<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 000-21673
AUTOBOND ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2487218
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 CONGRESS AVENUE, AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip Code)
(512) 435-7000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
AS OF AUGUST 1, 1997, THERE WERE 6,512,500 SHARES OF THE REGISTRANT'S COMMON
STOCK, NO PAR VALUE, OUTSTANDING.
<PAGE>
<PAGE>
Table of contents
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION........................................................3
ITEM 1. FINANCIAL STATEMENTS.........................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................10
PART II. OTHER INFORMATION...........................................................25
ITEM 1. LEGAL PROCEEDINGS............................................................25
ITEM 2. CHANGES IN SECURITIES........................................................25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................25
ITEM 5. OTHER INFORMATION............................................................25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................25
EXHIBIT 27.1.........................................................................27
SIGNATURES...........................................................................28
</TABLE>
Page 2
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
--------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,121,342 $ 175,661
Restricted funds 2,981,449 10,483,904
Finance contracts held for sale, net 228,429 329,312
Repossessed assets held for sale, net 152,580 534,263
Class B certificates 10,465,294 8,861,463
Interest-only strip receivable 4,247,274 10,979,742
Debt issuance cost 997,338 954,579
Trust receivable 2,230,003 3,655,427
Due from affiliate 168,847 192,547
Other assets 683,955 4,261,958
==========================
Total assets $26,276,511 $40,428,856
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facilities $ -- $ 7,000,000
Notes payable 10,174,633 10,653,293
Accounts payable and accrued liabilities 1,474,586 2,829,913
Bank overdraft -- 1,851,327
Payable to affiliate 265,998 282,822
Deferred income taxes 2,075,553 3,180,632
--------------------------
Total liabilities 13,990,770 25,797,987
--------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; no shares
issued
Common stock, no par value; 25,000,000 shares authorized, 1,000 1,000
6,512,500 shares issued and outstanding
Additional paid-in capital 8,617,466 8,617,466
Deferred compensation (11,422) (4,568)
Loans to shareholders (235,071) (2,323)
Unrealized appreciation on interest-only strip receivable -- 959,629
Retained earnings 3,913,768 5,059,665
--------------------------
Total shareholders' equity 12,285,741 14,630,869
--------------------------
Total liabilities and shareholders' equity $26,276,511 $40,428,856
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------
1996 1997 1996 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income ..................... $ 665,719 $ 1,279,640 $ 1,470,351 $ 1,793,732
Gain on sale of finance contracts ... 3,042,641 5,116,397 5,743,986 8,692,144
Servicing fee income ................ 106,284 242,490 277,208 434,402
Other income (loss) ................. -- (527,701) -- (520,788)
--------------------------------------------------------------
Total revenues .................... 3,814,644 6,110,826 7,491,545 10,399,490
--------------------------------------------------------------
Expenses:
Provision for credit losses ......... 48,500 -- 63,484 --
Interest expense .................... 544,497 955,679 1,137,520 1,828,397
Salaries and benefits ............... 1,056,828 1,732,971 1,846,047 3,272,625
General and administrative .......... 597,500 1,543,133 884,348 2,759,157
Other operating expenses ............ 202,067 393,675 564,237 782,689
--------------------------------------------------------------
Total expenses .................... 2,449,392 4,625,458 4,495,636 8,642,868
--------------------------------------------------------------
Income before income taxes and ........ 1,365,252 1,485,368 2,995,909 1,756,622
extraordinary loss
Provision for income taxes ............ 460,000 518,499 1,020,000 610,725
--------------------------------------------------------------
Income before extraordinary loss ...... 905,252 966,869 1,975,909 1,145,897
Extraordinary loss, net of tax benefits
of $50,000 (100,000) -- (100,000) --
==============================================================
Net income ...................... $ 805,252 $ 966,869 $ 1,875,909 $ 1,145,897
==============================================================
Income per common share:
Income before extraordinary loss .... $ 0.16 $ 0.15 $ 0.35 $ 0.18
Extraordinary loss .................. (.02) -- (0.02) --
--------------------------------------------------------------
Net income ...................... $ 0.14 $ 0.15 $ 0.33 $ 0.18
==============================================================
Weighted average shares outstanding ... 5,706,311 6,528,321 5,698,367 6,529,104
==============================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 4
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
--------------------
<S> <C>
Common stock:
Balance, December 31, 1996 .................................. $ 1,000
------------
Balance, June 30, 1997 ...................................... 1,000
------------
Additional paid-in capital:
Balance, December 31, 1996 .................................. 8,617,466
------------
Balance, June 30, 1997 ...................................... 8,617,466
------------
Deferred compensation:
Balance, December 31, 1996 .................................. (11,422)
Amortization of deferred compensation ....................... 6,854
------------
Balance, June 30, 1997 ...................................... (4,568)
------------
Loans to shareholders:
Balance, December 31, 1996 .................................. (235,071)
Net payments received ....................................... 232,748
------------
Balance, June 30, 1997 ...................................... (2,323)
------------
Unrealized appreciation on interest-only strip receivable:
Balance, December 31, 1996 .................................. --
Increase in unrealized appreciation on interest-only strip .. 959,629
receivable
------------
Balance, June 30, 1997 ...................................... 959,629
------------
Retained earnings:
Balance, December 31, 1996 .................................. 3,913,768
Net income .................................................. 1,145,897
------------
Balance, June 30, 1997 ...................................... 5,059,665
------------
Total shareholders' equity .................................... $ 14,630,869
============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED
JUNE 30
-------------------------------
1996 1997
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 1,875,909 $ 1,145,897
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization of finance contract acquisition discount and (878,557) (11,472)
insurance
Amortization of deferred compensation .................... 25,768 6,584
Amortization of debt issuance costs ...................... 135,571 430,733
Depreciation and amortization ............................ -- 89,457
Provision for credit losses .............................. 63,484 --
Deferred income taxes .................................... 970,000 610,725
Accretion of interest-only strip receivable .............. (53,910) 102,783
Unrealized gain on Class B certificates .................. -- 52,862
Changes in operating assets and liabilities:
Restricted funds ......................................... (260,307) (7,502,455)
Other assets ............................................. (477,892) (3,667,460)
Class B certificates ..................................... (3,257,806) 1,550,969
Interest-only strip receivable ........................... (674,325) (5,381,267)
Accounts payable and accrued liabilities ................. (329,239) 1,355,327
Due to/due from affiliate ................................ (342,297) (6,876)
Purchases of finance contracts ............................ (33,358,304) (66,945,327)
Sales of finance contracts ................................ 35,842,076 65,573,597
Repayments of finance contracts ........................... 324,957 809,626
----------------------------
Net cash used in operating activities .................. (394,872) (11,786,027)
----------------------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts ................... (1,532,348) (1,425,424)
Loan payments from (to) shareholders ...................... (282,675) 232,748
Disposal proceeds from repossessions ...................... 975,662 91,009
----------------------------
Net cash used in investing activities .................. (839,361) (1,101,667)
----------------------------
Cash flows from financing activities:
Net borrowings (payments) under revolving credit facilities (913,129) 7,000,000
Debt issuance costs ....................................... (259,431) (387,974)
Repayments of borrowings under repurchase agreement ....... (1,061,392) --
Proceeds from notes payable ............................... 6,734,306 2,041,388
Payments on notes payable ................................. (3,160,684) (1,562,728)
Proceeds from subordinated debt borrowings ................ 300,000 --
Increase in bank overdraft ................................ 1,324,784 1,851,327
----------------------------
Net cash provided by financing activities .............. 2,964,454 8,942,013
----------------------------
Net increase (decrease) in cash and cash equivalents ........ 1,730,221 (3,945,681)
Cash and cash equivalents at beginning of period ............ 92,660 4,121,342
============================
Cash and cash equivalents at end of period .................. $ 1,822,881 $ 175,661
============================
The accompanying notes are an integral part of the consolidated
financial statements.
Page 6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of AutoBond Acceptance Corporation
("the Company") included herein are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to regulations. In the opinion of management, the
financial statements reflect all adjustments (of a normal and recurring nature)
which are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of the results for a full year. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31, 1996 (Number
000-21673).
Certain data from the prior year has been reclassified to conform to
1997 presentation.
2. EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Fully
diluted earnings per share are not presented because the relevant potentially
dilutive securities are not significant. 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.
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 6,528,321
and 6,529,104 for the three months and six months ended June 30, 1997,
respectively.
3. FINANCE CONTRACTS HELD FOR SALE
The following amounts are included in finance contracts held for sale as
of:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------------------------
(Unaudited)
<S> <C> <C>
Unpaid principal balance ............... $ 266,450 $ 362,933
Prepaid insurance ...................... 18,733 --
Contract acquisition discounts.......... (31,554) (8,421)
Allowance for credit losses............. (25,200) (25,200)
======================
$ 228,429 $ 329,312
======================
</TABLE>
4. INTEREST-ONLY STRIP RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No. 125
"Transfer and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement also provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings and requires that
Page 7
<PAGE>
<PAGE>
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value.
As a result of adopting the statement, the excess servicing receivable
previously shown on the consolidated balance sheet as of December 31, 1996 has
been reclassified as interest-only strip receivable, and accounted for as an
investment security classified as "available for sale" under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). Accordingly, any unrealized gain or
loss in the fair value is included as a component of equity, net of the income
tax effect. Any impairment deemed permanent is recorded as a charge against
earnings.
