special
meeting may be called by the Chairman of the Board, the Chief Executive
60
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<PAGE>
Officer, the Secretary or any one of the directors of the Company or by the
holders of at least ten percent of all of the Common Stock entitled to vote at
such meeting.
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Under the TBCA, shareholders have the right, subject to certain exceptions,
to vote on all mergers to which the corporation is a party. In certain
circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such mergers. Under the Company's Articles
of Incorporation, approval of the holders of at least a majority of all
outstanding shares entitled to vote is required for a merger. The approval of
the shareholders of the surviving corporation in a merger is not required under
Texas law if: (i) the corporation is the sole surviving corporation in the
merger; (ii) there is no amendment to the corporation's articles of
incorporation; (iii) each shareholder holds the same number of shares after the
merger as before with identical designations, preferences, limitations and
relative rights; (iv) the voting power of the shares outstanding after the
merger plus the voting power of the shares issued in the merger does not exceed
the voting power of the shares outstanding prior to the merger by more than 20%;
(v) the number of shares outstanding after the merger plus the shares issued in
the merger does not exceed the number of shares outstanding prior to the merger
by more than 20%; and (vi) the board of directors of the surviving corporation
adopts a resolution approving the plan of merger.
The Company's Articles of Incorporation further provide that the Company
may sell, lease, exchange or otherwise dispose of all, or substantially all, of
its property, other than in the usual and regular course of business, or
dissolve, if the shareholders owning a majority or more of all the votes
entitled to be cast in the transaction approve the transaction. However, certain
of the Company's securitization documents prohibit mergers and sales of
substantially all assets.
ACTION WITHOUT A MEETING
Under the TBCA, any action to be taken by shareholders at a meeting may be
taken without a meeting if all shareholders entitled to vote on the matter
consent to the action in writing. In addition, a Texas corporation's articles of
incorporation may provide that shareholders may take action by a consent in
writing signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting. The Company's Articles of Incorporation contain such a provision.
DISSENTERS' RIGHTS
Under the TBCA, a shareholder is entitled to dissent from and, upon
perfection of the shareholder's appraisal rights, to obtain the fair value of
his or her shares in the event of certain corporate actions, including certain
mergers, share exchanges and sales of substantially all assets of the
corporation.
DIVIDENDS AND STOCK REPURCHASES AND REDEMPTIONS
The TBCA provides that the board of directors of a corporation may
authorize, and the corporation may make, distributions subject to any
restrictions in its articles of incorporation and the following limitations:
(1) A distribution may not be made by a corporation if after giving
effect thereto the corporation would be insolvent or the distribution
exceeds the surplus of the corporation, provided, however, that if the net
assets of a corporation are not less than the amount of the proposed
distribution the corporation may make a distribution involving a purchase
or redemption if made by the corporation to: (a) eliminate fractional
shares; (b) collect or compromise indebtedness owed by or to the
corporation; (c) pay dissenting shareholders entitled to payment for their
shares under the TBCA; or (d) effect the purchase or redemption of
redeemable shares in accordance with the TBCA.
61
<PAGE>
<PAGE>
(2) The corporation may make a distribution not involving a purchase
or redemption of any of its own shares if the corporation is a consuming
assets corporation.
PREEMPTIVE RIGHTS
Under the TBCA, shareholders of a corporation have a preemptive right to
acquire additional, unissued, or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares, except to the extent limited or denied by statute or by
the articles of incorporation. The Company's Articles of Incorporation expressly
deny preemptive rights.
DISSOLUTION
The TBCA permits, and the Company's Articles of Incorporation allow, that
voluntary dissolution may occur upon the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 6,456,311 shares
of Common Stock outstanding (6,606,311 shares if the Underwriters'
over-allotment option is exercised in full). Of such shares, the shares sold in
the Offering (other than shares which may be purchased by 'affiliates' of the
Company) will be freely tradeable without restriction or further registration
under the Securities Act. The 5,456,311 remaining shares of Common Stock are
'restricted securities,' as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144 and 144A
thereunder. Approximately 64,500 shares will be eligible for sale pursuant to
Rule 144 immediately after the Offering, subject to compliance with such Rule
and the contractual arrangements disclosed below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (64,563 shares based on the number of shares
to be outstanding immediately after this Offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume in the
public market during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 are also subject
to certain requirements as to the manner and notice of sale and the availability
of public information concerning the Company.
Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period. Restricted shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing volume limitations and other restrictions.
Further, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted shares were acquired from the Company
and the date they were acquired from an affiliate of the Company and the person
acquiring such shares was not an affiliate for at least three months prior to a
proposed sale, such person would be entitled to sell the shares immediately
without regard to volume limitations and the other conditions described above.
The Company and all holders of Common Stock prior to the Offering have
agreed not to, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of any Common Stock, including, but not limited to, any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representative. See
'Underwriting.' No predictions can be made as to the effect, if any, that market
sales of shares of existing shareholders or the availability of such shares for
future
62
<PAGE>
<PAGE>
sale will have on the market price of shares of Common Stock prevailing from
time to time. The prevailing market price of Common Stock after the Offering
could be adversely affected by future sales of substantial amounts of Common
Stock by existing shareholders or the perception that such sales could occur.
In connection with this offering, the Company has agreed to sell warrants,
exercisable beginning one year from the date of this Prospectus, to the
Representative which entitle the Representative to purchase up to 100,000 shares
of Common Stock at 120% of the initial public offering price per share of Common
Stock. The holders of the shares issuable upon exercise of these warrants may
require the Company to file a registration statement under the Securities Act
with respect to such shares. In addition, if the Company registers any of its
Common Stock for its own account, the holders of the shares issuable upon
exercise of these warrants are entitled to include their shares of Common Stock
in the Registration. See 'Underwriting.'
UNDERWRITING
The Underwriters named below, represented by The Boston Group, L.P., have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions and that
the Underwriters are committed to purchase all of such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------- ---------
<S> <C>
The Boston Group, L.P. ................................................ 630,000
EVEREN Securities, Inc. ............................................... 100,000
Black & Company, Inc. ................................................. 30,000
Hampshire Securities Corporation....................................... 30,000
Ladenburg, Thalmann & Co. Inc. ........................................ 30,000
Madison Securities..................................................... 30,000
M.H. Meyerson & Co., Inc. ............................................. 30,000
Pennsylvania Merchant Group Ltd ....................................... 30,000
Sands Brothers & Co., Ltd. ............................................ 30,000
Southwest Securities, Inc. ............................................ 30,000
Van Kasper & Company................................................... 30,000
---------
Total............................................................. 1,000,000
---------
---------
</TABLE>
The Representative was organized in California and its principal business
function is to underwrite and sell securities. The Representative has been
recently formed and has underwritten only a limited number of public offerings.
After interviewing various underwriters, the Company has advised the
Representative that it chose the Representative based upon various factors,
including the Company's belief that the Representative has an understanding of
the Company and its business.
The Company has been advised by the Representative that the Underwriters
propose to offer shares to the public at the initial offering price set forth on
the cover page of this Prospectus, and to certain securities dealers at such
price less a concession of not more than $0.40 per share, and that the
Underwriters and such dealers may reallow to other dealers, including the
Underwriters, a discount not in excess of $0.10 per share. After the initial
public offering, the public offering price and concessions and discounts may be
changed by the Underwriters. No reduction in such terms shall change the amount
of proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company will bear the expenses of the Selling Shareholders in
connection with the registration of shares, other than underwriting discounts
and commissions.
The Company has granted the Underwriters an option, exercisable within
thirty days after the date of this Prospectus, to purchase up to an aggregate of
an additional 150,000 shares of Common Stock, to
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<PAGE>
cover over-allotments, at the same price per share of Common Stock being paid by
the Underwriters for the other shares of Common Stock offered hereby.
The Representative has informed the Company that it does not expect any
sales of the shares of Common Stock offered hereby to be made by the
Underwriters to any accounts over which they exercise discretionary authority.
The Company's officers, directors and stockholders have agreed not to,
directly or indirectly, offer, offer to sell, sell, grant an option to purchase
or sell, or transfer any shares of Common Stock owned by them for a period of
180 days from the date of this Prospectus without the prior written consent of
the Representative.
The Company has agreed to pay the Representative a non-accountable expense
allowance of up to $172,500. To date, the Company has not paid any of the
non-accountable expense allowance to the Representative. The Representative's
expenses in excess of the non-accountable expense allowance, including its legal
expenses, will be borne by the Representative. To the extent that the expenses
of the Representative are less than the non-accountable expense allowance, the
excess shall be deemed to be compensation to the Representative.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act or will
contribute payments the Underwriters may be required to make in respect thereof.
The Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Prior to this Offering, there has been no public trading market for the
Common Stock. Although the Common Stock has been approved for quotation on
Nasdaq, there can be no assurance that any active trading market will develop
for the Common Stock, or, if developed, will be maintained. The initial public
offering price will be determined by negotiations among the Company, the Selling
Shareholders and the Representative. Among the major factors to be considered in
determining the initial public offering price of the Common Stock will be the
prevailing market conditions, the market prices relative to earnings, cash flow
and assets for publicly traded common stocks of comparable companies, the sales
and earnings of the Company and comparable companies in recent periods, the
Company's earning potential, the experience of its management, and the position
of the Company in the industry. The initial public offering price is subject to
change as a result of market conditions and other factors and no assurance can
be given that the Common Stock can be resold at the initial public offering
price.
The Company has agreed to sell to the Representative, for $50,
Representative's Warrants to purchase up to 100,000 shares of Common Stock at an
exercise price per share equal to 120% of the actual public offering price per
share. The Representative's Warrants are exercisable for a period of four years
beginning one year from the effective date of this Offering. The
Representative's Warrants may not be sold, transferred, assigned or hypothecated
except to the officers or partners of the Representative or, beginning one year
after the effective date of the Offering, to the employees of the
Representative. The Representative's Warrants include a net exercise provision
permitting the holder, upon consent of the Company, to pay the exercise price by
cancellation of a number of shares with a fair market value equal to the
exercise price of the Representative's Warrants.
The Representative's Warrants provide certain rights with respect to the
registration under the Securities Act of up to 100,000 shares of Common Stock
issuable upon exercise thereof. The holders of the shares issuable upon exercise
of the Representative's Warrants may require the Company to file a registration
statement under the Securities Act with respect to such shares for a period of
four years beginning one year after the effective date of this Offering. In
addition, if the Company registers any of its Common Stock for its own account
during the four year period beginning one year after the effective date of this
Offering, the holders of the shares issuable upon exercise of the
Representative's Warrants are entitled to include their shares of Common Stock
in the registration.
LEGAL MATTERS
Certain legal matters with respect to the common stock offered hereby will
be passed upon for the Company by Dewey Ballantine, New York, New York. Dewey
Ballantine will rely as to matters of Texas
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<PAGE>
law upon the opinion of Butler & Binion, L.L.P. Certain legal matters with
respect to the Offering will be passed upon for the Underwriters by Fulbright &
Jaworski L.L.P., San Antonio, Texas.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1995 and the
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the period from August 1, 1994 through December 31, 1994 and for the
year ended December 31, 1995, included in this prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
In September 1995, in anticipation of the commencement of the Company's
securitization program and its status as a public company, the Company's Board
of Directors appointed Coopers & Lybrand L.L.P. as the Company's independent
certified public accountants. Prior thereto, Mann Frankfort Stein & Lipp
(Houston, Texas) ('Mann Frankfort') served as the Company's independent
accountants.
During the Company's fiscal years ended December 31, 1994 and 1995, and the
subsequent interim period from January 1, 1996 through the date hereof, there
have been no disagreements with Mann Frankfort on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to its satisfaction, would have caused Mann
Frankfort to make reference thereto in its report on the financial statements
for the period from September 1, 1994 to March 31, 1995. The report of Mann
Frankfort on the Company's financial statements for such audit period did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles, except that
Mann Frankfort was unable to obtain an independent accountant's report on the
internal control procedures of LSE and was unable to apply other auditing
procedures regarding certain finance receivables. Accordingly, Mann Frankfort
was unable at such time to express an opinion on the Company's financial
statements. Following receipt of such information from LSE, Mann Frankfort was
subsequently able to issue an unqualified report as of October 6, 1995. Coopers
& Lybrand L.L.P. has since conducted an audit of the Company's financial
condition and operations for the period covered by the Mann Frankfort audit.
From time to time, Mann Frankfort continues to perform various accounting
services on behalf of the Company.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the 'Securities Act'),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or any other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit or schedule to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including exhibits thereto, may be inspected without charge at the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the New York Regional Office located at 7 World Trade
Center, New York, New York 10048, and at the Chicago Regional Office located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained, at prescribed rates, from the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish to its shareholders with annual reports
containing financial statements audited by its independent auditors and with
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
The Commission maintains a Web site at http://www.sec.gov pursuant to Item
502(a)(2) under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9, 1996), wherefrom investors may obtain copies of the registration
statement and exhibits.
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<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30, 1996 (Unaudited)...................... F-3
Consolidated Statements of Operations for the Period From August 1, 1994 (Inception) through December 31,
1994, the Year Ended December 31, 1995 and the Six-Month Periods Ended June 30, 1995 (Unaudited) and 1996
(Unaudited).............................................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Period From August 1, 1994 (Inception) to December
31, 1994, the Year Ended December 31, 1995 and the Six-Month Period Ended June 30, 1996 (Unaudited)...... F-5
Consolidated Statements of Cash Flows for the Period From August 1, 1994 (Inception) to December 31, 1994,
the Year Ended December 31, 1995 and the Six-Month Periods Ended June 30, 1995 (Unaudited) and 1996
(Unaudited).............................................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
AUTOBOND ACCEPTANCE CORPORATION
We have audited the accompanying consolidated balance sheets of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the period from August 1, 1994 (Inception) through December 31, 1994
and for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for the period
from August 1, 1994 (Inception) through December 31, 1994 and for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Austin, Texas
May 1, 1996
F-2
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 92,660 $ 1,822,881
Restricted cash...................................................... $ 138,176 360,266 276,297
Cash held in escrow.................................................. 1,322,571 1,666,847
Finance contracts held for sale, net................................. 2,361,479 3,354,821 545,681
Repossessed assets held for sale..................................... 673,746 513,568
Class B Certificates................................................. 2,834,502 6,092,308
Excess servicing receivable.......................................... 846,526 1,574,761
Debt issuance cost................................................... 700,000 823,860
Trust receivable..................................................... 525,220 2,057,568
Due from affiliate................................................... 86,700
Prepaid expenses and other assets.................................... 354,208 832,100
---------- ----------- -----------
Total assets............................................... $2,499,655 $11,064,520 $16,292,571
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit agreement...................................... $2,054,776 $ 1,150,421 $ 237,292
Notes payable................................................... 2,674,597 6,248,219
Repurchase agreement............................................ 1,061,392 --
Subordinated debt............................................... 300,000
Accounts payable and accrued liabilities........................ 25,636 1,836,082 1,506,843
Bank overdraft.................................................. 23,314 861,063 2,185,847
Payable to affiliate............................................ 504,534 255,597 --
Deferred income taxes........................................... 199,000 1,169,000
---------- ----------- -----------
Total liabilities.......................................... 2,608,260 8,038,152 11,647,201
---------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 25,000,000 shares authorized;
5,118,753 shares, 5,118,753 shares and 5,687,500 shares issued
and outstanding,.............................................. $ 1,000 $ 1,000 $ 1,000
Additional paid-in capital...................................... 451,000 2,912,603 2,912,603
Deferred compensation........................................... (62,758) (36,990)
Loans to shareholders........................................... (16,000) (153,359) (436,034)
Retained earnings (accumulated deficit)......................... (544,605) 328,882 2,204,791
---------- ----------- -----------
Total shareholders' equity (deficit)....................... (108,605) 3,026,368 4,645,370
---------- ----------- -----------
Total liabilities and shareholders' equity................. $2,499,655 $11,064,520 $16,292,571
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED JUNE 30,
THROUGH DECEMBER DECEMBER 31, ------------------------
31, 1994 1995 1995 1996
---------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Interest income................................. $ 38,197 $ 2,880,961 $ 801,781 $1,470,351
Interest expense................................ (19,196) (2,099,867 ) (384,353) (1,137,520)
---------------- ------------ ---------- ----------
Net interest income........................ 19,001 781,094 417,428 332,831
Gain on sale of finance contracts............... 4,085,952 133,684 5,743,986
Servicing fee income............................ 8,563 277,208
---------------- ------------ ---------- ----------
Total revenues........................ 19,001 4,867,046 559,675 6,354,025
---------------- ------------ ---------- ----------
Expenses:
Provision for credit losses..................... 45,000 48,702 205,000 63,484
Salaries and benefits........................... 225,351 1,320,100 380,083 1,846,047
General and administrative...................... 244,974 1,462,740 581,889 884,348
Other operating expenses........................ 48,281 963,017 324,075 564,237
---------------- ------------ ---------- ----------
Total expenses........................ 563,606 3,794,559 1,491,047 3,358,116
---------------- ------------ ---------- ----------
Income (loss) before taxes and extraordinary loss.... (544,605) 1,072,487 (931,372) 2,995,909
Provision for income taxes........................... 199,000 1,020,000
---------------- ------------ ---------- ----------
Income (loss) before extraordinary loss.............. (544,605) 873,487 (931,372) 1,975,909
Extraordinary loss, net of tax benefits of $50,000... (100,000)
---------------- ------------ ---------- ----------
Net income (loss)............................... $ (544,605) $ 873,487 $ (931,372) $1,875,909
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Income (loss) per common share:
Income (loss) before extraordinary loss......... $ (0.11) 0.17 (0.18) 0.35
Extraordinary loss.............................. (0.02)
---------------- ------------ ---------- ----------
Net income (loss)............................... (0.11) .17 (0.18) 0.33
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Weighted average shares outstanding.................. 5,118,753 5,190,159 5,118,753 5,698,367
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Capital contributions at inception................ 5,118,753 $1,000 $ 451,000
Loans to shareholders.............................
Net loss..........................................
--------- ------ ---------- ------------
Balance, December 31, 1994........................ 5,118,753 1,000 451,000
Capital contributions............................. 2,323,103
Loans to shareholders.............................
Deferred compensation per employee contract....... 138,500 $ (138,500)
Amortization of deferred compensation............. 75,742
Net income........................................
--------- ------ ---------- ------------
Balance, December 31, 1995........................ 5,118,753 1,000 2,912,603 (62,758)
Stock issued per employee contract................ 568,747
Loans to shareholders.............................
Amortization of deferred compensation............. 25,768
Net income........................................
--------- ------ ---------- ------------
Balance, June 30, 1996 (unaudited)................ 5,687,500 $1,000 $2,912,603 $ (36,990)
--------- ------ ---------- ------------
--------- ------ ---------- ------------
<CAPTION>
LOANS TO RETAINED
SHAREHOLDERS EARNINGS TOTAL
------------ ---------- ----------
<S> <C> <C> <C>
Capital contributions at inception................ $ 452,000
Loans to shareholders.............................$ (16,000 ) (16,000)
Net loss.......................................... $ (544,605) (544,605)
------------ ---------- ----------
Balance, December 31, 1994........................ (16,000 ) (544,605) (108,605)
Capital contributions............................. 2,323,103
Loans to shareholders............................. (137,359 ) (137,359)
Deferred compensation per employee contract.......
Amortization of deferred compensation............. 75,742
Net income........................................ 873,487 873,487
------------ ---------- ----------
Balance, December 31, 1995........................ (153,359 ) 328,882 3,026,368
Stock issued per employee contract................
Loans to shareholders............................. (282,675 ) (282,675)
Amortization of deferred compensation............. 25,768
Net income........................................ 1,875,909 1,875,909
------------ ---------- ----------
Balance, June 30, 1996 (unaudited)................$ (436,034 ) $2,204,791 $4,645,370
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED JUNE 30,
THROUGH DECEMBER DECEMBER 31, ---------------------------
31, 1994 1995 1995 1996
----------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (544,605) $ 873,487 $ (931,372) $ 1,875,909
Adjustments to reconcile net income to net cash used
in operating activities:
Amortization of finance contract acquisition
discount and insurance......................... (4,513) (795,579) (41,805) (878,557)
Amortization of deferred compensation............ 75,742 25,768
Provision for credit losses...................... 45,000 48,702 205,000 63,484
Deferred income taxes............................ 199,000 970,000
Amortization of excess servicing receivable...... 48,687 534,014
Amortization of debt issuance cost............... 135,571
Changes in operating assets and liabilities:
Restricted cash.............................. (138,176) (222,090) (377,992) 83,969
Cash held in escrow.......................... (1,322,571) (344,276)
Prepaid expenses and other assets............ (354,208) (98,307) (477,892)
Class B Certificates......................... (2,834,502) (3,257,806)
Excess servicing receivable.................. (895,213) (79,934) (1,262,249)
Accounts payable and accrued liabilities..... 25,636 1,110,446 388,672 (329,239)
Due to/due from affiliate.................... 504,534 (248,937) 548,510 (342,297)
Purchases of finance contracts....................... (2,453,604) (31,200,131) (12,206,952) (33,358,304)
Repayments of finance contracts...................... 51,638 2,660,018 705,171 324,957
Sales of finance contracts........................... 27,399,543 1,351,303 35,842,076
----------------- ------------ ----------- ------------
Net cash used in operating activities............ (2,514,090) (5,457,606) (10,537,706) (394,872)
----------------- ------------ ----------- ------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts.............. (525,220) (1,532,348)
Loans to shareholders................................ (16,000) (137,359) 4,138 (282,675)
Disposal proceeds from repossessions................. 220,359 975,662
----------------- ------------ ----------- ------------
Net cash used in investing activities............ (16,000) (442,220) 4,138 (839,361)
----------------- ------------ ----------- ------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
agreements......................................... 2,054,776 (904,355) 11,017,513 (913,129)
Debt issuance costs.................................. (259,431)
Proceeds (repayments) from borrowings under
repurchase agreement............................... 1,061,392 (1,061,392)
Proceeds from notes payable.......................... 2,674,597 6,734,306
Payments on notes payable............................ (3,160,684)
Proceeds from subordinated debt borrowings........... 300,000
Shareholder contributions............................ 452,000 2,323,103 (124,071)
Increase in bank overdraft........................... 23,314 837,749 447,039 1,324,784
----------------- ------------ ----------- ------------
Net cash provided by financing activities........ 2,530,090 5,992,486 11,340,481 2,964,454
----------------- ------------ ----------- ------------
Net increase in cash and cash equivalents................ 0 92,660 806,913 1,730,221
Cash and cash equivalents at beginning of period......... 0 0 0 92,660
----------------- ------------ ----------- ------------
Cash and cash equivalents at end of period............... $ 0 $ 92,660 $ 806,913 $ 1,822,881
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 19,196 $ 2,099,867 $ 384,353 $ 1,011,710
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Cash paid for income taxes........................... $ 0 $ 0 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Non-cash investing and financing activities:
Accrual of debt issuance cost........................ $ 0 $ 700,000 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Repossession of automobiles.......................... 0 $ 849,756 $ 44,349 $ 815,484
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements and following notes, insofar as they are
applicable to the six-month periods ended June 30, 1995 and 1996, and
transactions subsequent to May 1, 1996, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments, consisting of only normal recurring
accruals considered necessary for a fair presentation of the unaudited
consolidated results of operations for the six-month periods ended June 30, 1995
and 1996, have been included.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AutoBond Acceptance Corporation (the 'Company') was incorporated in June
1993 and commenced operations August 1, 1994. The Company is engaged in the
business of acquiring, securitizing and servicing automobile finance contracts
('Finance Contracts') on new and used automobiles for individuals with subprime
credit histories.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
RESTRICTED CASH
In accordance with the Company's revolving credit facilities, the Company
is required to maintain a cash reserve with its lenders of 1% to 6% of the
proceeds received from the lender for the origination of the Finance Contracts.
Access to these funds is restricted by the lender; however, such funds may be
released in part upon the occurrence of certain events including payoffs of
Finance Contracts.
CASH HELD IN ESCROW
Upon closing of a securitization transaction, certain funds due to the
various parties, including the Company and its warehouse lenders, frequently
remain in escrow pending disbursement by the Trustee one to ten days subsequent
to closing.
TRUST RECEIVABLE
At the time a securitization closes, the Company is required to establish a
cash reserve within the trust for future credit losses. Additionally, depending
on each securitization structure, a portion of the Company's future servicing
cash flow is required to be deposited as additional reserves for credit losses.
The December 1995, March 1996 and June 1996 securitization transactions resulted
in initial cash reserves of approximately $525,000, $331,000 and $357,000,
respectively, approximating 2% of the Finance Contracts sold to the trusts. The
trust reserves will be increased from excess cash flows until such time as they
attain a level of 6% of the outstanding principal balance.
FINANCE CONTRACTS HELD FOR SALE
Finance Contracts held for sale are stated at the lower of aggregated
amortized cost, or market value. Market value is determined based on the
estimated value of the Finance Contracts if securitized and sold.
F-7
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company generally acquires Finance Contracts at a discount, and
purchases loss default and vender single interest physical damage insurance on
the Finance Contracts. The purchase discount and insurance are amortized as an
adjustment to the related Finance Contracts' yield and operating expense,
respectively, utilizing the same basis as that used to record income on the
Finance Contracts, over the contractual life of the related loans. At the time
of sale, any remaining unamortized amounts are netted against the Finance
Contract's principal amount outstanding to determine the resultant gain or loss
on sale.
Allowance for credit losses on the Finance Contracts is based on the
Company's historical default rate, the liquidation value of the underlying
collateral in the existing portfolio, estimates of repossession costs and
probable recoveries from insurance proceeds. The allowance is increased by
provisions for estimated future credit losses which are charged against income.
The allowance account is reduced for direct charge-offs using the specific
identification method, and for estimated losses upon repossession of automobiles
which is netted against the related Finance Contracts and transferred to
Repossessed assets held for sale.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of
long-lived assets other than financial instruments, excess servicing receivables
and deferred tax assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation of impairment is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
REPOSSESSED ASSETS HELD FOR SALE
Automobiles repossessed and held for sale are initially recorded at the
lower of the net recorded investment in the Finance Contracts on the date of
repossession or the fair value of the automobiles. Fair value is determined
based on the expected cash proceeds from the sale of the assets and applicable
insurance payments, net of all disposition costs. Due to the relatively short
time period between acquisition and disposal of the assets, discounting of the
expected net cash proceeds to determine fair value is not utilized. Subsequent
impairment reviews are performed quarterly on a disaggregated basis. A valuation
allowance is established if the carrying amount is greater than the fair value
of the assets. Subsequent increases and decreases in fair value result in
adjustment of the valuation allowance which is recorded in earnings during the
period of adjustment. Adjustments for subsequent increases in fair value are
limited to the existing valuation allowance amount, if any. During each of the
periods presented, no valuation allowance has been required.
CLASS B CERTIFICATES
Pursuant to the securitization transactions, the related Trusts have issued
Class B Certificates to the Company which are subordinate to the Class A
Certificates and senior to the excess servicing receivable with respect to cash
distributions from the Trust. The Company accounts for the Class B Certificates
as trading securities in accordance with Statement of Financial Accounting
Standards ('SFAS') No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities.' SFAS No. 115 requires fair value accounting for these
certificates with the resultant unrealized gain or loss recorded in the
statements of operations in the period of the change in fair value. The Company
determines fair value on a disaggregated basis utilizing a discounted cash flow
analysis similar to that described below for determining market value of the
excess servicing receivable, as well as other unique characteristics such as the
remaining principal balance in relation to estimated future cash flows and the
expected remaining terms of the certificates. During each of the periods
presented, there have been no unrealized gains or losses on the Class B
Certificates. The Class B Certificates accrue interest at 15%.
F-8
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS SERVICING RECEIVABLE
Excess servicing receivable includes the estimated present value of future
net cash flows from securitized receivables over the amounts due to the Class A
and Class B Certificateholders in the securitizations and certain expenses paid
by the entity established in connection with the securitization transaction. The
Finance Contracts sold in conjunction with the securitization transactions are
treated as sale transactions in accordance with SFAS No. 77, 'Reporting by
Transferors for Transfers of Receivables with Recourse.' Gain or loss is
recognized on the date the Company surrenders its control of the future economic
benefits relating to the receivables and the investor has placed its cash in the
securitization trust. Accordingly, all outstanding debt related to the Finance
Contracts sold to the securitization trust is deemed to be simultaneously
extinguished. The Company sells 100% of the Finance Contracts and retains a
participation in the future cash flows released by the securitization Trustee.
The Company also retains the servicing rights, and contracts with third parties
to perform certain aspects of the servicing function.
The discount rate utilized to determine the excess servicing receivable is
based on assumptions that market participants would use for similar financial
instruments subject to prepayment, default, collateral value and interest rate
risks. The future net cash flows are estimated based on many factors including
contractual principal and interest to be received, as adjusted for expected
prepayments, defaults, collateral sales proceeds, insurance proceeds, payments
to investors on the pass-through securities, servicing fees and other costs
associated with the securitization transaction and related loans. The gain from
securitization transactions include the excess servicing receivable and Class B
Certificates plus the difference between net proceeds received on the
transaction date and the net carrying value of Finance Contracts held for sale.
The carrying value of the excess servicing receivable is amortized in
proportion to and over the period of estimated net future excess servicing fee
income, for which the amortization is recorded as a charge against servicing fee
income. The excess servicing receivable is reviewed quarterly to determine if
differences exist between estimated and actual credit losses and prepayment
rates at each balance sheet date using the discount factor applied in the
original determination of the excess servicing receivable. The Company's
analysis determines whether the excess servicing receivable is in excess of the
present value of the estimated remaining cash flows. The Company does not
increase the carrying value of the excess servicing receivable for favorable
variances from original estimates, but to the extent that actual results exceed
the Company's prepayment or loss estimates, any required decrease adjustment is
reflected as a write down of the receivable and a related charge against current
period earnings. Write downs of excess servicing receivables due to modification
of future estimates as a result of the quarterly impairment reviews are
determined on a disaggregated basis consistent with the risk characteristics of
the underlying loans consisting principally of origination date and originating
dealership. There were no material adjustments to the carrying value of the
excess servicing receivable during 1995 or the six-month period ended June 30,
1996.
DEBT ISSUANCE COST
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
FEDERAL INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered
F-9
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or settled. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
year in deferred tax assets and liabilities. The Company files consolidated
federal and state tax returns.
EXTRAORDINARY LOSS
The extraordinary loss in 1996 was from a $150,000 prepayment fee related
to a $2,684,000 term loan with a finance company repaid during 1996. The term
loan carried a stated interest rate of 20% (see Note 6).
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Primary
and fully diluted earnings per share are the same for all periods presented.
Effective May 30, 1996, the Board of Directors of the Company voted to effect a
767.8125-for-1 stock split. All share information and earnings per share
calculations for the periods presented in the financial statements herein, and
the notes hereto, have been retroactively restated for such stock split.
PERVASIVENESS OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTEREST INCOME
Interest income on Finance Contracts acquired prior to December 31, 1995 is
determined on a monthly basis using the Rule of 78s method which approximates
the simple interest method. Subsequent to December 31, 1995, the Company uses
the simple interest method to determine interest income on Finance Contracts
acquired. The Company discontinues accrual of interest on loans past due for
more than 90 days. The Company accrues interest income on the Class B
Certificates (see Note 4) monthly at 15% using the interest method.
CONCENTRATION OF CREDIT RISK
The Company acquires Finance Contracts from a network of automobile dealers
located in sixteen states, including Texas, Arizona, Oklahoma, New Mexico,
Connecticut, Georgia and Utah. For the five-month period ended December 31,
1994, the year ended December 31, 1995 and the six months ended June 30, 1996,
the Company had a significant concentration of Finance Contracts with borrowers
in Texas, which approximated 94%, 91% and 91% of total Finance Contracts,
respectively.
F-10
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS:
Effective January 1, 1996 the Company adopted SFAS No. 122 which requires
that upon sale or securitization of servicing-retained finance contracts, the
Company capitalize the cost associated with the right to service the finance
contracts based on their relative fair values. Fair value is determined by the
Company based on the present value of estimated net future cash flows related to
servicing income. The cost allocated to the servicing right is amortized in
proportion to and over the period of estimated net future servicing fee income.
SFAS No. 122 had no impact on the Company's financial statements for the
six-month period ended June 30, 1996 and would have had no material impact on
any of the prior periods presented as servicing fees approximate cost.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation.' SFAS No. 123 establishes fair
value-based financial accounting and reporting standards for all transactions in
which a company acquires goods or services by issuing its equity instruments or
by incurring a liability to suppliers in amounts based on the price of its
common stock or other equity instruments.
During 1996, the Company adopted the disclosure-only alternative under SFAS
No. 123, and will continue to account for stock-based compensation as prescribed
by Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees.'
3. FINANCE CONTRACTS HELD FOR SALE:
The following amounts are included in Finance Contracts held for sale as
of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Principal balance of Finance Contracts held for sale.......... $2,459,424 $3,539,195 $ 566,743
Prepaid insurance............................................. 156,095 260,155 17,997
Contract acquisition discounts................................ (209,040) (350,827) (25,122)
Allowance for credit losses................................... (45,000) (93,702) (13,937)
---------- ---------- ----------
$2,361,479 $3,354,821 $ 545,681
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4. EXCESS SERVICING RECEIVABLE:
During December 1995, the Company completed its first securitization
transaction since inception through the sale of certain Finance Contracts to
AutoBond Receivable Trust 1995-A (the 'Trust'). The Finance Contracts were sold
at the outstanding principal balance of the Finance Contracts which approximated
$26.2 million and the Company, through AutoBond Funding Corporation 1995,
retained a subordinated interest (Class B Certificate) in the Trust from
discounted net cash flows generated by the Finance Contracts in excess of
principal and interest paid to the Class A Certificate holder. At December 31,
1995, the Class A Certificate had an aggregate principal balance of
approximately $26.2 million and accrues interest at 7.23%, and the Class B
Certificate had an aggregate nominal principal balance of approximately $2.8
million and accrues interest at 15%. AutoBond Funding Corporation 1995 also has
the right to the remaining Trust cash flows ('Transferor's Interest') after
payment on the Class A and Class B Certificates, absorption of net losses from
defaults on the underlying finance contracts, and payment of the other expenses
of the Trust. Such Transferor's Interest discounted at 15% is recorded as an
increase to excess servicing receivable for each securitization transaction.
The Company is required to represent and warrant certain matters with
respect to the Finance Contracts sold to the Trust, which generally duplicate
the substance of the representations and warranties made by the dealers in
connection with the Company's purchase of the Finance Contracts. In the event of
a breach by the Company of any representation or warranty, the Company is
obligated to
F-11
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase the Finance Contracts from the Trust at a price equal to the
remaining principal plus accrued interest. The Company has not recorded any
liability and has not been obligated to purchase Finance Contracts under the
recourse provisions during any of the reporting periods.
On March 29, 1996, the Company completed its second securitization
transaction through the sale of certain Finance Contracts to AutoBond
Receivables Trust 1996-A. The Finance Contracts were sold at the outstanding
principal balance of $16.6 million and resulted in an increase of excess
servicing receivable and Class B Certificates of $606,068 and $2,059,214,
respectively.
During June 1996, the Company completed its third securization transaction
through the sale of certain Finance Contracts to AutoBond Receivables Trust
1996-B. The Finance Contracts were sold at the outstanding principal balance of
$17.8 million and resulted in an increase of excess servicing receivable and
Class B Certificates of $654,181 and $2,066,410, respectively.
5. REVOLVING CREDIT AGREEMENTS:
Effective August 1, 1994, the Company entered into a Secured Revolving
Credit Agreement with Sentry Financial Corporation ('Sentry') which was amended
and restated on July 31, 1995. The amended agreement ('Revolving Credit
Agreement') provides for a $10,000,000 warehouse line of credit which terminates
December 31, 2000, unless terminated earlier by the Company or Sentry upon
meeting certain defined conditions. The proceeds of the Revolving Credit
Agreement are to be used to originate and acquire Finance Contracts, to pay for
loss default insurance premiums, to make deposits to a reserve account with
Sentry, and to pay for fees associated with the origination of Finance
Contracts. The Revolving Credit Agreement is collateralized by the Finance
Contracts acquired with the outstanding borrowings, and a guarantee by the
majority shareholder and an affiliate, wholly owned by the majority shareholder.
The Company pays a utilization fee of up to 0.21% per month on the average
outstanding balance of the Revolving Credit Agreement. The Revolving Credit
Agreement also requires the Company to pay up to 0.62% per quarter on the
average unused balance. Interest is payable monthly and accrues at a rate of
prime plus 1.75% (10.25% at December 31, 1995). The Revolving Credit Agreement
contains certain restrictive covenants, including requirements to maintain a
certain minimum net worth, and cash and cash equivalent balances. Under the
Revolving Credit Agreement, the Company paid interest of $411,915 for the year
ended December 31, 1995.
Pursuant to the Revolving Credit Agreement, the Company is required to pay
a $700,000 warehouse facility fee payable upon the successful securitization of
Finance Contracts. The $700,000 is payable in varying amounts after each of the
first three securitizations. The Company accrued the $700,000 debt issuance cost
upon the first securitization in December 1995, the date the Company determined
the liability to be probable in accordance with SFAS No. 5. The $700,000 debt
issuance cost is being amortized as interest expense through December 31, 2000,
the termination date of the Revolving Credit Agreement, utilizing the effective
interest method.
Effective June 16, 1995, the Company entered into a $25,000,000 Credit
Agreement with Nomura Asset Capital Corporation ('Nomura') which allowed for
advances to the Company through June 2000 with all outstanding amounts to mature
June 2005. Advances outstanding under the facility accrued interest at the three
month LIBOR rate plus 6.75% which approximated 12.59% at December 31, 1995. The
warehouse facility allowed Nomura to terminate the agreement upon 120 days
notice. On October 6, 1995, the Company received notice of Nomura's intent to
terminate, and all outstanding advance amounts together with accrued interest
were paid by the Company prior to March 31, 1996. No advances under the Credit
Agreement were outstanding as of each of the balance sheet dates.
Effective May 21, 1996 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into a $20 million revolving warehouse
facility (the 'Revolving Warehouse Facility'), with Peoples Security Life
Insurance Company (an affiliate of Providian Capital Management), which expires
December 15, 1996. The proceeds from the borrowings under the Revolving
Warehouse Facility are to be used to acquire Finance Contracts, to pay credit
default
F-12
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance premiums and to make deposits to a reserve account. Interest is
payable monthly at a per annum rate of LIBOR plus 2.60%. The Revolving Warehouse
Facility also requires the Company to pay a monthly fee on the average unused
balance of 0.25% per annum. The Revolving Warehouse Facility is collateralized
by the Finance Contracts acquired with the outstanding borrowings. The Revolving
Warehouse Facility contains certain covenants and representations similar to
those in the agreements governing the Company's existing securitizations.
6. NOTES PAYABLE:
Pursuant to the securitization completed in December 1995, the Company
entered into a term loan agreement with a finance company to borrow
approximately $2,684,000. The loan was collateralized by the Company's Class B
Certificate in the Trust as well as the Transferor's Interest in the cash flows
of the Trust (see Note 4). The loan accrued interest at 20% per annum payable
monthly and principal payments were made based on principal payments received on
the Class B Certificates.
Effective April 8, 1996, the outstanding balance of $2,585,757 was
refinanced through a non-recourse term loan entered into with a new finance
company. The term loan is collateralized by the Company's Class B Certificates
(see Note 4), and matures April 8, 2002. The term loan bears interest at 15% per
annum payable monthly. Principal and interest payments on the term loan are paid
directly by the Trustee to the finance company and are based on payments
required to be made to the Class B Certificateholder pursuant to the Trust. The
Company can prepay the term loan in whole or part at any time if the holder
seeks to transfer such loan to a third party.
Effective March 28, 1996, the Company obtained another non-recourse term
loan in the amount of $2,059,214 from an institutional investor under similar
terms as described in the preceding paragraph. The loan is collateralized by the
Class B Certificates issued to the Company pursuant to the March 29, 1996
securitization transaction. The Company may prepay the loan in whole or in part
at any time subsequent to March 28, 1997, or any time after receiving notice by
the investor of its intent to transfer the loan to a third party. The maturity
date of the loan is the earlier of March 28, 2002 or the date that all
outstanding principal and accrued interest has been paid by the Trustee or the
Company.
Effective June 27, 1996, the Company obtained a third non-recourse term
loan in the amount of $2,066,410 from an institutional investor under similar
terms as described in the preceding two paragraphs. The loan is collateralized
by the Class B Certificates issued to the Company pursuant to the June 27, 1996
securitization transaction. The Company may prepay the loan in whole or in part
at any time subsequent to June 27, 1997, or any time after receiving notice by
the investor of its intent to transfer the loan to a third party. The maturity
date of the loan is the earlier of April 15, 2002 or the date that all
outstanding principal and accrued interest has been paid by the Trustee or the
Company.
During July 1996, a private investment management company entered into a
commitment agreement to provide the Company financing collateralized by the
senior excess spread interests to be created in the Company's next five proposed
securitization transactions. Timing and amount of payments of interest and
principal on the loans will correspond to distributions from the securitization
trusts on the Class B Certificates. The interest rate on such loans will be 15%
per annum, payable monthly and the borrowings will include a 3% origination fee.
The commitment is subject to the Company's ability to continue meeting several
provisions, including: (1) similarly structured securitization transactions; (2)
the absence of rating downgrades and defaults from previous securitizations; and
(3) satisfactory performance reports.
7. REPURCHASE AGREEMENT:
On December 20, 1995, the Company entered into an agreement to sell certain
Finance Contracts totaling $1,061,392 to a finance company, and repurchase such
Finance Contracts in January 1996 for an amount equal to the remaining unpaid
principal balance plus interest accruing at an annual rate of 19%.
F-13
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company repurchased such Finance Contracts during January 1996 in accordance
with the terms of the agreement.
8. SUBORDINATED DEBT:
Effective March 12, 1996, the Company received proceeds of $300,000 from an
individual for a 10% Subordinated Note with a detachable warrant to purchase
18,811 shares of common stock of the Company. The note bears interest at 10% per
annum and the principal together with accrued interest is payable on March 12,
1997. The debt is uncollateralized and is subordinate to the other indebtedness
and guarantees of the Company. The warrant allows for the purchase of common
stock at an exercise price equal to the fair market value as of March 12, 1996,
the date of grant. The warrant is exercisable in full or part during the period
commencing six months after the effective date of the Company's initial public
offering and ending 1.5 years thereafter. Management has determined that the
fair value of the warrant at its issuance date was de minimis.
9. INCOME TAXES:
The provision for income taxes for 1995 consists of a deferred tax
provision of $199,000 and no current liability. Due to net losses incurred from
inception through December 31, 1994, the Company has no provision in 1994. The
reconciliation between the provision for income taxes and the amounts that would
result from applying the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994
(INCEPTION) THROUGH YEAR ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE
1994 1995 30, 1996
------------------- ------------ ----------
<S> <C> <C> <C>
Federal tax at statutory rate of 34%................. $(185,000) $ 365,000 $1,019,000
Nondeductible expenses............................... 2,000 17,000 1,000
Change in valuation allowance........................ 183,000 (183,000) --
------------------- ------------ ----------
Provision for income taxes...................... $ -- $ 199,000 $1,020,000
------------------- ------------ ----------
------------------- ------------ ----------
</TABLE>
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Significant components of
the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowance for credit losses......................................... $ 15,000 $ 32,000 $ 53,000
Other............................................................... -- 116,000 266,000
Net operating loss.................................................. 168,000 1,042,000 1,498,000
--------- ---------- ----------
Gross deferred tax assets........................................... 183,000 1,190,000 1,817,000
--------- ---------- ----------
Deferred Tax Liability --
Gain on securitizations............................................. -- 1,389,000 2,986,000
--------- ---------- ----------
Net temporary differences................................................ 183,000 (199,000) (1,169,000)
Valuation allowance...................................................... (183,000) -- --
--------- ---------- ----------
Net deferred tax liability..................................... $ 0 $ 199,000 $1,169,000
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
At December 31, 1995, the Company had a net operating loss carryforward of
$3,067,000 which will expire beginning in fiscal year 2009. The 1994 net
operating loss carryforward was reserved in full at
F-14
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 due to the uncertainty of realization of the deferred asset.
In 1995, the valuation allowance was reversed to reflect the estimated
realizability of the operating loss carryforwards.
10. EARNINGS PER SHARE
The following table reconciles the number of common shares shown as
outstanding on the balance sheet with the number of common and common equivalent
shares used in computing primary earnings per share as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS
(INCEPTION) YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, 1994 1995 1996
------------------ ------------ ------------
<S> <C> <C> <C>
Common shares outstanding........................................ 5,118,753 5,118,753 5,687,500
Effect of using weighted common and common equivalent shares
outstanding.................................................... 71,406 (7,113)
Effect of shares issuable to warrant holder...................... 17,980
------------------ ------------ ------------
Shares used in computing primary earnings per share.............. 5,118,753 5,190,159 5,698,367
------------------ ------------ ------------
------------------ ------------ ------------
</TABLE>
11. STOCKHOLDERS' EQUITY
Effective May 30, 1996, the Board of Directors adopted Restated Articles of
Incorporation which authorized 25,000,000 shares of no par value common stock
and 5,000,000 shares of no par value preferred stock.
12. RELATED PARTY TRANSACTIONS:
The Company shares certain general and administrative expenses with
AutoBond, Inc. ('ABI'), which was founded and is 100% owned by the Chief
Executive Officer ('CEO') of the Company. The CEO owns 67.5% of the Company.
Each entity is allocated expenses based on a proportional cost method, whereby
payroll costs are allocated based on management's review of each individual's
responsibilities, and costs related to office space and equipment rentals are
based on managements' best estimate of usage during the year. Miscellaneous
expenses are allocated based on the specific purposes for which each expense
relates. Management believes the methods used to allocate the general and
administrative expenses shared with ABI are reasonable, and that the expenses
reported in the financial statements after the ABI allocations approximate the
expenses that would have been incurred on a stand-alone entity basis. Total
expenses allocated to the Company from ABI amounted to approximately $441,000
for the period from August 1, 1994 (inception) to December 31, 1994 and
$2,163,000 for the year ended December 31, 1995. Additionally, neither the
Company nor any of its affiliates have paid any compensation to its CEO during
any of the periods presented herein; however, management of the Company expects
to commence compensation payments to the CEO during the latter half of 1996 (see
Note 13). The Company estimates that a reasonable amount of compensation to pay
the CEO on a stand-alone entity basis would approximate $40,000 and $100,000 for
the five months ended December 31, 1994 and the year ended December 31, 1995,
respectively.
The Company has advanced approximately $132,000 and $305,000 as of December
31, 1995 and June 30, 1996, respectively, to William Winsauer, CEO and majority
shareholder of the Company, and approximately $21,000 and $131,000 as of
December 31, 1995 and June 30, 1996 to John Winsauer, a significant shareholder
of the Company. The advances are non-interest bearing amounts that have no
repayment terms and have been shown as a reduction of shareholders' equity.
These Selling Shareholders have agreed to use the net proceeds to be received by
them from the initial public offering to repay such outstanding balances in
full.
F-15
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and ABI entered into a management agreement dated as of January
1, 1996 (the 'ABI Management Agreement') which provides for repayment by ABI of
$141,090 of advances outstanding as of the effective date in the form of an
uncollateralized note. The note matures on May 31, 1998 and bears interest at
10% payable at maturity. The Management Agreement requires ABI to pay an annual
fee of $50,000 to the Company for services rendered by it or the Company's
employees on behalf of ABI as follows: (i) monitoring the performance of certain
partnership interests owned by ABI and its sole shareholder, (ii) certain cash
management services, including the advancing of funds to pay ABI's ordinary
business expenses and (iii) providing advice as to regulatory compliance. The
ABI Management Agreement also provides that the Company will perform certain
accounting functions on behalf of ABI including (i) maintenance of financial
books and records, (ii) monitoring of cash management functions, (iii)
preparation of financial statements and tax returns and (iv) providing advice in
connection with retention of independent accountants. The ABI Management
Agreement further provides for the reimbursement of advances made by the Company
for out-of-pocket costs and expenses incurred on behalf of ABI.
13. EMPLOYMENT AGREEMENTS:
During 1995 and 1996, the Company entered into three-year employment
agreements with three officers of the Company. One employment agreement is dated
November 15, 1995 and is effective from such date through November 15, 1998.
This agreement is automatically extended unless the Company gives six months
notice of its intent not to extend the terms of the agreement.
The agreement provides for a minimum monthly salary of $12,500, together
with shares of the Company's common stock, issuable January 1, 1996, equal to
10% of the outstanding shares after giving effect to the shares issued to the
employee. Half of such issued shares are not subject to forfeiture whereas the
remaining 50% are subject to forfeiture. Equal amounts of the forfeitable shares
bear no risk of forfeiture upon the officer remaining employed as of November
15, 1996 and November 15, 1997, respectively.
The Company valued the shares to be issued January 1, 1996 based on an
independent appraisal of the Company as of November 15, 1995, the measurement
date, and recorded an increase to additional paid-in capital and deferred
compensation of $138,500. Deferred compensation is amortized on a straight-line
basis over the two forfeiture periods ending November 15, 1997 resulting in
compensation expense of $75,742 and $25,768 for the year ended December 31, 1995
and the six-month period ended June 30, 1996.
The second employment agreement is dated February 15, 1996 and is effective
from such date through February 15, 1997. This agreement provides for a minimum
monthly salary of $15,000 and further provides for a $90,000 bonus in the event
the Company successfully completes an initial public offering prior to February
28, 1997. Additionally, the officer is entitled to receive a performance bonus
in the event the Company meets certain sales and income targets as defined in
the agreement, and is limited to $90,000 annually. If the officer is terminated
prior to February 15, 1997 for any reason other than a discharge by the Company
for cause or termination initiated by the officer, then the remaining portion of
the first year salary becomes immediately due and payable to the officer or his
beneficiary.
The third employment agreement is dated May 31, 1996, and is effective from
such date for five years. The agreement provides for compensation at a base
salary of $240,000 per annum, which may be increased and may be decreased to an
amount of not less than $240,000, at the discretion of the Board of Directors.
The agreement entitles the chief executive officer to receive the benefits of
any cash incentive compensation as may be granted by the Board to employees, and
to participate in any executive bonus or incentive plan established by the Board
of Directors.
The agreement provides the officer with additional benefits including (i)
the right to participate in the Company's medical benefit plan, (ii) entitlement
to benefits under the Company's executive
F-16
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disability insurance coverage, (iii) a monthly automobile allowance of $1,500
together with maintenance and insurance, (iv) six weeks paid vacation and (v)
all other benefits granted to full-time executive employees of the Company.
The agreement automatically terminates upon (i) the death of the officer,
(ii) disability of the officer for six continuous months together with the
likelihood that the officer will be unable to perform his duties for the
following continuous six months, as determined by the Board of Directors, (iii)
termination of the officer 'for cause' (which termination requires the vote of a
majority of the Board) or (iv) the occurrence of the five-year expiration date
provided, however, the agreement may be extended for successive one-year
intervals unless either party elects to terminate the agreement in a prior
written notice. The officer may terminate his employment for 'good reason' as
defined in the agreement. In the event of the officer's termination for cause,
the agreement provides that the Company shall pay the officer his base salary
through the date of termination and the vested portion of any incentive
compensation plan to which the officer may be entitled.
Other than following a change in control, if the Company terminates the
officer in breach of the agreement, or if the officer terminates his employment
for good reason, the Company must pay the officer: (i) his base salary through
the date of termination; (ii) a severance payment equal to the base salary
multiplied by the number of years remaining under the agreement; and (iii) in
the case of breach by the Company of the agreement, all other damages to which
the officer may be entitled as a result of such breach, including lost benefits
under retirement and incentive plans.
In the event of the officer's termination following a change in control,
the Company is required to pay the officer an amount equal to three times the
sum of (i) his base salary, (ii) his annual management incentive compensation
and (iii) his planned level of annual perquisites. The agreement also provides
for indemnification of the officer for any costs or liabilities incurred by the
officer in connection with his employment.
14. COMMITMENTS AND CONTINGENCIES:
An affiliate of the Company leases office space, furniture, fixtures and
equipment under operating leases and allocates a significant portion of such
costs to the Company based on estimated usage (see Note 12). The affiliate
reports such leases as operating leases. Total rent expense allocated to the
Company under all operating leases was approximately $61,000 and $351,000 in
1994 and 1995, respectively.
The aggregate minimum rental commitments of the affiliate for all
non-cancelable operating leases with initial or remaining terms of more than one
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
<S> <C>
1996........................................................ $382,888
1997........................................................ 378,488
1998........................................................ 154,250
</TABLE>
The Company guaranteed a working capital line entered into by the Company's
majority shareholder. Total borrowings of $2,250,000 under such line of credit
were contributed to the Company as additional paid-in capital during the year
ended December 31, 1995. The indebtedness of the majority shareholder is repaid
from and collateralized by a portion of cash flows from Finance Contracts
underlying certain securitization transactions completed by the majority
shareholder and affiliates owned by the majority shareholder. The outstanding
balance guaranteed by the Company at December 31, 1995 was approximately
$2,000,000. All amounts outstanding under the working capital line, if any, are
expected to be repaid from the sale of a portion of the majority shareholder's
common stock upon successful completion by the Company of an initial public
offering. In April 1996, the Company made a payment of $89,000 as a principal
reduction in the working capital line to bring the outstanding balance
F-17
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the maximum permitted outstanding amount as of March 31, 1996. Effective
September 26, 1996 the Company was released from its guarantee of the
shareholder's debt.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
During 1995, the Company adopted SFAS No. 107, 'Disclosures about Fair
Value of Financial Instruments' which requires disclosure of fair value of
information for financial instruments. The estimated fair value amounts have
been determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company would realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity
of those investments.
NOTE PAYABLE, REVOLVING CREDIT BORROWINGS AND REPURCHASE AGREEMENT
The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities and characteristics. The
revolving credit lines are variable rate loans, resulting in a fair value that
approximates carrying cost at December 31, 1995. Additionally, due to the
December borrowing date, the note payable and repurchase agreement fair values
approximate cost at December 31, 1995.
FINANCE CONTRACTS HELD FOR SALE
The fair value of Finance Contracts held for sale is based on the estimated
proceeds expected on securitization of the Finance Contracts held for sale.
EXCESS SERVICING RECEIVABLE
The fair value is determined based on discounted future net cash flows
utilizing a discount rate that market participants would use for financial
instruments with similar risks. Due to the nature of this financial instrument
and the recent securitization transaction date, the carrying amount approximates
fair value.
The estimated fair values of the Company's financial instruments at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents......................................... $ 92,660 $ 92,660
Finance Contracts held for sale, net.............................. 3,354,821 3,354,821
Repossessed assets held for sale, net............................. 673,746 673,746
Class B Certificates.............................................. 2,834,502 2,834,502
Excess servicing receivable....................................... 846,526 846,526
Note payable...................................................... 2,674,597 2,674,597
Revolving credit borrowings....................................... 1,150,421 1,150,421
Repurchase agreement.............................................. 1,061,392 1,061,392
</TABLE>
F-18
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY
UNDERWRITER OR THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS TO WHICH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................................................................. 3
Risk Factors....................................................................................................... 8
Use of Proceeds.................................................................................................... 16
Dividend Policy.................................................................................................... 16
Dilution........................................................................................................... 17
Capitalization..................................................................................................... 18
Selected Consolidated Financial and Operating Data................................................................. 19
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 21
Business........................................................................................................... 33
Management......................................................................................................... 49
Certain Transactions............................................................................................... 57
Principal and Selling Shareholders................................................................................. 58
Description of Capital Stock....................................................................................... 59
Shares Eligible for Future Sale.................................................................................... 62
Underwriting....................................................................................................... 63
Legal Matters...................................................................................................... 64
Experts............................................................................................................ 65
Change in Accountants.............................................................................................. 65
Additional Information............................................................................................. 65
Index to Consolidated Financial Statements......................................................................... F-1
</TABLE>
------------------------
UNTIL DECEMBER 3, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
THE BOSTON GROUP, L.P.
NOVEMBER 8, 1996
__________________________________ _________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $ 10,182
NASD filing fee................................................................. 3,453
Printing expenses............................................................... 175,000
Accounting fees and expenses.................................................... 425,000
Legal fees and expenses......................................................... 500,000*
Nasdaq listing fees............................................................. 35,000*
Fees and expenses (including legal fees) for qualifications under state
securities laws............................................................... 15,000*
Transfer agent's fees and expenses.............................................. 3,500*
Miscellaneous................................................................... 232,865
----------
Total........................................................................... $1,400,000
----------
----------
</TABLE>
- ------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides:
1. A corporation may indemnify any officer or director from
and against any judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by him in an action, suit,
investigation or other proceeding to which he is, was, or is
threatened to be a party; provided that it is determined by the
Board of Directors, a committee thereof, special legal counsel,
or a majority of the stockholders that such officer or director:
(a) conducted himself in good faith; (b) (i) in the case of his
conduct as a director of the corporation, reasonably believed
that his conduct was in the best interest of the corporation or
(ii) in all other cases, that his conduct was at least not
opposed to the corporation's interest; and (c) in a criminal
case, had no reasonable cause to believe his conduct was
unlawful. In matters as to which the officer or director is
found liable to the corporation or is found liable on the basis
that a personal benefit was improperly received by him, such
indemnity is limited to the reasonable expenses actually
incurred. No indemnification is permitted with respect to any
proceeding in which the officer or director is found liable for
willful or intentional misconduct in the performance of his duty
to the corporation.
2. A corporation shall indemnify an officer or director
against reasonable expenses incurred by him in connection with
an action, suit, investigation, or other proceeding to which he
is, was, or was threatened to be a party if he has been wholly
successful in its defense.
3. A corporation may advance an officer or director the
reasonable costs of defending an action, suit, investigation or
other proceeding in certain cases.
4. A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this Article.
II-1
<PAGE>
<PAGE>
The Company's Articles of Incorporation provide that the Company will
indemnify its directors and officers to the fullest extent permitted by law.
The Company is in the process of procuring directors' and officers'
liability insurance in the amount of $5 million.
Section 9 of the Underwriting Agreement (contained in Exhibit 1.1 hereto)
provides for indemnification by the Underwriters of directors and officers of
the Company against certain liabilities, including liabilities under the
Securities Act of 1933, under certain circumstances.
See 'Item 17. Undertakings' for a description of the Securities and
Exchange Commission's position regarding such indemnification provisions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1995, March 1996, June 1996 and September 1996 the Company's
four securitization subsidiaries issued approximately $26.2 million, $16.6
million, $17.8 million and $22.3 million, respectively, in Class A investor
Certificates, in each case evidencing an undivided interest in a pool of finance
contracts with an initial aggregate unpaid principal balance equal to the
initial principal balance of such Class A Certificates. Each of the outstanding
Class A Certificates received a rating upon issuance of 'A' from Fitch and 'A3'
from Moody's. The certificates issued in the December 1995, March 1996, June
1996 and September 1996 securitizations have final maturity dates of October 15,
2001, January 15, 2002, April 15, 2002 and July 15, 2002, respectively. In each
case, the Class A Certificates were privately placed with sophisticated
institutional investors pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the 'Securities Act'). The Company has financed on a non-recourse
basis approximately 80% of the retained excess spread from each of the 1995 and
1996 securitizations with sophisticated institutional investors.
In March 1996, the Company issued to a private investor, pursuant to
Section 4(2) of the Securities Act, a Subordinated Note (the 'Subordinated
Note') in the amount of $300,000 and a Warrant (the 'Warrant') for the purchase
of 18,811 shares of Common Stock. The payment obligations of the Company under
the Subordinated Note are subordinated to all other indebtedness of the Company
that is not specifically designated as subordinate to the Subordinated Note. The
Subordinated Note carries a per annum interest rate equal to 10% and has a final
maturity date of March 12, 1997.
The Warrant entitles the holder, upon exercise thereof, to purchase from
the Company shares of its Common Stock, at a price per share equal to the fair
market value of the Common Stock as of the date of grant. The exercise price per
share may deviate from the initial public offering price over time as certain
adjustments may be made to the number of shares constituting a purchasable
'share' resulting from stock splits, issuance of additional Common Stock,
issuance of additional warrants or other rights or issuance of securities
convertible into Common Stock by the Company. The Warrant provides the holder
with certain registration rights that arise upon the Company's proposal to
register, subsequent to its initial public offering, the Common Stock for sale
to the public under the Securities Act.
In November 1995, the Company agreed to issue, pursuant to Section 4(2) of
the Securities Act, to Adrian Katz 568,750 shares of Common Stock in
consideration for current and future services. Such shares were issued in
January 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 -- Underwriting Agreement
1.2 -- Form of Representative's Warrants
3.1`D' -- Restated Articles of Incorporation of the Company
3.2`D' -- Amended and Restated Bylaws of the Company
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinions of Dewey Ballantine and Butler & Binion, L.L.P.
10.1`D' -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of December 15, 1995 by
and between the Company and AutoBond Funding Corporation I
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.2`D' -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II, the Company and
Norwest Bank Minnesota, National Association
10.3 -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond Funding Corporation II, the
Company and Peoples Life Insurance Company
10.4`D' -- Servicing Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II, CSC Logic/MSA
L.L.P., doing business as 'Loan Servicing Enterprise', the Company and Norwest Bank Minnesota, National
Association
10.5`D' -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and between the Company and
AutoBond Funding Corporation II
10.6`D' -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31, 1995 between Sentry
Financial Corporation and the Company
10.7`D' -- Management Administration and Services Agreement dated as of January 1, 1996 between the Company and
AutoBond, Inc.
10.8`D' -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9`D' -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the Company
10.10`D' -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the Company
10.11`D' -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by Interstate Fire &
Casualty Company
10.12`D' -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.13 -- Employee Stock Option Plan
10.14`D' -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas Ford, Inc.
10.15 -- Automobile Loan Sale Agreement, dated as of September 30, 1996, among the Company, First Fidelity
Acceptance Corp., and Greenwich Capital Financial Products, Inc.
16.1`D' -- Change in certifying accountant's letter
21.1`D' -- Subsidiaries of the Company
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1)
23.3 -- Consents of Director Designees
24.1`D' -- Power of Attorney (included on signature page of Registration Statement)
27.1`D' -- Financial Data Schedule
</TABLE>
- ------------
`D' Previously Filed
(b) Financial Statement Schedules:
The following schedules are filed as part of this Registration Statement
and are filed herewith:
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling
II-3
<PAGE>
<PAGE>
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Austin, State of Texas, on November 8, 1996.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM O. WINSAUER
...................................
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
indicated on November 8, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<C> <S>
By: /s/ WILLIAM O. WINSAUER Chairman of the Board, Chief Executive Officer and Director
......................................... (Principal Executive Officer)
(WILLIAM O. WINSAUER)
* Vice Chairman of the Board, Chief Operating Officer and Director
.........................................
(ADRIAN KATZ)
* Vice President and Director
.........................................
(JOHN S. WINSAUER)
* Chief Financial Officer (Principal Financial and Accounting Officer)
.........................................
(WILLIAM J. STAHL)
</TABLE>
*By: /s/ WILLIAM O. WINSAUER
..................................
(WILLIAM O. WINSAUER
AS ATTORNEY-IN-FACT)
II-5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... S-2
Schedule II -- Valuation and Qualifying Accounts........................................................... S-3
</TABLE>
All other consolidated financial statement schedules not listed have been
omitted since the required information is either included in the consolidated
financial statements and the notes thereto or is not applicable or required.
S-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
AUTOBOND ACCEPTANCE CORPORATION
Our report on the consolidated financial statements of AutoBond Acceptance
Corporation and Subsidiaries as of December 31, 1995 and 1994 and for the period
from August 1, 1994 (inception) to December 31, 1994 and for the year ended
December 31, 1995, is included on page F-2 of this Registration Statement. In
connection with our audits of such consolidated financial statements, we have
also audited the related consolidated financial statement schedule listed on the
index on page S-1 of this Registration Statement.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
May 1, 1996
S-2
<PAGE>
<PAGE>
SCHEDULE II
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
------------ ---------------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Credit Losses:
Period from August 1, 1994
(Inception) to December 31, 1994................ $ -- $ 45,000 $ -- $45,000
Year ended December 31, 1995...................... $ 45,000 $ 48,702 $ -- $93,702
</TABLE>
S-3
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 -- Underwriting Agreement
1.2 -- Form of Representative's Warrants
3.1`D' -- Restated Articles of Incorporation of the Company
3.2`D' -- Amended and Restated Bylaws of the Company
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinions of Dewey Ballantine and Butler & Binion, L.L.P.
10.1`D' -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of
December 15, 1995 by and between the Company and AutoBond Funding Corporation I
10.2`D' -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II,
the Company and Norwest Bank Minnesota, National Association
10.3 -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond Funding
Corporation II, the Company and Peoples Life Insurance Company
10.4`D' -- Servicing Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II,
CSC Logic/MSA L.L.P., doing business as 'Loan Servicing Enterprise', the Company and
Norwest Bank Minnesota, National Association
10.5`D' -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and
between the Company and AutoBond Funding Corporation II
10.6`D' -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31,
1995 between Sentry Financial Corporation and the Company
10.7`D' -- Management Administration and Services Agreement dated as of January 1, 1996 between
the Company and AutoBond, Inc.
10.8`D' -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9`D' -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the Company
10.10`D' -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the
Company
10.11`D' -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by
Interstate Fire & Casualty Company
10.12`D' -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.13 -- Employee Stock Option Plan
10.14`D' -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas
Ford, Inc.
10.15 -- Automobile Loan Sale Agreement, dated as of September 30, 1996, among the Company,
First Fidelity Acceptance Corp., and Greenwich Capital Financial Products, Inc.
16.1`D' -- Change in certifying accountant's letter
21.1`D' -- Subsidiaries of the Company
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1)
23.3 -- Consents of Director Designees
24.1`D' -- Power of Attorney (included on signature page of Registration Statement)
27.1`D' -- Financial Data Schedule
</TABLE>
- ------------
`D' Previously Filed
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
<PAGE>
<PAGE>
1,000,000 Shares
AUTOBOND ACCEPTANCE CORPORATION
Common Stock
UNDERWRITING AGREEMENT
November__, 1996
THE BOSTON GROUP, L.P.
As Representative of the several Underwriters
named in Schedule A hereto
The Boston Group, L.P.
2049 Century Park East, 30th Floor
Dallas, Texas 75202
The undersigned, AutoBond Acceptance Corporation (the "Company"),
a Texas corporation, and the persons listed on Schedule B annexed hereto (the
"Selling Shareholders") hereby confirm their agreement with you and the other
underwriters named in Schedule A annexed hereto.
Section 1. Underwriters and Representative. The term
"Underwriters," as used herein, will mean and refer collectively to you and the
other underwriters named in Schedule A annexed hereto and the term
"Representative" will refer to you in your capacity as the representative of the
Underwriters. Except as may be expressly set forth below, any reference to "you"
in this Agreement shall be solely in your capacity as the Representative.
Section 2. Shares Offered. The Company proposes to issue and sell
to the Underwriters an aggregate of 750,000 shares of its authorized and
unissued common stock, no par value per share (the "Common Stock"), and the
Selling Shareholders propose to sell to the Underwriters an aggregate of 250,000
issued and outstanding shares of Common Stock (collectively, the "Firm Shares").
The Company also proposes to grant to the Underwriters an Option (hereinafter
defined) to purchase up to an additional aggregate of 150,000 shares (the
"Option Shares") of its authorized and unissued Common Stock on the terms and
for the purposes set forth in Section 4(b) hereof. The Firm Shares and the
Option Shares are hereinafter sometimes together called the "Shares."
Section 3. Representations and Warranties. (a) The Company
represents and warrants to each Underwriter that:
<PAGE>
<PAGE>
(i) A registration statement (File No. 333-05359) on Form S-1
relating to the Shares, including a preliminary prospectus, has
been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules, regulations and instructions (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed by the Company with
the Commission. One or more amendments to such registration
statement, including in each case a revised preliminary
prospectus, have been so prepared and filed. If such registration
statement has not become effective as of the execution and
delivery of this Agreement, and the filing of a further amendment
(the "Final Amendment") to such registration statement is
necessary to permit such registration statement to become
effective, such amendment will promptly be filed by the Company
with the Commission. If such registration statement has become
effective and any post-effective amendment has been filed with
the Commission prior to the execution and delivery of this
Agreement, the most recent such amendment has been declared
effective by the Commission. If such registration statement has
become effective, either (A) if the Company relies on Rule 434
under the Act, a Term Sheet (hereinafter defined) relating to the
Shares, that shall identify the preliminary prospectus
(hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and
424(b) under the Act, will be promptly filed with the Commission
by the Company or (B) if the Company does not rely on Rule 434
under the Act, a final prospectus (the "Rule 430A Prospectus")
containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will
promptly be filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations. The term "preliminary prospectus" as used
herein means each prospectus subject to completion included at
any time as part of such registration statement or any amendment
thereto or filed with the Commission pursuant to Rule 424(a) of
the Rules and Regulations; such registration statement, as
amended at the time that it becomes or became effective, or, if
applicable, as amended at the time the most recent post-effective
amendment to such registration statement filed with the
Commission prior to the execution and delivery of this Agreement
became effective, including financial statements and all exhibits
and information deemed to be a part thereof at such time pursuant
to Rule 430A of the Rules and Regulations is herein called the
"Registration Statement"; the term "Term Sheet" as used herein
means any term sheet that satisfies the requirements of Rule 434
under the Act; and the term "Prospectus" as used herein means (x)
if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Shares that is first filed pursuant to
-2-
<PAGE>
<PAGE>
Rule 424(b)(7) under the Act, together with the preliminary
prospectus identified therein that such Term Sheet supplements;
(y) if the Company does not rely on Rule 434 under the Act, the
final prospectus relating to the Shares in the form first filed
with the Commission pursuant to Rule 424(b)(1) or (4) of the
Rules and Regulations; or (z) if no such filing is required, the
form of final prospectus included in the Registration Statement
at the Effective Date (as hereinafter defined). The date on which
the Registration Statement becomes effective is hereinafter
called the "Effective Date." Any reference herein to the "date"
of a Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet.