The fair value of interest-only strip receivable is calculated based
upon the present value of the estimated future interest income after considering
the effects or estimated prepayments, defaults and delinquencies. The discount
rate utilized is based upon assumptions that market participants would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.
The changes in the interest-only strip receivable follow:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
------------------
(Unaudited)
<S> <C>
Beginning balance $4,247,274
Unrealized appreciation 1,453,984
Additions 5,643,627
Accretion 102,783
Impairment charge (467,926)
==================
Ending balance $10,979,742
==================
</TABLE>
The Company periodically reviews the fair value of the interest-only
strip receivable. Changes in the fair value of securities available for sale are
recognized as an adjustment to stockholders' equity. This adjustment amounted to
a net unrealized gain of $959,629, net of related tax effect of $494,355, on the
valuation of the interest-only strip receivable for the six months ended June
30, 1997. Additionally, the Company recorded a charge against earnings for
permanent impairment of the interest-only strip receivable, determined on a
disaggregated basis, of $467,926 during the six months ended June 30, 1997.
5. REVOLVING CREDIT FACILITIES
At June 30, 1997, the Company had no outstanding balance on a $10.0
million revolving credit facility (the "Sentry Facility") with Sentry Financial
Corporation ("Sentry"), which expires on December 31, 2000. The proceeds from
borrowings under the Sentry Facility are used to acquire finance contracts, to
pay applicable 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% (10.25% at June 30, 1997).
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 incurred interest expense of $241,767 for the six months ended June 30,
1997.
Page 8
<PAGE>
<PAGE>
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (6.84% at June 30, 1997) or (y) 11% per
annum. The Company also pays a non-utilization fee of .25% per annum on the
unused amount of the line of credit. Pursuant to the Daiwa Facility, the Company
paid a $243,750 commitment fee. The debt issuance cost is being amortized as
interest expense on a straight line basis through March 1998. The Daiwa Facility
contains certain covenants and representations similar to those in the
agreements governing the Company's existing securitizations including, among
other things, delinquency and repossession triggers. At June 30, 1997, advances
under the Daiwa Facility totaled $7,000,000, in addition to $33,000,000 in
advances derecognized pursuant to SFAS No. 125. The Company incurred interest
expense of approximately $445,232 during the six months ended June 30, 1997.
On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated subsidiary.
Accordingly, as of such date, $33,000,000 of advances were outstanding and
secured by $35,798,557 of finance contracts in the Company's unconsolidated
qualifying special purpose subsidiary, AutoBond Master Funding Corporation.
These secured variable funding notes are convertible into term notes prior to
March 1998 at the option of the noteholder.
6. NOTES PAYABLE
The following amounts are included in notes payable as of:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------------------------
(Unaudited)
<S> <C> <C>
Notes payable, secured by
Class B certificates $10,050,781 $ 8,526,047
Convertible notes payable -- 2,000,000
Other notes payable 123,852 127,245
==================================
$10,174,633 $10,653,292
==================================
</TABLE>
Pursuant to the an agreement (the "Securities Purchase Agreement")
entered into on June 30, 1997, the Company issued by private placement
$2,000,000 in aggregate principal amount of senior secured convertible notes
("Convertible Notes"). Interest is payable quarterly at a rate of 18% per annum
until maturity on June 30, 2000. If the Company pays down the Convertible Notes
in full prior to June 30, 1998, the holders will have no conversion rights. The
Convertible Notes, collateralized by the interest-only strip receivables from
the Company's first four securitizations, are convertible into shares of common
stock of the Company upon the earlier to occur of (i) an event of default on the
Convertible Notes and (ii) June 30, 1998, through the close of business on June
30, 2000, subject to prior redemption. The conversion price is equal to the
outstanding principal amount of the Convertible Note being converted divided by
the lesser of (x) $5.00 (as adjusted by the terms of the Securities Purchase
Agreement) and (y) 85% of the average of the five lowest closing bid prices of
the Company's common stock on the Nasdaq Stock Market, or such other exchange or
market where the common stock is then traded during the 60 trading days
immediately preceding the date the Convertible Note is converted or the
applicable date of repayment (subject to adjustment under certain circumstances
specified in the Securities Purchase Agreement). The Company
Page 9
<PAGE>
<PAGE>
also paid certain debt issuance costs to the purchaser totaling $25,000, which
is being amortized as interest expense on a straight line basis through June 30,
2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998.
7. COMMITMENTS AND CONTINGENCIES
The Company is required to represent and warrant certain matters with
respect to the finance contracts sold to the Trusts, 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 repurchase the finance contracts from the Trust at a price equal to
the remaining principal plus accrued interest. The Company repurchased finance
contracts totaling $619,520 from a Trust during the three months ended March 31,
1997. Of the total amount of these finance contracts, $190,320 were purchased
from one dealer. Although the Company has requested that this dealer repurchase
such contracts, the dealer has refused. The Company has commenced litigation
against such dealer.
ITEM 2. 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 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 Form 10-Q. Results for interim periods are not necessarily
indicative of the results for a full year. For further information, refer to the
audited financial statements and footnotes thereto included in the Company's
Form 10-K for the year ended December 31, 1996 (Number 000-21673).
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 ("sub-prime consumers"). Sub-prime 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 generally 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. The
Company has
Page 10
<PAGE>
<PAGE>
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:
interest income, gain on sale of finance contracts and servicing fee income.
Interest Income. Interest income consists of the sum of three primary
components: (i) interest income earned on finance contracts held for sale by the
Company; (ii) interest income earned on Class B certificates, and (iii) the
accretion of the interest-only strip receivable. Other factors influencing
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, and (c) the length of time such
contracts are funded by the warehouse and other credit facilities. Finance
contract acquisition growth has had a significant impact on the amount of
interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization
prior to 1997, the Company recognized 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 insurance premiums, if any) to the
Company of the finance contracts sold. Excess spread cash flows represent the
difference between the weighted average contract rate earned and the rate paid
on multiple class certificates issued to investors in the securitization, taking
into account certain assumptions regarding prepayments, defaults, proceeds from
disposal of repossessed assets, and servicing and other costs, over the life of
the securitization.
The Company implemented Statement of Financial Accounting Standards No.
125 "Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities" (SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings and requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value. For transfers that result
in the recognition of a sale, SFAS No. 125 requires that the newly created
assets obtained and liabilities incurred by the transferors as a part of a
transfer of financial assets be initially measured at fair value. Interests in
the assets that are retained are measured by allocating the previous carrying
amount of the assets (e.g. finance contracts) between the interests sold (e.g.
investor certificates) and interests retained (e.g. interest-only strip
receivable) based on their relative fair values at the date of the transfer. The
amounts initially assigned to these financial components is a determinant of the
gain or loss from a securitization transaction under SFAS No. 125.
The discounted excess spread cash flows are reported on the consolidated
balance sheet as "Interest-Only Strip Receivable". The fair value of the
interest-only strip receivable is 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 subordinated certificates are then formed by
carving out 65% to 80% of the discounted excess spread cash flows. The remaining
20% to 35% of the discounted excess spread cash flows represent the
interest-only strip receivable. All of the excess spread cash flows are paid by
the securitization Trustee to the investor security holders until such time as
all accrued interest together with principal have been paid in full.
Subsequently, all remaining excess spread cash flows are paid to the Company.
An impairment review of the interest-only strip receivable is performed
quarterly by calculating the net present value of the expected future excess
spread cash flows after giving effect to changes in
Page 11
<PAGE>
<PAGE>
assumptions due to market and economic changes and the performance of the loan
pool to date. The discount rate used is the same as that used to record the
initial interest-only strip receivable. 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. To the extent that
the Company deems the asset to be permanently impaired, the Company would record
a charge against earnings and write down the asset accordingly. The Company
recorded an adjustment to other income (loss) of $467,926 during the three
months ended June 30, 1997 as a result of the impairment review. Should the
Company be unable to sell finance contracts acquired during 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.
In the Company's March 1997 securitization transaction, the Company sold
a pool of finance contracts to a special purpose subsidiary, which then assigned
the finance contracts to an indenture trustee. Under the trust indenture, the
special purpose subsidiary issued three classes of fixed income investor notes:
"Class A Notes", Class B Notes" and "Class C Notes", which were sold to
investors, generally at par, with fixed coupons. A portion of the Class C Notes
represented a senior interest in certain excess spread cash flows from the
finance contracts. In addition, the securitization subsidiary retained rights to
the remaining excess spread cash flows, which may be used to collateralize
borrowings on a non-recourse basis. The Company also funded a cash reserve
account that provides credit support to the Class A Notes, Class B Notes and a
portion of the Class C Notes.
Gain on sale of finance contracts was $2,749,612, $2,972,804,
$3,554,745, $3,543,539 and $3,575,748 for each of the securitizations occurring
in March 1996, June 1996, September 1996, December 1996 and March 1997,
respectively. Gain on sale of finance contracts into the new unconsolidated
securitization subsidiary in June 1997 totaled $5,103,190. This represents
approximately 16.6%, 16.7%, 15.9%, 14.2%, 13.9% and 14.3% of the outstanding
balances of the finance contracts at each of the respective dates.
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 103% of the value of the senior investor securities. This
portion of recognized gain on sale varies based on the Company's cost of
insurance covering the finance contracts and the discount obtained upon
acquisition of the finance contracts. Generally, the Company has acquired
finance contracts from dealers at a greater discount than with finance contracts
acquired from third parties. 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 are expected to shrink as a percentage of
the size of the securitization.
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the senior investor
securities and the age of the finance contracts in the pool, as the excess
spread cash flow 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 from dealers 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
Page 12
<PAGE>
<PAGE>
spread for each of the Company's securitizations (dollars in thousands):
<TABLE>
<CAPTION>
Remaining Weighted
Balance at Average
June 30, Contract Certificate Gross
Securitization Balance 1 1997 Rate Rate Ratings2 Spread
3
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A $26,261 $15,306 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A 16,563 11,601 19.7% 7.15% A/A3 12.5%
AutoBond Receivables
Trust 1996-B 17,833 13,606 19.7% 7.73% A/A3 12.0%
AutoBond Receivables
Trust 1996-C 22,297 20,068 19.7% 7.45% A/A3 12.3%
AutoBond Receivables
Trust 1996-D4 25,000 25,000 19.5% 7.37% A/A3 12.1%
AutoBond Receivables
Trust 1997-A5 27,196 25,676 20.8% 7.82% A/A2 13.0%
BBB/BB
======================
Total $135,150 $111,257
======================
</TABLE>
- ---------------------------
1 Refers only to balances on senior 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
certificate rate.
4 Reflects status of trust in revolving period.
5 Includes Class A and Class B Notes.
On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
unconsolidated qualifying special purpose subsidiary, AutoBond Master Funding
Corporation. These secured variable funding notes are convertible into term
notes prior to March 1998 at the option of the noteholder.
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 administrative 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) the accretion of the discount applied to excess spread cash flows in
calculating the carrying value of the interest-only strip 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.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition
Page 13
<PAGE>
<PAGE>
activity (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1997
---------------------
<S> <C> <C>
Number of finance contracts acquired 2,856 6,017
Principal balance of finance contracts acquired $33,902 $69,288
Number of active dealerships 1 252 831
Number of enrolled dealerships 492 1,136
</TABLE>
- -------------------------------------------------------------------
1 Dealers who have sold at least one finance contract to the Company during the
period.
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. The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
TOTAL REVENUES
Total revenues increased $2,296,182 to $6,110,826 for the three months
ended June 30, 1997 from $3,814,644 for the three months ended June 30, 1996 due
to the growth in finance contract acquisition activity.
Interest Income. Interest income increased $613,921 to $1,279,640 for
the three months ended June 30, 1997 from $665,719 for the three months ended
June 30, 1996 due to higher outstanding volumes of finance contracts held for
sale. The Company began the quarter ended June 30, 1997 with $5.9 million in
finance contracts held for sale carried over from the quarter ended March 31,
1997.
Gain on Sale of Finance Contracts. For three months ended June 30, 1997,
gain on sale of finance contracts amounted to $5,116,397, compared with
$3,042,641 for the comparable 1996 period. The Company sold finance contracts
aggregating approximately $35.8 million into the new unconsolidated
securitization subsidiary on June 30, 1997 and the gain on sale of finance
contracts accounted for 83.7% of total revenues. For three months ended June 30,
1996, there was one securitization transaction in the principal amount of $17.8
million. The gain on sale of finance contracts for this sale transaction
accounted for 79.8% of total revenues in the three months ended June 30, 1996.
The ratio of gain on sale to the outstanding balances of the finance contracts
sold for the three months ended June 30, 1997 was 14.3%, compared with 17.1% for
the comparable 1996 period.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the three months ended
June 30, 1997, servicing fee income was $242,490, primarily collection agent
fees. Servicing fee income increased by $136,206 from the three months ended
June 30, 1996 as a result of increased securitization activity by the Company.
As of June 30, 1996, the Company had completed only three securitizations and
servicing income amounted to $106,284 for the quarter.
Other Income (Loss). For three months ended June 30, 1997, other loss
amounted to $527,701, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of
Page 14
<PAGE>
<PAGE>
$467,926 during the period. Additionally, unrealized loss on the Company's Class
B certificates totaled $59,775 during the three months ended June 30, 1997.
TOTAL EXPENSES
Total expenses of the Company increased $2,176,066 to $4,625,458 for the
three months ended June 30, 1997 from $2,449,392 for the three months ended June
30, 1996. Total expenses as a percentage of total principal balance of finance
contracts acquired in the period decreased to 13.1% for the three months ended
June 30, 1997 compared to 13.3% for the three months ended June 30, 1996.
Provision for Credit Losses. No provision for credit losses on finance
contracts held for future securitizations was taken for the three months ended
June 30, 1997, due to the timing of finance contract acquisition and
securitization activity compared with a provision of $48,500 for the three
months ended June 30, 1996.
Interest Expense. Interest expense rose to $955,679 for the three months
ended June 30, 1997 from $544,497 for the three months ended June 30, 1996.
Interest expense increased by $411,182 due to higher net borrowing costs
associated with the revolving credit facilities, along with increased debt
issuance costs amortization of $219,613.
Salaries and Benefits. Salaries and benefits increased $676,143 to
$1,732,971 for the three months ended June 30, 1997 from $1,056,828 for the
three months ended June 30, 1996. This increase was due primarily to an increase
in the number of the Company's employees necessary to handle the increased
contract acquisition volume and the collection activities on a growing portfolio
of finance contracts. The number of employees of the Company increased by 93 to
172 employees at June 30, 1997, compared to 79 employees at June 30, 1996.
General and Administrative Expenses. General and administrative expenses
increased $945,633 to $1,543,133 for the three months ended June 30, 1997 from
$597,500 for the three months ended June 30, 1996. 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, non-employee marketing commissions, communications and office
supplies, and are expected to increase as the Company continues to grow and also
due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting
principally of servicer fees, credit bureau reports and insurance) increased
$191,608 to $393,675 for the three months ended June 30, 1997 from $202,067 for
the three months ended June 30, 1996. This increase was due to increased finance
contract acquisition volume.
NET INCOME
In the three months ended June 30, 1997, net income increased $161,617
to $966,869 from $805,252 for the three months ended June 30, 1996. The increase
in net income was primarily attributable to an increase in finance contract
acquisition volume. The principal balance of finance contracts acquired
increased $16.9 million to $35.3 million for the three months ended June 30,
1997 from $18.4 million for the three months ended June 30, 1996.
Page 15
<PAGE>
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
TOTAL REVENUES
Total revenues increased $2,907,945 to $10,399,490 for the six months
ended June 30, 1997 from $7,491,545 for the six months ended June 30, 1996
primarily due to increased finance contract acquisition and sales volumes. The
principal balance of contracts acquired rose from $33.9 million during the six
months ended June 30, 1996 to $69.2 million during the six months ended June 30,
1997.
Interest Income. Interest income increased $323,381 to $1,793,732 for
the six months ended June 30, 1997 from $1,470,351 for the six months ended June
30, 1996 due to growth in finance contract acquisition activities.
Gain on Sale of Finance Contracts. For six months ended June 30, 1997,
gain on sale of finance contracts amounted to $8,692,144, compared with
$5,743,986 for the comparable 1996 period. The Company completed sales
aggregating approximately $63.8 million in principal amount of finance contracts
and the gain on sale of finance contracts accounted for 83.6% of total revenues
for the current period. For the six months ended June 30, 1996, there were two
securitization transactions totaling a principal amount of $34.4 million
resulting in gain on sale of finance contracts of $5,743,986 which accounted for
76.7% of total revenues. The ratio of gain on sale to the outstanding balances
of the finance contracts sold for the six months ended June 30, 1997 was 13.6%,
compared with 16.6% for the two transactions completed in the prior year period.
Servicing Fee Income. Servicing fee income increased $157,194 to
$434,402 for the six months ended June 30, 1997 from $277,208 for the six months
ended June 30, 1996 due to growth in securitization activities. The Company was
administering seven securitization trusts at June 30, 1997 compared to three
securitization trusts at June 30, 1996.
Other Income (Loss). For six months ended June 30, 1997, other loss
amounted to $520,788, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of $467,926
during the period. Additionally, unrealized loss on the Company's Class B
certificates totaled $52,862 during the six months ended June 30, 1997.
TOTAL EXPENSES
Total expenses of the Company increased $4,147,232 to $8,642,868 for the
six months ended June 30, 1997 from $4,495,636 for the six months ended June 30,
1996. Although operating expenses increased during the six months ended June 30,
1997, the Company's finance contract portfolio grew at a faster rate than the
rate of increase in operating expenses. Total expenses as a percentage of total
principal balance of finance contracts acquired in the period decreased to 12.5%
during the six months ended June 30, 1997 from 13.3% for the six months ended
June 30, 1996.
Provision for Credit Losses. No provision for credit losses on finance
contracts held for future securitizations was necessary during the six months
ended June 30, 1997 compared with a provision of $63,484 for the six months
ended June 30, 1996.
Interest Expense. Interest expense increased by $690,877 due to higher
borrowing volumes associated with the revolving credit facilities, along with
increased debt issuance costs amortization of $430,733.
Salaries and Benefits. Salaries and benefits increased $1,426,578 to
$3,272,625 for the six months ended June 30, 1997 from $1,846,047 for the six
months ended June 30, 1996. This increase was due
Page 16
<PAGE>
<PAGE>
primarily to an increase in the number of the Company's employees necessary to
handle the increased contract acquisition volume and the collection activities
on a growing portfolio of finance contracts.
General and Administrative Expenses. General and administrative expenses
increased $1,874,809 to $2,759,157 for the six months ended June 30, 1997 from
$884,348 for the six months ended June 30, 1996. 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, non-employee marketing commissions, communications and office supplies,
and are expected to increase as the Company continues to grow and also due to
the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting
principally of servicer fees, credit bureau reports and insurance) increased
$218,452 to $782,689 for the six months ended June 30, 1997 from $564,237 for
the six months ended June 30, 1996. This increase was due to increased finance
contract acquisition volume.