(ii) When the Registration Statement becomes effective, and at
all subsequent times to and including the Closing Time
(hereinafter defined), and at each Option Exercise Time
(hereinafter defined), or for such longer period as the
Prospectus may be required to be delivered in connection with
sales of the Shares by the Underwriters or a dealer, the
Registration Statement and the Prospectus, including any Term
Sheet that is a part thereof (as amended or as supplemented if
the Company shall have filed with the Commission any amendment
thereof or supplement thereto; provided, that no amendment or
supplement to the Registration Statement or the Prospectus,
including as a result of the filing of a Term Sheet, shall be
made without prior consultation with you, and your approval),
will comply with the requirements of the Act and the Rules and
Regulations, will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations,
will not contain an untrue statement of a material fact and will
not omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection (ii) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon and made
in conformity with written information furnished to the Company
by or on behalf of any Underwriter specifically for inclusion
therein.
(iii) The Commission has not issued an order preventing or
suspending the use of any preliminary prospectus with respect to
the Shares and has not instituted or threatened to institute any
proceedings with respect to such an order. Each preliminary
prospectus, when filed with the Commission, conformed in all
material respects with the requirements of the Act and the Rules
and Regulations and, as of its date, did not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light
-3-
<PAGE>
<PAGE>
of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this sentence do not apply to statements or omissions in each
such preliminary prospectus based upon and made in conformity
with written information furnished to the Company through the
Representative by or on behalf of any Underwriter specifically
for inclusion therein.
(iv) The Company is, and at the Closing Time, and at each
Option Exercise Time will be, a corporation duly organized,
validly existing and in good standing under the laws of the State
of Texas. Each of the corporations identified in Exhibit 21.1 to
the Registration Statement (collectively, the "Subsidiaries" and
individually, a "Subsidiary") is, and at the Closing Time, and at
each Option Exercise Time will be, a corporation duly organized,
validly existing and in good standing under the laws of the State
of its incorporation. The Company owns, free and clear of all
mortgages, pledges, liens, security interests, conditional sale
agreements, charges, encumbrances and restrictions of every
nature, all of the outstanding shares of the capital stock of
each Subsidiary, and all of such shares have been duly and
validly authorized and issued and are fully paid and
non-assessable. Each of the Company and the Subsidiaries has, and
at the Closing Time and at each Option Exercise Time will have,
the power and authority (corporate, governmental, regulatory and
otherwise) and all necessary approvals, orders, licenses,
certificates, permits and other governmental authorizations to
conduct all of the activities conducted by it, to own or lease
all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the
Prospectus; and is, and at the Closing Time and at each Option
Exercise Time will be, duly licensed or qualified to do business
and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by
it and/or the character of the assets owned and leased by it
makes such license or qualification necessary, or in which the
failure to so qualify would have a material adverse effect on the
business, results of operations or financial condition of the
Company. Except for the shares of the stock of each Subsidiary
owned by the Company and retained interests in certain
securitization trusts owned by the related Subsidiaries, neither
the Company nor any Subsidiary owns, and at the Closing Time and
at each Option Exercise Time neither the Company nor any
Subsidiary will own, any shares of stock or any other securities
of any corporation or have any equity interest in any firm,
partnership, association or other entity; provided, however, that
the foregoing representation shall not be applicable to the
investment of the net proceeds from the sale of the Shares in
short-term
-4-
<PAGE>
<PAGE>
interest bearing notes or money market instruments defined as
"Eligible Investments" in subsection (a)(xiii) of Section 6
hereof. A complete and correct copy of the amended certificate of
incorporation of the Company, the certificate of incorporation of
each Subsidiary, the amended by-laws of the Company and the
by-laws of each Subsidiary as currently in effect have been
delivered to you and no changes therein will be made subsequent
to the date hereof and prior to the Closing Time or each Option
Exercise Time.
(v) The Company is, and at the Closing Time and at each
Option Exercise Time will be, authorized to issue only 25,000,000
shares of Common Stock and 5,000,000 shares of preferred stock,
no par value (the "Preferred Stock"), and has heretofore validly
issued, and has outstanding, and at the Closing Time and at each
Option Exercise Time will have outstanding, fully paid and
nonassessable, 5,687,500 shares of the Common Stock, without
giving effect to the issuance of Shares by the Company pursuant
to this Agreement, and has no shares of Preferred Stock
outstanding. The Company has, and at the Closing Time and at each
Option Exercise Time will have, reserved for issuance (A) 515,000
shares of Common Stock under the Company's 1996 Stock Option
Plan, of which options to purchase 300,000 shares may be
outstanding or will be outstanding at the Closing Time or at each
Option Exercise Time; (B) 12,000 shares received pursuant to
grants to the Company's outside directors; (C) 100,000 shares
reserved pursuant to the Warrant; and (D) 18,811 shares of Common
Stock pursuant to a Warrant issued on March 12, 1996. Subsequent
to the date hereof and prior to the Closing Time and each Option
Exercise Time, the Company will not issue or acquire any shares
of Common Stock, Preferred Stock or any securities convertible
into shares of Common Stock or Preferred Stock. Except the
Warrants (as hereinafter defined) and as otherwise set forth in
this subsection (v), the Company does not have outstanding, and
at the Closing Time and at each Option Exercise Time the Company
will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or
sell shares of capital stock or any warrants, convertible
securities or obligations.
(vi) The consolidated financial statements of the Company and
its Subsidiaries (including the footnotes thereto) filed with and
as part of the Registration Statement and the Prospectus present
fairly the financial position and results of operations of the
Company and the Subsidiaries as of the respective dates thereof
and for the respective periods covered thereby, all in conformity
with generally accepted
-5-
<PAGE>
<PAGE>
accounting principles applied on a consistent basis. Coopers &
Lybrand L.L.P. (the "Company's accountants"), who have reported
on such financial statements, are independent accountants with
respect to the Company as required by the Act and the Rules and
Regulations. No other financial statements are required to be
included in the Registration Statement and the Prospectus.
(vii) The Company has a duly authorized and outstanding
capitalization as disclosed in the Prospectus under
"Capitalization" and will have the adjusted capitalization set
forth therein at the Closing Time (based on the assumptions set
forth therein). The financial and numerical information and data
set forth in the Prospectus under "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Dilution," "Capitalization,"
"Dividend Policy," "Selected Consolidated Financial and Operating
Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management,"
"Principal and Selling Shareholders," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future
Sale" are fairly presented and prepared on a basis consistent
with the audited financial statements of the Company.
(viii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to the Closing Time and to each Option
Exercise Time, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (A) each of the
Company and the Subsidiaries has and will have conducted its
business in substantially the same manner as on June 30, 1996;
(B) neither the Company nor any Subsidiary has incurred or will
have incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the
ordinary course of business; (C) the Company has not paid or
declared nor will it pay or declare any dividends or other
distributions on its capital stock; and (D) there has not been
and will not have been any adverse change in the capitalization
of the Company or, except in connection with securitizations, any
Subsidiary or any material adverse change in the business,
business prospects, financial condition or results of operations
of the Company and the Subsidiaries taken as a whole or in the
condition of the Company and the Subsidiaries taken as a whole or
in the value of the assets of the Company and the Subsidiaries
taken as a whole arising for any reason whatsoever.
(ix) Except as set forth in or contemplated by the
Registration Statement and the Prospectus, neither the Company
nor any Subsidiary
-6-
<PAGE>
<PAGE>
has, nor at the Closing Time and at each Option Exercise Time
will have, any material contingent obligations.
(x) There are no actions, suits or proceedings at law or in
equity pending, or to the knowledge of the Company, threatened,
against the Company or any Subsidiary, any of their respective
assets or any of their respective officers or directors, which
have not been disclosed to you, before or by any federal, state,
county or local commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would adversely affect
the Company or any Subsidiary, or their respective businesses,
business prospects, financial conditions, results of operations
or properties. Neither the Company nor any Subsidiary is involved
in any labor dispute nor, to their knowledge, is any such dispute
threatened, which dispute would have a material adverse effect
upon the properties, business, financial condition or results of
operations of the Company and its Subsidiaries.
(xi) Each of the Company and the Subsidiaries has, and at the
Closing Time and at each Option Exercise Time will have, complied
in all respects with all laws, regulations and orders applicable
to it or its business, the violation of which would have a
material adverse effect upon its legal existence or its business,
business prospects, financial condition, results of operations,
earnings or properties. Each of the Company and the Subsidiaries
has, and at the Closing Time and at each Option Exercise Time
will have, in all respects performed all of the obligations
required to be performed by it, and is not, and at the Closing
Time and at each Option Exercise Time will not be, in default
under (there being no existing state of facts which with notice
or lapse of time or both would constitute a default under) any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, letter of credit agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which it is a party or by which
it or any of its property is bound, and, to the knowledge of the
Company, no other party under any such agreement or instrument to
which the Company or any Subsidiary is a party is in default in
any respect thereunder.
(xii) The Company (i) keeps books, records and accounts that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company and
its Subsidiaries and (ii) maintains a system of internal
accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions
-7-
<PAGE>
<PAGE>
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (C) access
to assets is permitted only in accordance with management's
general or specific authorization and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
to any differences.
(xiii) Neither the Company nor any Subsidiary is in violation
of its certificate of incorporation or by-laws, in each case as
amended as of the date hereof.
(xiv) The outstanding shares of the Common Stock (including
the Shares to be sold by the Selling Shareholders) have been, and
all of the Shares, and the shares of Common Stock issuable upon
exercise of the Warrants, will, upon issuance and payment
therefor, be, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights or similar
contractual rights to purchase securities issued by the Company.
The shares of Common Stock issuable upon exercise of the Warrants
have been duly and validly reserved for issuance. The holders of
shares of the Common Stock will not be subject to personal
liability for the obligations of the Company solely by reason of
being such holders. The Common Stock and the Shares conform, and
when the Registration Statement becomes effective and at the
Closing Time and at each Option Exercise Time will conform, to
all statements with regard thereto contained in the Registration
Statement and the Prospectus; and the issuance and sale of the
Shares to be issued and sold by the Company have been duly and
validly authorized.
(xv) This Agreement has been duly authorized, executed and
delivered by the Company; the performance of this Agreement and
the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under (there
being no existing state of events which with notice or lapse of
time or both would constitute a default) or result (or with the
giving of notice or lapse of time or both will result) in the
creation or imposition of any lien, charge, or encumbrance upon
the assets or properties of the Company or any Subsidiary,
pursuant to any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, letter of credit agreement, bond,
debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or
any
-8-
<PAGE>
<PAGE>
Subsidiary or any of their respective properties is bound, or
under the certificate of incorporation or by-laws of the Company
or any Subsidiary or under any statute or under any order, rule
or regulation applicable to the Company or any Subsidiary or
their respective businesses or properties or of any court or
other governmental body; and no consent, approval, authorization
or order of any court or governmental agency or body is required
for the consummation by the Company of the transactions on its
part herein contemplated, except such as may be required under
the Act or under state securities or blue sky laws.
(xvi) Each of the Company and the Subsidiaries has good and
marketable title to all properties and assets owned by it, free
and clear of all liens, charges, encumbrances or restrictions,
except such as are described in or referred to in the Prospectus
or are not significant or important in relation to the business
of the Company or any Subsidiary. Each of the Company and the
Subsidiaries has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such
exceptions as are not material and do not interfere with the use
made, and proposed to be made, of such properties by it.
(xvii) There is no document or contract of a character
required to be described in the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or
filed as required; and no statement, representation, warranty or
covenant made by the Company in this Agreement or in any
certificate or document required by this Agreement to be
delivered to you is, was when made, or as of the Closing Time or
any Option Exercise Time will be, inaccurate, untrue or
incorrect. No transaction has occurred between or among the
Company and any of its Subsidiaries and any of their officers,
directors or shareholders or any affiliate of any such officer,
director or shareholder that is required to be described in and
is not described in the Registration Statement and the
Prospectus.
(xviii) Each of the Company and the Subsidiaries has
sufficient trademarks, trade names, registered service marks,
patents, patent applications, patent rights, licenses, permits,
copyright protection and governmental or other authorizations
currently required for the conduct of its business, and each of
the Company and the Subsidiaries is in all material respects
complying therewith, and the products and services, and the marks
associated therewith, used by the Company and each Subsidiary do
not violate or infringe any trademarks, trade names, registered
service marks, patents, patent rights, licenses, permits or
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copyrights held or owned by any other party. Neither the Company
nor any Subsidiary has received any notice of violation or
infringement of or conflict with asserted rights of others with
respect to any trademarks, trade names, registered service marks,
patents, patent rights, licenses, permits, copyrights or
authorizations owned or used by the Company, any Subsidiary or
any other person. Other than as disclosed in the Prospectus, the
expiration of any such trademarks, trade names, registered
service marks, patents, patent rights, licenses, permits,
copyrights and governmental or other authorizations would not
materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the
Company or any Subsidiary.
(xix) The Company intends to apply its proceeds from the sale
of the Shares for the purposes set forth in the Prospectus under
"Use of Proceeds."
(xx) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment
company" as defined in Section 3(a) of the Investment Company Act
of 1940 as amended (the "Investment Company Act").
(xxi) All issuances and sales of securities by the Company
prior to the Closing Time were exempt from registration under the
Act and complied in all respects with the provisions of all
applicable federal and state securities laws. No holder of any
securities of the Company has the right to require registration
of shares of the Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement.
(xxii) Neither the Company nor any of its officers or
directors or affiliates (as defined in the Rules and Regulations)
has taken or will take, directly or indirectly, any action
designed to stabilize or manipulate the price of any security of
the Company, or which has constituted or which might reasonably
be expected to cause or result in stabilization or manipulation
of the price of any security of the Company, to facilitate the
sale or resale of any of the Shares, other than those actions
permitted by applicable law.
(xxiii) The Company has not, and at the Closing Time and at
each Option Exercise Time will not have, incurred any liability
for finder's or brokerage fees or agent's commissions in
connection with the offer and sale of the Shares or this
Agreement, except for the Underwriters' discounts and commissions
provided for in this Agreement.
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(xxiv) The Company and each Subsidiary have filed all federal,
state and local income and franchise tax returns required to be
filed through the date hereof and have paid all taxes due
thereon, and no tax deficiency has been, nor does the Company
have any knowledge of any tax deficiency which might be, asserted
against the Company or any Subsidiary which could materially
adversely affect the earnings, assets, affairs, business
prospects or condition (financial or other) of the Company or any
Subsidiary.
(xxv) None of the ratings of the Company's securitization
transactions have been lowered, or to the best of the Company's
knowledge, have the Company's securitization transactions been
put on credit watch with negative implications by the rating
agencies rating the Company's securitization transactions.
(xxvi) The Company has the power and authority to execute and
deliver the Warrants and the Warrant Agreement (as hereinafter
defined) on the terms and conditions set forth herein and in the
Warrants and Warrant Agreement, and has taken all corporate
action necessary therefor; no consent, approval, authorization or
other order of any regulatory agency is required for such
execution or delivery except as may be required under the Act;
and when executed and delivered pursuant to the provisions of
this Agreement, the Warrants and Warrant Agreement will
constitute the valid, binding and legally enforceable obligation
of the Company.
(b) Each of the Selling Shareholders, severally and not jointly,
represents and warrants to each Underwriter that:
(i) Such Selling Shareholder (A) has the power and authority
to execute and deliver this Agreement and the Power of Attorney
Agreement (hereinafter defined) on the terms and conditions set
forth herein and therein; (B) is, and when the Registration
Statement shall become effective and at the Closing Time will be,
the owner of the Shares to be sold by such Selling Shareholder to
the respective Underwriters pursuant to the terms hereof, in each
case free and clear of all liens, charges, encumbrances and
restrictions; (C) has paid to the Company the full purchase price
required to be paid for such Shares; and (D) has, and when the
Registration Statement shall become effective and at the Closing
Time will have, the power and authority to convey good and valid
title to such Shares, in each case free and clear of all liens,
charges, encumbrances and restrictions.
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(ii) Such Selling Shareholder has executed an agreement and
power of attorney (the "Power of Attorney Agreement") with
_________________________ or _______________________ as
attorney-in-fact, and has delivered to such attorney-in-fact,
pursuant to the Power of Attorney Agreement, certificates in
negotiable form for the Shares to be sold by such Selling
Shareholder. Copies of each Power of Attorney Agreement have been
delivered to you. Such certificates and the Shares represented
thereby are subject to the rights of the Underwriters hereunder
and, to such extent, the Power of Attorney granted by such
Selling Shareholder to such attorney-in-fact is irrevocable and
shall not be terminated by law or upon the occurrence of any
event. If any such event shall occur, with or without notice to
such attorney-in-fact, such attorney-in-fact shall deliver such
certificates in accordance with the terms and provisions of this
Agreement as if such event had not occurred.
(iii) The Power of Attorney Agreement has been duly
authorized, executed and delivered by such Selling Shareholder,
and this Agreement has been duly authorized, executed and
delivered by such Selling Shareholder or by his or her
attorney-in-fact pursuant to the Power of Attorney Agreement.
(iv) Neither the execution and delivery or performance of this
Agreement or the Power of Attorney Agreement or the consummation
of the transactions herein or therein contemplated nor the
compliance with the terms hereof or thereof by such Selling
Shareholder will conflict with, or result in a breach of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, guaranty, purchase agreement
or other agreement or instrument to which such Selling
Shareholder or any of such Selling Shareholder's property is
bound, or under any statute or under any order, rule or
regulation applicable to such Selling Shareholder or any of such
Selling Shareholder's property of any court or other governmental
agency; and no consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation by such Selling Shareholder of the transactions on
such Selling Shareholder's part herein or therein contemplated,
except such as may be required under the Act or under state
securities or blue sky laws.
(v) At the Closing Time, all stock transfer or other taxes
(other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold by
the Selling Shareholders to the several Underwriters hereunder
will have been
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fully paid or provided for by the Selling Shareholders and all
laws imposing such taxes will have been fully complied with.
(vi) Such Selling Shareholder has not, and at the Closing Time
will not have, taken, directly or indirectly, any action to cause
or result in, or which has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the
price of the shares of the Common Stock to facilitate the sale or
the resale of any of the Shares.
Section 4. (a) Purchase, Sale and Delivery of the Firm Shares;
Closing Time; Warrants. (i) On the basis of the representations and warranties
contained in this Agreement, and subject to the terms and conditions herein set
forth, (A) the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, 750,000 Shares at and for a price of $___
per Share; and (B) each of the Selling Shareholders agree, severally and not
jointly, to sell to the Underwriters the number of Shares set forth opposite the
name of such Selling Shareholder on Schedule B hereof, and the Underwriters
agree to purchase from the Selling Shareholders, such Shares at and for a price
of $____ per Share. The number of Shares to be purchased from the Company and
the number of Shares to be purchased from the Selling Shareholders, respectively
(as adjusted by the Representative to eliminate fractions), by each of the
Underwriters shall be determined by multiplying the aggregate number of such
Shares to be sold by the Company or the Selling Shareholders, as the case may
be, as set forth above and in Schedule B, by a fraction, the numerator of which
is the total number of Firm Shares set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the aggregate
number of Firm Shares set forth in Schedule A hereto. The obligations of the
Underwriters under this Agreement are several and not joint.
(ii) Delivery of the Firm Shares shall be made to you for the
accounts of the respective Underwriters, at your offices at 2049 Century Park
East, 30th Floor, Los Angeles, California, or such other location in the Los
Angeles metropolitan area as you shall advise the Company by at least one full
business day's notice in writing, against payment by you on behalf of the
respective Underwriters of the purchase price therefor to the Company and the
attorney-in-fact for the Selling Shareholders, by delivery via wire transfer in
immediately available funds to the Company or the Selling Shareholders of the
respective amounts to which they are entitled, at 10:00 a.m., Austin, Texas
Time, on ____________ 1996, or on such other time and business day (Saturdays,
Sundays and legal holidays in the City of Los Angeles or State of California not
being considered business days for the purposes of this Agreement), as the
Representative and the Company may agree upon or as the Representative may
determine pursuant to Section 11 hereof, which time and date are herein called
the "Closing Time." Delivery of the Firm Shares shall be made in registered form
in such name or names and in such denominations as you shall request by at least
two full
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business days' notice in writing. The cost of original issue tax stamps and
transfer stamps, if any, in connection with the issuance and delivery or sale of
the Firm Shares by the Company to the respective Underwriters shall be borne by
the Company; the cost of transfer stamps, if any, in connection with the sale of
the Firm Shares by the Selling Shareholders to the respective Underwriters shall
be borne by the Selling Shareholders. The Company will pay and save each
Underwriter or its nominees, and any subsequent holder of the Firm Shares,
harmless from any and all liabilities with respect to or resulting from any
failure or delay in paying federal or state stamp and other transfer taxes, if
any, which may be payable or determined to be payable in connection with the
sale by the Company or the Selling Shareholders to such Underwriter of the Firm
Shares or any portion thereof.
(iii) The Company and the Selling Shareholders will make the
certificates for the Firm Shares available to you for examination at your
offices at 2049 Century Park East, 30th Floor, Los Angeles, California, or at
such other place as you shall request, not later than 2:00 p.m., Austin, Texas
Time, on the business day next preceding the Closing Time.
(b) Purchase, Sale and Delivery of the Option Shares. (i) The
Company hereby grants to the respective Underwriters an option (the "Option") to
purchase from the Company up to 150,000 Option Shares, in the same proportion as
each Underwriter has agreed to purchase the Firm Shares, at and for a price of
$______ for each Option Share; provided, however, that the Option may be
exercised only for the purpose of covering any over-allotments which may be made
by you in connection with the distribution and sale of the Firm Shares.
(ii) The Option is exercisable by you in whole or in part at any
time or times on or before 12:00 noon, Austin, Texas Time, on the day prior to
the Closing Time, and at any time or times thereafter during the period ending
30 days after the date of the Prospectus (or if such thirtieth day shall be a
Saturday, Sunday or holiday, on the next business day thereafter when the New
York Stock Exchange is open for trading), in each case by giving notice to the
Company in the manner provided in Section 12 hereof, setting forth the number of
Option Shares as to which the Option is being exercised, the name or names in
which the certificates for such Option Shares are to be registered, the
denominations of such certificates and the date of delivery of such Option
Shares, which date, if not the Closing Time, shall not be less than two nor more
than three business days after such notice.
(iii) Upon each exercise of the Option, the Company shall sell to
the respective Underwriters the aggregate number of Option Shares specified in
the notice exercising the Option and the Underwriters, on the basis of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
you, but subject to
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the terms and conditions of this Agreement, shall purchase from the Company the
aggregate number of Option Shares specified in such notice.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to you for the account of the
respective Underwriters, at your offices at 2049 Century Park East, 30th Floor,
Los Angeles, California, or such other location in the Los Angeles metropolitan
area as you shall determine and advise the Company, against payment by you, on
behalf of the respective Underwriters, of the purchase price therefor to the
Company by certified or bank cashier's check or checks payable by wire transfer
in immediately available funds to the Company in the amount to which the Company
is entitled, at 10:00 a.m., Austin, Texas Time, on the date designated in the
notice given by you as above provided for, unless some other place, time and
date is agreed upon (such time and date being herein called an "Option Exercise
Time"). The cost of original issue tax stamps or transfer stamps, if any, in
connection with each issuance and delivery of the Option Shares by the Company
to the respective Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter, and any subsequent holder of Option Shares,
harmless from any and all liabilities with respect to or resulting from any
failure or delay in paying federal and state stamp taxes, if any, which may be
payable or determined to be payable as a result of the sale by the Company to
such Underwriter of the Option Shares or any portion thereof.
(v) The Company will make the certificates for the Option Shares
to be purchased at each Option Exercise Time available to you for examination at
your offices at 2049 Century Park East, 30th Floor, Los Angeles, California, or
such other place as you shall request, not later than 2:00 p.m., Austin, Texas
Time, on the business day next preceding each Option Exercise Time.
(vi) The obligation of the respective Underwriters to purchase
and pay for Option Shares at each Option Exercise Time shall be subject to
compliance as of such date with all the conditions specified in Section 8 hereof
and the delivery to you of opinions, certificates and letters, each dated the
respective Option Exercise Time, substantially similar in scope to those
specified in Section 8 hereof, and to the absence of any occurrence referred to
in Section 10 hereof.
(c) Warrants. In order to induce you to enter into this
Agreement, the Company shall execute and deliver to you, in your individual
capacity and not as the Representative, for an aggregate purchase price of $50,
five-year warrants (the "Warrants") pursuant to a warrant agreement (the
"Warrant Agreement"), to purchase an aggregate of 100,000 shares of the Common
Stock at an exercise price per share equal to 120% of the initial public
offering price per share set forth on the cover page of the Prospectus. The
Warrants shall be exercisable beginning one year from the date of the
Prospectus. The Warrants and Warrant Agreement shall be in the form of Exhibit
1.2 to the Registration Statement. Execution and delivery of
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Warrants, registered in your name or the names of such of your officers as you
shall notify the Company in writing, shall be made to you, The Boston Group,
L.P., 2049 Century Park East, 30th Floor, Los Angeles, California, at the
Closing Time. The cost of original issue tax stamps, if any, in connection with
the execution and delivery of the Warrants shall be borne by the Company.
Section 5. Registration Statement and Prospectus. (a) The Company
will deliver to you, without charge, four fully signed copies of the
Registration Statement and of each amendment thereto, including all financial
statements and exhibits, and to each Underwriter the number of conformed copies
of the Registration Statement and of each amendment thereto, including all
financial statements, but excluding exhibits, as each Underwriter may reasonably
request.
(b) The Company has delivered to each Underwriter, and each of
the Selected Dealers (hereinafter defined), without charge, as many copies as
you have requested of each preliminary prospectus heretofore filed with the
Commission and will deliver to each Underwriter and to others whose names and
addresses are furnished by such Underwriter or a Selected Dealer, without
charge, on the Effective Date, and thereafter from time to time during the
period in which the Prospectus is required by law to be delivered in connection
with sales of Shares by an Underwriter or a dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as you may request;
without limiting the application of this Section 5(b), the Company, not later
than (i) 6:00 p.m., Austin, Texas time, on the date of determination of the
public offering price, if such determination occurred at or prior to 12:00 Noon,
Austin, Texas time, on such date or (ii) 6:00 p.m., Austin, Texas Time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 12:00 Noon, Austin, Texas Time, on such
date, will deliver to the Representative, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Representative may
reasonably request for purposes of confirming orders that are expected to settle
at the Closing Time.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the preliminary prospectuses, and
authorizes each Underwriter, all dealers (the "Selected Dealers") selected by
you in connection with the distribution of the Shares and all dealers to whom
any of such Shares may be sold by the Underwriters or by any Selected Dealer, to
use the Prospectus, as from time to time amended or supplemented, in connection
with the sale of the Shares in accordance with the applicable provisions of the
Act, the applicable Rules and Regulations and applicable state law until
completion of the public offering of the Shares and for such longer period as
you may request if the Prospectus is required to be delivered in connection with
sales of the Shares by an Underwriter or a dealer.
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Section 6. Covenants. (a) The Company covenants and agrees with
each Underwriter that:
(i) After the execution and delivery of this Agreement, the
Company will not, at any time, whether before or after the
Effective Date, file any Term Sheet or any amendment of or
supplement to the Registration Statement or the Prospectus of
which you shall not previously have been advised and furnished
with a copy, or which you or Fulbright & Jaworski L.L.P.
("counsel for the Underwriters") shall not have approved, or
which is not in compliance with the Act or the Rules and
Regulations.
(ii) If the Registration Statement has not become effective,
the Company will promptly file the Final Amendment with the
Commission and will use its best efforts to cause the
Registration Statement to become effective. If the Registration
Statement has become effective, the Company will file the Rule
430A Prospectus or other Prospectus or any Term Sheet that
constitutes a part thereof with the Commission as promptly as
practicable, but in no event later than that permitted by Rules
434 and 424(b). The Company will promptly advise you (A) when the
Registration Statement, or any post effective amendment thereto,
shall have become effective, or any Term Sheet or any amendments
or supplements to the Prospectus shall have been filed with the
Commission; (B) of any request of the Commission or any state or
other regulatory body for any amendment or supplement of the
Registration Statement or the Prospectus or for additional
information and the nature and substance thereof; (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or
prohibiting the offer or sale of any of the Shares or of the
initiation of any proceedings for such purpose; (D) of any
receipt by the Company of any notification with respect to the
suspension of qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding
for such purpose; and (E) of the happening of any event during
the periods in which the Prospectus is to be used in conjunction
with the offer or sale of Shares which makes any statement made
in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement
or the Prospectus in order to make the statements therein not
misleading. The Company will use its best efforts to prevent the
issuance of any stop order or any order preventing or suspending
the use of the Registration Statement or Prospectus and, if such
order is issued, to obtain the lifting thereof as promptly as
possible.
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(iii) The Company will prepare and file with the Commission,
upon your request, any such amendments of or supplements to the
Registration Statement or the Prospectus, in form and substance
reasonably satisfactory to the Company, as in the opinion of the
Underwriters may be necessary or advisable in connection with the
distribution of the Shares or any change in the price at which,
or the terms upon which, the Shares may be offered by you, and
will use its best efforts to cause the same to become effective
as promptly as possible.
(iv) The Company will comply with the Act and the Rules and
Regulations and the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations thereunder so
as to permit the continuance of sales of and dealings in the
Shares under the Act and the Exchange Act. If at any time when a
prospectus is required to be delivered under the Act an event
shall have occurred as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements
therein not untrue or misleading or to make the Prospectus comply
with the Act, the Company will notify you promptly thereof and
will, subject to the provisions of Section 6(a)(i) hereof,
furnish to you an amendment or supplement which will correct such
statement in accordance with the requirements of Section 10 of
the Act.
(v) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(vi) The Company will take all reasonably necessary actions to
furnish to whomever you direct, when and as requested by you, all
reasonably necessary documents, exhibits, information,
applications, instruments and papers as may be required or, in
the opinion of counsel for the Underwriters, desirable in order
to permit or facilitate the sale of the Shares. The Company will
use its best efforts to qualify or register the Shares for sale
under the so-called blue sky laws of such jurisdictions as you
shall request, to make such applications, file such documents and
furnish such information as may be required for such purpose and
to comply with such laws so as to continue such qualification in
effect so long as required for the purposes of the distribution
of the Shares; provided, however, that the Company shall not be
required to qualify as a foreign corporation in any jurisdiction
or to file a consent to service of process in any jurisdiction in
any action other than one arising out of the offering or sale of
the Shares.
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(vii) During the period of three years commencing on the
Effective Date, the Company will furnish to each Underwriter, (A)
within 120 days after the end of each fiscal year of the Company,
either (1) a consolidated balance sheet of the Company and its
then consolidated subsidiaries, and a separate balance sheet of
each subsidiary if any, of the Company the accounts of which are
not included in such consolidated balance sheet, as of the end of
such fiscal year, and consolidated statements of income and
shareholders' equity of the Company and its consolidated
subsidiaries, and separate statements of income and shareholders'
equity of each of the subsidiaries, if any, of the Company the
accounts of which are not included in such consolidated
statements, for the fiscal year then ended, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles, consistently applied, and all certified by
independent accountants (within the meaning of the Act and the
Rules and Regulations), or (2) the Company's Form 10-K for such
fiscal year as filed with the Commission in accordance with the
Exchange Act; (B) within 60 days after the end of each of the
first three fiscal quarters of each fiscal year, either (1)
similar balance sheets as of the end of such fiscal quarter and
similar statements of income and shareholders' equity for the
fiscal quarter then ended, all in reasonable detail, and all
certified by the Company's principal financial officer or the
Company's principal accounting officer as having been prepared in
accordance with generally accepted accounting principles,
consistently applied, or (2) the Company's Form 10-Q for such
fiscal quarter as filed with the Commission in accordance with
the Exchange Act; (C) as soon as available, each report furnished
to or filed with the Commission or any securities exchange and
each report and financial statement furnished to the Company's
shareholders generally; and (D) as soon as available, such other
material as such Underwriter may from time to time reasonably
request regarding the financial condition and operations of the
Company and its subsidiaries.
(viii) The Company will make generally available to its
security holders and to the Representative as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of the
Company during which the Effective Date occurs (or 90 days, if
such 12-month period coincides with the Company's fiscal year),
an earnings statement of the Company, which will be in reasonable
detail, but need not be audited, and will cover a period of
twelve months commencing after the Effective Date. Such earnings
statement shall comply with the requirements of Section 11(a) of
the Act or Rule 158 of the Rules and Regulations. During the
period of three years commencing on the Effective Date, the
Company
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will furnish to its shareholders (A) within 75 days after the end
of the first three fiscal quarters of each fiscal year, quarterly
reports containing unaudited financial information, and (B)
within 120 days after the end of each fiscal year, an annual
report containing audited financial information.
(ix) Counsel for the Company, the Company's accountants and
the officers of the Company will respectively furnish the
opinions, the letters and the certificates referred to in
subsections (e), (f), (g), (h) and (i) of Section 8 hereof, and,
in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Shares or
any amendment or supplement to the Prospectus relating to the
offering of the Shares subsequent to the Effective Date, whether
pursuant to subsection (iii) of this Section 6(a) or otherwise,
such counsel, such accountants and such officers will, at the
time of such filing or at such subsequent time as you shall
specify, respectively, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same
nature as the opinions, the letters and the certificates referred
to in said subsections (e), (f), (g), (h) and (i) respectively,
as you may reasonably request, or, if any such opinion, letter or
certificate cannot be furnished by reason of the fact that such
counsel or such accountants or any such officer believes that the
same would be inaccurate, such counsel or such accountants or any
such officer will furnish an accurate opinion, letter or
certificate with respect to the same subject matter.
(x) Prior to the later to occur of the termination of the
Option and the Option Exercise Time, the Company will not issue,
directly or indirectly, without your prior consent and that of
counsel for the Underwriters, any press release or other
communication or hold any press conference with respect to the
Company or its activities or this offering.
(xi) The Company will not, without your prior written consent,
sell, contract to sell or otherwise dispose of any equity
securities, including shares of Common Stock, except the sale of
the Shares, the issuance of employee and director stock options
or issuance of the Warrants as described in the Prospectus, for a
period of 180 days after the date of this Agreement; and the
Company has caused each of its officers, directors, the Selling
Shareholders and all holders of the Common Stock, including any
holder of a warrant, option or other security convertible into
Common Stock, and any affiliate thereof, to deliver to you on or
before the date of this Agreement an agreement, satisfactory in
form and substance to you and counsel for the Underwriters,
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whereby each agrees, for a period of 180 days after the date of
this Agreement, not to offer, (pledge, except in the case of
William O. Winsauer) sell or contract to sell, transfer or
otherwise dispose of any shares of Common Stock, directly or
indirectly, without your prior written consent, except for the
sale of Shares to the Underwriters pursuant to this Agreement.
(xii) The Company will not at any time, directly or
indirectly, take any action designed to or which will constitute
or which might reasonably be expected to cause or result in the
stabilization of the price of the Shares to facilitate the sale
or resale of any of the Shares, other than those actions
permitted by applicable law.
(xiii) The Company will apply the net proceeds from the sale
of the Shares in the manner set forth under "Use of Proceeds" in
the Prospectus. The Company will prepare and file with the
Commission a report (on Form S-R) of Sales of Securities and Use
of Proceeds Therefrom in accordance with Rule 463 of the Rules
and Regulations and promptly will deliver a copy thereof to the
Representative. Prior to the application of such net proceeds,
the Company will invest or reinvest such proceeds only in
Eligible Investments (hereinafter defined). "Eligible
Investments" shall mean the following investments so long as they
have maturities of one year or less: (A) obligations issued or
guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United
States pursuant to authority granted by Congress; (B) obligations
issued or guaranteed by any state or political subdivision
thereof rated either Aa or higher, or MIG 1 or higher, by Moody's
Investors Service, Inc. or AA or higher, or an equivalent, by
Standard & Poor's Corporation, both of New York, New York, or
their successors; (C) commercial or finance paper which is rated
either Prime-1 or higher or an equivalent by Moody's Investors
Service, Inc. or A-1 or higher or an equivalent by Standard &
Poor's Corporation, both of New York, New York, or their
successors; and (D) certificates of deposit or time deposits of
banks or trust companies, organized under the laws of the United
States, having a minimum equity of $500,000,000.