NET INCOME
In the six months ended June 30, 1997, net income decreased $730,012 to
$1,145,897 from $1,875,909 for the six months ended June 30, 1996. The decrease
in net income was primarily attributable to an increase in infrastructure costs
to support higher finance contract acquisition volume. The principal balance of
finance contracts acquired increased $35.4 million to $69.3 million for the six
months ended June 30, 1997 from $33.9 million for the six months ended June 30,
1996, including $12.5 million of finance contracts which the Company acquired in
March 1997 from Credit Suisse First Boston.
FINANCIAL CONDITION
Finance Contracts Held for Sale, Net. Finance contracts held for sale,
net of allowance for credit losses, increased $100,883 to $329,312 at June 30,
1997, from $228,429 at December 31, 1996. 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 basis.
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 investor securities.
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, June 1996, September 1996, December
1996 and March 1997 securitizations and the June 1997 sale into the
unconsolidated special purpose subsidiary were $525,220, $331,267, $356,658,
$445,934, $500,000, $560,744 and $715,971, respectively, equivalent to 2% of the
initial principal amount of the senior trust securities. A portion of excess
spread cash flows will increase such reserves until they reach 6%.
Other Assets. On June 30, 1997, the Daiwa Facility was restructured so
that advances thereunder and the finance contracts securing them could be
derecognized pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
unconsolidated qualifying special purpose subsidiary. In conjunction with this
transaction, the Company retained a partial interest in the loans sold of
$2,497,485, representing the difference between the principal amount of the
finance contracts transferred and the amount funded through the variable rate
funding notes. It is
Page 17
<PAGE>
<PAGE>
expected that this amount will be realized upon conversion of the secured
variable funding notes into term notes prior to March 1998.
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the Company's
finance contract portfolio (dollars in thousands):
<TABLE>
<CAPTION>
December 31, June 30, 1997
1996
----------------------------------
<S> <C> <C>
Principal balance of finance contracts $104,889 $154,653
outstanding
Delinquent finance contracts 1:
60-89 days past due 1,827 1.74% 4,038 2.61%
90 days past due and over 1,328 1.27% 2,786 1.80%
==================================
Total $3,155 3.01% $6,824 4.41%
- -------------------------------------------==================================
1 Percentage based upon outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or there
are insurance claims filed.
</TABLE>
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for contracts held for
sale. 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, 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 relevant 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.
Beginning in the first quarter 1997, the Company elected not to obtain
credit deficiency insurance on every finance contract which it acquires. Of the
$32 million in finance contracts which the Company acquired in the first quarter
of 1997, $12.9 million were covered by an Interstate Fire & Casualty credit
deficiency policy. However, VSI damage policies were and continue to be
purchased for all finance contracts. The March 1997 securitization structure
generated less cash proceeds than prior issuances due to the lack of credit
deficiency insurance on many of the finance contracts collateralizing the
transaction. However, offsetting much of this reduction in cash proceeds, is the
fact that the Company did not pay the up front premiums associated with the
credit deficiency insurance, which resulted in a lower cost basis in
Page 18
<PAGE>
<PAGE>
the finance contracts than in the past. The Company expects to utilize a new
credit deficiency insurance policy for future securitizations.
Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned. This effect on the delinquency statistics can
be observed in the comparison of quarter ended June 30, 1997 versus 1996
delinquency percentages. The portfolio is tangibly more seasoned as of June 30,
1997 versus June 30, 1996. 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.
REPOSSESSION EXPERIENCE - STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage 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
in dollars of the Company's portfolio performance from inception through June
30, 1997. 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. Between approximately one year and 18 months 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. The Company believes this may be due to the fact that
the borrower perceives that he or she has equity in the vehicle. The Company
also believes that since the loans generally amortize more quickly than the
collateral depreciates, losses and/or repossessions will decline over time.
<TABLE>
<CAPTION>
Repossession Frequency
----------------------------------------------
Principal Balance of Principal Balance
Year and Quarter of Repossessions by of Contracts
Acquisition Quarter Acquired Cumulative Annualized Acquired
1 2
- ------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1994
Q3 $ 21.93 22.53% 7.84% $ 93.17
Q4 543.74 22.93% 8.34% 2,371.60
1995
Q1 1,372.16 21.74% 8.70% 6,310.42
Q2 1,182.94 19.21% 8.54% 6,157.44
Q3 1,319.80 18.32% 9.16% 7,205.90
Q4 2,340.22 19.20% 10.97% 12,188.86
1996
Q1 2,609.80 16.88% 11.25% 15,459.93
Q2 2,817.73 15.26% 12.21% 18,458.82
Q3 2,482.84 10.46% 10.46% 23,735.10
</TABLE>
Page 19
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Repossession Frequency
----------------------------------------------
Principal Balance of Principal Balance
Year and Quarter of Repossessions by of Contracts
Acquisition Quarter Acquired Cumulative Annualized Acquired
1 2
- ------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Q4 1,460.59 5.66% 7.55% 25,802.89
1997
Q1 845.00 2.48% 4.97% 34,014.88
Q2 29.72 .08% .34% 35,273.26
</TABLE>
- ----------------------
1 For each quarter, cumulative repossession frequency equals the number of
repossessions divided by the number of contracts acquired
2 Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, principal balance of $543.74
thousand in repossessions divided by principal balance of $2.372 million in
contracts acquired, divided by 11 quarters outstanding times four equals an
annual repossession frequency of 8.34%).
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. As less of
the Company's finance contracts are acquired with credit deficiency insurance,
the Company expects its net loss per repossession to increase. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
From August 1,
1994 (Inception)
to June 30, 1997
------------------
<S> <C>
Number of finance contracts acquired 16,079
Number of vehicles repossessed 1,416
Repossessed units disposed of 608
Repossessed units awaiting disposition 2 808
Cumulative gross charge-offs 1 $6,687,060
Costs of repossession 1 165,903
Proceeds from auction, physical damage insurance and refunds 1 (4,088,756)
------------------
Net loss 2,764,207
Deficiency insurance settlement received 1 (1,653,352)
==================
Net charge-offs 1 $1,110,855
==================
Net charge-offs per unit disposed 1,827
Recoveries as a percentage of cumulative gross charge-offs 3 85.87%
</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, 1997.
2 The vehicles may have been sold at
auction; however AutoBond might not have received all insurance proceeds as of
June 30, 1997.
3 Not including the costs of repossession which are reimbursed by
the securitization trusts.
Page 20
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily funded its operations and the
growth of its finance contract portfolio through seven 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; (vi)
proceeds from the issuances of subordinated debt and capital contributions of
principal shareholders and (vii) an initial public offering of common stock.
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 six months ended June 30, 1996 and 1997, $33.4 million and $66.9 million,
respectively, was used by the Company to purchase finance contracts, $324,957
and $809,626, respectively, was received as payments on finance contracts, and
$35.8 million and $65.6 million, respectively, was received from sales of
finance contracts, primarily through securitizations. The Company used $687,925
and $1,276,715 to fund cash reserve accounts for the securitizations completed
in the six months ended June 30, 1996 and 1997, respectively.
Significant activities comprising cash flows from financing activities
include net borrowings (repayments) under revolving credit facilities of
$(913,129) and $7.0 million for the six months ended June 30, 1996 and 1997,
respectively.
Revolving Credit Facilities. The Company obtains a substantial portion
of its working capital for the acquisition of finance contracts through
revolving 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, 1997, the Company had no outstanding balance on a $10.0
million revolving credit facility (the "Sentry Facility") with Sentry Financial
Corporation ("Sentry"), which expires on December 31, 2000. The proceeds from
borrowings under the Sentry Facility are used to acquire finance contracts, to
pay applicable 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% (10.25% at June 30, 1997).
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. In April 1996, the Company paid a
one-time commitment fee of $700,000 to Sentry. Under the Sentry Facility, the
Company incurred interest expense of $241,767 for the six months ended June 30,
1997.
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (6.84% at June 30, 1997), or (y) 11% per
annum. The Company also pays a non-utilization fee of .25% per annum on the
unused amount of the line of credit. Pursuant to the Daiwa Facility, the Company
paid a $243,750
Page 21
<PAGE>
<PAGE>
commitment fee. The debt issuance cost is being amortized as interest expense on
a straight line basis through March 1998. The Daiwa Facility contains certain
covenants and representations similar to those in the agreements governing the
Company's existing securitizations including, among other things, delinquency
and repossession triggers. At June 30, 1997, advances under the Daiwa Facility
totaled $7,000,000, in addition to $33,000,000 in advances derecognized pursuant
to SFAS No. 125. The Company incurred interest expense of approximately $445,232
during the six months ended June 30, 1997.
On June 30, 1997, the Daiwa Facility was restructured so that advances
thereunder and the finance contracts securing them could be derecognized
pursuant to SFAS No. 125 by sales into an unconsolidated
subsidiary. Accordingly, as of such date, $33,000,000 of advances were
outstanding and secured by $35,798,557 of finance contracts in the Company's
qualifying unconsolidated special purpose subsidiary, AutoBond Master Funding
Corporation. These secured variable funding notes are convertible into term
notes prior to March 1998 at the option of the noteholder.