(xiv) During the period of 180 days commencing on the date
hereof, the Company will not, without the prior written consent
of the Representative, grant options to purchase shares at a
price less than the fair market value thereof.
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(xv) The Company has caused the Common Stock to be duly
included for quotation on the Nasdaq Stock Market's National
Market (the "National Market").
(xvi) The Company will immediately notify the Representative
in writing if, prior to the Closing Time (i) any of the ratings
of the Company's securitization transactions are lowered, (ii)
any of the ratings of the Company's securitization transactions
are put under surveillance or review by the rating agencies
rating the Company's securitization transactions, and (iii) if
the Company suspects that (a) any of the ratings of the Company's
securitization transactions may be put under surveillance or
review by the rating agencies rating the Company's securitization
transactions, or (b) any of the ratings of the Company's
securitization transactions may be lowered.
(b) Each of Selling Shareholders, severally and not jointly,
covenants and agrees with each Underwriter that:
(i) Such Selling Shareholder will not, directly or indirectly,
take any action designed to or which will constitute or which
might reasonably be expected to cause or result in the
stabilization of the price of the Shares to facilitate the sale
or the resale of any of the Shares.
(ii) If, during such period as the Prospectus may be required
to be delivered in connection with the sales of the Shares by the
Underwriters or a dealer, such Selling Shareholder shall believe
or have any reasonable grounds to believe that the Prospectus (as
amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto)
contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that
any of the representations and warranties of the Company or such
Selling Shareholder contained herein or in any certificate or
document contemplated under this Agreement to be delivered to you
are false, such Selling Shareholder will immediately notify you,
as the Representative, to such effect.
(iii) Such Selling Shareholder will not, without your prior
written consent, directly or indirectly, offer, sell, contract to
sell, transfer or otherwise dispose of any shares of Common Stock
or any securities convertible into or exchangeable for shares of
Common Stock owned by or held of record in its name, except the
sale of Shares to the
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Underwriters pursuant to this Agreement, for a period of 180 days
after the Effective Date.
(iv) Such Selling Shareholder will furnish the certificates
referred to in subsections (h) and (i) of Section 8 hereof.
Section 7. Expenses. The Company will pay and bear all costs,
fees, taxes and expenses incident to the performance of the obligations of the
Company and the Selling Shareholders under this Agreement, including, but not
limited to: (a) the costs incident to the issuance, sale and delivery to the
Underwriters of the Shares (except that the Company will not be responsible for
the underwriting discounts and commissions with respect to shares of Common
Stock being sold by the Selling Shareholders); (b) the costs incident to the
preparation, printing and filing under the Act of each preliminary prospectus,
the Prospectus, the Registration Statement and any amendments or supplements
thereof and exhibits thereto; (c) the costs of distributing the Registration
Statement and any post-effective amendments thereto; (d) the costs of printing
and distributing to the Representative, the other Underwriters and any Selected
Dealers copies of any preliminary prospectus, the Prospectus, the Registration
Statement and any amendment or supplement to the Prospectus or Registration
Statement required by this Agreement or the Act; (e) the costs of preparation,
printing, mailing, delivery, filing and distribution of preliminary and final
blue sky memoranda, Underwriter's Questionnaires and Powers of Attorney, letters
to prospective Underwriters, the Agreement Among Underwriters, the Selling
Agreement, this Agreement and all documents related thereto; (f) the filing fees
of the Commission; (g) the costs of qualification or registration of the Shares
in the jurisdictions referred to in subsection (a)(vi) of Section 6 hereof,
including the legal fees and expenses of counsel for the Underwriters in
connection therewith, and all filing fees in connection therewith; (h) the cost
of preparation, including the legal fees and expenses of counsel for the
Underwriters in connection therewith, of all filings with the National
Association of Securities Dealers, Inc. ("NASD") and all filing fees in
connection therewith; (i) fees and expenses of counsel for the Company, the
Company's accountants and the Company's consultants; (j) fees in connection with
the quotation of the Common Stock on the National Market; and (k) all other
costs and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated by this Agreement. The Company further agrees
that, in addition to the expenses payable as described above, it will pay to the
Representative a non-accountable expense allowance equal to one and one-half
percent of the aggregate proceeds of the offering. The Company shall pay such
amount on the Closing Time by certified or bank cashier's check or, at the
election of the Representative, by deduction from the proceeds of the offering
contemplated herein. If the Firm Shares are not sold to the Underwriters for any
reason whatsoever, other than as a result of the Underwriters without cause
under this Agreement refusing to proceed with the purchase of the Firm Shares,
the Company will pay all accountable out-of-pocket expenses which you may incur
in connection with this Agreement and
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the transactions hereby contemplated, including all fees and expenses of counsel
for the Underwriters in connection therewith. The provisions of this Section 7
are intended to relieve the Underwriters from payment of the costs and expenses
which the Company hereby agrees to pay and shall not effect any agreement
between the Company and the Selling Shareholders for the sharing of such costs
and expenses.
Section 8. Conditions of the Underwriters' Obligations. The
Underwriters' obligations hereunder to purchase and pay for the Shares are
subject (as of the date hereof, the Closing Time and each Option Exercise Time)
to the accuracy of and compliance with the representations and warranties of the
Company and the Selling Shareholders herein and in each certificate and document
contemplated under this Agreement to be delivered, to the accuracy of the
statements of the Company, each of the Selling Shareholders and of the officers
of the Company made pursuant to the provisions hereof, to the performance by the
Company and each of the Selling Shareholders of their respective covenants and
agreements hereunder and under each such certificate and document, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become
effective not later than 5:00 p.m., New York City Time, on the date of this
Agreement, or at such later time or on such later date as you may agree to in
writing; (ii) if required, the Prospectus or any Term Sheet that constitutes a
part thereof shall have been filed with the Commission pursuant to Rules 434 and
424(b)(1) or (4) of the Rules and Regulations within the applicable time period
prescribed for such filing thereunder and in accordance with the provisions of
Section 6(a)(ii) hereof; (iii) at or prior to the Closing Time, no stop order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the blue sky laws of any jurisdiction
(whether or not a jurisdiction which you shall have specified) shall have been
issued and no proceeding for that purpose shall have been initiated or shall be
threatened or contemplated by the Commission or the authorities of any such
jurisdiction; (iv) any request for additional information on the part of the
Commission or any such authorities shall have been complied with to the
satisfaction of the Commission or such authorities and counsel for the
Underwriters; (v) the NASD, upon review of the terms of the public offering of
Shares, shall not have objected to such offering, such terms, or the
Underwriters' participation in the same; and (vi) after the date hereof, no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed without your prior consent.
(b) You shall not have advised the Company, and none of
the Selling Shareholders shall have advised any Underwriter or the Company, that
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto contains an untrue statement of a fact which is material, or
omits to state a fact which is material and is required to be stated therein or
is necessary to make the
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statements therein, in light of the circumstances under which they were made,
not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Time, there shall be no litigation instituted against
the Company or any Subsidiary or any of their respective officers or directors,
and between such dates there shall be no proceeding instituted or threatened
against the Company or any Subsidiary or any of their respective officers or
directors before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would materially adversely affect the Company or any Subsidiary or their
respective businesses, business prospects or properties, or materially adversely
affect the financial condition or results of operations of the Company or any
Subsidiary.
(d) Each of the representations and warranties of the
Company and each of the Selling Shareholders contained herein and in each
certificate and document contemplated under this Agreement to be delivered shall
be true and correct at the Closing Time as if made at the Closing Time, and all
covenants and agreements contained herein, and in each such certificate and
document, to be performed on the part of the Company or each of the Selling
Shareholders and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company or each of the
Selling Shareholders at or prior to the Closing Time shall have been duly
performed, fulfilled or complied with.
(e) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, counsel for the Company shall and the Selling
Shareholders furnish to you an opinion, in form and substance satisfactory to
you, dated as of the date of its delivery, to the effect that:
(i) The Company and each Subsidiary is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation.
Each of the Company and the Subsidiaries has the corporate
power and authority to conduct all of the activities
conducted by it, own or lease all of the assets owned or
leased by it, and conduct its business as described in the
Registration Statement and the Prospectus; and is duly
licensed or qualified to do business and in good standing
in the State of Texas.
(ii) No authorization, approval, consent or license
of any governmental or regulatory body, except as may be
required under the Act or the blue sky laws of the various
jurisdictions, is required in connection with the (A)
authorization, issuance,
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transfer, sale or delivery of the Shares to be sold by the
Company; (B) transfer, sale or delivery of the Shares to
be sold by the Selling Shareholders; (C) authorization,
issuance or delivery of the Warrants, the Warrant
Agreement or issuance of the shares of Common Stock upon
exercise of the Warrants; or (D) execution, delivery and
performance of this Agreement by the Company or any
Selling Shareholder or of the Power of Attorney Agreement
by any Selling Shareholder, or if so required all such
authorizations, approvals, consents and licenses,
specifying the same, have been obtained and are in full
force and effect.
(iii) The Company has an authorized and outstanding
capital stock, stock options and warrants as set forth in
the Registration Statement and the Prospectus. The
outstanding shares of the Common Stock (including the
Shares to be sold by the Selling Shareholders) have been,
and all of the Shares will, upon sale or issuance, and
payment therefor, be, duly authorized, validly issued,
fully paid and nonassessable, are not subject to
preemptive rights and have not been issued in violation of
any statutory preemptive rights. The Common Stock has been
duly authorized for quotation on the National Market. All
issuances of securities by the Company prior to the
Closing Time were exempt from, or complied in all respects
with, the provisions of all applicable federal securities
laws. Such opinion delivered at the Closing Time shall
state that each of the Shares is duly and validly issued,
fully paid and nonassessable and not subject to preemptive
rights.
(iv) All of the issued and outstanding shares of
the capital stock of each Subsidiary are validly issued,
fully paid and nonassessable and all of the issued and
outstanding shares of stock of each Subsidiary are owned
of record by the Company.
(v) The description of the Common Stock and the
Shares contained in the Registration Statement and the
Prospectus conforms to the rights set forth in the
instruments defining the same.
(vi) The Company is not an "investment company" as
defined in Section 3(a) of the Investment Company Act and,
if the Company conducts its business as set forth in the
Registration Statement and the Prospectus, will not become
an
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"investment company" and will not be required to register
under the Investment Company Act; the Company has not been
required to make any filings pursuant to the Exchange Act.
(vii) The Company has full corporate power and
authority to enter into this Agreement, the Warrant
Agreement and the Warrants, and this Agreement and the
Warrants have been duly authorized, executed and delivered
by the Company and, with respect to this Agreement, each
Selling Shareholder or his or her duly authorized
attorney-in-fact. The Power of Attorney Agreement has been
duly authorized, executed and delivered by each Selling
Shareholder.
(viii) The Registration Statement and the
Prospectus, and each amendment thereof or supplement
thereto, comply as to form with, and appear on their face
to be appropriately responsive in all material respects,
to the requirements of the Act and the Rules and
Regulations, including such requirements as to the filing
of exhibits (except that no opinion need be expressed as
to financial statements and other financial or statistical
data contained in the Registration Statement or the
Prospectus).
(ix) [Omitted]
(x) The Registration Statement has become effective
under the Act, and, to the knowledge of such counsel, no
stop order suspending the effectiveness of the
Registration Statement or use of the Prospectus has been
issued and no proceedings for that purpose have been
instituted or are threatened, pending or contemplated.
(xi) The execution and delivery of this Agreement
by the Company and the Selling Shareholders, the Power of
Attorney Agreement by the Selling Shareholders, the
Warrants and the Warrant Agreement by the Company, the
consummation by the Company and the Selling Shareholders
of the transactions herein or therein contemplated and the
compliance with the terms of this Agreement, the Warrants,
the Warrant Agreement and the Power of Attorney Agreement
do not and will not
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conflict with or result in a breach of any of the terms or
provisions of or violate or constitute a default under,
the certificate of incorporation or by-laws of the Company
or any Subsidiary, or any indenture, mortgage or other
agreement or instrument known to such counsel to which the
Company, any Subsidiary or any Selling Shareholder is a
party or by which the Company, any Subsidiary or any
Selling Shareholder or any of their respective properties
is bound, or any existing statute, rule or regulation, or
any judgment, order or decree known to such counsel, of
any government, governmental instrumentality or court,
having jurisdiction over the Company, any Subsidiary or
any Selling Shareholder or any of their respective
properties.
(xii) This Agreement and the Power-of-Attorney
Agreement have been duly executed and delivered by each
Selling Shareholder.
(xiii) The delivery in the State of New York by
each of the Selling Shareholders to the several
Underwriters of certificates for the Shares being sold
hereunder by each Selling Shareholder against payment
therefor as provided herein, will convey all such Selling
Shareholders' right, title and interest to such Shares to
the several Underwriters. Assuming the several
Underwriters acquire such Shares in good faith and without
notice of any adverse claims, and that appropriate entries
to the accounts of the several Underwriters are made on
the books of the Depositary Trust Company, the
Underwriters will take their interest in such Shares
free of all adverse claims (as defined in Section 8-302 of
the Uniform Commercial Code).
(xiv) The sale of the Shares to the Underwriters by
the Selling Shareholders pursuant to this Agreement, the
compliance by the Selling Shareholders with the other
provisions of this Agreement, the Power-of-Attorney
Agreement and the consummation of the other transactions
herein contemplated do not require the consent, approval,
authorization, registration or qualification of or with
any governmental authority, except such as have been
obtained and such as may be required under state
securities or blue sky laws (as to which such counsel need
not express any opinion).
(xv) The shares of Common Stock required to be sold
or issued by the Company upon exercise of the Warrants
have been duly authorized and reserved for sale or
issuance, and,
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when sold or issued and delivered upon payment of the
exercise price therefor as provided in the Warrants and
the Warrant Agreement, will be duly and validly issued,
fully paid and nonassessable.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, the
Subsidiary and representatives of the independent public accountants for the
Company and the Subsidiary, at which conferences such counsel made inquiries of
such officers, representatives and accountants and discussed the contents of the
preliminary prospectus, the Registration Statement, the Prospectus, and related
matters and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (other than as otherwise
expressly provided in the opinion), on the basis of the foregoing, nothing has
come to the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Prospectus or any amendment or
supplement thereto, as of its date or the date of such opinion contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial,
statistical and accounting data included in the Registration Statement or
Prospectus).
In rendering the opinions set forth above, such counsel
may rely upon certificates of the Selling Shareholders, officers of the Company
and public officials as to matters of fact. In rendering such opinion, such
counsel may rely as to all matters of law other than the law of the United
States or of the State of New York upon opinions of counsel satisfactory to you,
in which case the opinion shall state that they have no reason to believe that
you and they are not entitled so to rely.
(f) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, the Company's accountants shall have
furnished to you a letter, dated as of the date of its delivery, addressed to
you and in form and substance satisfactory to you, to the effect that:
(i) Such accountants are independent certified
public accountants with respect to the Company and the
Subsidiaries as required by the Act and the Rules and
Regulations, and the answer to Item 10 of the Registration
Statement is correct insofar as it relates to them.
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(ii) In their opinion the consolidated financial
statements and schedules and notes examined by them and
included in the Registration Statement and the Prospectus
comply as to form in all material respects with the
applicable accounting requirements of the Act and the
Rules and Regulations with respect to registration
statements on Form S-1.
(iii) On the basis of inquiries and procedures
conducted by them, including a reading of the latest
available unaudited interim financial statements of the
Company and the Subsidiaries, inquiries of officials of
the Company and the Subsidiaries responsible for
operational, financial and accounting matters, a reading
of the minute books of the Company and each of the
Subsidiaries and other specified procedures and inquiries,
nothing has come to their attention that caused them to
believe that (A) any unaudited financial statements of the
Company and the Subsidiaries set forth in the Registration
Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or
are not fairly presented in conformity with generally
accepted accounting principles applied on a basis
consistent with that of the audited financial statements;
and (B) during the period from July 1, 1996 to a specified
date not more than five days prior to the date of such
letter there was any change in the consolidated capital
stock or consolidated debt of the Company and its
Subsidiaries, or any decrease in the consolidated net
assets or consolidated total assets of the Company and
its Subsidiaries, each as compared with the amounts shown
in the balance sheet as of June 30, 1996 included in the
Registration Statement, or for the period from July 1,
1996 to September 30, 1996 there were any decreases, as
compared with the corresponding period in 1995, in total
revenues, net income or net income per common share,
except in all instances for changes, decreases or
increases which the Registration Statement and the
Prospectus disclose have occurred or may occur and except
for such other changes, decreases or increases which you
shall in your sole discretion accept.
(iv) In addition to their examination referred to
in their reports included in the Registration Statement
and the Prospectus and the inquiries and limited
procedures referred to in clause (iii) above, they have
performed other procedures, not
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constituting an audit, with respect to certain numerical
data and financial information appearing in the
Registration Statement and the Prospectus, requested by
you and specified in such letter and have compared such
data and information with the accounting records of the
Company and found them to be in agreement.
(g) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, there shall be furnished to you, on behalf of
the Company, an accurate certificate, dated the date of its delivery, signed by
each of the chief executive officer and the chief operating officer of the
Company, in form and substance satisfactory to you, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and
(A) to his knowledge, as of the date of such certificate,
the statements in the Registration Statement and the
Prospectus are and were true and correct and neither the
Registration Statement nor the Prospectus omits to state a
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(B) in the case of a certificate delivered after the date
of this Agreement, since the Effective Date, no event has
occurred of which he has knowledge and which was required
by the Act or the Rules and Regulations to be set forth in
a supplement to or amendment of the Prospectus but which
has not been so set forth; and (C) since the dates as of
which and the periods for which information is given in
the Registration Statement and the Prospectus, there has
not been to his knowledge any adverse change, financial or
otherwise, in the condition or business prospects of the
Company from that set forth in the Registration Statement
and the Prospectus, other than changes which the
Registration Statement and the Prospectus specifically
disclose have occurred or may occur subsequent to the
Effective Date.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no
proceedings for such purpose have been commenced or are,
to the knowledge of each signer of such certificate,
threatened or contemplated by the Commission.
(iii) No stop order suspending the qualification or
registration of any of the Shares under the blue sky laws
of any
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jurisdiction (whether or not a jurisdiction you shall have
specified) has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of
each signer of such certificate, threatened or
contemplated by any jurisdiction.
(iv) The conditions, separately set forth in such
certificate, contained in subsections (a), (c) and (j) of
this Section 8 have been complied with.
(v) There has been no breach of any of the terms or
provisions of the agreements referred to in Section
6(a)(xi) and 6(b)(iii) hereof.
(vi) Each of the representations and warranties of
the Company contained in this Agreement and in each
certificate and document contemplated under this Agreement
to be delivered to you was, when originally made and is,
at the time such certificate is dated, true and correct.
(vii) Each of the covenants required herein to be
performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed and
each condition herein required to be complied with by the
Company on or prior to the date of such certificate has
been duly, timely and fully complied with by the Company.
(h) The Selling Shareholders shall have performed all of
the covenants contained herein and in any certificate or document contemplated
under this Agreement to be delivered to you and required to be performed by the
Selling Shareholders at or prior to the Closing Time, and you shall have
received at the Closing Time a certificate of each of the Selling Shareholders,
dated as of the Closing Time, to the effect that the representations and
warranties of such Selling Shareholder contained in this Agreement and in each
such certificate and document are true and correct in all respects on and as of
the date of such certificate as if made on and as of such date, and each of the
covenants and conditions required to be performed or complied with by such
Selling Shareholder on or prior to the date of such certificate has been duly,
timely and fully performed or complied with.
(i) The Company and each of the Selling Shareholders shall
have furnished to you such certificates, in addition to those specifically
mentioned herein, as you may have reasonably requested in a timely manner as to
the accuracy and completeness, at the Closing Time, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the Closing
Time, of the representations and
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warranties of the Company and the Selling Shareholders herein and in each
certificate and document contemplated under this Agreement to be delivered to
you; as to the performance by the Company and the Selling Shareholders of their
respective obligations hereunder and under each such certificate and document;
or as to the fulfillment of the conditions concurrent and precedent to your
obligations hereunder.
(j) Except as contemplated by the Registration Statement
and the Prospectus, since the date hereof, there shall not have been any change
in the capitalization of the Company or any material adverse change in the
business, business prospects, financial condition or results of operations of
the Company or in the value of the assets of the Company, or any change, without
your consent, in the conduct of the business of the Company, arising for any
reason whatsoever.
(k) Each of the agreements referred to in Section 6(a)(xi)
hereof shall have been delivered to you and there shall have been no breach of
any such agreement.
(l) All corporate proceedings and other legal matters
relating to the sale and transfer of the Shares, this Agreement, the Warrants,
the Warrant Agreement, the Power of Attorney Agreement, the Registration
Statement, the Prospectus and other related matters shall be reasonably
satisfactory in all material respects to counsel for the Underwriters, who shall
have furnished to you at the Closing Time such opinion, in form and substance
reasonably satisfactory to you, with respect to the sufficiency of the
aforementioned corporate proceedings and other legal matters as you may
reasonably require; and the Company shall have furnished to such counsel such
records and documents as such counsel may have reasonably requested in a timely
manner for the purpose of enabling them to pass upon such matters.
(m) The Common Stock shall be authorized for quotation on
the National Market.
All of the opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance satisfactory to
counsel for the Underwriters. You reserve the right to waive any condition
hereinabove set forth. Each opinion, certificate, letter or other document
required to be delivered at the Closing Time shall also be required to be
delivered at each Option Exercise Time.
Section 9. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and each and all of them, from and against any and all losses,
claims,
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damages, liabilities or actions, joint or several (including any investigation,
legal or other expense incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
an Underwriter or they or any of them may become subject under the Act, the
Exchange Act or otherwise but only insofar as such losses, claims, damages,
liabilities or actions arise out of, or are based upon, (i) any untrue statement
or alleged untrue statement made by the Company in Section 3 of this Agreement;
or (ii) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto or in any application or other
document executed by the Company based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to register or
qualify the Shares under the securities laws thereof or filed with the
Commission, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the indemnity agreement contained in this subsection shall not
extend to any Underwriter in respect of any such losses, claims, damages,
liabilities or actions arising out of, or based upon, any such untrue statement
or alleged untrue statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information furnished in writing
to the Company through you or on behalf of any Underwriter specifically for use
in connection with the preparation of the Registration Statement, any
preliminary prospectus or the Prospectus or any such amendment or supplement
thereto. The Company agrees to pay any legal and other expenses for which it is
liable under this subsection (a) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
(b) Each of the Selling Shareholders, jointly and severally,
agrees to indemnify and hold harmless each Underwriter and each person who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and each and all of them, from and against any and all
losses, claims, damages, liabilities or actions, joint or several (including any
investigation, legal or other expense incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which an Underwriter or they or any of them may become subject
under the Act, the Exchange Act or otherwise but only insofar as such losses,
claims, damages, liabilities or actions arise out of, or are based upon (i) any
untrue statement or alleged untrue statement made by a Selling Shareholder in
Section 3 of this Agreement; or (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement thereto or
in any application or other document executed by any Selling Shareholder based
upon written information furnished by or on behalf of any Selling Shareholder
filed in any jurisdiction in order to register or qualify the Shares under the
securities laws thereof or filed with the Commission, or the omission or alleged
omission to state
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<PAGE>
<PAGE>
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each Selling Shareholder agrees to pay any legal and other
expenses for which it is liable under this subsection (b) from time to time (but
not more frequently than monthly) within 30 days after its receipt of a bill
therefor.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, its directors, its officers who shall
have signed the Registration Statement, each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and each of the Selling Shareholders to the same extent as the
foregoing indemnity from the Company and the Selling Shareholders to such
Underwriter, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing to
the Company by such Underwriter specifically for use in connection with the
preparation of the Registration Statement, any preliminary prospectus or the
Prospectus or any such amendment or supplement thereto; provided, however, that
the obligation of each Underwriter to indemnify the Company and each of the
Selling Shareholders under the provisions of this subsection (c) shall be
limited to the product of the number of Shares purchased by such Underwriter and
the initial public offering price set forth on the cover page of the Prospectus.
Each Underwriter agrees to pay any legal and other expenses for which it is
liable under this subsection (c) from time to time (but not more frequently than
monthly) within 30 days after receipt of a bill therefor.
(d) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a), (b) or (c) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in subsection (a), (b) or (c) of
this Section 9. In case any such action is brought against an indemnified party
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party against which a claim is to be made will be entitled to
participate therein at its own expense and, to the extent that it may wish, to
assume at its own expense the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that (i) if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based upon advice of counsel that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party shall
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<PAGE>
<PAGE>
have the right to select separate counsel to assume such legal defenses and
otherwise to participate in the defense of such action on behalf of such
indemnified party or parties; and (ii) in any event, the indemnified party shall
be entitled to have counsel chosen by such indemnified party participate in, but
not conduct, the defense. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with proviso (i) to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel); (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action; or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. An
indemnifying party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in subsection (a),
(b) or (c) of this Section 9 is unavailable in accordance with its terms, the
Company, the Selling Shareholders and, subject to the limitations set forth
below, the Underwriters shall contribute to the aggregate losses, claims,
damages and liabilities, of the nature contemplated by said indemnity agreement,
incurred by the Company, the Selling Shareholders and one or more Underwriters,
in such proportions as are applicable to reflect the relative benefits received
by the Company, the Selling Shareholders and the Underwriters from the offering
of the Shares; provided, however, that if such allocation is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) of this Section 9, then the relative fault of the Company,
the Selling Shareholders and the Underwriters in connection with the statements
or omissions which resulted in such losses, claims, damages and liabilities and
other relevant equitable considerations will be considered together with such
relative benefits. The relative benefits received by the Company, the Selling
Shareholders and the Underwriters shall be deemed to be in such proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company or the
Selling Shareholders, as the case may be, bear to the total underwriting
discount received by the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus and in the notes thereto. The relative fault of
the Company, the Selling Shareholders and the Underwriters shall be determined
by reference to, among other things, whether in the case of an untrue statement
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact, such
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<PAGE>
<PAGE>
statement or omission relates to information supplied by the Company, the
Selling Shareholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this subsection (e). The amount paid or payable by the
indemnified party as a result of the losses, claims, damages or liabilities
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending against or appearing as a third-party witness in any
such action or claim. Notwithstanding the provisions of this subsection (e), (i)
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares purchased by it were offered
to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay in respect of any loss, claim, damage, liability
or action covered by this Section; (ii) no Selling Shareholder shall be required
to contribute any amount in excess of the amount by which the proceeds of the
Shares sold by it (net of underwriting discounts and commissions but before
deducting expenses) exceeds the amount of any damages which such Selling
Shareholder has otherwise been required to pay in respect of any loss, claim,
damage, liability or action covered by this Section; and (iii) no person guilty
of fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this subsection (e), each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter. The Underwriters' obligations to contribute pursuant to this
subsection (e) are several in proportion to their respective underwriting
commitments and not joint.
(f) The respective indemnity and contribution agreements by the
Underwriters, the Selling Shareholders and the Company contained in subsections
(a), (b), (c), (d) and (e) of this Section 9, and the respective covenants,
representations and warranties of the Company and the Selling Shareholders set
forth in Sections 2, 3, 4, 5, 6, and 7 hereof, shall remain operative and in
full force and effect regardless of (i) any investigation made by any
Underwriter, on its behalf or by or on behalf of any person who controls an
Underwriter, the Company or any controlling person of the Company, any director
or officer of the Company or any Selling Shareholder; (ii) acceptance of any of
the Shares and payment therefor; or (iii) any termination of this Agreement, and
shall survive the delivery of the Shares, and any successor of any Underwriter
or the Company, or of any person who controls any Underwriter or the Company, as
the case may be, or any Selling Shareholder shall be entitled to the benefit of
such respective indemnity and contribution agreements. The respective
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<PAGE>
<PAGE>
indemnity and contribution agreements by the Underwriters, the Company and the
Selling Shareholders contained in subsections (a), (b), (c), (d) and (e) of this
Section 9 shall be in addition to any liability which the Underwriters, the
Company and the Selling Shareholders may otherwise have.
Section 10. Termination. This Agreement (except for the
provisions of Sections 7 and 9 hereof) may be terminated by you by notifying
the Company and the Selling Shareholders at any time:
(a) at or prior to the Closing Time if any of the
conditions specified in Section 8 hereof shall not have been fulfilled when and
as required by this Agreement to be fulfilled or if any of the representations
or warranties contained in any certificate or document contemplated under this
Agreement to be delivered to you shall not have been true, unless compliance
therewith shall have been expressly waived by you in writing; or
(b) at or prior to the Closing Time if any one or more of
the following shall have occurred or have been established between the time of
your execution of this Agreement and the Closing Time and in your judgment the
same has made or makes it inadvisable or impracticable for you generally to
proceed with the offering, sale, delivery, or collection of payment for, the
Shares pursuant to the public offering contemplated by this Agreement: (i) a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange, American Stock Exchange, National
Market or in the over-the-counter market; (ii) any new legal or regulatory
restriction affecting the distribution of securities generally or of the Shares;
(iii) a material adverse change in general market or economic conditions, either
domestic or foreign, from such conditions on the date hereof; (iv) a declaration
of a banking moratorium by federal or New York State authorities; (v) any
outbreak of major hostilities or other national or international calamity; (vi)
a material interruption in the mail service or other means of communications
within the United States; (vii) an action by any government in respect of its
monetary affairs which, in your opinion, has a material adverse effect on the
United States securities markets; or (viii) any material adverse change or any
material adverse development involving a prospective change not contemplated in
the Registration Statement or affecting particularly the business or properties
of the Company and its subsidiaries taken as a whole.
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<PAGE>
<PAGE>
Your right to terminate will not be waived or otherwise
relinquished because you do not give the required notice of termination prior to
the time that the event giving rise to the right to terminate shall have ceased
to exist, provided that you give the required notice prior to the Closing Time.
Section 11. Default of Underwriters. If any Underwriter or
Underwriters default in their obligation to take and pay for Firm or Option
Shares and the aggregate number of Firm or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the aggregate number of Firm or Option Shares, as the case may be, the other
Underwriters shall be obligated severally in proportion to their respective
commitments hereunder to purchase the Firm or Option Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters so default and the aggregate number of Firm or
Option Shares with respect to which such default or defaults occur is more than
10% of the aggregate number of Firm or Option Shares, as the case may be, and
arrangements satisfactory to you for the purchase of such Firm or Option Shares
by other persons (who may include one or more of the non-defaulting Underwriters
including you) are not made within 36 hours after such default, this Agreement
may be terminated by you without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be paid or reimbursed by
the Company pursuant to Section 7 and except for the provisions of Section 9
hereof. In the event of any default by one or more Underwriters as described in
this Section 11, the Representative shall have the right to postpone the Closing
Time or the Option Exercise Time, as the case may be, established as provided in
Section 4 hereof for not more than seven business days in order that any
necessary changes may be made in the arrangements or documents for the purchase
and delivery of the Firm Shares or Option Shares, as the case may be. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 11. Nothing herein shall relieve a defaulting
Underwriter from liability for its default.
Section 12. Notice. Except as otherwise expressly provided in
this Agreement, whenever advice or a notice, objection, designation, request or
report is given or is required by the provisions of this Agreement to be given,
such advice, notice, objection, designation, request or report shall be in
writing and shall be delivered by first-class mail, postage prepaid, nationally
recognized courier or by telecopy, (a) if to the Company, addressed to it and
delivered at 301 Congress Avenue, Austin, Texas 78701 (telecopier number (512)
472-1548), Attention: Adrian Katz, Vice Chairman, with a copy to Dewey
Ballantine, 1301 Avenue of the Americas, New York, New York 10019 (telecopier
number (212) 259-6333), Attention: Glenn S. Arden, Esq.; (b) if to a Selling
Shareholder, addressed to such Selling Shareholder and delivered in care of the
Company as herein provided, with a copy to counsel to the Company, Attention:
Glenn S. Arden, Esq.; and (c) if to you or the Underwriters, addressed to The
Boston Group, L.P., and delivered at 2049
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<PAGE>
<PAGE>
Century Park East, 30th Floor, Los Angeles, California 90067 (telecopier number
(310) 798-8169), Attention: Anthony K. Soich, with a copy to Fulbright &
Jaworski L.L.P., 300 Convent Street, Suite 2200, San Antonio, Texas 78205
(telecopier number (210) 270-7205), Attention: Phillip M. Renfro, Esq.; or at
such other address or telecopier number as a party hereto may give notice in
accordance herewith.
Section 13. Miscellaneous. (a) This Agreement is made solely for
the benefit of the Underwriters, the Selling Shareholders and the Company, the
Company's directors, the Company's officers who shall have signed the
Registration Statement and any controlling person referred to in Section 9
hereof, and their respective successors and assigns, and no other person,
partnership, association or corporation shall acquire or have any right under or
by virtue of this Agreement. The term "successor" or the term "successors and
assigns" as used in this Agreement shall not include any buyer, as such, of any
of the Shares from the Underwriters. All of the obligations of the Underwriters
hereunder are several and not joint.
(b) The information in the Prospectus under the section
"Underwriting" with respect to (i) the names of, and number of Shares to be
purchased by, each of the Underwriters, (ii) the initial price offered to the
public, (iii) the expectation as to sales to discretionary accounts, and (iv)
the amounts of the selling concession and reallowance shall constitute the only
information furnished in writing by or on behalf of the several Underwriters for
use in connection with the preparation of the Registration Statement as
originally filed or in any amendment thereto, any preliminary prospectus or the
Prospectus as the case may be.
(c) This Agreement shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company, the
Selling Shareholders and you relating to the sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall be valid
or of any effect unless in writing and signed by the party against whom such is
asserted.
(e) This Agreement shall be governed by and construed in
accordance with the law of the State of Texas applicable to contracts made and
to be performed therein without giving effect to the principles of conflicts of
law thereof. If any action or proceeding shall be brought by any of the
Underwriters in order to enforce any right or remedy under this Agreement, the
Company and the Selling Shareholders hereby consent to and submit to, the
jurisdiction of the courts of the State of Texas.
(f) This Agreement may be signed in two or more counterparts with
the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company, each of the Selling Shareholders and you.
Very truly yours,
AUTOBOND ACCEPTANCE CORPORATION
By:
_____________________________________
William O. Winsauer,
Chairman of the Board and
Chief Executive Officer
SELLING SHAREHOLDERS
By:
_____________________________________
___________________, individually
and as attorney-in-fact for the
Selling Shareholders
Accepted as of the date
first above written
THE BOSTON GROUP, L.P.
By:
_____________________________________
Acting on behalf of itself and
as the Representative of the
other Underwriters named in
Schedule A attached hereto.
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<PAGE>
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number
Name of Underwriter of Shares
- ------------------- ---------
<S> <C>
The Boston Group, L.P.