Notes Payable. Pursuant to the an agreement (the "Securities Purchase
Agreement") entered into on June 30, 1997, the Company issued by private
placement $2,000,000 in aggregate principal amount of senior secured convertible
notes ("Convertible Notes"). Interest is payable quarterly at a rate of 18% per
annum until maturity on June 30, 2000. If the Company pays down the Convertible
Notes in full prior to June 30, 1998, the holders will have no conversion
rights. The Convertible Notes, collateralized by the interest-only strip
receivables from the Company's first four securitizations, are convertible into
shares of common stock of the Company upon the earlier to occur of (i) an event
of default on the Convertible Notes and (ii) June 30, 1998, through the close of
business on June 30, 2000, subject to prior redemption. The conversion price is
equal to the outstanding principal amount of the Convertible Note being
converted divided by the lesser of (x) $5.00 (as adjusted by the terms of the
Securities Purchase Agreement) and (y) 85% of the average of the five lowest
closing bid prices of the Company's common stock on the Nasdaq Stock Market, or
such other exchange or market where the common stock is then traded during the
60 trading days immediately preceding the date the Convertible Note is converted
or the applicable date of repayment (subject to adjustment under certain
circumstances specified in the Securities Purchase Agreement). The Company also
paid certain debt issuance costs to the purchaser totaling $25,000, which is
being amortized as interest expense on a straight line basis through June 30,
2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998.
Securitization Program. In its securitization transactions through the
end of 1996, the Company sold pools of finance contracts to a special purpose
subsidiary, which then assigned the finance contracts to a trust in exchange for
cash and certain retained beneficial interests in future excess spread cash
flows. The trust issued two classes of fixed income investor certificates:
"Class A Certificates" which were 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 were typically retained by the Company's
securitization subsidiary and which collateralize borrowings on a non-recourse
basis. The Company also funded a cash reserve account that provides credit
support to the Class A Certificates. The Company's securitization subsidiaries
also retained a "Transferor's Interest" in the contracts that is subordinate to
the interest of the investor certificate holders.
In the Company's March 1997 securitization transaction, the Company sold
a pool of finance contracts to a special purpose subsidiary, which then assigned
the finance contracts to an indenture trustee. Under the trust indenture, the
special purpose subsidiary issued three classes of fixed income investor notes:
"Class A Notes", "Class B Notes" and "Class C Notes", which were sold to
investors, generally at par, with fixed coupons. A portion of the Class C Notes
represent a senior interest in certain excess spread cash flows from the finance
contracts, In addition, the securitization subsidiary retained rights to the
remaining excess spread cash flows, which may be used to collateralize
borrowings on a non-recourse
Page 22
<PAGE>
<PAGE>
basis. The Company also funds a cash reserve account that provides credit
support to the Class A Notes, Class B Notes and a portion of the Class C Notes.
The retained interests entitle the Company to receive the future 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 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, June 1996, September
1996, December 1996 and March 1997, the Company securitized approximately $26.2
million, $16.6 million, $17.8 million, $22.3 million, $25.0 million and $28.0
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, 1997, the Company held interest-only strip receivables and Class B
Certificates totaling $19.7 million, substantially all of which had been pledged
to collateralize notes payable of $10.7 million. The Class C Notes from the
March 1997 transaction were sold to investors during March 1997.
Initial Public Offering. On November 14, 1996, the Company completed the
initial public offering of its Common Stock. The closing comprised 825,000
shares sold by the Company (including 75,000 shares issued pursuant to the
exercise of the underwriters over allotment option) and 250,000 shares sold by
the Selling Shareholders. With a price to public of $10 per share and an
underwriting discount at $.70 per share, the Company received gross proceeds of
$7,725,000 from the offering, from which it paid offering expenses of
approximately $1.7 million. The net proceeds were utilized for working capital,
repayment of subordinated debt of $300,000 and investment in finance contracts.
Although management believes the proceeds of the initial public offering
of the Company's common stock, proceeds from finance contracts, securitization
proceeds, issuance of convertible notes and borrowings under its warehouse
facilities should be sufficient to fund expansion of the Company's business
through the end of 1997, management also believes that additional capital
through equity or subordinated debt issuances would allow the Company to take
better advantage of growth opportunities. There can be no assurance, however,
that the Company will be able to obtain such additional funding.
The statements contained in this document that are not historical facts
are forward looking statements. Actual results may differ from those projected
in the forward looking statements. These forward looking statements involve
risks and uncertainties, including but not limited to the following risks and
uncertainties: changes in the performance of the financial markets, in the
demand for and market acceptance of the Company's loan products, and in general
economic conditions, including interest rates, presence of competitors with
greater financial resources and the impact of competitive products and pricing;
the effect of the Company's policies; and the continued availability to the
Company of adequate funding sources. Investors are also directed to other risks
discussed in document filed by the Company with the Securities and Exchange
Commission.
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
Page 23
<PAGE>
<PAGE>
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
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. The Company
believes the implementation of SFAS No. 128 will not have a significant effect
on the earnings per share calculation.
Page 24
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on May 13, 1997 at
the company's headquarters in Austin, Texas. At the meeting, William O.
Winsauer, Adrian Katz, John S. Winsauer, Thomas I. Blinton, Robert S. Kapito,
Manual A. Gonzalez and Stuart A. Jones, comprising all of the Company's Board of
Directors, were elected to an additional one-year term. In addition, the annual
appointment of Coopers & Lybrand L.L.P. as the Company's independent public
accountants was approved.
A total of 5,493,900 shares (representing a quorum of 84.3% of the
Company's outstanding common stock) were voted at the meeting for the election
of directors and the approval of the accountants. 5,487,900 shares were voted
"FOR" both items, with 6,000 share votes withheld.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
3.1* Restated Articles of Incorporation of the Company
3.2* Amended and restated Bylaws of the Company
4.1* Specimen Common Stock Certificate
10.1* 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* 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
</TABLE>
Page 25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
10.4* 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* Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996
by and between the Company and AutoBond Funding Corporation II
10.6* Second Amended and Restated Secured Revolving Credit Agreement dated as
of July 31, 1995 between Sentry Financial Corporation and the Company
10.7* Management Administration and Services Agreement dated as of
January 1, 1996 between the Company and AutoBond, Inc.
10.8* Employment Agreement dated November 15, 1995 between Adrian Katz and the
Company
10.9* Employment Agreement effective as of May 1, 1996 between William O.
Winsauer and the Company
10.10* Vender's Comprehensive Single Interest Insurance Policy and Endorsements,
issued by Interstate Fire & Casualty Company
10.11* Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.12* Employee Stock Option Plan 10.13* Dealer Agreement dated November 9,
1994, between the Company and Charlie
Thomas Ford, Inc.
10.14* Automobile Loan Sale Agreement, dated as of September 30, 1996, among the
Company, First Fidelity Acceptance Corp., and Greenwich Capital Financial
Products, Inc.
10.15+ Servicing Agreement, dated as of January 29, 1997, between CSC
LOGIC/MSA L.P.P., doing business as "Loan Servicing Enterprise"
and the Company
10.16+ Credit Agreement, dated as of February 1, 1997, among AutoBond Funding
Corporation II, the Company and Daiwa Finance Corporation
10.17+ Security Agreement, dated as of February 1, 1997, by and among
AutoBond Funding Corporation II, the Company and Norwest Bank
Minnesota, National Association
10.18+ Automobile Loan Sale Agreement, dated as of March 21, 1997, by and
between Credit Suisse First Boston Mortgage Capital L.L.C., a
Delaware limited liability company, and the Company
10.19 Credit Agreement, dated as of June 30, 1997, by and among AutoBond Master
Funding Corporation, the Company and Daiwa Finance Corporation
10.20 Trust Indenture, dated as of June 30, 1997, among AutoBond Master Funding
Corporation, the Company and Norwest Bank Minnesota, National Association.
10.21 Securities Purchase Agreement, dated as of June 30, 1997, by and among
the Company, Lion Capital Partners, L.P. and Infinity Emerging
Opportunities Limited.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 333-05359).
+ Incorporated by reference to the Company's 1996 annual report on Form 10-K for
the year ended December 31, 1996.
x Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997.
(b) Reports of Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
Page 26
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on August 14, 1997.
AUTOBOND ACCEPTANCE CORPORATION
/s/ WILLIAM O. WINSAUER
BY:______________________________________
WILLIAM O. WINSAUER, CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
/s/ R. T. PIGOTT, JR.
BY:______________________________________
R. T. PIGOTT, JR., VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Page 27
<PAGE>
<PAGE>
EXECUTION COPY
================================================================================
AUTOBOND MASTER FUNDING CORPORATION
(as Borrower),
AUTOBOND ACCEPTANCE CORPORATION
and
DAIWA FINANCE CORPORATION
(as Initial Lender)
------------------------------
CREDIT AGREEMENT
------------------------------
Dated as of June 30, 1997
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. COMMITMENT
Section 1.1 Advances.................................................. 1
Section 1.2 Borrowings; Closings...................................... 2
Section 1.3 Notices of Advances....................................... 3
Section 1.4 Use of Proceeds........................................... 3
Section 1.5 Security Agreement........................................ 3
Section 1.6 Increased Costs........................................... 3
Section 1.7 Taxes..................................................... 5
Section 1.8 Definitions............................................... 8
Section 1.9 Term...................................................... 8
Section 1.10 Payment Instructions...................................... 8
SECTION 2. REPRESENTATIONS AND WARRANTIES
Section 2.1 General Representations and Warranties of the Borrower.... 8
Section 2.2 General Representations and Warranties of AutoBond........ 12
Section 2.3 Representations and Warranties with Respect to the
Specified Auto Loans...................................... 16
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE ON
INITIAL CLOSING DATE
Section 3.1 Other Agreements.......................................... 22
Section 3.2 Opinion of Special Counsel................................ 23
Section 3.3 Opinions of Local Counsel................................. 23
Section 3.4 Fitch Rating Letter....................................... 23
Section 3.5 Officer's Certificates.................................... 23
Section 3.6 Organizational and Other Documents........................ 23
Section 3.7 Financing Statements...................................... 23
Section 3.8 Necessary Consents........................................ 23
Section 3.9 Payment of Commitment Fee................................. 23
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES ON ANY
CLOSING DATE
Section 4.1 Performance of Obligations; No Old Advances............... 24
Section 4.2 Representations True; No Event of Default................. 24
Section 4.3 Taxes..................................................... 24
Section 4.4 No Merger or Change in Control............................ 24
<PAGE>
<PAGE>
Page
----
Section 4.5 Searches.................................................. 24
Section 4.6 Consents and Approvals.................................... 24
Section 4.7 Proceedings, Instruments, etc............................. 25
Section 4.8 Loan Sale Agreement; Use of Proceeds...................... 25
Section 4.9 Other Documents........................................... 25
Section 4.10 Continuance of a Funding Termination Event or an Event of
Default................................................... 25
SECTION 5. COVENANTS OF AUTOBOND AND THE BORROWER WITH RESPECT TO
THE SPECIFIED AUTO LOANS
Section 5.1 Additional Covenants...................................... 26
SECTION 6. [Reserved]
SECTION 7. CERTAIN SPECIAL RIGHTS.
Section 7.1 Home Office Payment....................................... 26
Section 7.2 Certain Taxes............................................. 27
Section 7.3 Substitution of Initial Lender............................ 27
SECTION 8. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 8.1 Advance Maturity.......................................... 28
Section 8.2 Mandatory Prepayments..................................... 28
SECTION 9. ASSIGNMENTS AND PARTICIPATIONS
Section 9.1 Assignments............................................... 28
Section 9.2 Participations............................................ 29
SECTION 10. CERTAIN COVENANTS OF THE BORROWER
Section 10.1 Maintenance of Office.................................... 30
Section 10.2 Existence................................................ 30
Section 10.3 General Maintenance of Business, Etc..................... 30
Section 10.4 Inspection............................................... 30
Section 10.5 Compliance with Law, etc................................. 31
Section 10.6 Payment of Taxes and Claims.............................. 31
Section 10.7 Limitations on Indebtedness.............................. 31
Section 10.8 Restricted Investments................................... 31
Section 10.9 Nature of Business....................................... 31
Section 10.10 Independence............................................. 31
<PAGE>
<PAGE>
Page
----
Section 10.11 Other Agreements and Parties............................ 33
Section 10.12 Investment Company Act.................................. 33
Section 10.13 Purchases of Auto Loans................................. 33
Section 10.14 Liens................................................... 34
SECTION 11. CERTAIN COVENANTS OF AUTOBOND
Section 11.1 Existence................................................ 34
Section 11.2 Compliance with Law, etc................................. 34
Section 11.3 Payment of Taxes and Claims.............................. 35
Section 11.4 Inspection............................................... 35
Section 11.5 Consolidation and Merger................................. 35
Section 11.6 Further Assurances....................................... 35
Section 11.7 Independence............................................. 35
Section 11.8 Other Agreements and Parties............................. 37
Section 11.9 Servicing Arrangements................................... 37
Section 11.10 Preservation of Quality of Auto Loans.................... 37
SECTION 12. INFORMATION TO BE FURNISHED TO LENDER.
Section 12.1 Information to be Furnished by the Borrower.............. 38
Section 12.2 Information to be Furnished by AutoBond.................. 38
SECTION 13. DEFAULTS, REMEDIES AND TERMINATION
Section 13.1 Events of Default........................................ 38
SECTION 14. INTERPRETATION OF AGREEMENT
Section 14.1 Definitions.............................................. 39
Section 14.2 Accounting Terms......................................... 52
Section 14.3 Governing Law............................................ 52
Section 14.4 Headings................................................. 52
Section 14.5 Independence of Covenants, etc........................... 52
SECTION 15. INDEMNIFICATION AND FUNDING LOSSES
Section 15.1 Indemnification.......................................... 52
Section 15.2 Indemnification with respect to the Specified Auto Loans. 55
Section 15.3 Funding Losses........................................... 56
SECTION 16. MISCELLANEOUS
<PAGE>
<PAGE>
Page
----
Section 16.1 Notices.................................................. 57
Section 16.2 Survival................................................. 57
Section 16.3 Successors and Assigns................................... 57
Section 16.4 Amendment and Waiver..................................... 57
Section 16.5 Counterparts............................................. 58
Section 16.6 Reproduction of Documents................................ 58
Section 16.7 Consent to Jurisdiction and Venue........................ 59
Section 16.8 No Petition.............................................. 59
Section 16.9 Acts of Lender........................................... 59
Section 16.10 Confidentiality.......................................... 60
EXHIBITS
EXHIBIT A Form of Borrowing Notice
EXHIBIT B Form of Trust Indenture
EXHIBIT C Form of Dewey Ballantine Opinion
EXHIBIT D Form of Texas Counsel Opinion
EXHIBIT E Form of Nevada Counsel Opinion
EXHIBIT F Form of Collection Agent Statement
<PAGE>
<PAGE>
CREDIT AGREEMENT dated as of June 30, 1997 among AutoBond Master
Funding Corporation, a Nevada corporation (the "Borrower"), AutoBond Acceptance
Corporation, a Texas corporation ("AutoBond") and Daiwa Finance Corporation (the
"Initial
Lender").
The Borrower has requested that the Initial Lender make advances to
it in an aggregate amount not exceeding up to $50,000,000 at any time
outstanding and the Initial Lender is prepared to make such advances upon the
terms and subject to the conditions hereof. The advances hereunder shall be
evidenced by the Borrower's Variable Funding Note, Series A (the "Note"), issued
to the Initial Lender under the Trust Indenture, dated as of June 30, 1997 (the
"Indenture"), among the Borrower, AutoBond and Norwest Bank (Minnesota), N.A.,
as trustee (the"Trustee"). The Note shall be entitled to the benefits of the
Indenture. Accordingly, the parties hereto agree as follows:
SECTION 1. COMMITMENT.
Section 1.1 Advances. The Initial Lender agrees, on the terms of
this Agreement and subject to the conditions hereof, to make Advances to the
Borrower at the sole discretion of the Initial Lender, in an aggregate principal
amount at any one time outstanding up to but not exceeding the amount of the
Commitment as then in effect. Each Advance shall (a) mature on the related
Maturity Date and (b) bear interest from the date thereof until such Advance
shall be paid in accordance with the terms hereof (whether at maturity,
mandatory prepayment, by acceleration or otherwise) at the per annum rate with
respect to each Interest Period at the Interest Rate, payable on each Interest
Payment Date in accordance with the provisions of Section 13.04 of the
Indenture. Interest shall be computed on the basis of the actual number of days
in such Interest Period and a three hundred and sixty day year and on each
Interest Payment Date shall equal all unpaid interest accrued in respect of each
prior Interest Period. Each Advance shall bear interest during any Interest
Period during such time as an Event of Default has occurred and is continuing
and to the extent permitted by applicable law on any overdue installment of
interest, at the per annum rate with respect to each Interest Period equal to
the lesser of (x) the Interest Rate plus 2.00% and (y) 11%. If the Borrower
shall have paid or agreed to pay any interest on any Advance in excess of that
permitted by law, then it is the express intent of the parties hereto with
respect thereto that (i) to the extent possible given the term of such Advance,
all excess amounts previously paid or to be paid by the Borrower be applied to
reduce the principal amount of such Advance and the provisions thereof
immediately be deemed reformed and the amounts thereafter collectable thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for thereunder and (ii) to the extent that the
reduction of the principal amount of, and the amounts collectible under, such
Advance and the reformation of the provisions thereof described in the
immediately preceding clause (i)
<PAGE>
<PAGE>
are not possible given the term of such Advance, such excess amount shall be
deemed to have been paid with respect to such Advance as a result of an error
and upon the Lender obtaining actual knowledge of such error, such amount shall
be refunded to the Borrower. Each Advance shall be subject to mandatory
prepayment as set forth in Section 8.2 hereof. Except as provided in Section 1.7
hereof, all sums payable by the Borrower under this Credit Agreement and the
Advances shall be paid without counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
Section 1.2 Borrowings; Closings. (a) This Agreement and the other
Program Documents shall be executed and the initial Advance is to be made at a
closing to be held on June 30, 1997 (the "Initial Closing Date"), at the offices
of Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019.
Additional Advances will be made no more frequently than once each calendar week
on the first Business Day of each calendar week (each, a "Subsequent Closing
Date", the Subsequent Closing Dates, together with the Initial Closing Date, the
"Closing Dates," and, either the Initial Closing Date or a Subsequent Closing
Date, a "Closing Date") to the extent the Lender has received prior notice
thereof in accordance with the provisions of Section 1.3 hereof.
(b) The Advances shall be evidenced by the Note, dated the date of
the delivery of such Note to the Initial Lender under the Indenture, payable to
the Initial Lender in a principal amount equal to the amount of the Commitment
as in effect from time to time and otherwise duly completed. The date and amount
of each Advance made by the Initial Lender to the Borrower and each payment made
on account of the principal thereof, shall be recorded by the Initial Lender on
its books and, prior to any transfer of the Note, endorsed by the Initial Lender
on the schedule attached to the Note or any continuation thereof.