---------
Total 1,000,000
---------
---------
</TABLE>
<PAGE>
<PAGE>
SCHEDULE B
Selling Shareholders
<TABLE>
<CAPTION>
Number of Firm
Name Shares to be sold
---- -----------------
<S> <C>
William O. Winsauer 196,000
John S. Winsauer 54,000
-------
Total 250,000
-------
-------
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
EXH-1.2
AUTOBOND ACCEPTANCE CORPORATION
and
THE BOSTON GROUP, L.P.
--------------------
REPRESENTATIVE'S WARRANT AGREEMENT
Dated as of November__, 1996
--------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Agreement"), dated as of
____________, 1996, is made and entered into by and between AUTOBOND ACCEPTANCE
CORPORATION, a Texas corporation (the "Company"), and THE BOSTON GROUP, L.P.
("the Representative").
The Company agrees to issue and sell to the Representative and the
Representative agrees to purchase from the Company, for the price of $50, a
warrant, as hereinafter described (the "Warrant" and together with any warrants
subsequently issued hereunder, the "Warrants"), to purchase up to 100,000
shares, as may be adjusted from time to time as set forth herein, of the
Company's common stock, no par value per share (the "Common Stock"), in
connection with a public offering (the "Offering") by the Company of 1,000,000
shares of Common Stock pursuant to an underwriting agreement (the "Underwriting
Agreement"), dated as of ______________, 1996, by and between the Company and
the Representative, as representative of the several Underwriters named therein.
The shares of Common Stock purchasable upon exercise of the Warrants, as may be
adjusted from time to time as set forth herein, are hereinafter referred to as
the "Warrant Stock." The Warrant shall be issued pursuant to this Agreement on
the closing date of the Offering (the "Closing Date").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants, the Warrant Stock and the respective
rights and obligations thereunder, the Company and the Representative, for value
received, hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 Registration. All Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the
books of the Company maintained at its principal office, wherever its principal
office may then be located, upon delivery thereof duly endorsed by a Warrant
holder (a "Warrantholder") or by its duly authorized attorney or representative
and with the signatures properly guaranteed, accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new certificate evidencing
each such Warrant to each person entitled thereto.
1.3 Limitations on Transfer of the Warrants. Warrants shall not
be sold, transferred, assigned or hypothecated by the Representative, except
that Warrants may be transferred (i) to one or more officers or partners of any
Warrantholder; (ii) on or after ______, 1997, to one or more employees of the
Representative; (iii) to successors to a Warrantholder or the officers or
partners of
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<PAGE>
any such successor; (iv) to a purchaser of all or substantially all of the
assets of a Warrantholder; or (v) by will, pursuant to the laws of descent or
distribution or by operation of law. The Warrants may be divided or combined,
upon request to the Company by a Warrantholder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Warrant Stock. Unless the context indicates otherwise, the term "Warrantholder"
shall include the Representative and any transferee or transferees of the
Warrants pursuant to this subsection 1.3 and as otherwise permitted by this
Agreement, and the term "Warrants" shall include any and all Warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Warrant Stock shall be substantially as set forth in
Exhibit A attached hereto. The aggregate number of shares of Common Stock
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by its Chief Executive Officer or its
President and attested to by its Chief Financial Officer or its Secretary. A
Warrant bearing the signature of an individual who was at any time the proper
officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement or at any time
thereafter.
The Warrants shall be dated as of the date of signature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.5 Legend on Warrants and Warrant Stock. Each certificate
evidencing a Warrant (or Warrant Stock initially issued upon exercise of a
Warrant) shall bear the following legend, unless, at the time of exercise, such
Warrant Stock is subject to a currently effective Registration Statement under
the Securities Act of 1933, as amended (the "Act"):
"THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER
EXCEPT IN COMPLIANCE WITH OF THE REPRESENTATIVE'S WARRANT
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to an effective registration
statement under the Act, of the
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<PAGE>
securities represented thereby) shall also bear the above legend unless, in the
opinion of the Company's counsel, the securities represented thereby need no
longer be subject to such restrictions.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of shares of Warrant Stock as the
certificate or certificates surrendered then entitled such Warrantholder to
purchase. Any Warrantholder desiring to exchange a Warrant certificate shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the
Warrantholder shall have the right, at any time during the period commencing at
6:30 a.m., Pacific Time, on __________, 1997 and ending at 5:00 p.m., Pacific
Time, on ______________, 2001 (five years from the effective date of the
Offering) (the "Termination Date"), to purchase from the Company up to the
number of fully paid and nonassessable shares of Warrant Stock to which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the purchase
form on the reverse thereof duly completed and executed, and upon payment to the
Company of the Warrant Price (as defined in and determined in accordance with
the provisions of this Section 3 and Sections 7 and 8 hereof) for the number of
shares of Warrant Stock in respect of which such Warrants are then exercised,
but in no event for less than 100 shares of Warrant Stock (unless less than an
aggregate of 100 shares of Warrant Stock are then purchasable under all
outstanding Warrants held by such Warrantholder). This Warrant, when
exercisable, may be exercised from time to time in whole or in part.
(b) Payment of the Warrant Price shall be made in cash,
by certified or official bank check in Los Angeles Clearing House funds (next
day funds), or any combination thereof.
(c) In addition to the method of payment set forth in
Section 3(b) above and in lieu of any cash payment required thereunder, unless
otherwise prohibited by law, the Warrantholders shall have the right at any
time, when exercisable, and from time to time to exercise the Warrants in full
or in part by delivering to the Company the number of shares of Common Stock
having an aggregate value on the date of exercise equal to the Warrant Price
multiplied by the number of shares of Warrant Stock for which this Warrant is
being exercised. For purposes hereof, the "value" of a share of Common Stock on
a given date shall equal to the Current Market Price on such date as defined in
Section 9 of this Agreement.
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<PAGE>
<PAGE>
(d) Upon surrender of the Warrants and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrantholder,
and in such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full shares of Warrant Stock so purchased upon
such exercise of the Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional shares otherwise issuable upon such
surrender. Such certificate or certificates, to the extent permitted by law,
shall be deemed to have been issued and any person so designated to be named
therein shall be defined to have become a holder of record of such securities as
of the date of surrender of the Warrants and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a Warrant is exercised in respect of less
than all of the shares of Warrant Stock specified therein at any time prior to
the Termination Date, a new Warrant evidencing the remaining shares of the
Warrant Stock purchasable by such Warrantholders hereunder shall be issued by
the Company to such Warrantholders.
SECTION 4. VALIDITY; PAYMENT OF TAXES. All securities delivered upon
exercise of a Warrant shall be duly and validly issued and non-assessable. The
Company shall pay all documentary stamp taxes, if any, attributable to the
initial issuance of the Warrants and the shares of Warrant Stock issuable upon
the exercise of the Warrants; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the Warrant Stock.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant and receipt by the Company of an
indemnity of lost warrant certificate reasonably satisfactory in form and
substance at the applicant's cost. Applicants for such substitute warrant
certificate or certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 6. RESERVATION OF SHARES. The Company represents and warrants to
the Warrantholder that there has been reserved, and the Company shall at all
times keep reserved so long as the Warrants remain outstanding, out of its
authorized Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other
-4-
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<PAGE>
securities of the Company issuable upon the exercise of the Warrants shall be
irrevocably authorized and directed at all times to reserve such number of
authorized shares and other securities as shall be requisite for such purpose.
The Company shall keep a copy of this Agreement on file with every transfer
agent for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants. The Company shall supply every such transfer agent
with duly executed stock and other certificates, as appropriate, for such
purpose and shall provide or otherwise make available any cash which may be
payable in lieu of the issuance of fractional shares, as provided in Section 9
hereof.
SECTION 7. WARRANT PRICE. The price per share at which shares of Warrant
Stock shall be purchasable upon the exercise of the Warrants shall be $[120% of
the initial public offering price], subject to adjustment pursuant to Section 8
hereof (as so adjusted from time to time, the "Warrant Price").
SECTION 8. ADJUSTMENTS OF NUMBER OF SHARES OF WARRANT STOCK AND WARRANT
PRICE. The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
8.1 Adjustments. The number of shares of Warrant Stock
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make
a distribution on its Common Stock in shares of its capital stock or other
securities, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding Common Stock into a smaller
number of shares or (iv) issue, by reclassification of its Common Stock, shares
of its capital stock or other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the number of shares of Warrant Stock
purchasable upon exercise of a Warrant immediately prior thereto shall be
adjusted so that the Warrantholder shall be entitled to receive the kind and
number of shares of Warrant Stock, shares of its capital stock and other
securities of the Company which such holder would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options
(other than options issued to directors or under, and pursuant to, the Company's
1996 Stock Option Plan or any successor plan thereto (the "Option Plan")),
warrants or convertible securities to holders of its Common Stock, without any
charge to such holders, containing the right to subscribe for or purchase Common
Stock, the number
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of shares of Warrant Stock thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of shares of Warrant Stock
theretofore purchasable upon exercise of a Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such rights, options, warrants or convertible
securities plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
rights, options, warrants or convertible securities. Such adjustment shall be
made whenever such rights, options, warrants or convertible securities are
issued, and shall become effective immediately upon issuance of such rights,
options, warrants or convertible securities.
(c) In case the Company shall distribute to holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions out of current earnings made in the ordinary course
of business), then in each case the number of shares of Warrant Stock thereafter
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of shares of Warrant Stock theretofore purchasable upon exercise of
such Warrant by a fraction, of which the numerator shall be the then Current
Market Price (as defined below) on the date of such distribution, and of which
the denominator shall be such Current Market Price on such date minus the then
fair value (determined as provided in subsection 8(f) below) of the portion of
the assets or evidences of indebtedness so distributed applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution.
(d) No adjustment in the number of shares of Warrant
Stock purchasable pursuant to subsections 8.1(b) or (c) hereof shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the number of shares of Warrant Stock then purchasable upon the
exercise of the Warrants or, if the Warrants are not then exercisable, the
number of shares of Warrant Stock purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants would become exercisable;
provided, however, that any adjustments which by reason of this subsection
8.1(d) are not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(e) Whenever the number of shares of Warrant Stock
purchasable upon the exercise of a Warrant is adjusted as herein provided, the
Warrant Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of shares of Warrant Stock
purchasable upon the exercise of such Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of shares of
Warrant Stock purchasable immediately thereafter.
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(f) To the extent not covered by subsections 8.1(b) or
(c) hereof, in case the Company shall sell or issue Common Stock or rights,
options (other than options issued under and pursuant to the Option Plan),
warrants or convertible securities containing the right to subscribe for,
purchase or exchange into shares of Common Stock at a price per share
(determined, in the case of such rights, options, warrants or convertible
securities, by dividing (i) the total amount received or receivable by the
Company in consideration of the sale or issuance of such rights, options,
warrants or convertible securities, plus the total consideration payable to the
Company upon exercise, conversion or exchange thereof, by (ii) the total number
of shares covered by such rights, options, warrants or convertible securities)
lower than the then Current Market Price in effect immediately prior to such
sale or issuance, then the Warrant Price shall be reduced to a price (calculated
to the nearest cent) determined by dividing (I) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
sale or issuance multiplied by the then existing Warrant Price, plus (B) the
consideration received or receivable by the Company upon such sale or issuance,
by (II) the total number of shares of Common Stock outstanding immediately after
such sale or issuance. The number of shares of Warrant Stock purchasable upon
the exercise of a Warrant shall thereafter be that number determined by
multiplying the number of shares of Warrant Stock purchasable upon exercise
immediately prior to such adjustment by a fraction, of which the numerator shall
be the Warrant Price in effect immediately prior to such adjustment and the
denominator shall be the Warrant Price as so adjusted. For the purposes of such
adjustments, the Common Stock which the holders of any such rights, options,
warrants or convertible securities shall be entitled to subscribe for, purchase
or exchange into shall be deemed issued on the date of such sale or issuance and
the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants or
convertible securities, plus the consideration or premiums stated in such
rights, options, warrants or convertible securities to be payable for the Common
Stock covered thereby. In case the Company shall sell or issue Common Stock or
rights, options, warrants or convertible securities containing the right to
subscribe for, purchase or exchange into Common Stock for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then, in determining the "price per share" of Common Stock and the
"consideration received by the Company" for purposes of the first sentence of
this subsection 8.1(f), the Board of Directors shall determine the fair value of
said property, and such determination, if based upon the Board of Directors'
good faith business judgment, shall be binding upon the Warrantholders. In
determining the "price per share" of Common Stock, any underwriting discounts or
commissions paid to brokers, dealers or other selling agents shall not be
deducted from the price received by the Company for sales of securities
registered under the Act or issued in a private placement. There shall be no
adjustment of the Warrant Price pursuant to this subsection 8.1(f) if the amount
of such adjustment would be less than $.05 per share of Common Stock; provided,
however, that any adjustment which by reason of this provision is not required
to be made immediately shall be carried forward and taken into account in any
subsequent adjustment.
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(g) For the purpose of this Section 8, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, a Warrantholder shall become
entitled to purchase any securities of the Company other than Common Stock, (i)
if the Warrantholder's right to purchase is on any other basis than that
available to all holders of the Company's Common Stock, the Company shall obtain
an opinion of a reputable investment banking firm valuing such other securities
and (ii) thereafter the number of such other securities so purchasable upon
exercise of a Warrant and the Warrant Price of such securities shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section 8.
(h) Upon the expiration of any rights, options, warrants
or conversion privileges, if such shall not have been exercised, the number of
shares of Warrant Stock purchasable upon exercise of a Warrant and the Warrant
Price, to the extent a Warrant has not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such number and such price as
they would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (A) the fact
that the only shares of Common Stock issued in respect of such rights, options,
warrants or conversion privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion privileges, and (B) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the numbers of shares of
Warrant Stock purchasable upon exercise of a Warrant or increasing the Warrant
Price by an amount in excess of the amount of the adjustment made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion
privileges.
(i) Whenever the number of shares of Warrant Stock
purchasable upon the exercise of a Warrant or the Warrant Price is adjusted
pursuant to this Section 8, the Company shall cause to be promptly mailed to
each Warrantholder by first class mail, postage prepaid, notice of such
adjustment or adjustments and a certificate of the chief financial officer of
the Company setting forth the number of shares of Common Stock, capital stock
and other securities purchasable upon the exercise of such Warrantholder's
Warrant and the applicable Warrant Price after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
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8.2 No Adjustment for Dividends, Option Plan. Except as
specifically provided in subsection 8.1, no adjustment in respect of any cash
dividends or distributions on the Company's Common Stock out of current earnings
made in the ordinary course of business shall be made during the term of the
Warrants or upon the exercise of the Warrants. No adjustment in respect to
options issued under, and pursuant to, the Option Plan shall be made during the
term of the Warrants or upon the exercise of the Warrants.
8.3 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or other entity or in case of any sale,
lease, conveyance or other transfer to another corporation, person or other
entity of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, person or other entity, as the case may be, shall execute with the
Warrantholder, and the agreements governing such consolidation, merger, sale,
lease, conveyance or other transfer shall require such execution of, an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such event, upon exercise of
the Warrants, to receive the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, lease, conveyance or other
transfer had the Warrants (and each underlying security) been exercised
immediately prior to such action. The Company shall promptly mail to each
Warrantholder by first class mail, postage prepaid, notice of the execution of
any such agreement. In the event of a merger described in Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase shares of Warrant Stock under the Warrants
shall terminate on the date of such merger and thereupon the Warrants shall
become null and void, but only if the controlling corporation shall agree to
substitute for the Warrants its warrant which entitles the holder thereof to
purchase upon its exercise the kind and amount of shares and other securities
and property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this subsection 8.3 shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 8 hereof, and shall provide for terms and provisions at least as
favorable to the Warrantholder as those contained in this Agreement. The
provisions of this subsection 8.3 shall similarly apply to successive
consolidations, mergers, sales, leases, conveyances or other transfers.
8.4 Par Value of Shares of Common Stock. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each share of Warrant Stock below the then par value per
share, if any, of the Warrant Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Stock upon exercise of the Warrants.
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8.5 Independent Public Accountants. The Company may retain
Coopers & Lybrand (or such other accounting firm qualified to practice in front
of the securities and Exchange Commission (the "Commission") as is reasonably
acceptable to the Representative to make any computation required under this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of any computation made under this Section 8.
8.6 Statement on Warrant Certificates. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement, provided that such expression
shall in no way affect the number of shares of Warrant Stock actually
purchasable upon the exercise of such Warrants.
SECTION 9. FRACTIONAL SHARES; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional shares of Common Stock on the exercise of a
Warrant. If any fraction of a share of Common Stock would, except for the
provisions of this Section 9, be issuable upon the exercise of a Warrant (or
specified portion thereof), the Company shall in lieu thereof pay an amount in
cash equal to the then Current Market Price multiplied by such fraction. For
purposes of this Agreement, the term "Current Market Price" shall mean (i) if
the Common Stock is traded on the Nasdaq National Market ("NNM") or on a
national securities exchange, the per share closing price of the Common Stock in
the NNM or on the principal stock exchange on which it is listed, as the case
may be, on the date of exercise of the Warrant or, with respect to any
adjustment pursuant to Section 8.1 hereof, on the date immediately preceding the
announcement of the event causing such adjustment or (ii) if the Common Stock is
traded in the over-the-counter market and not in the NNM or on any national
securities exchange, the average of the per share closing bid prices of the
Common Stock on the thirty (30) consecutive trading days immediately preceding
the date in question, as reported by The Nasdaq Small Cap Market (or an
equivalent generally accepted reporting service if quotations are not reported
on The Nasdaq Small Cap Market). The closing price referred to in clause (i)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NNM or on the principal stock exchange on which
the Common Stock is then listed. For purposes of clause (ii) above, if trading
in the Common Stock is not reported by The Nasdaq Small Cap Market, the bid
price referred to in said clause shall be the lowest bid price as reported in
the Nasdaq Electronic Bulletin Board or, if not reported thereon, as reported in
the "pink sheets" published by National Quotation Bureau, Incorporated, and, if
such Common Stock is not so reported, shall be the price of a share of Common
Stock determined by the Company's Board of Directors in good faith.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Except
as expressly provided herein, nothing contained in this Agreement or in the
Warrants shall be construed as conferring upon the Warrantholder or its
transferees any rights
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as a shareholder of the Company, including the right to vote, receive dividends,
consent or receive notices as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or any other matter.
If, however, at any time prior to the expiration of the Warrants and prior to
their exercise, any one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant
to Section 8.1 or 8.3 hereof;
(b) an issuance by the Company of rights, options,
warrants or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, containing the right to
subscribe for or purchase Common Stock; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger or sale of its
property, assets and business as an entirety or substantially as an entirety)
shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 13 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution or other rights or for the determination of stockholders entitled
to vote on such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to mail or receive such notice or any defect therein shall
not affect the validity of any action taken with respect thereto.
SECTION 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS; OBLIGATION'S
IN REGISTRATION.
(a) The Warrantholder agrees that prior to making any
disposition of the Warrants or the Warrant Stock, other than pursuant to an
effective Registration Statement under Section 11(c) below, the Warrantholder
shall give written notice to the Company describing briefly the manner in which
any such proposed disposition is to be made; and no such disposition shall be
made unless the Warrantholder has delivered, or currently with such disposition
delivers, to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that such disposition is permitted hereunder and a
registration statement, application or other notification, filing or
post-effective amendment or supplement thereto (hereinafter collectively a
"Registration Statement") under the Act or the state securities or "blue sky"
laws of any applicable jurisdiction is not required with respect to such
disposition pursuant to an available exemption. The Warrantholder agrees that it
shall use its reasonable best efforts to obtain from any transferee who acquires
any Warrants in a private transaction with the Warrantholder an agreement by
such transferee that it agrees to be bound by any transfer restrictions set
forth in this subsection 11(a) then applicable to such transferees.
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(b) [Intentionally omitted]
(c) The Company shall be obligated to the registered
holders of the Warrants and the Warrant Stock as follows:
(i) Whenever during the period beginning on
__________, 1997 and ending on _____________, 2001, the Company proposes to file
with the Commission a Registration Statement (other than as to securities issued
pursuant to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act), it shall, at least thirty (30) days prior to each
such filing, give written notice of such proposed filing to each Warrantholder
and each holder of the Warrant Stock at their respective addresses as they
appear on the records of the Company, and shall offer to include and shall
include in such filing any proposed disposition of the Warrant Stock upon
receipt by the Company, not more than twenty (20) days following the receipt of
such notice, of a request therefor setting forth the facts with respect to such
proposed disposition and all other information with respect to such person
reasonably necessary to be included in such Registration Statement. In the event
that such registration statement relates to an underwritten offering on a "firm
commitment" basis and the managing underwriter for said offering advises the
Company in writing that the inclusion of such securities in the offering would
be materially and substantially detrimental to the completion of the offering,
materially adversely affect the price, timing or distribution of such offering,
then the amount of Common Stock shall be limited pro rata among the Company, the
Warrantholders and each other selling securityholder in proportion to the amount
of Common Stock sought to be registered by each, to the extent necessary to
reduce the total amount of Common Stock to be included in such offering to the
amount that in the reasonable judgment of such managing underwriter or
underwriters, can be sold without materially adversely affecting the success of
such offering.
(ii) In addition to any Registration Statement
pursuant to subparagraph (i) above, during the four-year period beginning on
___________, 1997 and ending on the Termination Date, the Company will, as
promptly as practicable (but in any event within sixty (60) days), after written
request (the "Request") by the Representative, or by a person or persons holding
(or having the right to acquire by virtue of holding the warrants) more than
fifty percent (50%) of the shares of Warrant Stock which have been (or may be)
issued upon exercise of the Warrants, prepare and file at the Company's expense
a Registration Statement with the Commission and such applications or other
filings as required under applicable state securities or blue sky laws
sufficient to permit the public offering of the Warrant Stock, and shall use its
reasonable best efforts at its own expense through its officers, directors,
auditors and counsel, in all matters necessary or advisable, to cause such
Registration Statement to become effective as promptly as practicable and to
maintain such effectiveness so as to permit resale of the securities covered by
the Request until the earlier of the time that all such Warrant Stock has been
sold or the expiration of nine (9) months from the effective date of the
Registration Statement; provided, however, that the Company shall only be
obligated to file one such Registration
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Statement under this Section 11(c)(ii). The Company may delay the filing of such
Registration Statement for a reasonable period of time, but not more than 90
days after receipt of the Request (x) as is necessary to prepare audited
financial statements of the Company for its most recently completed fiscal year
or other audited financial statements reasonably required in the Registration
Statement, or (y) if the Company would be required to divulge in such
Registration Statement the existence of any fact relating to a proposed
acquisition, financing or other material corporate development not otherwise
required to be disclosed and the Board of Directors of the Company shall have in
good faith determined that such disclosure would be materially adverse to the
Company. Notwithstanding the foregoing, once and only once during the period the
Company would have an obligation to register the Warrant Stock pursuant to this
Section 11(b)(ii), the Company shall not be obligated to effect a registration
pursuant to this Section 11(c)(ii) during the three (3) month period starting
with the date thirty (30) days prior to the Company's estimated date of filing
of an underwritten public offering of securities solely for the account of the
Company; provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that the Company's estimate of the date of filing of such registration statement
is made in good faith; provided further, that the Company shall furnish to the
Warrantholder and each holder of Warrant Stock a certificate signed by the
managing underwriter stating that it would be materially adverse to the Company
or its shareholders for the registration statement to be filed in the near
future.
(d) All fees, disbursements and out-of-pocket expenses
(other than the Warrantholder's brokerage fees and commissions and legal fees of
counsel to the Warrantholder, if any and of the underwriters) in connection with
the filing of any Registration Statement and in complying with applicable
federal securities and state securities and blue sky laws shall be borne by the
Company; provided, however, that in the case of a demand registration, such
expenses shall be borne pro rata among the Company and the selling
Warrantholders. The Company at its expense shall supply any Warrantholder and
any holder of Warrant Stock with copies of such Registration Statement and the
prospectus included therein and other related documents and any opinions and
no-action letters in such quantities as may be reasonably requested by such
Warrantholder or holder of Warrant Stock.
(e) The Company shall not be required by this Section 11
to file such Registration Statement if, in the opinion of counsel for the
Warrantholders, which counsel shall be reasonably satisfactory to the Company,
or in the opinion of another counsel experienced in securities law matters
acceptable to such Warrantholders and the Company, the proposed disposition as
to which such Registration Statement is requested is exempt from applicable
federal securities and state securities and blue sky laws.
(f) The offering of Common Stock pursuant to such Request
shall be in the form of an underwritten offering, if practicable. If the
managing underwriter or underwriters unanimously determine in good faith that
the total amount
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of Common Stock proposed to be included in such offering is such as to
materially adversely affect the success of such offering, then the amount of
Common Stock shall be reduced or limited pro rata between the Company and the
holders of Warrant Stock in proportion to the amount of Common Stock sought to
be registered by each, to the extent necessary to reduce the total amount of
Common Stock to be included in such offering to the amount that, in the
reasonable opinion of such managing underwriter or underwriters, can be sold
without materially adversely affecting the success of such offering.
(g) If any shares of Warrant Stock are covered by a
Registration Statement filed pursuant to Section 11(c) hereof, the holder agrees
not to effect any public sale or distribution of securities of the Company,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten offering), during the 30-day period prior to, and during
the 180-day period beginning on, the closing date of the offering made pursuant
to such Registration Statement, unless the managing underwriter or underwriters
agree in writing to waive or shorten any such period for such holder or for any
other sellers of securities. This provision shall not apply to such holder if
there is a public sale or distribution of securities of the Company subsequent
to such holding period or if such holder is prevented by applicable statute or
regulation from entering into any such agreement. The Company may require the
Warrantholder to furnish to the Company such information regarding the
distribution of such securities, including any information required by law to be
given in connection with the Registration Statement, as the Company may from
time to time reasonably request in writing and as is required by applicable law
or regulations.
(h) In the event any Warrantholder timely elects to
participate in an offering by including Warrant Stock in a Registration
Statement pursuant to subsection 11(c) above, the Company shall use its
reasonable best efforts to effect such registration to permit the sale of
Warrant Stock in accordance with the intended method or methods of disposition
thereof, and pursuant thereto, the Company shall, as expeditiously as possible:
(i) Prepare and file with the Commission a Registration
Statement or Registration Statements on a form available for the sale of the
Warrant Stock, and to cause any such Registration Statement filed under the Act
pursuant to subsection 11(c) above to become effective at the earliest possible
date after the filing thereof and remain effective as provided herein and to
comply with all applicable rules and regulations of the Commission (the "Rules
and Regulations") in connection therewith, provided, however, that before filing
a Registration Statement or prospectus or any amendments or supplements thereto,
including documents which would be incorporated or deemed to be incorporated by
reference in the Registration Statement after the initial filing of any
Registration Statement, the Company will furnish to the Warrantholders, their
counsel, and the underwriters, to be engaged in connection with the offering and
sale by the Company (for purposes of this subsection
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11(h), the "Public Underwriter"), copies of all such documents proposed to be
filed, which documents will he subject to the review of the Warrantholders,
their respective counsel and the Public Underwriter, if any, and the Company
will not file any Registration Statement, amendment thereto, any prospectus or
any supplement thereto (including such documents incorporated or deemed to be
incorporated by reference) to which the Public Underwriter, if any, shall
reasonably object;
(ii) Prepare and promptly file with the Commission such
amendments and post-effective amendments to a Registration Statement as may be
necessary to keep such Registration Statement continuously effective for a
period of nine (9) months; cause the related prospectus to be supplemented, by
any required prospectus supplement, and as so supplemented, to be filed pursuant
to Rule 424 under the Act; and comply with the provisions of the Act with
respect to the disposition of all Warrant Stock covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition as set forth in such Registration Statement or supplement to such
prospectus. The Company shall not be deemed to have used its reasonable best
efforts to keep a Registration Statement effective during the applicable period
if it intentionally or voluntarily takes any action that could reasonably be
expected to result in such Warrantholders not being able to sell such Warrant
Stock;
(iii) As soon as the Company is advised or obtains
knowledge thereof, advise the Warrantholders and confirm the same in writing (A)
when the Registration Statement, as amended, becomes effective and when any
post-effective amendment to the Registration Statement becomes effective, (B) of
the issuance by the Commission or any State or other regulatory body of any stop
order or other order, or of the initiation or the threat or contemplation of any
proceeding, the outcome of which may result in the suspension of the
effectiveness of the Registration Statement or the issuance of any order
preventing or suspending the use of any preliminary prospectus or the
prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (C) of the issuance by the Commission or any State
or other regulatory body of any proceedings for the suspension of the
qualification of any of the Warrant Stock for offering or sale in any
jurisdiction or of the initiation or the threat or contemplation of any
proceeding for that purpose, (D) of the receipt of any comments from the
Commission and (E) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the prospectus related
thereto or for additional information; if the commission or any State or other
regulatory body shall enter a stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of any preliminary prospectus or the prospectus, or any amendment or supplement
thereto, or suspend such qualification at any time, make every effort to obtain
promptly the lifting of such order or suspension;
(iv) If requested by the Public Underwriter, if any, or
any Warrantholder (1) immediately incorporate in a prospectus supplement or
post-
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effective amendment such information as such Warrantholder and the Public
Underwriter, if any, agree should be included therein relating to such sale and
distribution of the Warrant stock, including, without limitation, information
with respect to the number of shares of Warrant Stock being sold to such Public
Underwriter, the purchase price being paid therefor by such Public Underwriter
and with respect to any other terms of the underwritten offering of the Warrant
Stock to be sold in such offering; (2) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be so incorporated in such prospectus supplement or post-effective
amendment; and (3) supplement or amend any Registration Statement if requested
by the Warrantholders or any underwriter of Warrant Stock;
(v) Furnish to each of the Warrantholders and their
respective counsel, without charge and at such place as such Warrantholders may
designate, copies of each preliminary prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement and any term sheet, in each case as
soon as available and in such quantities as each Warrantholder may reasonably
request;
(vi) During the time when a prospectus is required to be
delivered under the Act, the Company shall comply with all requirements imposed
upon it by the Act and the Securities Exchange Act, 1934, as amended (the
"Exchange Act"), as now and hereafter amended, and by the Rules and Regulations,
as from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Warrant Stock in accordance with the provisions
hereof and the prospectus, or any amendments or supplements thereto; if at any
time when a prospectus relating to the Warrant Stock is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of the Company or counsel for the Company or counsel for the
Warrantholders, the prospectus, as then amended or supplemented, would include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances in which they were made, not misleading, or if it
is necessary at any time to amend or supplement the prospectus to comply with
the Act, notify the Public Underwriter and prepare and file, at the Company's
expense, with the Commission an appropriate amendment or supplement to the
Registration Statement or an amendment or supplement to the prospectus which
will correct such statement or omission, or effect such compliance, each such
amendment or supplement to be reasonably satisfactory to the Warrantholders and
the counsel for the Warrantholders; and furnish to the Warrantholders copies of
such amendment or supplement as soon as available and in such quantities as the
Warrantholders may request;
(vii) As soon as practicable, but in any event not later
than forty-five (45) days after the end of the nine (9) month period beginning
after the
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effective date of the Registration Statement occurs, make generally available to
its security holders, in the manner specified in Rule 158(b) promulgated under
the Act, and to the Representative, an earnings statement which will comply with
the provisions of Section 11(a) of the Act and Rule 158(a) promulgated under the
Act;
(viii) Deliver to each of the selling Warrantholders,
their respective counsel and the Public Underwriter, if any, without charge, as
many copies of the prospectus or prospectuses (including each preliminary
prospectus) and any amendment or supplement thereto as such persons may
reasonably request; the Company consents to the use of any such prospectus or
any amendment or supplement thereto by such Warrantholders and the Public
Underwriter, if any, in connection with the offering and sale of the Warrant
Stock covered by such prospectus or any amendment or supplement thereto;
(ix) Prior to any public offering of Warrant Stock, use
its best efforts, at or prior to the time the Registration Statement becomes
effective, to qualify the Warrant Stock for offering and sale under the
securities or "blue sky" laws of such jurisdictions as the Warrantholders may
reasonably designate to permit the continuance of sales and dealings therein for
as long as may be necessary to complete the distribution, and make such
applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to service
of process in any such jurisdiction; in each jurisdiction where such
qualification shall be effected, use its best efforts to file and make such
statements or reports at such times as are or may be required by the laws of
such jurisdiction to continue such qualification;
(x) Cooperate with the Warrantholders and the Public
Underwriter, if any, to facilitate the timely preparation and delivery of
certificates representing Warrant Stock to be sold, which certificates shall not
bear any restrictive legends; and enable such Warrant Stock to be in such
denominations and registered in such names as the Public Underwriter, if any,
may request at least two (2) business days prior to any sale of Warrant Stock;
(xi) Use its reasonable best efforts to cause the Warrant
Stock covered by the Registration Statement to be registered with or approved by
such other governmental bodies, agencies or authorities as may be necessary to
enable the Warrantholders or the Public Underwriter, if any, to consummate the
disposition of such Warrant Stock;
(xii) Make every reasonable effort to cause all Warrant
Stock covered by such Registration Statement to be (1) listed on each securities
exchange, if any, in which shares of Common Stock are then listed or (2)
authorized to be quoted on the NNM or Nasdaq Small Cap Market or any exchange if
the
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Company's Common Stock is then authorized to be quoted on the NNM or Nasdaq
Small Cap Market or any exchange;
(xiii) Enter into such agreements (including, without
limitation, if applicable, an underwriting agreement, in form, scope and
substance as is customary in underwritten offerings) and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of such Warrant Stock and, in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration, (1) make such representations and warranties to the
Warrantholders with respect to the business of the Company and its subsidiaries
and the Public Underwriter, if any, the Registration Statement, the prospectus,
the prospectus supplement (if any) and documents, if any, incorporated or deemed
to be incorporated by reference in the Registration Statement, in each case in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Warrantholders), addressed to the Warrantholders with
respect to the matters referred to in the preceding clause in such form, scope
and substance as are customarily rendered to underwriters in underwritten
offerings and such other matters as may be reasonably requested by counsel to
the Warrantholders or the Public Underwriter, if any; (3) obtain "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in or incorporated by reference into the Registration Statement)
addressed to the Warrantholders (to the extent agreed by the accountants) and
each of the Public Underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort" letters
to underwriters in connection with underwritten offerings; (4) if an
underwriting agreement is entered into, the same shall set forth in full the
indemnification and contribution provisions and procedures of Section 12 hereof
(or such other provisions and procedures as shall be acceptable to the
Warrantholders and to the Public Underwriter of such underwritten offering) with
respect to all parties to be indemnified pursuant to said section; and (5)
deliver such documents and certificates as may be reasonably requested by the
Warrantholders and the Public Underwriter, if any, to evidence the continued
validity of the representations and warranties made pursuant to clause (1) above
and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company; the above
shall be done at each closing under such underwriting or similar agreement or as
and to the extent required thereunder;
(xiv) Make available for inspection by a representative
of the Warrantholders (to the extent agreed by the accountants) or any Public
Underwriter participating in any disposition pursuant to such Registration
Statement,
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and any attorney or accountant retained by the Warrantholders or such Public
Underwriter, all financial and other records, pertinent corporate documents and
properties and assets of the Company and its subsidiaries and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information reasonably requested by any such representative, Public
Underwriter, attorney or accountant in connection with any registration of
Warrant Stock; provided, however, that any records, information or documents
that are designated by the Company in writing at the time of delivery of such
records, information or documents as confidential shall be kept confidential by
such persons unless (1) disclosure of such records, information or documents is
required by court or administrative order or is necessary to respond to
inquiries of governmental or regulatory bodies, agencies or authorities, (2)
disclosure of such records, information or documents is, in the opinion of
counsel to the Warrantholders or to any Public Underwriter, required by law or
legal process, (3) such records, information or documents are otherwise publicly
available or (4) such records, information or documents become available to such
person from a source other than the Company, and such source is not bound by a
confidentiality agreement;
(xv) If the Company, in the exercise of its reasonable
judgment, objects to any change reasonably requested by the Warrantholders or
the Public Underwriter, if any, to any Registration Statement or prospectus or
any amendments or supplements thereto (including documents incorporated or
deemed to be incorporated therein by reference) as provided for in this
Subsection 11(h), the Company shall not be obligated to make any such change and
the Warrantholders may withdraw the Warrant Stock from such registration, in
which event the Company shall pay all registration expenses (including, without
limitations, attorneys' fees and expenses) incurred by the Warrantholders in
connection with such Registration Statement or prospectus or any amendment
thereto or supplement thereof; provided, that if the Company provides the
Warrantholders with a written opinion of independent counsel (which counsel may
be the Company's regular outside counsel), upon which such Warrantholders may
rely, that the change so requested is not required in order that the
Registration Statement comply with all applicable securities laws (including any
rules and regulations promulgated thereunder), such Warrantholders may withdraw
the Warrant Stock from such registration but the Company shall not be obligated
to pay any registration expenses incurred by the Warrantholders; and
(xvi) Pay all costs and expenses incident to the
performance of or compliance with the Company's obligations under subsection
11(c) above and under this subsection 11(h) (collectively, "Registration
Expenses") whether or not any Registration Statement is filed or becomes
effective, including, without limitation, the fees and disbursements of the
Company's auditors, legal counsel, special legal counsel, legal counsel
responsible for qualifying the Warrant Stock under blue sky laws and with the
NASD, all filing fees (including, without limitation, the Commission, states,
NASD, the Nasdaq Stock Market or any exchange) and printing
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expenses, and all expenses in connection with the qualification of the Warrant
Stock under applicable blue sky laws and with the NASD; provided, however, that
the Company shall not bear the Public Underwriter's discount or commission with
respect to, or any transfer taxes imposed on, the Warrant Stock or the fees and
expenses of counsel to the Warrantholders; provided, further, however, that the
Company shall not be responsible in any way for any fees or expenses of counsel
to the Warrantholders except, as provided in Subsection 11(h)(xv) above.