(c) The Initial Lender shall be entitled to have the Note
subdivided, by exchange for Notes of lesser denominations or otherwise in
connection with an assignment of all or any portion of the Advances and the Note
pursuant to the terms of this Agreement; provided that in no event may the Note
be subdivided into denominations of less than $500,000.
(d) Each Advance shall be made by wire transfer of immediately
available funds to the Loan Purchase Account.
Section 1.3 Notices of Advances. The Borrower will give notice
substantially in the form of Exhibit A hereto of each Advance (a "Borrowing
Notice") to the Initial Lender and the Trustee, which notice shall be
irrevocable and effective only upon receipt by the Initial Lender and the
Trustee, and which shall specify the date (at least two Business Days prior to
the proposed date of such Advance) upon which such borrowing is to occur and the
amount of such Advance, which amount, unless otherwise agreed to by the Initial
Lender, (a) in the case of the initial Advance, shall not be less than
$1,000,000 and (b) in
2
<PAGE>
<PAGE>
the case of all other Advances, shall not be greater than $5,000,000 nor less
than the lesser of (i) the Available Facility Amount and (ii) $1,000,000. Such
notice shall be given not later than 12:00 (noon) New York time on the day which
is two (2) Business Days prior to the related Closing Date. Any notice received
by the Initial Lender after 12:00 (noon) New York time on any Business Day shall
be deemed to have been received on the next succeeding Business Day. On the date
specified in such notice, the Initial Lender will, subject to the conditions set
forth and in accordance with the terms of this Agreement, make an Advance in the
aggregate principal amount set forth in such notice. Notwithstanding the
foregoing, if any of the Auto Loans subject to such Advance were acquired from
an Originator other than AutoBond, then AutoBond shall afford the Initial Lender
reasonable opportunity to review such Auto Loans and related Loan Files in
advance of the related Borrowing Notice.
Section 1.4 Use of Proceeds. The proceeds of each Advance (net of
expenses and costs) will be used as contemplated by Section 4.8.
Section 1.5 Security Agreement. The Advances are to be secured
pursuant to the Trust Indenture, dated as June 30, 1997 (the"Indenture
Agreement"), among the Borrower, AutoBond and Norwest Bank (Minnesota), N.A., as
Trustee (together with any successors thereto, the "Trustee"), substantially in
the form of Exhibit C (as from time to time amended, supplemented or modified).
Section 1.6 Increased Costs. (a) In the event that any change after
the date upon which the Lender makes an Advance or acquires an interest in an
Advance in any Requirement of Law (including any change to the certificate of
incorporation, articles of association, by-laws or other organizational or
governing documents of the Lender, but only to the extent that such change is
the result of the compliance by the Lender with any request or directive
reflecting a change in Requirement of Law from any central bank or other
Governmental Authority in the United States of America), or in the
interpretation or application thereof or compliance by the Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority in the United States of America made after
the date upon which the Lender makes its Advances or acquires an interest in an
Advance:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Agreement or the Note, or change the basis of taxation of
payments in respect thereof (except for taxes referred to in Section
1.7(a) and Section 15.1(a)(iii) and changes in the rate of tax on the
overall net income of the Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other
3
<PAGE>
<PAGE>
liabilities in or for the account of, advances, loans or other extensions
of credit by, or any other acquisition of funds by the Lender; or
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to reduce the amount receivable
hereunder in respect of the Advance below that which such Lender would have
received but for such change or compliance, then after submission by the Lender
to the Borrower and the Trustee of a written request therefor, the Trustee
shall, subject to Section 1.6(c), on behalf of the Borrower, pay to the Lender
any additional amounts necessary to compensate the Lender for such reduced
amount receivable.
(b) In the event that the Lender shall have determined that any
change after the date upon which the Lender makes an Advance or acquires an
interest in an Advance in any Requirement of Law (including any change to the
certificate of incorporation, articles of association, by-laws or other
organizational or governing documents of the Lender, but only to the extent that
such change is the result of the compliance by the Lender with any request or
directive reflecting a change in Requirement of Law from any central bank or
other Governmental Authority in the United States of America) regarding capital
adequacy or in the interpretation or application thereof or compliance by the
Lender or any corporation controlling the Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
Governmental Authority in the United States of America made subsequent to the
date upon which such Lender makes its Advances or acquires its interest in an
Advance does or shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of the transactions
contemplated hereby to a level below that which the Lender or such corporation
would have achieved but for such change or compliance (taking into consideration
the Lender's or such corporation's policies with respect to capital adequacy) by
an amount reasonably deemed thereby to be material, then, from time to time,
after submission by the Lender to the Borrower and the Trustee of a written
request therefor, the Trustee shall, subject to Section 1.6(c), on behalf of the
Borrower, pay to the Lender such additional amount or amounts as will compensate
the Lender for such reduction; provided that to the extent that six months or
more pass between the date upon which the Lender obtains actual knowledge of the
liability resulting in such reduction and the date upon which the Lender
provides notice of such reduction to the Borrower hereunder, the Borrower shall
not be liable for amounts relating to the period six months or more prior to the
date of such notice.
(c) The Lender agrees that it shall use its best efforts to take any
actions that will avoid the need for, or reduce the amount of, any increased
amounts referred to in Section 1.6(a) or (b); provided, that no Lender shall be
obligated to take any actions that would, in the sole opinion of the Lender, be
disadvantageous to the Lender in any material respect.
4
<PAGE>
<PAGE>
(d) If the Lender claims the increased amounts described in Section
1.6(a) or (b) ("Increased Cost"), the Lender will furnish to the Borrower and
the Trustee a certificate setting forth the basis and amount of each request by
the Lender for any such Increased Cost.
(e) Failure on the part of the Lender to demand compensation for any
Increased Cost or amount pursuant to Section 1.6(a) with respect to any period
shall not constitute a waiver of the Lender's right to demand compensation with
respect to such period; provided that to the extent that six months or more pass
between the date upon which the Lender obtains actual knowledge of the liability
resulting in such reduction and the date upon which the Lender provides notice
of such reduction to the Borrower hereunder, the Borrower shall not be liable
for amounts relating to the period six months or more prior to the date of such
notice.
(f) The Borrower shall have the right, and the Lender shall
cooperate fully, to replace any Lender which makes a claim pursuant to this
Section 1.6 with a new lender that will succeed to the rights of such Lender
under this Agreement; provided, that such Lender shall not be replaced hereunder
with a new lender until such Lender has been paid in full all amounts owed to it
pursuant to this Agreement; provided, further, that the Borrower shall provide
such Lender with an Officer's Certificate stating that such new lender is not
subject to, or has agreed not to seek, such increased costs.
Section 1.7 Taxes. (a) All payments made by the Trustee on behalf of
the Borrower, under this Agreement shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority in the United States of America, excluding, in the case of the Lender,
net income taxes and franchise taxes imposed on the Lender as a result of a
present or former connection between the jurisdiction of the government or
taxing authority imposing such tax and the Lender (excluding a connection
arising solely from the Lender having executed, delivered, performed its
obligations or received a payment under, or enforced, this Agreement) or any
political subdivision or taxing authority thereof or therein, and also excluding
United States of America withholding taxes to the extent that a Lender
incorporated in or under the laws of a jurisdiction other than the United
States, any state thereof or the District of Columbia fails to provide to the
Trustee at such times as are required by law a duly completed and executed
Internal Revenue Service form 1001 or 4224, as applicable (all such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"), provided that the Lender is not subject to backup
withholding or provides the Trustee with a duly completed and executed Internal
Revenue Service form W-8 or W-9, as appropriate. If any Taxes are required to be
withheld from any amounts payable to the Lender hereunder, after submission by
the Lender to the Borrower and the Trustee of a written request therefor, the
5
<PAGE>
<PAGE>
amounts so payable to the Lender shall be increased by the Trustee, subject to
Section 1.7(c), on behalf of the Borrower, to the extent necessary to yield to
the Lender (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement,
except that no increase shall be made if the Lender is subject to backup
withholding and fails to provide the Trustee with a duly completed and executed
Internal Revenue Service form W-8 or W-9, as appropriate. Any Lender shall
utilize available tax credits to decrease amounts payable with respect to any
such withholding which the Lender in its sole judgment believes are directly
related to this Agreement, except that no increase shall be made if the Lender
is subject to backup withholding and fails to provide the Trustee with a duly
completed and executed Internal Revenue Service form W-8 or W-9, as appropriate.
Nothing in the preceding sentence shall give the Borrower or any other third
party rights to inspect, audit or otherwise request information regarding Lender
records, including records relating to available tax credits. If the Borrower
fails to pay any Taxes when due to the appropriate taxing authority the Trustee
shall, subject to Section 1.7(c), on behalf of the Borrower, pay the Lender for
any incremental taxes, interest or penalties that may become payable by the
Lender as a result of any such failure.