SECTION 12. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of the filing of any Registration
statement with respect to the Warrant Stock pursuant to Section 11 hereof, the
Company agrees to indemnify and hold harmless the Warrantholders, each Public
Underwriter and any Holder of Warrant Stock (for purposes of this Section 12,
"Holder" shall include the officers, directors, partners, employees, agents and
counsel of a Warrantholder or a holder of Warrant Stock), and each person, if
any, who controls a Holder ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses (including, without limitation, reasonable
attorneys' fees and expenses) or liabilities and all actions, suits,
proceedings, injuries, arbitrations, investigations, litigation or governmental
or other proceedings (in this Section 12, collectively, "actions") in respect
thereof, whatsoever (including, without limitation, any and all expenses
whatsoever reasonably incurred in investigating preparing or defending against
any action, commenced or threatened, or any claim whatsoever), as such are
incurred, to which a Holder or such controlling person may become subject under
the Act, the Exchange Act or any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained (i) in any Registration Statement or any prospectus
(as from time to time amended and supplemented) or; (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Warrants; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in light of the circumstances in which they were made), unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to a Holder by or on behalf of
such Holder expressly for use in any Registration Statement or any prospectus,
or any amendment thereof or supplement thereto, as the case may be. In addition
to its other obligations under this subsection 12(a), the Company agrees that,
as an interim measure during the pendency of any action arising out of or based
upon any untrue statement or omission, or alleged untrue statement or alleged
omission as described in this subsection 12(a), it shall reimburse the Holders
(and, to the extent applicable, each controlling person) on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such action notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligations to reimburse the Holders (and, to the
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extent applicable, each controlling person) for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement is so held to have been improper as to the Company, the Holders
(and, to the extent applicable, each controlling person) shall promptly return
it to the Company, together with interest compounded daily, based on the
"reference rate" announced from time to time by Bank of America NTSA (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
applicable Holder within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request. In no case shall
any interest be in excess of that permitted by law.
The indemnity agreement in this subsection 12(a) shall be
in addition to any liability which the Company may have at common law or
otherwise.
(b) Each Holder severally agrees to indemnify and hold
harmless the Company (for purposes of this Section 12, "Company" shall include
the officers, directors, partners, employees, agents and counsel of the Company)
and each other person, if any, who controls the Company ("controlling person")
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Holders, but only with respect to statements or
omissions, if any, made in any preliminary prospectus, the Current Registration
Statement, the Registration Statement or any prospectus or any amendment thereof
or supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
such Holder by or on behalf of such Holder expressly for use in any preliminary
prospectus, the Current Registration Statement, the Registration Statement or
any prospectus or any amendment thereof or supplement thereto or in any
application, provided that such written information or omissions only pertain to
disclosures in any preliminary prospectus, the Current Registration Statement,
the Registration Statement or any prospectus directly relating to the
transactions in connection with the offering contemplated hereby. In addition to
its other obligations under this subsection 12(b), each Holder severally agrees
that, as an interim measure during the pendency of any action arising out of or
based upon any untrue statement or omission, or alleged untrue statement or
alleged omission as described in this subsection 12(b), it shall reimburse the
Company (and, to the extent applicable, each controlling person) on a monthly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any action with respect to such Holder
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Holder's obligations to reimburse the Company (and, to
the extent applicable, each such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement is so held to have been
improper as to such Holder, the Company (and, to the extent applicable, each
controlling person) shall promptly return it to such Holder, together with
interest compounded daily, based on the Prime Rate. Any such interim
reimbursement payments which are not made to the company within thirty (30) days
of a request for
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reimbursement shall bear interest at the Prime Rate from the date of such
request. In no case shall any interest be in excess of that permitted by law.
Notwithstanding the provisions of this subsection 12(b), in connection with a
registration that includes the Warrant Stock pursuant to subsection 11(c)(i)
hereof, no such Holder shall be required to indemnify or hold harmless the
Company or any controlling person for any amounts in excess of the net proceeds
(before deducting expenses) applicable to the Warrant Stock sold by such Holder
pursuant to the Registration Statement. Notwithstanding the provisions of this
subsection 12(b), in connection with a registration that includes that Holder's
Warrant Stock pursuant to subsections 11(b) or 11(c)(ii), no such Holder shall
be required to indemnify and hold harmless the Company or any controlling person
for any amounts in excess of that portion of all expenses as to which
indemnification is properly claimed under this Agreement equal to such Holder's
relevant proportion of all net proceeds (before deduction of expenses)
applicable to all securities sold pursuant to the Current Registration Statement
or the Registration Statement, as applicable.
(c) Promptly after receipt by an indemnified party under
this Section 12 of notice of the commencement of any action, such indemnified
party shall notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 12 except to the extent that it has been materially
prejudiced by such failure). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties shall be entitled to
participate therein, and to the extent it or they may elect by written notice
delivered to the indemnified party or parties promptly after receiving the
aforesaid notice from such indemnified party or parties, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, an indemnified party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party or parties in connection with the defense of such action at
the expense of the indemnifying party or parties, (ii) the indemnifying party or
parties shall not have employed counsel reasonably satisfactory to such
indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action or (iii) such
indemnified party shall have reasonably concluded that there may be one or more
defenses available to it which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel (in addition to appropriate
local counsel) shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to appropriate local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or
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related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 12 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 12, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 12 provide for indemnification in
such case or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder, and the parties' relative intent,
knowledge, state of mind and access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to in the first sentence of this subsection
12(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection 12(d), in a
registration that includes a Holder's Warrant Stock pursuant to subsection
11(c)(i) hereof, no Holder shall be required to contribute any amount in excess
of the net proceeds (before deducting expenses) applicable to the shares of
Warrant Stock sold by such Holder pursuant to such registration statement and
prospectus. Notwithstanding the provisions of this subsection 12(d), in a
registration that includes a Holder's Warrant Stock pursuant to subsections
11(b) or 11(c)(ii), no such Holder shall be required to contribute any amount in
excess of that portion of all expenses as to which contribution is properly
claimed under this Agreement equal to such Holder's relevant portion of all net
proceeds (before deducting expenses) applicable to all securities sold pursuant
to the Current Registration Statement or the Registration Statement, as
applicable. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act and the cases and promulgations thereunder) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action against such party in respect to
which a claim
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for contribution may be made against another party or parties under this
subsection 12(d), notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subsection 12(d) except
to the extent it has been materially prejudiced by such failure. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
Notwithstanding anything to the contrary contained in this Agreement, no Holder
shall be required to contribute any amount in excess of the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total
securities sold pursuant to the Registration Statement, which is being sold by
it, or (ii) the proceeds received by it in any such offering. The Holders'
obligations in this Section 12(d) to contribute are several in proportion to the
number of Warrant Shares registered on their behalf and not joint.
(e) The indemnity and contribution agreements contained
in this Section 12 shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Holder or any
person controlling any Holder, the Company, its directors or officers or any
underwriter or any person controlling such underwriter, (ii) acceptance of any
Warrant Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Holder or any person controlling any Holder, or to
the Company, its directors or officers, or any person controlling the Company,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 12.
(f) In any proceeding relating to a Registration
Statement, or any prospectus or any amendment or supplement thereto, each party
against whom contribution may be sought under this Section 12 hereby consents to
the jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him or it
by any other contributing party and consents to the service of such process and
agrees that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
SECTION 13. NOTICES. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed, delivered by hand or transmitted by
any standard form of telecommunication. Notices to the Warrantholders or a
holder of Warrant Stock shall be directed to The Boston Group, L.P. at 1999
Avenue of the Stars, Suite 2800, Los Angeles, California 90067, Attention:
Mr. Anthony Soich, with a copy to Fulbright & Jaworski L.L.P., 300 Convent
Street, Suite 2200, San Antonio, Texas 78205, Attention: Phillip M. Renfro, Esq.
Notices to the Company shall be directed to the Company at 301 Congress Avenue,
9th Floor, Austin, Texas 78701, Attention: Mr.
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Adrian Katz, with a copy to Dewey Ballantine, 1301 Avenue of the Americas, New
York, New York 10019, Attention: Glenn S. Arden, Esq.
SECTION 14. PARTIES. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Representative, the Company and the
Warrantholders and the holders of Warrant Stock and the controlling persons,
officers, directors and others referred to in Section 12 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
SECTION 15. MERGER OR CONSOLIDATION OF THE COMPANY. The Company shall
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.3 hereof are complied with.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in the Underwriting Agreement, any schedule, exhibit, certificate or
other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated by this Agreement, shall be deemed
to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive the termination of this Agreement and the
issuance, sale and delivery of the Warrant and the Warrant Stock.
SECTION 17. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas,
without giving effect to conflict of laws principles thereof.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
SECTION 19. ENTIRE AGREEMENT, AMENDMENTS. This Agreement and the
Underwriting Agreement constitute the entire agreement of the parties hereto
concerning the subject matter hereof and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended, modified or altered except in a
writing signed by the Representative and the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
AUTOBOND ACCEPTANCE
CORPORATION
By:___________________________________
William O. Winsauer
Chairman of the Board and CEO
THE BOSTON GROUP, L.P.
By:__________________________________
Name:
Title:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY
MANNER EXCEPT IN COMPLIANCE WITH SECTION 1.3 AND 11(a) OF THE
REPRESENTATIVE'S WARRANT AGREEMENT PURSUANT TO WHICH THEY
WERE ISSUED.
WARRANT CERTIFICATE NO. 1
WARRANT TO PURCHASE 100,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON NOVEMBER __, 2001
AUTOBOND ACCEPTANCE CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF TEXAS
This certifies that, for value received, THE BOSTON GROUP, L.P., the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from AUTOBOND ACCEPTANCE CORPORATION (the "Company"), at any time
during the period commencing at 6:30 a.m., Pacific time, on ___________, 1997,
and before 5:00 p.m., Pacific time, on _____________, 2001, at the purchase
price per share of Common Stock of $______ (the "Warrant Price"), 100,000 shares
of Common Stock of the Company, no par value (the "Warrant Stock "). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant evidenced hereby shall be subject to adjustment from time to time as set
forth in the Representative's Warrant Agreement, dated as of November__, 1996,
by and between the Company and the Representative (the "Representative's Warrant
Agreement").
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to 100,000 shares of Warrant Stock (subject to adjustment as
provided in the Representative's Warrant Agreement) and are issued under and in
accordance with the Representative's Warrant Agreement, and are subject to the
terms and provisions contained in the Representative's Warrant Agreement, to all
of which the Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided hereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in any manner
allowed in the Representative's Warrant Agreement.
<PAGE>
<PAGE>
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Warrant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
AUTOBOND ACCEPTANCE
CORPORATION
By:
---------------------------
William O. Winsauer
Chairman of the Board and CEO
Dated: November__, 1996
ATTEST: [Seal]
- -----------------------------
Adrian Katz
Chief Operating Officer
-2-
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
PURCHASE FORM
AUTOBOND ACCEPTANCE CORPORATION (the "Company")
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Attention: President
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _____ shares of common stock of the Company (the "Warrant Stock")
provided for therein, and requests that certificates for the Warrant Stock be
issued in the name of:
---------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
---------------------------------------------------------------
---------------------------------------------------------------
and, if said number of shares of Warrant Stock shall not be all the Warrant
Stock purchasable hereunder, that a new Warrant Certificate for the balance of
the Warrant Stock purchasable under the within Warrant Certificate be registered
in the name of the undersigned Warrantholder or his Assignee as below indicated
and delivered to the address stated below.
Dated:_________________
Name of Warrantholder
or Assignee: _________________________
(Please Print)
Address: _________________________
_________________________
Signature: _________________________
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:_____________________________
<PAGE>
<PAGE>
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange of the National Association of Securities Dealers, Inc.)
<PAGE>
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase _____ shares of Warrant Stock represented by the within
Warrant Certificate unto, and requests that a certificate for such Warrant be
issued in the name of:
---------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
---------------------------------------------------------------
---------------------------------------------------------------
hereby irrevocably constituting and appointing _______________ Attorney to
transfer said Warrants on the books of the Company, with full power of
substitution in the premises and, if said number of warrant Stock shall not bear
all of the Warrant Stock purchasable under the within Warrant Certificate, that
a new Warrant Certificate for the balance of the Warrant Stock purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder and delivered to such Warrantholder's address as then set forth on
the Company's books.
Dated:_______________ ______________________________
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE>
<PAGE>
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
COMMON STOCK INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF TEXAS
Number Shares
A U T O B O N D
A C C E P T A N C E
AUTOBOND ACCEPTANCE CORPORATION
CUSIP 052918 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
AUTOBOND ACCEPTANCE CORPORATION
transferable on the books of the Corporation by the holder hereof in person, or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SECRETARY CHIEF EXECUTIVE OFFICER
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
A U T O B O N D
A C C E P T A N C E
AUTOBOND ACCEPTANCE CORPORATION
A STATEMENT DENYING PREEMPTIVE RIGHTS OF SHAREHOLDERS IS SET FORTH IN
THE ARTICLES OF INCORPORATION ON FILE IN THE OFFICE OF THE SECRETARY OF STATE,
THE CORPORATION WILL FURNISH A COPY OF SUCH STATEMENT TO THE RECORD HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS PRINCIPAL
PLACE OF BUSINESS OR REGISTERED OFFICE.
THE CORPORATION IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE CLASS AND
TO ISSUE PREFERRED SHARES IN SERIES. A STATEMENT OF THE DESIGNATIONS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS
AUTHORIZED TO BE ISSUED BY THE CORPORATION, THE VARIATIONS IN THE RELATIVE
RIGHTS AND PREFERENCES OF THE SHARES OF EACH SERIES OF PREFERRED SHARES TO THE
EXTENT THEY HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF
DIRECTORS OF THE CORPORATION TO FIX AND DETERMINE THE RELATIVE RIGHTS AND
PREFERENCES OF ANY SERIES OF PREFERRED SHARES IS SET FORTH IN THE ARTICLES OF
INCORPORATION OF THE CORPORATION ON FILE IN THE OFFICE OF THE SECRETARY OF STATE
OF TEXAS. THE CORPORATION WILL FURNISH A COPY OF SUCH STATEMENT TO THE RECORD
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON WRITTEN REQUEST TO THE CORPORATION
AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT - _______ Custodian _______
TEN COM - as tenants in common (Cust) (Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act _______________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above
list.
For Value Received, ____________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocable
constitute and appoint
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated________________________________________________
X____________________________________________________
(SIGNATURE)
- --------------------------
NOTICE
THE SIGNATURE(S) TO THE
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY
PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER. X______________________________________
(SIGNATURE)
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-16.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
DEWEY BALLANTINE
1301 Avenue of the Americas
New York 10019-6092
Telephone 212-259-8000 Facsimile 212-259-6333
Exhibit 5.1
November 8, 1996
AutoBond Acceptance Corporation
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Ladies and Gentlemen:
We have acted as counsel for AutoBond Acceptance Corporation, a
Texas corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 (the "Act") of 1,150,000 shares (the "Shares") of common
stock, no par value, of the Company to be sold by the Company and William O.
Winsauer and John S. Winsauer, stockholders of the Company (the "Selling
Stockholders"), in a public offering pursuant to the terms set forth in the
Registration Statement on Form S-1 (Registration No. 333- 05359) of the Company,
including the related prospectus, filed with the Securities and Exchange
Commission, as amended (the "Registration Statement"). Pursuant to the
Registration Statement, the Company may sell up to 900,000 of the Shares (the
"Company Shares") and the Selling Stockholders may sell up to 250,000 of the
Shares (the "Selling Stockholders Shares").
As counsel to the Company we have examined such corporate
records, certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
We have assumed the genuineness and authenticity of all
signatures on all original documents, the authenticity of all documents
submitted to us as originals, the conformity to originals of all documents
submitted to us as copies and the execution, delivery or recordation of all
documents where due authorization, execution, delivery or recordation are
prerequisites to the effectiveness thereof. Also, we have relied as to certain
matters on information obtained from public officials, officers of the Company
another sources believed by us to responsible, and we have assumed that the
certificates for the Shares conform to the specimen thereof examined by us and
have been duly countersigned by the registrar and transfer agent.
<PAGE>
<PAGE>
We are not admitted to practice under the laws of the state of
Texas. With respect to the opinions expressed herein, as to all matters governed
by Texas law, we have relied upon the opinion of Butler & Binion, L.L.P., a copy
of which is attached hereto. Based on the foregoing, it is our opinion that,
when the Registration Statement becomes effective under the Act:
(i) The Company Shares will have been duly authorized and when
issued and sold as contemplated by the Registration Statement will be validly
issued, fully paid and nonassessable; and
(ii) The Selling Stockholders Shares will have been duly and
validly authorized and will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
DEWEY BALLANTINE
2
<PAGE>
<PAGE>
BUTLER & BINION, L.L.P.
1000 Lousiana,
Suite 1600
Houston, Texas 77002-5093
Telephone (713) 237-3111 Facsimile (713) 237-3202
November 8, 1996
AutoBond Acceptance Corporation
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Re: Registration and sale of up to 1,150,000 shares
of Common Stock of AutoBond Acceptance Corporation
Ladies and Gentlemen:
We have acted as special Texas counsel for
AutoBond Acceptance Corporation, a Texas corporation (the
"Company"), in connection with the registration of 1,150,000
shares (the "Shares") of common stock, no par value, of the
Company to be sold by the Company and William O. Winsauer
and John S. Winsauer, stockholders of the Company (the
"Selling Stockholders"), in a public offering pursuant to
the terms set forth in the Registration Statement on Form S-
1 (Registration No. 333-05359) of the Company, including the
related prospectus, filed with the Securities and Exchange
Commission (the "Commission"), as amended (the "Registration
Statement"). Pursuant to the Registration Statement, the
Company may sell up to 900,000 of the Shares (the "Company
Shares") and the Selling Stockholders may sell up to 250,000
of the Shares (the "Selling Stockholders Shares").
We have made such inquiries and examined such
documents as we have considered necessary or appropriate for
the purposes of giving the opinion hereinafter set forth,
including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our
satisfaction of the following:
(i) the Articles of Incorporation of the Company
as amended and restated as of the date of
this opinion;
(ii) the Bylaws of the Company as amended and
restated as of the date of this opinion;
(iii) the Registration Statement; and
(iv) such other documents, corporate records,
certificates and other instruments as we have
<PAGE>
<PAGE>
deemed necessary or appropriate for the
purpose of this opinion.
We have assumed the genuiness and authenticity of
all signatures on all original documents, the authenticity
of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as
copies and the execution, delivery or recordation of all
documents where execution, delivery or recordation are
prerequisites to the effectiveness thereof. Capitalized
terms used herein and not otherwise defined are used as
defined in the Registration Statement.
We are admitted to practice under the laws of the
State of Texas. Based upon the foregoing, and having regard
for such legal considerations as we deem relevant, we are of
the opinion that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under
the laws of the State of Texas pursuant to
the Texas Business Corporation Act; and
(ii) The Company Shares are duly and validly
authorized and when sold as contemplated by
the Registration Statement will be legally
issued, fully paid and nonassessable, with no
personal liability attaching to the ownership
thereof; and
(iii) The Selling Stockholders Shares are duly and
validly authorized and are legally issued,
fully paid and nonassessable, with no
personal liability attaching to the ownership
thereof.
We consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and
consent to the references to our Firm under the heading
"Legal Matters" in the Prospectus included in the
Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act. We consent
to the reliance of Dewey Ballantine on this opinion with
respect to matters governed by Texas law.
Very truly yours,
BUTLER & BINION, L.L.P.
2
<PAGE>
<PAGE>
[EXECUTION COPY]
SIDE AGREEMENT
SIDE AGREEMENT between AUTOBOND ACCEPTANCE CORPORATION
("AutoBond"), AUTOBOND FUNDING CORPORATION II (the "Borrower"), and PEOPLES
SECURITY LIFE INSURANCE COMPANY (the "Lender"). Capitalized terms used and not
defined herein shall have the meanings specified in the Credit Agreement, dated
as of May 21, 1996 (the "Credit Agreement") among the Borrower, AutoBond, as
Administrator and Peoples Security Life Insurance Company.
Notwithstanding the provisions set forth in the Credit Agreement
and the Security Agreement, in connection with the execution and delivery of the
Credit Agreement and the Security Agreement, the Borrower, AutoBond and the
Lender desire to set forth herein certain additional requirements (the
"Additional Requirements"). Such additional requirements shall be deemed to
supplement the Credit Agreement and the Security Agreement and shall be of the
same force and effect as though set forth therein.
Section 1. Additional Defined Terms. Except as the context shall
otherwise require, the following terms shall have the following meanings for all
purposes of this Side Agreement (the definitions to be applicable to both the
singular and the plural form of the terms defined, where either such form is
used in this Side Agreement):
"Borrowing Base Deficiency" means, on any date of termination
the excess of Advances outstanding on such Determination Date over the sum of
(a) the aggregate Unpaid Principal Balance of all Specified Sold Auto Loans
other than Excluded Auto Loans and (b) all amounts on deposit in the Loan
Purchase Account and Loan Revenue Account (to the extent allocable to
principal).
"Excluded Auto Loan" means, on any Determination Date, any
Specified Sold Auto Loan (a) as to which a first payment default has occurred,
(b) which is a Defaulted Auto Loan, (c) as to which a claim has been filed under
the VSI Policy (d) as to which the Obligor is bankrupt, (e) as to which the
related Auto has been repossessed and (f) as to which the related Closing Date
is more than 120 days prior to such date of determination.
"Net Worth" means, with respect to AutoBond, on any date of
determination, the excess of total assets over total liabilities (determined in
accordance with GAAP).
<PAGE>
<PAGE>
"Post IPO Equity Value" means the value of the shareholder's
equity (determined in accordance with GAAP following the completion of the
initial public offering).
"Specified Reserve Allocation Percentage" has the
meaning specified in the Security Agreement.
Section 2. Additional Representations and Warranties. In addition
to the representations and warranties set forth in Section 2.3 of the Credit
Agreement, with respect to each Auto Loan, each of AutoBond and the Borrower
represents and warrants to the Lender, as of the Closing Date on which such Auto
Loan becomes a Specified Sold Auto Loan:
(a) the total amount financed by such Auto Loan does
not exceed $40,000;
(b) such Auto Loan was not purchased by AutoBond at a
discount greater than 19%;
(c) the APR for such Auto Loan is not less than 14.5%
per annum; and
(d) the original term of such Auto Loan does not exceed
60 months.
The remedy for any breach of a representation or warranty set forth in this
Section 2 shall be as set forth in Section 2.3(c) of the Credit Agreement.
Section 3. Additional Covenants. In addition to the covenants set
forth in Section 10 of the Credit Agreement with respect to the Borrower and
Section 11 of the Credit Agreement with respect to AutoBond, each of the
Borrower and AutoBond hereby make the following additional covenants, which
shall be determined as of each Determination Date:
(a) no more than 10% of the aggregate Unpaid Principal Balance of
the Specified Sold Auto Loans shall represent Automobiles purchased from Dealers
who are not franchised new car Dealers; provided, however, that neither the
Borrower nor AutoBond shall be deemed to have violated this covenant if the
Borrower and AutoBond cure any violation of the immediately preceding clause
within 30 days of the earlier to occur of (i) the first Determination Date on
which the requirements specified in the immediately preceding clause was
determined to have been breached and (ii) the date on which the Borrower or
AutoBond has actual knowledge that the requirements set forth in the second
preceding clause have been breached;
2
<PAGE>
<PAGE>
(b) the weighted average purchase discount with respect to all
Specified Sold Auto Loans shall not exceed 15% and the weighted average APR
shall not be less than 16% per annum; provided, however, that neither the
Borrower nor AutoBond shall be deemed to have violated this covenant if the
Borrower and AutoBond cure any violation of the immediately preceding clause
within 30 days of the earlier to occur of (i) the first Determination Date on
which the requirements specified in the immediately preceding clause was
determined to have been breached and (ii) the date on which the Borrower or
AutoBond has actual knowledge that the requirements set forth in the second
preceding clause have been breached;
(c) no more than 2% of the aggregate Unpaid Principal Balance of
the Specified Sold Auto Loans shall be in respect of Automobiles with a model
year prior to 1988; provided, however, that neither the Borrower nor AutoBond
shall be deemed to have violated this covenant if the Borrower and AutoBond cure
any violation of the immediately preceding clause within 30 days;
[(d) to their knowledge, there is no Borrowing Base Deficiency;
provided, however, that the Borrower and AutoBond shall not be required to make
such covenant during such time as an Amortization Event has occurred and is
continuing;] and
(e) to calculate the Borrowing Base and determine the existence
or extent of any Borrowing Base Deficiency on each Determination Date and to
provide such information to the Lender in the Monthly Servicer Report.
The remedy for any breach of the covenants set forth in this Section 3 shall be
as provided in Section 13.1(c) of the Credit Agreement.
Section 4. Additional Events of Default. In addition to the
Events of Default set forth in the Credit Agreement, the occurrence of the
following conditions or events shall also constitute an Event of Default:
(a) there is a Borrowing Base Deficiency that continues
unremedied for a period of 5 Business Days following [earlier to occur of actual
knowledge thereof or] the Determination Date on which such Borrowing Base
Deficiency was determined to exist; or
(b) a Change of Control has occurred; or
(c) the Net Worth of AutoBond is less than $2.5 million prior to
the initial public offering or less than 50% of Post IPO Equity Value following
the completion of the initial public offering;
upon the occurrence of any of the foregoing additional Events of
Default, the provisions set forth in Section 13 of the Credit
3
<PAGE>
<PAGE>
Agreement shall apply with the same force and effect as though such additional
Events of Default were set forth therein.
Section 5. Additional Funding Termination Events. In addition to
the Funding Termination Events set forth in the Credit Agreement, the occurrence
of the following conditions or events shall also constitute a Funding
Termination Event:
(a) during such time as the Specified Reserve Allocation
Percentage is 100% or
(b) during such time as a Purchase Termination Event (as such
term is defined in the Loan Acquisition Agreement) has occurred and is
continuing.
Section 6. Certain Definitions. Notwithstanding the requirements
set forth in the Credit Agreement and the Security Agreement, for purposes of
making any calculations or disbursements under, determining the compliance with,
or the occurrence of an Event of Default under the provisions of the Credit
Agreement or the Security Agreement, the following terms shall have the meanings
specified herein:
"Delinquency Ratio" shall mean as of any Determination Date, the
product of (a) the percentage equivalent of a fraction (i) the numerator of
which equals the sum of (A) the aggregate Unpaid Principal Balance of Specified
Sold Auto Loans which have become Defaulted Auto Loans as of the end of the most
recently ended Collection Period minus (B) the sum of the aggregate Unpaid
Principal Balance of (1) all Specified Sold Auto Loans against which insurance
claims have been filed as of the end of the most recently ended Collection
Period and (2) Specified Sold Auto Loans for which the related financed vehicles
are subject to repossession as of the end of the most recently ended Collection
Period and which are not included in (1), and (ii) the denominator of which
equals the aggregate Unpaid Principal Balance of Specified Sold Auto Loans
outstanding as of the end of the most recently ended Collection Period minus the
amount determined pursuant to clause (B) above and (b) 12.
"Net Loss Ratio" shall mean, as of any Determination Date, the
product of (a) the percentage equivalent of a fraction (i) the numerator of
which equals (a) the Net Unrealized Amounts on Auto Loans that became subject to
repossession during the most recently ended Collection Period, plus (b) any
adjustments (which may be positive or negative) to Net Unrealized Amounts from a
prior period and not reflected, and (ii) the denominator of which equals the
average aggregate Unpaid Principal Balance of Auto Loans outstanding during the
most recently ended Collection Period and (b) 12.
4
<PAGE>
<PAGE>
"Reserve Account Required Balance" shall mean, as of any Payment
Date, the greater of (a) $150,000 and (b) the product of (i) the Target Reserve
Percentage and (ii) the aggregate principal amount of all Advances outstanding
as of such Payment Date (after giving effect to any payments to be made on such
Payment Date, if any); provided, however, that in no event shall the Reserve
Account Required Balance be less than $250,000 during such time as any Advance
is outstanding.
"Target Reserve Percentage" shall mean 6%; provided,
that if, as of a Determination Date,
(a) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to
2.75% but less than 4%, the Target Reserve Percentage shall equal
9%;
(b) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to
4%, the Target Reserve Percentage shall equal 12%;
(c) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 4% but equal to or
greater than 2.75%, then the Target Reserve Percentage shall
revert to 9%;
(d) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 2.75%, then the
Target Reserve Percentage shall revert to 6%;
(e) the Delinquency Ratio is greater than or equal to 7% or
the average net loss per Defaulted Auto Loan is greater than or
equal to $3,000, then the Target Reserve Percentage shall equal
9%; and
(f) the average of the Delinquency Ratio over two Collection
Periods is less than 7%, then the Target Reserve Percentage shall
revert to 6%;
(g) there occurs an Event of Collection Agent Termination
with respect to AutoBond under Sections 3.07(c) or (d) of the
Servicing Agreement, then the Target Reserve Percentage shall
equal 10%; and
(h) if the Specified Reserve Allocation Percentage equals
100% or during such time as a Funding Termination Event is
continuing, then the Target Reserve Percentage shall equal 100%.
5
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<PAGE>
Section 7. Miscellaneous.
(a) Governing Law. THIS SIDE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(b) Consent to Jurisdiction and Venue. The Borrower, AutoBond and
the Lenders each hereby irrevocably (i) agrees that any suit, action or other
legal proceeding arising out of or relating to the Program Documents or this
Side Agreement may be brought in a court of record in the State of New York or
in the courts of the United States of America located in such State, (ii)
consents to the jurisdiction of each such court in any such suit, action or
proceeding, and (iii) waives any objection which it may have to the laying of
venue of any such claim that any such suit, action or proceeding has been
brought in an inconvenient forum and covenants that it will not seek to
challenge the jurisdiction of any such court or seek to oust the jurisdiction of
any such court, whether on the basis of inconvenient forum or otherwise. The
Borrower, AutoBond and the Lender each irrevocably consent to the service of any
and all process in any such suit, action or proceeding by mail copies of such
process to the addresses set forth in the Credit Agreement. The Borrower and
AutoBond each agree that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. All mailings under this Section 7(b)
shall be in accordance with the provisions of Section 16.7 of the Credit
Agreement. Nothing in this Section 7(b) shall affect the Lender's right to serve
legal process in any other manner permitted by law or affect the Lender's right
to bring any suit, action or proceeding against the Borrower or any of its
properties in the courts of any other jurisdiction.
(c) No Petition. Each of AutoBond, the Collateral Agent, the
Lender and each Assignee hereby covenant and agree that, until the expiration of
the later of, (i) the date which is one year and one day after the payment in
full of all outstanding Advances, and (ii) the date which is one year and one
day after the payment in full of all investor certificates or other securities
outstanding and issued pursuant to any Disposition, it will not institute
against the Borrower, or join in any institution against the Borrower of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any applicable bankruptcy or similar law in
connection with any obligations relating to the Advances or the Program
Documents.
(d) Counterparts. This Agreement may be executed and delivered
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
6
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IN WITNESS WHEREOF, the parties hereto have caused this Side
Agreement to be duly executed as of the day and year first above written.
AUTOBOND FUNDING CORPORATION II
By: /s/ Adrian Katz
_______________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ William O. Winsauer
_______________________________________
Name:
Title:
PEOPLES SECURITY LIFE INSURANCE COMPANY
By: /s/ Robert A. Smedley
_______________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS
COLLATERAL AGENT
By: /s/ Michael Luger
_______________________________________
Name:
Title:
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Draft of November 5, 1996
AUTOBOND ACCEPTANCE CORPORATION
1996 STOCK OPTION PLAN
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AUTOBOND ACCEPTANCE CORPORATION
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE
1.1 This AutoBond Acceptance Corporation 1996 Stock Option Plan
is intended to advance the interests of the Company and its stockholders and
subsidiaries by attracting, retaining and motivating the performance of selected
directors, officers and employees of the Company of high caliber and potential
upon whose judgment, initiative and effort the Company is largely dependent
for the successful conduct of its business, and to encourage and enable such
directors, officers and employees to acquire and retain a proprietary interest
in the Company by ownership of its stock.
ARTICLE II
DEFINITIONS
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Common Stock" means the Company's Common Stock, no par
value.
2.4 "Committee" means the Compensation Committee appointed by the
Board or any successor committee appointed by the Board to administer the Plan.
2.5 "Company" means AutoBond Acceptance Corporation, a Texas
corporation.
2.6 "Date of Grant" means the date on which an Option becomes
effective in accordance with Section 6.1 hereof.
2.7 "Eligible Person" means any person who is a director, officer
or employee of the Company or any Subsidiary.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.9 "Fair Market Value" means the last reported sales prices of
the Common Stock on the Nasdaq National Market on the date as of which fair
market value is to be determined or, in the absence of any reported sales of
Common Stock on such date, on the first preceding date on which any such sale
shall have been reported. If Common Stock is not listed on the Nasdaq National
Market on the date as of which fair market value is to be determined, the
Committee shall determine in good faith the fair market value in whatever manner
it considers appropriate.
2.10 "Incentive Stock Option" means a stock option granted under
the Plan that is intended to meet the requirements of Section 422 of the Code
and regulations promulgated thereunder.
2.11 "Nonqualified Stock Option" means a stock option granted
under the Plan that is not an Incentive Stock Option.
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2.12 "Option" means an Incentive Stock Option or a Nonqualified
Stock Option granted under the Plan.
2.13 "Optionee" means an Eligible Person to whom an Option has
been granted, which Option has not expired, under the Plan.
2.14 "Option Price" means the price at which each share of Common
Stock subject to an Option may be purchased, determined in accordance with
Section 6.2 hereof.
2.15 "Plan" means this AutoBond Acceptance Corporation 1996 Stock
Option Plan.
2.16 "Stock Option Agreement" means an agreement between the
Company and an Optionee under which the Optionee may purchase Common Stock under
the Plan.
2.17 "Subsidiary" means a subsidiary corporation of the Company,
within the meaning of Section 424(f) of the Code.
2.18 "Ten-Percent Owner" means an Optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
of the total combined voting power of all classes of stock of the Company, its
parent, if any, or any Subsidiary, within the meaning of Sections 422(b)(6) and
424(d) of the Code.
ARTICLE III
ELIGIBILITY
All Eligible Persons are eligible to receive a grant of an Option
under the Plan. The Committee shall, in its sole discretion, determine and
designate from time to time those Eligible Persons who are to be granted an
Option.
ARTICLE IV
ADMINISTRATION
4.1 Committee Members. The Plan shall be administered by a
Committee comprised of no fewer than two persons selected by the Board. Solely
to the extent necessary or advisable to satisfy the requirements of Rule 16b-3
under the Exchange Act, each Committee member shall meet the definition of a
"Non-employee Director" for purposes of such Rule 16b-3.
4.2 Committee Authority. Subject to the express provisions of the
Plan, the Committee shall have the authority, in its discretion, to determine
the Eligible Persons to whom an Option shall be granted, the time or times at
which an Option shall be granted, the number of shares of Common Stock subject
to each Option, the Option Price of the shares subject to each Option and the
time or times when each Option shall become exercisable and the duration of the
exercise period.
Subject to the express provisions of the Plan, the Committee
shall also have discretionary authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the details
and provisions of each Stock Option Agreement, and to make all the
determinations necessary or advisable in the administration of the Plan. All
such actions and determinations by the Committee shall be conclusively binding
for all purposes and upon all persons.
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No Committee member shall be liable for any action or determination made in good
faith with respect to the Plan, any Option or any Stock Option Agreement entered
into hereunder.
4.3 Majority Rule. A majority of the members of the Committee
(or, if less than three, all of the members) shall constitute a quorum, and any
action taken by a majority present at a meeting at which a quorum is present or
any action taken without a meeting evidenced by a writing executed by a majority
of the whole Committee shall constitute the action of the Committee.
4.4 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Eligible Persons,
their employment, or other service to the Company, their death, disability or
other termination of service, and such other pertinent facts as the Committee
may require. The Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Number of Shares. Subject to adjustment pursuant to the
provisions of Section 5.2 hereof, the maximum number of shares of Common Stock
which may be issued and sold hereunder shall be 515,000 shares. Shares of
Common Stock issued and sold under the Plan may be either authorized but
unissued shares or shares held in the Company's treasury. Shares of Common Stock
covered by an Option that shall have been exercised shall not again be available
for an Option grant. If an Option shall terminate for any reason (including,
without limitation, the cancellation of an Option pursuant to Section 6.6
hereof) without being wholly exercised, the number of shares to which such
Option termination relates shall again be available for grant hereunder.
5.2 Antidilution. Subject to Article IX hereof, in the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger or consolidation, or the sale, conveyance, or other transfer by
the Company of all or substantially all of its property, or any other change in
the corporate structure or shares of the Company, pursuant to any of which
events the then outstanding shares of Common Stock are split up or combined, or
are changed into, become exchangeable at the holder's election for, or entitle
the holder thereof to, other shares of stock, or in the case of any other
transaction described in Section 424(a) of the Code, the Committee may change
the number and kind of shares (including by substitution of shares of another
corporation) subject to the Options and/or the Option Price of such shares in
the manner that it shall deem to be equitable and appropriate. In no event may
any such change be made to an Incentive Stock Option which would constitute a
"modification" within the meaning of Section 424(h)(3) of the Code.
ARTICLE VI
OPTIONS
6.1 Grant of Option. An Option may be granted to any Eligible
Person selected by the Committee. The grant of an Option shall first be
effective upon the date it is approved by the Committee, except to the extent
the Committee shall specify a later date upon which the grant of an Option
shall first be effective. Each Option shall be designated, at the discretion of
the Committee, as an Incentive Stock Option or a Nonqualified Stock Option,
provided that Incentive Stock Options may only be granted to Eligible Persons
who are considered employees of the Company or any Subsidiary for purposes of
Section 422 of the Code. The Company and the Optionee shall execute a Stock
Option Agreement which shall set forth such terms and conditions of
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the Option as may be determined by the Committee to be consistent with the Plan,
and which may include additional provisions and restrictions that are not
inconsistent with the Plan.
6.2 Option Price. The Option Price shall be determined by the
Committee; provided, however, that the Option Price shall not be less than 100
percent of the Fair Market Value of a share of Common Stock on the Date of Grant
(subject to Section 7.1 hereof in the case of a Ten- Percent Owner).
6.3 Vesting; Term of Option. Unless otherwise specified by the
Committee in the Stock Option Agreement for an Optionee, an Option shall vest
and become exercisable in cumulative annual installments, each of which shall
relate to one-third of the number of shares of Common Stock originally covered
thereby (adjusted in accordance with Section 5.2 hereof), on the second, third,
fourth and fifth anniversaries of the Date of Grant, respectively, provided that
the Optionee is an Eligible Person on such anniversary. Notwithstanding the
foregoing, the Committee, in its sole discretion, may accelerate the
exercisability of any Option at any time. An Option may become 100 percent
vested and exercisable upon an Optionee's death or disability to the extent
provided in Article VIII hereof. The period during which a vested Option may be
exercised shall be ten years from the Date of Grant (subject to Section 7.1
hereof in the case of a Ten-Percent Owner), unless a shorter exercise period
is specified by the Committee in the Stock Option Agreement for an Optionee.
6.4 Option Exercise; Withholding. An Option may be exercised in
whole or in part at any time, with respect to whole shares only, within the
period permitted for the exercise thereof, and shall be exercised by written
notice of intent to exercise the Option with respect to a specified number of
shares delivered to the Company at its principal office, and payment in full to
the Company at said office of the amount of the Option Price for the number of
shares of the Common Stock with respect to which the Option is then being
exercised. Payment of the Option Price shall be made (i) in cash or by cash
equivalent, (ii) at the discretion of the Committee, in Common Stock (not
subject to limitations on transfer) valued at the Fair Market Value of such
shares on the trading date immediately preceding the date of exercise or (iii)
at the discretion of the Committee, by a combination of such cash and such
Common Stock. In addition to and at the time of payment of the Option Price, the
Optionee shall pay to the Company in cash or, at the discretion of the
Committee, in Common Stock the full amount of all federal and state withholding
and other employment taxes applicable to the taxable income of such Optionee
resulting from such exercise.
6.5 Nontransferability of Option. No Option shall be transferred
by an Optionee other than by will or the laws of descent and distribution. No
transfer of an Option by the Optionee by will or by laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary to establish
the validity of the transfer. During the lifetime of an Optionee, the Option
shall be exercisable only by him, except that, in the case of an Optionee who is
legally incapacitated, the Option shall be exercisable by his guardian or legal
representative.
6.6 Cancellation, Substitution and Amendment of Options. The
Committee shall have the authority to effect, at any time and from time to time,
with the consent of the affected Optionees, (i) the cancellation of any or all
outstanding Options and the grant in substitution therefor of new Options
covering the same or different numbers of shares of Common Stock and having an
Option Price which may be the same as or different than the Option Price of the
cancelled Options or (ii) the amendment of the terms of any and all outstanding
Options.
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ARTICLE VII
INCENTIVE STOCK OPTIONS
7.1 Ten-Percent Owners. Notwithstanding any other provisions of
this Plan to the contrary, in the case of an Incentive Stock Option granted to a
Ten-Percent Owner, (i) the period during which any such Incentive Stock Option
may be exercised shall not be greater than five years from the Date of Grant and
(ii) the Option Price of such Incentive Stock Option shall not be less than 110
percent of the Fair Market Value of a share of Common Stock on the Date of
Grant.
7.2 Annual Limits. No Incentive Stock Option shall be granted to
an Optionee as a result of which the aggregate fair market value (determined as
of the date of grant) of the stock with respect to which incentive stock options
are exercisable for the first time in any calendar year under the Plan, and any
other stock option plans of the Company, any Subsidiary or any parent
corporation, would exceed $100,000, determined in accordance with Section 422(d)
of the Code. This limitation shall be applied by taking options into account in
the order in which granted.
7.3 Disqualifying Dispositions. If shares of Common Stock
acquired by exercise of an Incentive Stock Option are disposed of within two
years following the Date of Grant or one year following the transfer of such
shares to the Optionee upon exercise, the Optionee shall, within 10 days after
such disposition, notify the Company in writing of the date and terms of such
disposition and provide such other information regarding the disposition as the
Committee may reasonably require.
7.4 Other Terms and Conditions. Any Incentive Stock Option
granted hereunder shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as are deemed necessary or desirable
by the Committee, which terms, together with the terms of this Plan, shall be
intended and interpreted to cause such Incentive Stock Option to qualify as an
"incentive stock option" under Section 422 of the Code.
ARTICLE VIII
TERMINATION OF SERVICE
8.1 Death. If an Optionee shall die at any time after the Date of
Grant and while he is an Eligible Person, the executor or administrator of the
estate of the decedent, or the person or persons to whom an Option shall have
been validly transferred in accordance with Section 6.5 hereof pursuant to will
or the laws of descent and distribution, shall have the right, during the period
ending one year after the date of the Optionee's death (subject to Sections 6.3
and 7.1 hereof concerning the maximum term of an Option), to exercise the
Optionee's Option to the extent that it was exercisable at the date of the
Optionee's death and shall not have been previously exercised. The Committee may
determine at or after grant to make any portion of his Option that is not
exercisable at the date of death immediately vested and exercisable.
8.2 Disability. If an Optionee's employment or other service with
the Company or any Subsidiary shall be terminated as a result of his permanent
and total disability (within the meaning of Section 22(e)(3) of the Code) at
any time after the Date of Grant and while he is an Eligible Person, the
Optionee (or in the case of an Optionee who is legally incapacitated, his
guardian or legal representative) shall have the right, during a period ending
one year after the date of his disability (subject to Sections 6.3 and 7.1
hereof concerning the maximum term of an Option), to exercise such Option to
the extent that it was exercisable at the date of such termination of
employment or other service and shall not have been exercised. The Committee
may determine at
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or after grant to make any portion of his Option that is not exercisable at
the date of termination of employment or other service due to disability
immediately vested and exercisable.
8.3 Termination for Cause. If an Optionee's employment or other
service with the Company or any Subsidiary shall be terminated for cause, the
Optionee's right to exercise any unexercised portion of his Option shall
immediately terminate and all rights thereunder shall cease. For purposes of
this Section 8.3, termination for "cause" shall include, but not be limited
to, embezzlement or misappropriation of corporate funds, any acts of dishonesty
resulting in conviction for a felony, misconduct resulting in material injury
to the Company or any Subsidiary, significant activities harmful to the
reputation of the Company or any Subsidiary, a significant violation of
Company or Subsidiary policy, willful refusal to perform, or substantial
disregard of, the duties properly assigned to the Optionee, or a significant
violation of any contractual, statutory or common law duty of loyalty to the
Company or any Subsidiary. The Committee shall have the power to determine
whether the Optionee has been terminated for cause and the date upon which such
termination for cause occurs. Any such determination shall be final, conclusive
and binding upon the Optionee.
8.4 Other Termination of Service. If an Optionee's employment or
other service with the Company or any Subsidiary shall be terminated for any
reason other than death, permanent and total disability or termination for
cause, the Optionee shall have the right, during the period ending 90 days
after such termination (subject to Sections 6.3 and 7.1 hereof concerning the
maximum term of an Option), to exercise such Option to the extent that it was
exercisable at the date of such termination and shall not have been exercised.
For purposes of this Section 8.4, an Optionee shall not be considered to
have terminated employment or other service with the Company or any Subsidiary
until the expiration of the period of any military, sick leave or other bona
fide leave of absence, up to a maximum period of 90 days (or such greater period
during which the Optionee is guaranteed reemployment either by statute or
contract).
ARTICLE IX
CHANGE IN CONTROL
9.1 Change in Control. Upon a "change in control" of the Company
(as defined below), each outstanding Option, to the extent that it shall not
otherwise have become vested, shall become fully and immediately vested (without
regard to any otherwise applicable vesting requirement under Section 6.3 hereof)
and an Optionee shall surrender his Option and receive with respect to each
share of Common Stock issuable under such Option outstanding at such time, a
payment in cash equal to the excess of the Fair Market Value of the Common Stock
at the time of the change in control over the Option Price of the Common Stock;
provided, however, that no such vesting and cash payment shall occur if (i) the
change in control has been approved by at least two-thirds of the members of the
Board who were serving as such immediately prior to such transaction and (ii)
provision has been made in connection with such transaction for (a) the
continuation of the Plan and/or the assumption of such Options by a successor
corporation (or a parent or subsidiary thereof) or (b) the substitution for such
Options of new options covering the stock of a successor corporation (or a
parent or subsidiary thereof), with appropriate adjustments as to the number and
kinds of shares and exercise prices. In the event of any such continuation,
assumption or substitution, the Plan and/or such Options shall continue in the
manner and under the terms so provided.
9.2 Definition. For purposes of Section 9.1 hereof, a "change in
control" of the Company shall mean (i) a merger, consolidation, or
reorganization of the Company with one or more other corporations in which the
Company is not the surviving corporation; (ii) a sale or other transfer of
substantially all of the assets of the Company to another corporation; (iii) any
transaction or series
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of transactions (including, without limitation, a transaction in which the
Company is the surviving corporation) that results in any person or entity
(other than any Subsidiary) becoming owner of more than 50 percent of the
combined voting power of all classes of stock of the Company; (iv) a change
or series of changes in the composition of the Board such that a majority of
its members shall cease to consist of "Continuing Directors" (meaning directors
of the Company who either were directors on the date this Plan is approved
by the Board or who subsequently became directors and whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least two-thirds of the then existing directors); or (v) a dissolution or
liquidation of the Company.
ARTICLE X
STOCK CERTIFICATES
10.1 Issuance of Certificates. Subject to Section 10.2 hereof,
the Company shall issue a stock certificate in the name of the Optionee (or
other person exercising the Option in accordance with the provisions of the
Plan) for the shares of Common Stock purchased by exercise of an Option as soon
as practicable after due exercise and payment of the aggregate Option Price for
such shares. A separate stock certificate or separate stock certificates shall
be issued for any shares of Common Stock purchased pursuant to the exercise of
an Option that is an Incentive Stock Option, which certificate or certificates
shall not include any shares of Common Stock that were purchased pursuant to the
exercise of an Option that is a Nonqualified Stock Option.
10.2 Conditions. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock purchased upon the exercise
of any Option granted hereunder or any portion thereof prior to fulfillment of
all of the following conditions:
(a) The completion of any registration or other qualification of
such shares, under any federal or state law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, that the Committee shall in its sole discretion deem necessary or
advisable;
(b) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable;
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Committee from time to time may establish for
reasons of administrative convenience;
(d) Satisfaction by the Optionee of all applicable withholding
taxes or other withholding liabilities; and
(e) If required by the Committee, in its sole discretion, the
receipt by the Company from an Optionee of (i) a representation in writing that
the shares of Common Stock received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) such other
representations and warranties as are deemed necessary by counsel to the
Company.
10.3 Legends. The Company reserves the right to legend any
certificate for shares of Common Stock, conditioning sales of such shares upon
compliance with applicable federal and state securities laws and regulations.
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ARTICLE XI
EFFECTIVE DATE, TERMINATION AND AMENDMENT
11.1 Effective Date. The Plan shall become effective on the date
of its adoption by the Board; provided, however, that no Option shall be
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company, which approval shall be obtained within 12
months before or after the adoption of the Plan by the Board. If the
stockholders fail to approve the Plan within one year from the Effective Date,
any Options granted hereunder shall be null and void and of no effect.
11.2 Termination. The Plan shall terminate on the date
immediately preceding the tenth anniversary of the earlier of the date the Plan
is adopted by the Board or the date the Plan is approved by the Company's
stockholders. The Board may, in its sole discretion and at any earlier date,
terminate the Plan. Notwithstanding the foregoing, no termination of the Plan
shall in any manner affect any Option theretofore granted without the consent of
the Optionee or the permitted transferee of the Option.
11.3 Amendment. The Board may at any time and from time to time
and in any respect, amend or modify the Plan. Notwithstanding the foregoing, no
amendment or modification of the Plan shall in any manner affect any Option
theretofore granted without the consent of the Optionee or the permitted
transferee of the Option.
ARTICLE XII
MISCELLANEOUS
12.1 Employment or other Service. Nothing in the Plan, in the
grant of any Option or in any Stock Option Agreement shall confer upon any
Eligible Person the right to continue in the capacity in which he is
employed by or otherwise provides services to the Company or any Subsidiary.
Notwithstanding anything contained in the Plan to the contrary, unless
otherwise provided in a Stock Option Agreement, no Option shall be affected
by any change of duties or position of the Optionee (including a transfer to
or from the Company or any Subsidiary), so long as such Optionee continues to
be an Eligible Person.
12.2 Rights as Shareholder. An Optionee or the permitted
transferee of an Option shall have no rights as a shareholder with respect to
any shares subject to such Option prior to the purchase of such shares by
exercise of such Option as provided herein. Nothing contained herein or in the
Stock Option Agreement relating to any Option shall create an obligation on the
part of the Company to repurchase any shares of Common Stock purchased
hereunder.
12.3 Other Compensation and Benefit Plans. The adoption of the
Plan shall not affect any other stock option or incentive or other compensation
plans in effect for the Company or any Subsidiary, nor shall the Plan preclude
the Company from establishing any other forms of incentive or other compensation
for employees of the Company or any Subsidiary. The amount of any compensation
deemed to be received by an Optionee as a result of the exercise of an Option or
the sale of shares received upon such exercise shall not constitute compensation
with respect to which any other employee benefits of such Optionee are
determined, including, without limitation, benefits under any bonus, pension,
profit sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Board or the Committee or provided by the terms
of such plan.
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12.4 Plan Binding on Successors. The Plan shall be binding upon
the Company, its successors and assigns, and the Optionee, his executor,
administrator and permitted transferees.
12.5 Construction and Interpretation. Whenever used herein, nouns
in the singular shall include the plural, and the masculine pronoun shall
include the feminine gender. Headings of Articles and Sections hereof are
inserted for convenience and reference and constitute no part of the Plan.
12.6 Severability. If any provision of the Plan or any Stock
Option Agreement shall be determined to be illegal or unenforceable by any court
of law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
12.7 Governing Law. The validity and construction of this Plan
and of the Stock Option Agreements shall be governed by the laws of the State of
Texas.
------------------------------------
This AutoBond Acceptance Corporation 1996 Stock Option Plan was
duly adopted and approved by the Board of Directors of AutoBond Acceptance
Corporation on the day of , 1996.
--------------------------------------------
Secretary of AutoBond Acceptance Corporation
This AutoBond Acceptance Corporation 1996 Stock Option Plan was
duly approved by the stockholders of this AutoBond Acceptance Corporation on
the day of , 1996.
--------------------------------------------
Secretary of AutoBond Acceptance Corporation
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EXECUTION COPY
AUTOMOBILE LOAN SALE AGREEMENT
THIS AUTOMOBILE LOAN SALE AGREEMENT (this "Agreement") is by and among
First Fidelity Acceptance Corp., a Nevada corporation ("FFAC" or "Originator"),
Greenwich Capital Financial Products, Inc., a Delaware corporation ("GCFP" or
"Seller"), and AutoBond Acceptance Corporation, a Texas corporation ("Buyer"),
and dated as of the 30th day of September, 1996.
W I T N E S S E T H:
WHEREAS, this Agreement governs the sale, transfer and assignment by
Seller to Buyer of automobile retail installment sale contracts and other
incidents thereof in accordance with the terms of this Agreement; and
WHEREAS, each Receivable (hereinafter defined) sold hereunder by Seller
to Buyer was purchased by Seller from Originator and will be subject to the
warranties, representations, covenants and agreements made by Originator herein
and such warranties and representations are made for the benefit of Buyer and
its successors and permitted assignees; and
WHEREAS, Seller desires to sell, transfer and assign to Buyer the
Receivables, together with the security agreement, title certificate and any and
all other security documents, agreements or other instruments relating thereto.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants herein set forth and other good and valuable consideration, and
for reasonably equivalent value, the receipt and sufficiency of which are hereby
acknowledged, Buyer, Originator and Seller hereby agree as follows:
1. DEFINITIONS
The following terms will have the meanings set forth therefor herein:
ADDITIONAL CONSIDERATION has the meaning assigned to such term in
Section 2(c).
ADDITIONAL RECEIVABLES has the meaning assigned to such term in Section
9.
AFFILIATE means any Person owned or controlled by or under common
control with any other Person. For purposes of this definition "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether though the
ownership of voting securities or otherwise.
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AGREEMENT means this Automobile Loan Sale Agreement, and all amendments
hereof and supplements hereto.
ALP INSURANCE POLICIES means the policies issued by Agricultural Excess
and Surplus Insurance Co., a subsidiary of Great American Insurance Companies,
in the forms attached hereto as Exhibit B.
AMOUNT FINANCED means, with respect to a Receivable, the amount advanced
to, or for the benefit of, the related Obligor under the Receivable toward the
purchase price of the Financed Vehicle and any related costs.
ANNUAL PERCENTAGE RATE OR APR of a Receivable means the annual rate of
finance charges stated in the related Receivable.
ASSIGNEE means any special purpose entity formed by Buyer or any of its
Affiliates in connection with a securitization of all or a portion of the
Receivables.
BUSINESS DAY means any day other than a Saturday, a Sunday or a legal
holiday on which banks are not open for regular business in the state of New
York.
CLOSING DATE means September 30, 1996.
CREDIT DEFAULT INSURANCE has the meaning assigned to such term in
Section 2(d).
CUTOFF DATE means September 1, 1996.
DEALER means the dealer who sold a Financed Vehicle and who originated
and assigned the related Receivable to Originator under an existing agreement
between such dealer and Originator.
FINANCED VEHICLE means an automobile or light-duty truck, together with
all accessions thereto, securing an Obligor's indebtedness under the related
Receivable.
GUARANTEE FEE CERTIFICATES has the meaning assigned to such term in
Section 2(c).
INSURANCE PAYMENT has the meaning assigned to such term in Section 2(d).
LEGAL FILES means, with respect to each Receivable, the fully executed
original of such Receivable with fully executed assignment from the related
Dealer to Originator, a fully executed assignment in blank from Originator, with
all intervening assignments showing a complete chain of assignment from the
related Dealer to the Person assigning it to Buyer (each such assignment being
sufficient to transfer all right, title and interest of the party so assigning,
as holder or assignee thereof, in and to such Receivable), the original
certificate of title or the Title Package, or such other documents evidencing
the
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security interest of Norwest on behalf of Originator, or the Originator, as
applicable, in the Financed Vehicle, and evidence of verification of physical
damage insurance coverage and a copy of Obligor's credit application.
LIEN means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable by operation of law as a result of any
act or omission by the related Obligor.
NORWEST means Norwest Bank Minnesota, National Association, a national
banking association.
OBLIGOR on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle and any other Person who owes payments under the Receivable.
PERSON means and includes any individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture, or other entity or government
or any agency or political subdivision thereof, whether acting in an individual,
fiduciary or other capacity.
PRINCIPAL BALANCE of a Receivable, as of any day, means the Amount
Financed minus the portion of all payments made by or on behalf of the related
Obligor on or prior to such day and allocable to principal using the Simple
Interest Method.
PROGRAM GUIDELINES means the First Fidelity Acceptance Corp. Program
Guidelines, a copy of which is attached hereto as Exhibit C.
PURCHASE PRICE means the amount set forth in the separate settlement
schedule agreed to by Seller and Buyer on the date hereof. The parties agree
that such settlement schedule is intended to represent, among other things, the
amount of interest accrued on each Receivable from the last paid to date for
such Receivable as of the close of business on September 25, 1996, to but
excluding the Closing Date. In the event such schedule proves to be inaccurate,
the parties agree to adjust the Purchase Price accordingly.
RECEIVABLE means each retail installment sale contract identified in the
Schedule of Receivables and sold to Buyer hereunder.
RECEIVABLE FILES means, (a) a legible copy of the fully executed
original of the Receivable; (b) the original credit application fully executed
by Obligor; (c) a legible copy of the original certificate of title or such
documents that Originator or any third party servicer shall have kept on file in
accordance with its customary procedures, evidencing the security interest of
Norwest on behalf of Originator, or Originator, as applicable, in the Financed
Vehicle; and (d) any and all other documents that Originator or any third party
servicer shall keep on file, or that Originator shall have previously confirmed
pursuant to its standard document checklist and delivered to such servicer,
relating to a Receivable, an Obligor or a Financed Vehicle.
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RESERVE FUND ACCOUNT has the meaning assigned to such term in Section
2(c).
SCHEDULE OF RECEIVABLES means the Schedule of Receivables attached
hereto as Exhibit A, as such schedule may be amended or supplemented from time
to time up to the Closing Date.
SIMPLE INTEREST METHOD means the method of allocating a fixed level
payment to principal and interest, pursuant to which the portion of such payment
that is allocated to interest is equal to the product of the Annual Percentage
Rate multiplied by the unpaid principal balance divided by 365, such amount
multiplied by the number of days elapsed since the preceding payment of interest
was made and the remainder of such payment is allocable to principal.
TITLE PACKAGE means the application for title to a Financed Vehicle and
a copy of the existing title, lien entry form, letter of guaranty or receipt of
registration, or such other similar documents, as applicable, in each case
noting the lien of either Norwest or the Originator on the Financed Vehicle.
UCC means the Uniform Commercial Code as in effect in the relevant
jurisdiction.
VSI POLICY means the vendors single interest insurance policy issued by
Interstate Fire and Casualty Company, in the form attached hereto as Exhibit D.
2. PURCHASE AND SALE PROVISIONS
(a) Seller agrees to sell to Buyer and Buyer agrees to purchase from
Seller all of Seller's right, title and interest in and to the Receivables and
their related Receivable Files and Legal Files, for the Purchase Price to be
paid to Seller and the Additional Consideration to be paid to Originator, and
subject to the terms and conditions set forth in this Agreement. Buyer and
Seller hereby agree that the purchase of any Receivables will be without
recourse against Seller except as provided herein. Originator and Buyer hereby
agree that Buyer shall have such recourse, rights and remedies against
Originator for breach of any representation, warranty or covenant of Originator
expressly set forth herein. Buyer shall pay to Seller on the Closing Date the
Purchase Price in the form of electronic fund transfer.
The parties hereto intend that the conveyance hereunder be a sale. In
the event that the conveyance hereunder is not for any reason considered a sale,
the parties intend that Seller be deemed to have granted to Buyer a first
priority perfected security interest in, to and under the Receivables, and other
property conveyed hereunder and all proceeds and products of any of the
foregoing and that this Agreement constitute a security agreement under
applicable law.
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(b) In consideration of Buyer's delivery on the Closing Date to or upon
the order of Seller of the Purchase Price with respect to the Receivables,
Seller does hereby sell, transfer, assign, set over and otherwise convey to
Buyer, without recourse, all right, title and interest of Seller in and to:
(i) the Receivables listed on the Schedule of Receivables;
(ii) the security interests in the Financed Vehicles granted
by Obligors pursuant to such Receivables and any other interest of
Seller in such Financed Vehicles;
(iii) any proceeds with respect to such Receivables from
claims on the ALP Insurance Policies, the VSI Policy and any other
physical damage, credit life or disability insurance policies covering
Financed Vehicles or Obligors;
(iv) all of Seller's rights under each existing agreement
with a Dealer and any proceeds with respect to such Receivables from
recourse to Dealers thereon;
(v) any Financed Vehicle that shall have secured any such
Receivable and shall have been acquired by or on behalf of Seller or
Buyer;
(vi) all documents relating to the Receivables, including the
Legal Files and the Receivable Files;
(vii) all collections of principal from the Receivables
received on and after the Cutoff Date and all collections of interest
from the Receivables received on and after September 26, 1996; and
(viii) all proceeds and records (including computer records)
relating to any and all of the foregoing.
(c) In consideration for Originator (x) releasing any retained interest
in the Receivables which it may have, and (y) making the representations and
warranties contained herein and undertaking to perform its obligations
hereunder, Buyer agrees to the following (the "Additional Consideration"):
(i) Buyer shall contribute to Originator, and Originator
shall contribute to AutoBond Funding Corporation 1996-C, a Delaware
corporation, for deposit into a reserve fund (the "Reserve Fund
Deposit") related to the securitization of the Receivables, an amount
equal to 2% of the Principal Balance of the Receivables as of the Cutoff
Date; and
(ii) In connection with Buyer's financing and securitization
of the Receivables, Buyer will grant to Originator the guarantee fee
certificates (the "Guarantee Fee Certificates"), in the form attached
hereto as Exhibit I,
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representing the right to receive the guarantee fee (as described in the
Guarantee Fee Certificates) generated by the Receivables and, including
all amounts released from the Reserve Fund Account relating to the
Receivables, in each case after the B certificate notes for the related
securitization are retired.
(d) On each business day prior to the Closing Date, Buyer shall forward
to Seller a list of Receivables that it has agreed to purchase hereunder. Upon
receipt of such list, Seller shall immediately cause the Legal Files and
Receivable Files with regard to each Receivable included on such list to be
forwarded to Norwest for processing in contemplation of the anticipated
securitization thereof. Seller's obligation to deliver such files shall be
contingent upon the issuance by Norwest to Seller of a trust receipt regarding
each such file it receives stating that Norwest is holding such file in trust
for the benefit of Seller until the Closing Date. In addition, upon receipt of
the foregoing list of Receivables, Seller shall wire transfer to the account of
Buyer in immediately available funds an amount (the "Insurance Payment") equal
to 5 % of the Principal Balance of the Receivables included in such list as of
the date of such list. Buyer shall be obligated to use the Insurance Payment to
purchase credit default insurance ("Credit Default Insurance") with regard to
such Receivables. In the event that Buyer does not enter into a securitization
transaction with the Receivables on the Closing Date, all Legal Files and
Receivable Files shall be immediately returned by Norwest to Seller and Buyer
shall immediately repay to Seller the aggregate amount of all Insurance Payments
paid to Buyer by Seller to purchase Credit Default Insurance pursuant to this
paragraph (d).
3. ASSIGNMENT OF INSURANCE
Seller further hereby sells, assigns, transfers and sets over to Buyer
in connection with the Receivables purchased hereunder all of Seller's interest
under each and every policy or certificate of insurance, if any, to the extent
such relates to the Receivables, together with all pending insurance claims, if
any, and the proceeds thereof, if any, in connection with any of the
Receivables. Originator agrees to use its best efforts to cause Buyer to be
named as an additional named insured under such policies with respect to the
Receivables, and Originator shall notify or cause to be notified the insurance
carriers of this Agreement to cause Buyer to be named as an additional insured
under such policies with respect to the Receivables and Buyer will instruct said
carriers to pay to Buyer any and all funds, unearned premiums, and returned
premium claims due or hereafter to become due to Seller or Originator to the
extent such amounts are received after the Cutoff Date and relate to the
Receivables.
4. REPRESENTATIONS AND WARRANTIES OF ORIGINATOR
(a) Originator makes the following representations and warranties as to
the Receivables on which Buyer is deemed to rely in acquiring the Receivables.
Such representations and warranties speak as of the Closing Date (unless
otherwise indicated) and shall survive the sale of the Receivables to Buyer and
the subsequent transfer and assignment thereof by Buyer to any Assignee.
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(i) Due Organization. Originator is a corporation duly
organized, validly existing and in good standing under the laws of the
state of its incorporation, and it has all requisite corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby.
(ii) Due Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by Originator and no other acts or
proceedings on the part of Originator are necessary to authorize this
Agreement or the transactions contemplated hereby, and this Agreement
constitutes a valid and legally binding obligation of Originator.
(iii) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby,
nor compliance by Originator with the provisions hereof, will violate,
conflict with or result in a breach of, or constitute a default under,
the charter or by-laws of Originator or any instrument or agreement to
which Originator is a party or by which it is bound, any federal or
state statute, or any judicial or administrative decree, order or ruling
applicable to Originator.
(iv) Characteristics of Receivables. Each Receivable (1) was
originated in the United States of America by a Dealer for the retail
sale of a Financed Vehicle in U.S. dollar denominations in the ordinary
course of such Dealer's business, was fully and properly executed by the
parties thereto, was purchased by Originator from such Dealer under an
existing dealer agreement with Originator, and was validly assigned by
such Dealer to Originator in accordance with its terms, (2) has created
a valid, subsisting and enforceable first priority security interest in
favor of either Norwest, on behalf of the Originator, or in favor of
Originator, as applicable, in the Financed Vehicle, which security
interest has been validly assigned by Originator to Seller, and is
assignable by Seller to Buyer and by Buyer to others, (3) contains
customary and enforceable provisions such that the rights and remedies
of the holder thereof are adequate for realization against the
collateral of the benefits of the security, (4) provides for level
monthly payments (provided, that the payment in the first or last month
in the life of the Receivable may be minimally different from the level
payments) that fully amortize the Amount Financed by maturity and yield
interest at the Annual Percentage Rate, and (5) was originated in
accordance with the Program Guidelines unless otherwise agreed to by
Buyer.
(v) Schedule of Receivables. The information set forth in
the Schedule of Receivables is true and correct in all material respects
as of the opening of business on the Cutoff Date, and no selection
procedures believed to be adverse to Buyer were utilized in selecting
the Receivables. The computer tape or other listing regarding the
Receivables made available to Buyer and its assigns is true and correct
in all respects.
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(vi) Compliance with Law. Each Receivable and the sale of the
Financed Vehicle complied at the time it was originated or made and on
the Closing Date complies in all material respects with all requirements
of applicable federal, state and local laws and regulations thereunder,
including without limitation usury laws, the federal Truth-in-Lending
Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act, the Federal Trade Commission
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z and State adaptations of the National Consumer Act
and of the Uniform Consumer Credit Code, and other consumer credit laws
and equal credit opportunity and disclosure laws.
(vii) Binding Obligation. Each Receivable represents the
genuine, legal, valid and binding payment obligation in writing of
Obligor, enforceable by the holder thereof in accordance with its terms.
(viii) No Government, Corporate or Fleet Obligor. None of the
Receivables is due from the United States of America or any state or
from any agency, department or instrumentality of the United States of
America or any state or political subdivision thereof. All of the
Receivables are due from Obligors who are natural persons or, if any
Obligor is not a natural person, (a) such entity is an Obligor with
respect to five or fewer financed vehicles and (b) the related
Receivable or Receivables have the benefit of the personal guaranty of a
natural person or persons. No Receivable has been included in a "fleet"
sale (i.e., a sale to any single Obligor of more than five Financed
Vehicles).
(ix) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment and transfer thereof, each Receivable is secured
by a validly perfected first security interest in the Financed Vehicle
in favor of either Norwest, on behalf of Originator, or the Originator,
as applicable, as secured party or all necessary and appropriate actions
have been commenced that would result in the valid perfection of a first
security interest in the Financed Vehicle in favor of either Norwest, on
behalf of Originator, or Originator, as applicable, as secured party.
Originator and Seller agree to cooperate with Buyer, at Buyer's expense,
in all reasonable actions necessary to evidence the valid perfection of
a first security interest in the Financed Vehicle in favor of Buyer as
secured party upon the reasonable request of Buyer.
(x) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released
from the lien granted by the related Receivable in whole or in part.
(xi) No Waiver. No provision of a Receivable has been
waived.
(xii) No Amendments. No Receivable has been amended such that
the amount of Obligor's scheduled payments has been increased or
decreased except for increases resulting from the inclusion of any fees
and charges resulting
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from the collection or enforcement of the Receivable, to the extent
permitted by law, and premiums for force placed physical damage
insurance covering the Financed Vehicle.
(xiii) No Defenses. No right of rescission, setoff,
counterclaim or defense exists against any Receivable nor has any such
defense been asserted or threatened with respect to any Receivable.
(xiv) No Liens. No liens or claims have been filed for work,
labor or materials relating to a Financed Vehicle that are liens prior
to, or equal to or coordinate with, the security interest in the
Financed Vehicle granted by any Receivable.
(xv) No Default. No default, breach, violation or event
permitting acceleration under the terms of any Receivable has occurred
other than any such default, breach, violation or event which has been
cured; and no continuing condition that with notice or the lapse of time
would constitute a default, breach, violation or event permitting
acceleration under the terms of any Receivable has arisen; and
Originator has not waived any of the foregoing.
(xvi) Insurance. (a) Originator, in accordance with its
customary procedures, has determined that Obligor has obtained physical
damage insurance covering the Financed Vehicle and under the terms of
the Receivable Obligor is required to maintain such insurance, (b) each
Receivable purchased on September 30, 1996 pursuant to the terms hereof
is covered by one of the ALP Insurance Policies and (c) each Receivable
is covered by the VSI Policy.
(xvii) Title. No Receivable has been sold, transferred,
assigned or pledged by Originator to any Person other than Seller,
except for Receivables for which releases of security interests (as such
term is defined in the UCC) have been delivered to Seller. Immediately
prior to the transfer and assignment by Originator to Seller, Originator
had good and marketable title to each Receivable free and clear of all
Liens, encumbrances, security interests and rights of others and,
immediately upon the transfer herein contemplated, Buyer shall have good
and marketable title to each Receivable, free and clear of all Liens,
encumbrances, security interests and rights of others; and the transfer
has been perfected under the UCC. Without limiting the generality of the
foregoing, no Dealer has any right, title or interest in respect of any
Receivable.
(xviii) Lawful Assignment. No Receivable has been originated in,
or is subject to the laws of, any jurisdiction under which the sale,
transfer and assignment of such Receivable or any Receivable under this
Agreement is unlawful, void or voidable.
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(xix) All Filings Made. All filings (including UCC filings)
necessary in any jurisdiction to give Buyer a first perfected ownership
interest in the Receivables shall have been made.
(xx) One Original. There is only one original executed copy
of each Receivable and related Dealer assignment.
(xxi) Simple Interest Receivables. Each Receivable provides
that all allocations of payments with respect to principal and interest,
and the determination of periodic charges and the like, are made using
the Simple Interest Method, based on the actual number of days elapsed
and the actual number of days in the calendar year.
(xxii) No Bankruptcies. Other than as expressly permitted by
the Program Guidelines, no Obligor on any Receivable as of the Cutoff
Date was noted in the related Receivable File as having filed for
bankruptcy.
(xxiii) No Repossessions. No Financed Vehicle securing any
Receivable is in repossession status.
(xxiv) Chattel Paper. Each Receivable constitutes "chattel
paper" as defined in the UCC.
(xxv) Receivables Representation as of September 25, 1996. No
Receivable has, as of the close of business on September 25, 1996, been
assigned by any third party servicer for repossession due to default,
insurance claim (including physical damage resulting in total loss of
the related Financed Vehicle), bankruptcy or for being 59 days or more
delinquent.
(xxvi) Additional Representations and Warranties. In addition
to the foregoing, Originator represents and warrants that:
(1) the down payment described in the Receivable was
paid to the related Dealer in the manner stated
therein;
(2) the Financed Vehicle securing the Obligor's
obligation to pay under the related Receivable has
been delivered to and accepted by the Obligor;
(3) each Receivable has been entered into by the
related Dealer pursuant to Originator's standard form
of dealer agreement, copies of which have previously
been furnished to Buyer;
(4) the dealer agreements relating to the Receivables
are in effect and the Originator's rights thereunder
with regard to the
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Receivables have been validly assigned to the Seller,
and are enforceable against the related Dealer by the
Originator or its assignee, along with any other
rights of recourse which the Originator has against
the related Dealer, without prejudice to any rights
(A) Seller may have against Originator and (B)
Originator may have against the related Dealer with
regard to receivables that are not being sold hereby;
(5) this Agreement and the related Bill of Sale
constitutes a valid sale, transfer, assignment,
set-over and conveyance to Buyer of all right, title
and interest of Originator in and to such Receivables
now existing and hereafter created, and upon its
receipt of such Receivables and payment of the
Purchase Price and the Additional Consideration, Buyer
will have title to such Receivables free and clear of
any adverse claim relating to Originator;
(6) there are no procedures or investigations pending
or, to the best of Originator's knowledge, threatened
before any governmental authority (A) asserting the
invalidity of such Receivables or (B) seeking a
determination or ruling that might materially and
adversely affect the validity or enforceability of
such Receivables;
(7) Originator has duly fulfilled all obligations on
its part to be fulfilled under or in connection with
such Receivables and has done nothing to impair the
rights of Buyer in such Receivables or the rights of
Buyer in the proceeds with respect thereto;
(8) the Bill of Sale has been duly executed and
delivered by Originator;
(9) the residence of the related Obligor is located
within the borders of the United States of America;
(10) there is only one original of each of the
Receivables, which has been delivered to Norwest;
(11) each Receivable satisfies the following criteria:
(A) the total amount financed by such Receivable does
not exceed $40,000, (B) such Receivable was not
purchased by the Originator at a discount greater than
19%, (C) the APR for such Receivable is not less than
14.5 % per annum, (E) the original term to maturity of
such Receivable does not exceed 60 months, (F) such
Receivable has not less than 12 monthly
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payments annually scheduled at origination, and (G)
such Receivable shall not have an original maturity
date later than March 15, 2002;
(12) no extension shall have been granted on any
Receivable to beyond June 15, 2002;
(13) No Insolvency. Originator has not transferred and
will not transfer any property or incurred any
obligation hereunder with the intent to hinder, delay
or defraud any Person. Originator is not insolvent nor
does it expect to become insolvent as a result of this
Agreement. Originator is not engaged in nor does it
expect to engage in a business for which its remaining
property represents an unreasonably small
capitalization. Originator does not intend to incur
nor does it believe that it will incur indebtedness
that it will not be able to repay at its maturity; and
(14) Reasonably Equivalent Value. In exchange for the
Receivables, Originator has received the Purchase
Price, as set forth in the Purchase Price Letter (each
as defined in the Sale and Servicing Agreement) for
its sale of the Receivables to Seller. In addition, in
exchange for the Reserve Fund Deposit and its
undertakings hereunder, Originator will receive the
Additional Consideration, including the right to
amounts released from the securitization of the
Receivables pursuant to the Guarantee Fee Certificate.
In such case, such transfers will bring Originator
reasonably equivalent value for its sale of the
Receivables and its Reserve Fund Deposit.
(b) In the event of a breach of any of the foregoing warranties and
representations that has a material and adverse affect on the interests of Buyer
or its Assignee in and as to such Receivable, and Originator does not cure such
breach to the satisfaction of Buyer within 30 days of notice by Buyer or its
Assignee of such breach, Originator will, upon Buyer's demand, immediately
repurchase such Receivable for an amount equal to the unpaid balance owing on
said Receivable plus interest owing on such Receivable to the date of
repurchase, provided, however, Originator will pay interest owing on such
Receivable to the end of the month of repurchase if so required by a
securitization to which an Assignee is a party. Originator further agrees to
reimburse Buyer and Seller for any and all reasonable and customary
out-of-pocket costs, including reasonable attorneys' fees, that Buyer or Seller
may sustain as a result of Originator's breach of any warranty or representation
herein.
The right to require Originator to repurchase Receivables hereunder, the
right of reimbursement described above and the indemnity set forth in Section 15
hereof shall be the sole and exclusive remedies of Buyer and Seller with respect
to the breach of the representations and warranties of Originator set forth in
this Agreement.
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5. REPRESENTATIONS AND WARRANTIES OF BUYER
1) Buyer represents and warrants to Seller and Originator as follows:
2) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and it has all
requisite corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby.
3) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
Buyer and no other acts or proceedings on the part of Buyer are necessary to
authorize this Agreement or the transactions contemplated hereby, and this
Agreement constitutes a valid and legally binding obligation of Buyer.
4) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by Buyer
with the provisions hereof, will violate, conflict with or result in a breach
of, or constitute a default under, the charter or by-laws of Buyer or any
instrument or agreement to which Buyer is a party or by which it is bound, any
federal or state statute, or any judicial or administrative decree, order or
ruling applicable to Buyer.
5) Buyer has purchased Credit Default Insurance with respect to the
Receivables pursuant to the terms of Section 2(d) hereof.
6. REPRESENTATIONS AND WARRANTIES OF SELLER
(a) Seller represents and warrants to Buyer and Originator as
follows:
(i) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation,
and it has all requisite corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by Seller and no other acts or proceedings on the
part of Seller are necessary to authorize this Agreement or the
transactions contemplated hereby, and this Agreement constitutes a valid
and legally binding obligation of Seller.
(iii) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby, nor compliance
by Seller with the provisions hereof, will violate, conflict with or
result in a breach of, or constitute a default under, the charter or
by-laws of Seller or any instrument or agreement to which Seller is a
party or by which it is bound, any federal or state
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statute, or any judicial or administrative decree, order or ruling
applicable to Seller.
(iv) Seller is the legal and beneficial owner of the
Receivables being assigned by it hereunder and such Receivables are
being transferred to Buyer free and clear of any Lien, security interest
or other adverse claim.
(v) No Receivable has, as of September 25, 1996, been
assigned by any third party servicer for repossession due to default,
insurance claim (including physical damage resulting in total loss of
the related Financed Vehicle), bankruptcy or for being 59 days or more
delinquent.
(b) In the event of a breach of any warranty and representation set
forth in Section 6(a)(iv) or 6(a)(v), if Buyer is required to repurchase such
Receivable pursuant to the securitization contemplated herein as a result of
such breach of such representation and warranty. Seller will, upon Buyer's
demand, immediately repurchase such Receivable for an amount equal to the
Purchase Price net of the related Insurance Payment for such Receivable,
provided, however, Seller will only be obligated to repurchase a Receivable
pursuant to this provision if it receives notice of such breach within sixty
(60) days following the Closing Date. Such notice shall be provided by Buyer to
Seller promptly upon receipt of notice in connection with such securitization.
7. COVENANTS OF ORIGINATOR
Originator covenants as follows:
(a) On and after the Closing Date and upon request of Buyer,
Originator will do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such acts, assignments, releases, powers
of attorney, or other instruments and assurances as Buyer may reasonably request
and provide for the purpose of more fully effectuating the assignment, transfer
and conveyance to Buyer, including, at Buyer's expense, cooperating with Buyer
to cause Buyer instead of Originator to be listed as the sole lienholder on each
certificate of title representing a Financed Vehicle, provided that in no event
shall Originator be obligated to aid or assist Buyer in the collection of the
Receivables or related assets.
(b) All sums received by or on behalf of Originator in payment of
obligations represented by the Receivables after the Cutoff Date shall be
received for the account of Buyer and shall be promptly paid over to Buyer by
Originator (or by any servicing agent on behalf of Originator); provided,
however, that Buyer shall promptly reimburse Originator (or the servicing agent,
as applicable) in full for any amounts paid to Buyer by Originator on or after
the Cutoff Date in respect of which a check drawn by or on behalf of any Obligor
under a Receivable is returned due to insufficient funds.
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(c) Originator will cause the current servicer to cooperate in
all respects with Buyer in the transfer of servicing of the Receivables to Buyer
or Buyer's designee.
8. COVENANTS OF SELLER
Seller covenants as follows:
(a) On and after the Closing Date and upon request of Buyer,
Seller will do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such acts, assignments, releases, powers of
attorney, or other instruments and assurances as Buyer may reasonably request
and provide for the purpose of more fully effectuating the assignment, transfer
and conveyance to Buyer, including, at Buyer expense, cooperating with Buyer to
cause Buyer instead of Originator to be listed as the sole lienholder on each
certificate of title representing a Financed Vehicle, provided that in no event
shall Seller be obligated to aid or assist Buyer in the collection of the
Receivables or related assets.
(b) All sums received by or on behalf of Seller in payment of
obligations represented by the Receivables after the Cutoff Date shall be
received for the account of Buyer and shall be promptly paid over to Buyer by
Seller (or by any servicing agent on behalf of Seller); provided, however, that
Buyer shall promptly reimburse Seller (or the servicing agent, as applicable) in
full for any amounts paid to Buyer by Seller on or after the Cutoff Date in
respect of which a check drawn by or on behalf of any Obligor under a Receivable
is returned due to insufficient funds.
9. COVENANTS OF BUYER
Buyer covenants as follows:
(a) Buyer will place additional VSI Insurance Policies on each
Receivable simultaneous with Buyer's purchase from Seller.
(b) Buyer will appoint, or cause to be appointed, an experienced
servicer to service the Receivables with commercially acceptable reasonable
care, using the same degree of skill and attention that such an experienced
servicer would be expected to exercise for comparable automobile receivables.
(c) Buyer will cause such servicer to notify Originator upon
repossession of a Financed Vehicle. Upon expiration of Obligor's right to
redeem, Originator shall have the right to purchase the related Receivable by
delivery to the servicer within three business days payment in the amount of the
outstanding Principal Balance of the Receivable, plus accrued interest to the
date of payment together with accrued late charges and out-of-pocket
repossession fees.
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(d) Buyer will purchase from Seller, on the same terms and
conditions as the Receivables purchased hereunder, all of the additional
receivables listed on Exhibit H hereto and approximately 80% of the 813
additional receivables listed on Exhibit G hereto (collectively, the "Additional
Receivables"), subject to Buyer's ability to finance such purchase pursuant to
commercially reasonable warehouse facilities, including but not limited to
Buyer's present warehouse facilities or a warehouse facility with Seller on
terms substantially similar to Buyer's present warehouse facilities. Such
purchase will occur on or before October 10, 1996. Buyer expressly acknowledges
that the foregoing commitment to purchase the Additional Receivables constitutes
an inducement and consideration for Originator entering into this Agreement.
10. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligation of Buyer to complete the purchase of the Receivables
pursuant to this Agreement is subject to the fulfillment prior to or on the
Closing Date of each of the following conditions except as may be specifically
waived in writing by Buyer:
(a) The representations and warranties of Seller and Originator
set forth in this Agreement shall be true at and as if made on Closing Date;
(b) Seller shall have delivered to Buyer the Receivables and
executed and delivered to Buyer a Bill of Sale relating to the Receivables,
substantially in the form of Exhibit "E";
(c) Seller and Originator shall have executed and delivered to
Buyer Limited Powers of Attorney, substantially in the form of Exhibits "F-1"
and "F-2", respectively;
(d) Buyer will have received satisfactory approval from Fitch
Investors Service, Inc. and Moody's Investors Service (collectively, the "Rating
Agencies") of the inclusion of the Receivables in a securitization to be rated
by the Rating Agencies and purchased by the Investor;
(e) Buyer will have received an irrevocable instruction letter
from Originator regarding the VSI Policy and the ALP Insurance Policies
applicable to the Receivables purchased by Buyer, and application will have been
made by Originator for Buyer to be named as an additional insured on such
policies.
(f) Buyer shall have simultaneously closed the securitization of
the Receivables on the Closing Date on terms and conditions acceptable to Buyer
and Seller and shall have used a portion of the net proceeds from such
securitization to pay the Purchase Price for the Receivables.
11. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
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<PAGE>
The obligation of Seller to complete the sale of the Receivables
pursuant to this Agreement is subject to fulfillment prior to or on the Closing
Date of each of the following conditions except as may be specifically waived in
writing by Seller:
(a) receipt of the Purchase Price,
(b) the representations and warranties of Buyer set forth in this
Agreement being true at and as if made on the Closing Date,
(c) the purchase by Buyer of Credit Default Insurance with
respect to the Receivables pursuant to Section 2(d) hereof, and
(d) the retention of the Insurance Reserve Account, as defined
pursuant to the terms of the Amended and Restated Sale and Servicing Agreement,
dated April 30, 1996 by and among Seller, Originator and American Lenders
Facilities, Inc., pending the sale to Buyer of the Additional Receivables and
the repurchase of any remaining receivables from Seller by Originator.
12. NO BROKERS
Seller, Buyer and Originator represent and warrant to each other that
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by each directly with the other or by their
respective employees and/or attorneys, without the intervention of any other
person in such a manner as might give rise to a claim for a brokerage
commission, finder's fee, adviser's fee or like payment.
13. COSTS AND EXPENSES
Buyer, Seller and Originator shall each bear their individual costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees and disbursements of
their respective legal counsel, accountants and other representatives, without
recourse, right of offset or other claim against the other for such costs and
expenses. Seller shall be responsible for all expenses relating to the servicing
and subservicing of the Receivables up to and including September 25, 1996 in
accordance with the provisions of the Amended and Restated Sale and Servicing
Agreement dated as of April 30, 1996 (the "Sale and Servicing Agreement") among
the Seller, as purchaser, the Originator, as seller, and American Lenders
Facilities, Inc., as servicer, and Buyer shall be responsible for all expenses
relating to the servicing and subservicing of the Receivables on and after
September 26, 1996 in accordance with the provisoes of the Sale and Servicing
Agreement.
14. NON-CIRCUMVENTION
For a period of two years from the date hereof, Buyer agrees that it
will not enter into a transaction with or involving Originator, and Originator
agrees that it will not
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<PAGE>
enter into a transaction with or involving Buyer, unless such transaction is
arranged by Seller on terms acceptable to all parties.
15. INDEMNITY BY ORIGINATOR
In the event of the breach by Originator of any representation,
warranty, covenant or agreement made by it herein, Originator agrees to defend,
indemnify, and hold harmless Buyer and its respective parents, subsidiaries,
employees, agents and representatives, for the payment of any and all
liabilities, judgments, costs, or expenses incurred by Buyer by reason of such
event.
After Buyer has been served with a complaint in a legal proceeding as to
which Originator would be liable to Buyer under the provisions of this
Agreement, Buyer shall give written notice to Originator in the manner
prescribed in Section 18 hereof. Notwithstanding the right to indemnification
hereunder, Buyer shall have the right to participate in the conduct and defense
of such legal proceeding, including without limitation the right to decide
whether such proceeding should be compromised, settled, or continued. No
indemnification shall be provided under this Agreement with respect to any claim
as to which notice is not timely delivered to Originator to the extent that
Originator suffered actual damages because of the failure to receive timely
notice, or with respect to the settlement or compromise of any claim that has
been entered into by Buyer without the written approval of Originator. Further,
any indemnification hereunder shall be limited by the amount of any tendered
offer of settlement or compromise dispositive of all issues and parties which,
subject only to Buyer's written approval, the Originator commits in writing to
accept and Buyer fails to timely provide its written approval.
16. INDEMNITY BY BUYER
In the event of (i) any representation or warranty by Buyer in this
Agreement being untrue or incorrect in any respect when made or deemed made, or
(ii) the breach by Buyer of any covenant or agreement made by it herein, Buyer
agrees to defend, indemnify, and hold harmless Seller and Originator and their
respective parents, subsidiaries, employees, agents and representatives, for the
payment of any and all liabilities, judgments, costs, or expenses incurred by
Seller and/or Originator, as applicable, by reason of such event.
After Seller and/or Originator has been served with a complaint in a
legal proceeding as to which Buyer would be liable to Seller or Originator under
the provisions of this Agreement, Seller and/or Originator, as applicable, shall
give written notice to Buyer in the manner prescribed in Section 18 hereof.
Notwithstanding the right to indemnification hereunder, Seller and/or
Originator, as applicable, shall have the right to participate in the conduct
and defense of such legal proceeding, including without limitation the right to
decide whether such proceeding should be compromised, settled, or continued. No
indemnification shall be provided under this Agreement with respect to any claim
as to which notice is not timely delivered to Buyer to the extent that Buyer
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<PAGE>
suffers actual damages because of the failure to receive timely notice, or with
respect to the settlement or compromise of any claim that has been entered into
by Seller and/or Originator, as applicable, without the written approval of
Buyer. Further, any indemnification hereunder shall be limited by the amount of
any tendered offer of settlement or compromise dispositive of all issues and
parties which, subject only to Seller's and/or Originator's, as applicable,
written approval, Buyer commits in writing to accept and Seller and/or
Originator, as applicable, fails to timely provide its written approval.
17. CONFIDENTIALITY
In connection with the purchase and sale contemplated by this Agreement,
each party further agrees that neither it nor its respective affiliates,
employees, agents or representatives will divulge or disclose, directly or
indirectly, any information, knowledge or data concerning the Receivables and/or
any information provided to it pursuant to this Agreement, other than
information which has been previously published or otherwise made available to
the general public, or as may be required by law or regulation. Buyer shall be
entitled to make customary disclosures regarding the Receivables in its private
placement memorandum and otherwise in connection with the securitization of the
Receivables, provided, however, that any disclosure relating specifically to
Buyer or Originator must first be approved in writing by such party.
18. NOTICES
All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been duly given if delivered or mailed first
class, postage prepaid:
(i) If to Buyer, to: AutoBond Acceptance Corporation
1301 Congress Avenue, 9th floor
Austin, TX 78701
Attn: Adrian Katz
or to Buyer at such other address Buyer shall have furnished in writing
to Seller and Originator;
(ii) If to Seller, to: Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, CT 06830
Attn: General Counsel
or to Seller at such other address as Seller shall have furnished in
writing to Buyer and Originator; and
(iii) If to Originator,
to: First Fidelity Acceptance Corp.
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<PAGE>
4975 Preston Park Boulevard
Suite 400
Plano, TX 75093
Attn: Richard J. Tucker
or to Originator at such other address as Originator shall have
furnished in writing to Buyer and Seller.
19. SPECIFIC PERFORMANCE
Buyer, Seller and Originator recognize that each would be irreparably
damaged in the event this Agreement is not specifically enforced and, therefore,
agree that in the event of any controversy concerning any right or obligation
under this Agreement such right or obligation shall be enforceable in a court of
equity by a decree of specific performance, which remedy, however, shall be
cumulative and not exclusive and in addition to any other remedy at law or
equity which the parties may have.
20. ENTIRE AGREEMENT
This Agreement and all documents delivered on or after the date hereof
in connection herewith constitute the entire agreement between the parties. No
modification or variation of this Agreement shall be deemed valid unless made in
writing and signed by Buyer, Originator and Seller. No discharge of any term,
condition or obligation under this Agreement shall be deemed valid unless the
result of full performance by the parties required to render such performance,
or unless such discharge or waiver is granted by a writing signed by the party
or parties entitled to the performance of such term, condition or obligation.
21. WAIVERS
A waiver of any term, condition or obligation under this Agreement by
any party shall not be construed as a waiver by such party of any other term,
condition or obligation under this Agreement nor shall a waiver of any breach of
a term, condition or obligation constitute a waiver of any subsequent breach of
the same term, condition or obligation or of any right consequent thereof.
22. SEVERABILITY
If any term, condition or obligation under this Agreement shall be or
become for any reason wholly or partly invalid or unenforceable, such term,
condition or obligation shall be enforced to the extent to which it is legal and
valid and the remaining terms, conditions and obligations shall continue to be
valid and enforceable and shall be enforced, unless such enforcement is in
manifest violation of the present intention of the parties reflected in this
Agreement.
23. COUNTERPARTS
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This Agreement may be executed in one or more counterparts, each of
which shall be an original but all of which shall be deemed to be one and the
same instrument.
24. ASSIGNMENT; SUCCESSORS AND ASSIGNS
This Agreement may not be assigned by Originator without the prior
written consent of Buyer. All rights, title and interest may be assigned by
Buyer to any Assignee upon written notification to Seller and Originator,
provided that such Assignee is an affiliate of Buyer and that such assignment is
for use in the securitization transaction as discussed herein.
25. BUYER TO PROVIDE INFORMATION: FURTHER ASSURANCES
Buyer agrees to provide to Seller and Originator, on a monthly basis,
the following information: (i) each Receivable paid off or charged off during
the immediately preceding calendar month, the date of pay-off or charge-off and
the principal balance at the date of chargeoff; (ii) the principal balance of
each Receivable remaining outstanding at the conclusion of the immediately
preceding calendar month; (iii) such other information relating to loss,
expense, delinquency, prepayment and other data relating to the Receivables as
is customarily reported on a securitized pool of receivables similar to the
Receivables; and (iv) such information relating to distributions of the
Guarantee Fee referred to in Section 2(c)(ii) as is customarily reported for
similar securities. Each of Seller and Originator agrees to make, execute and
deliver to Buyer and Buyer agrees to make, execute and deliver to Seller and
Originator, on request, all such other further instruments, papers, and
documents as may be reasonably required to carry out any of the provisions of
this Agreement.
26. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, Originator, Seller and Buyer have duly
executed this Agreement as of the date first above written.
FIRST FIDELITY ACCEPTANCE CORP., Originator
By: /s/ Richard Tucker
_______________________________________________
Name:
Title:
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC., Seller
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By: /s/ Thomas Kaplan
______________________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION, Buyer
By: /s/ Adrian Katz
_______________________________________________
Name:
Title:
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<PAGE>
EXHIBIT "A"
SCHEDULE OF RECEIVABLES
A-1
<PAGE>
<PAGE>
EXHIBIT "B"
ALP INSURANCE POLICIES
B-1
<PAGE>
<PAGE>
EXHIBIT "C"
(PROGRAM GUIDELINES)
C-1
<PAGE>
<PAGE>
EXHIBIT "D"
VSI POLICY
D-1
<PAGE>
<PAGE>
EXHIBIT "E"
BILL OF SALE AND ASSIGNMENT OF RECEIVABLES
IN CONSIDERATION OF good and valuable consideration, the receipt of
which is hereby acknowledged, and pursuant to and in furtherance of a certain
Automobile Loan Sale Agreement dated September 30, 1996, (the "Agreement") by
and among First Fidelity Acceptance Corp., a Nevada corporation, Greenwich
Capital Financial Products, Inc. (hereinafter called "Seller"), a Delaware
corporation, and AutoBond Acceptance Corporation (hereinafter called "Buyer"), a
Texas corporation. Seller does hereby grant, bargain, sell, assign, convey and
transfer to, and vest in Buyer, its successors and assigns, without recourse,
representation or warranty, all of Seller's right, title and interest (legal and
or equitable) in and to the following described property and assets, all in
accordance with the terms and provisions of said Agreement:
(1) the Receivables listed on the Schedule of Receivables, and
all moneys received thereon on and after the Cutoff Date;
(2) the security interests in the Financed Vehicles granted by
Obligors pursuant to such Receivables and any other interest of Seller
in such Financed Vehicles;
(3) any proceeds with respect to such Receivables from claims on
the ALP Insurance Policies, the VSI Policy and any other physical
damage, credit life or disability insurance policies covering Financed
Vehicles or Obligors;
(4) any proceeds with respect to such Receivables from recourse
to Dealers thereon;
(5) any Financed Vehicle that shall have secured any such
Receivable and shall have been acquired by or on behalf of Seller or
Buyer; and
(6) the proceeds of any and all of the foregoing.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Agreement.
E-1
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Seller has caused this instrument to be duly
executed this 30th day of September, 1996, and the seal of the corporation to be
affixed hereto.
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC., Seller
Attest: By_______________________________________
Name:____________________________________
__________________________________ Title:___________________________________
Its:____________________ Secretary
E-2
<PAGE>
<PAGE>
EXHIBIT "E" - CONTINUED
BILL OF SALE AND ASSIGNMENT OF RECEIVABLES
STATE OF )
)
COUNTY OF )
On, ___________ __, 1996, before me, a Notary Public in and for said
County and State, personally appeared ______________ and ________________, known
to me to be the __________ and __________, respectively, of __________, and
known to me to be the persons who executed the within instrument on behalf of
the said corporation pursuant to its by-laws or a resolution of its Board of
Directors.
WITNESS my hand and official seal.
_________________________________________
Notary Public
My Commission expires: ________________
E-3
<PAGE>
<PAGE>
EXHIBIT "F-1"
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, pursuant to Section 10(c) of a certain
Automobile Loan Sale Agreement dated September 30, 1996, (the "Agreement") by
and among First Fidelity Acceptance Corp., a Nevada corporation, Greenwich
Capital Financial Products, Inc., a Delaware corporation herein termed the
"Principal", and AutoBond Acceptance Corporation, a Texas corporation herein
termed the "Attorney", the undersigned Principal does hereby constitute and
appoint the Attorney, its successors and assigns, as the true and lawful
attorney-in-fact of the Principal and with full power by an instrument in
writing to appoint a substitute or substitutes, to demand, reduce to possession,
collect, receive, receipt for, endorse, compromise, settle or assign without
recourse any and all indebtedness, notes, commercial paper, promises to pay,
retail installment sales contracts, chattel paper, instruments, choses in action
and other obligations described in Exhibit "A" to the Bill of Sale and
Assignment of Receivables dated September 30, 1996 from the Principal to the
Attorney, herein termed the "Receivables", together with all monies due or to
become due under said Receivables after the Cutoff Date, proceeds from any
recourse to dealers and proceeds from claims on any insurance policies relating
to such Receivables and any and all claims, choses in action, and rights and
causes of action relating thereto, including without limitation any and all
personal property, security instruments and insurance policies held as security
for said Receivables, and all other property of every kind identified in said
Exhibit "A"; to cancel or release the Receivables and release any security, in
whole or in part and in connection therewith to execute, acknowledge or handle
proper discharges, releases, satisfactions or other instruments in writing which
may become necessary in order to carry the foregoing powers into effect, the
Principal hereby ratifying and confirming all acts and things lawfully and
reasonably done by the Attorney or its substitute or substitutes in pursuance of
the authority herein granted.
This Limited Power of Attorney shall terminate six months after the
final scheduled maturity date of the Receivables.
IN WITNESS WHEREOF, the Principal has executed this instrument this 30th
day of September, 1996.
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC., Seller
Attest: By_______________________________________
Name:____________________________________
__________________________________ Title:___________________________________
Its:____________________ Secretary
F-1-1
<PAGE>
<PAGE>
EXHIBIT "F-1" - CONTINUED
LIMITED POWER OF ATTORNEY
STATE OF )
)
COUNTY OF )
On, ___________ __, 1996, before me, a Notary Public in and for said
County and State, personally appeared ______________ and ________________, known
to me to be the __________ and __________, respectively, of __________, and
known to me to be the persons who executed the within instrument on behalf of
the said corporation pursuant to its by-laws or a resolution of its Board of
Directors.
WITNESS my hand and official seal.
_________________________________________
Notary Public
My Commission expires: ________________
F-1-2
<PAGE>
<PAGE>
EXHIBIT "F-2"
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, pursuant to Section 10(c) of a certain
Automobile Loan Sale Agreement dated September 30, 1996, among FIRST FIDELITY
ACCEPTANCE CORP., a Nevada corporation, herein termed (the "Principal'),
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation herein termed
the "Seller", and AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation herein
termed the "Attorney", the undersigned Principal does hereby constitute and
appoint the Attorney, its successors and assigns, as the true and lawful
attorney-in-fact of the Principal and with full power by an instrument in
writing to appoint, upon notice to the Principal, a substitute or substitutes,
to demand, reduce to possession, collect, receive, receipt for, endorse,
compromise, settle or assign without recourse any and all indebtedness, notes,
commercial paper, promises to pay, retail installment sale contracts, chattel
paper, instruments, choses in action and other obligations described in Exhibit
"A" to that certain Bill of Sale and Assignment of Receivables dated September
30, 1996, from Seller to the Attorney, herein termed the "Receivables", together
with all monies due or to become due under said Receivables, and any and all
claims, choses in action, and rights and causes of action relating thereto,
including without limitation any and all personal property, security instruments
and insurance policies held as security for said Receivables, and all other
property of every kind identified in said Exhibit "A"; to cancel or release the
Receivables and release any security, in whole or in part and in connection
therewith to execute, acknowledge or handle proper discharges, releases,
satisfactions, certificates of title, other lien certificates or other
instruments in writing which may become necessary in order to carry the
foregoing powers into effect, the Principal hereby ratifying and confirming all
acts and things lawfully and reasonably done by the Attorney or its substitute
or substitutes in pursuance of the authority herein granted.
IN WITNESS WHEREOF, the Principal has executed this instrument 30th day
of September, 1996.
Attest: FIRST FIDELITY ACCEPTANCE CORP.
________________________ By: _____________________________________
Its: ___________Secretary Its: ______________________President
F-2-1
<PAGE>
<PAGE>
EXHIBIT "F-2" - CONTINUED
LIMITED POWER OF ATTORNEY
STATE OF )
)
COUNTY OF )
On, ___________ __, 1996, before me, a Notary Public in and for said
County and State, personally appeared ______________ and ________________, known
to me to be the __________ and __________, respectively, of __________, and
known to me to be the persons who executed the within instrument on behalf of
the said corporation pursuant to its by-laws or a resolution of its Board of
Directors.
WITNESS my hand and official seal.
_________________________________________
Notary Public
My Commission expires: ________________
F-2-2
<PAGE>
<PAGE>
EXHIBIT "G"
SCHEDULE OF CERTAIN ADDITIONAL RECEIVABLES
G-1
<PAGE>
<PAGE>
EXHIBIT "H"
SCHEDULE OF CERTAIN ADDITIONAL RECEIVABLES
H-1
<PAGE>
<PAGE>
EXHIBIT "I"
FORM OF GUARANTEE FEE CERTIFICATE
I-1
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Amendment No.
5 to Form S-1 (File No. 333-05359) of our report dated May 1, 1996, on our
audits of the consolidated financial statements and financial statement schedule
of AutoBond Acceptance Corporation. We also consent to the reference to our firm
under the caption 'Experts.'
COOPERS & LYBRAND L.L.P.
Austin, Texas
November 8, 1996
<PAGE>
<PAGE>
EXHIBIT 23.3
CONSENTS OF DIRECTOR DESIGNEES
November 8, 1996
Board of Directors
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Dear Sirs:
Each of the undersigned hereby consents to being named as a Director
Designee in the Registration Statement on Form S-1 of AutoBond Acceptance
Corporation.
Very truly yours,
/s/ ROBERT KAPITO
Robert Kapito
/s/ MANUEL A. GONZALEZ
Manuel A. Gonzalez
/s/ STUART A. JONES
Stuart A. Jones
/s/ THOMAS I. BLINTEN
Thomas I. Blinten
<PAGE>