(b) If the Lender claims the amounts for Taxes referred to in
Section 1.7(a), the Lender will furnish to the Borrower and the Trustee an
officer's certificate setting forth the basis and amount of each request by the
Lender for such Taxes. If the Borrower, within 30 days after receiving a notice
of the basis and amount of such Taxes, disputes the basis or amount set forth in
such notice, the Lender and the Borrower shall consult in good faith to resolve
such dispute. If such consultation does not resolve such dispute within 45 days
(or such longer period as the Lender and the Borrower may then agree) after the
Lender shall have provided the Borrower with such notice, the Borrower may
request that the Lender furnish to an Independent Accountant all information
reasonably necessary to permit the confirmation of the accuracy of the Lender's
computation of the Taxes described in such notice. Within 30 days of the receipt
of such information, the Independent Accountant either shall confirm the
accuracy of such computation or shall notify the Lender and the Borrower that
such computation proposed by the Lender is inaccurate. In the latter event, the
Lender shall consult with the Borrower and the Independent Accountant as to the
proper computation of the Taxes, whereupon the Lender shall recompute the Taxes
in such a manner as shall enable the Independent Accountant to confirm their
accuracy. The Borrower and the Lender agree that the sole responsibility of the
Independent Accountant shall be to verify the calculation of the Taxes and that
matters of interpretation of the Program Documents are not within the scope of
its responsibilities. All expenses incurred by the Lender and the Borrower in
connection with the verification procedures described in this Section 1.7
(including the fees and expenses of the Independent Accountant) shall be paid by
the Borrower. Any information provided to the Independent Accountant by the
Lender shall be and remain the exclusive property of the Lender and shall be
deemed by the parties to be (and the Independent Accountant shall confirm in
writing that it will treat such information as) the private, proprietary and
confidential property of the Lender, and no Person other than
6
<PAGE>
<PAGE>
the Lender and the Independent Accountant shall be entitled thereto or to any
review thereof, and all such information shall be returned to the Lender
contemporaneously with the completion of the verification procedure.
Notwithstanding the foregoing, the Lender shall not be obligated to disclose to
any Person (other than the Independent Accountant, subject to the agreement by
the Independent Accountant to keep all information therein confidential), or
permit any Person (other than the Independent Accountant, subject to the
agreement by the Independent Accountant to keep all information contained
therein confidential) to examine, any federal, state or local income tax returns
of the Lender or any of its Affiliates.
(c) The Lender agrees that it shall use its best efforts to take any
actions that will avoid the need for, or reduce the amount of, any increased
amounts referred to in Section 1.7(a); provided, that no Lender shall be
obligated to take any actions that would, in the sole reasonable opinion of the
Lender, be disadvantageous to the Lender in any material respect.
(d) The Lender, by its making of an Advance or acceptance of any
interest in any Advance, agrees to treat the interests evidenced by the Advances
as indebtedness for all tax purposes, and further agrees that any Person
acquiring an interest in any Advance from or through it may do so only subject
to the obligation to comply with this Agreement as to the treatment of such
Advance as indebtedness for all tax purposes.
Section 1.8 Definitions. Capitalized terms used in this Agreement
are defined in Section 14.1 hereof. References to a "Section ", "Schedule" or
"Exhibit" are, unless otherwise specified, to the appropriate Section, Schedule
or Exhibit of this Agreement.
Section 1.9 Term. The Commitment will terminate on March 31, 1998
unless terminated prior to such date in accordance with the terms hereof.
Section 1.10 Payment Instructions. Each of the Lender and AutoBond
shall provide written payment instructions (including the account number of the
bank account to which payments are to be directed and the name, address and ABA
number of the bank in which such account is maintained, if payments are to be
made to such party by the wire transfer of immediately available funds) to the
Trustee. Failure to provide such notice shall not affect such party's right to
receive any funds to which it is otherwise entitled in accordance with the
Program Documents, but failure to deliver such notice may result in a delay in
the receipt of such funds.
7
<PAGE>
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender, as of the date
hereof, and as of each Closing Date, as follows:
Section 2.1 General Representations and Warranties of the Borrower.
(a) Organization and Authority. The Borrower:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada;
(ii) has all requisite power and authority to own and operate its
properties and to conduct its business as currently conducted and as
proposed to be conducted by the Program Documents to enter into the
Program Documents to which it is a party, to issue and deliver the Note
and to perform its obligations under the Program Documents to which it is
a party and the Note;
(iii) has made all filings and holds all franchises, licenses,
permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it or
the nature of its activities makes such filings, franchises, licenses,
permits or registrations necessary.
(b) Place of Business. The address of the principal place of
business and chief executive office of the Borrower is 300 South Fourth Street,
Suite 620, Las Vegas, Nevada 89101 and there have been no other such locations
during the immediately preceding four months, except as may have been previously
disclosed in writing to the Initial Lender.
(c) Compliance with Other Instruments, etc. The Borrower is not in
violation of any term of its certificate of incorporation or by-laws. Neither
the execution, delivery or performance by the Borrower of the Program Documents
to which it is a party or the Note nor the borrowings hereunder does or will (i)
conflict with or violate the certificate of incorporation or by-laws of the
Borrower, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any Lien on any of the Properties of the Borrower pursuant to the
terms of any instrument or agreement to which the Borrower is a party or by
which it is bound, or (iii) require any consent of or other action by any
trustee or any creditor of, any lessor to or any investor in the Borrower.
(d) No Materially Adverse Contracts, etc. The Borrower is not a
party to or bound by (nor are any of its Properties affected by) any contract or
agreement, or subject to any order, writ, injunction or decree or other action
of any court or any
8
<PAGE>
<PAGE>
governmental department, commission, bureau, board or other administrative
agency or official, or any charter or other corporate or contractual
restriction, which materially and adversely affects, or in the future will
materially and adversely affect, the business, earnings, prospects, properties
or condition (financial or other) of the Borrower.
(e) Compliance with Law. The Borrower is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it or any of its Properties are subject. The policies and procedures set
forth in the AutoBond Program Manual are in compliance with all applicable
statutes, laws and ordinances and all governmental rules and regulations.
Neither the execution, delivery or performance of the Program Documents to which
it is a party or the Note nor the borrowings hereunder does or will cause the
Borrower to be in violation of any law or ordinance, or any order, rule or
regulation, of any federal, state, municipal or other governmental or public
authority or agency.
(f) Pending Litigation, etc. There is no action at law, suit in
equity or other proceeding or investigation (whether or not purportedly on
behalf of the Borrower) in any court, tribunal or by or before any other
governmental or public authority or agency or any arbitrator or arbitration
panel, pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower or any of its respective Properties (i) an adverse
determination of which could materially and adversely affect the business,
earnings, prospects, Properties or condition (financial or other) of the
Borrower, each taken as a whole or (ii) that could question the validity of any
Program Document to which it is a party or the Note or the priority or
perfection of any Liens created under the Indenture. The Borrower is not in
default with respect to any order, writ, injunction, judgment or decree of any
court or other governmental or public authority or agency or arbitrator or
arbitration panel.
(g) Taxes. The Borrower and each entity which might have tax
liabilities for which the Borrower is or may be liable, has filed all tax
returns and paid all taxes required by law to be filed or paid, which are due
pursuant to said returns (or which to the knowledge of the Borrower are due and
payable) and on all assessments received by the Borrower or such entity, as the
case may be, other than taxes being contested in good faith by appropriate
proceedings diligently conducted and for which adequate reserves have been
established in accordance with generally accepted accounting principles. No
extensions of the time for the assessment of deficiencies have been granted by
the Borrower. There are no material Liens on any Properties of the Borrower
imposed or arising as a result of the delinquent payment or the nonpayment of
any tax, assessment, fee or other governmental charge. There are no applicable
taxes, fees or other governmental charges due and payable by the Borrower in
connection with the execution and delivery by the Borrower of the Program
Documents to which it is a party or the Note or the borrowings hereunder.
9
<PAGE>
<PAGE>
(h) Investment Company Act. The Borrower is not an "investment
company", or an "affiliated person" of an "investment company", or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended, and the Borrower is not an
"investment adviser" or an "affiliated person" of an "investment adviser" as
such terms are defined in the Investment Advisers Act of 1940, as amended.
(i) Margin Rules. Without limiting the foregoing, the application in
accordance with the Program Documents of any part of the proceeds from the
Advances by the Borrower pursuant to this Agreement will not violate or result
in a violation of Section 7 of the Securities Exchange Act or any regulations
issued pursuant thereto, including, without limitation, Regulation G (12 C.F.R.,
Part 207), as amended, Regulation T (12 C.F.R., Part 220), as amended, and
Regulation X (12 C.F.R., Part 224), as amended, of the Board of Governors of the
Federal Reserve System. The assets of the Borrower do not include any "margin
stock" within the meaning of such Regulation G, and the Borrower does not have
any intention of acquiring any such margin stock.
(j) Proceedings. The Borrower has taken all action necessary to
authorize the execution and delivery of the Program Documents to which it is a
party and the Note and the borrowings hereunder and the performance of all
obligations to be performed by it hereunder and thereunder.
(k) No Event of Default or Default. No event has occurred, and no
condition exists, that constitutes a Default or an Event of Default.
(l) No Consents. No prior consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency, is or
will be required for (i) the valid execution, delivery and performance by the
Borrower of the Program Documents to which it is a party or the Note, (ii) the
perfection or maintenance of the Liens intended to be created by the Indenture
(including the first priority status thereof) or (iii) the borrowings hereunder,
other than such UCC filings as have been provided to the Initial Lender. The
Borrower has obtained all consents, approvals or authorizations of, made all
declarations or filings with, or given all notices to, all federal, state or
local governmental or public authorities or agencies which are necessary for the
continued conduct by the Borrower of its business as now conducted and as
proposed to be conducted as contemplated by the Program Documents.
(m) Validity of Program Documents and Note. The Program Documents to
which it is a party have each been duly executed and delivered by the Borrower
and constitute legal, valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms. Upon receipt by the Borrower of the
proceeds of the initial
10
<PAGE>
<PAGE>
Advance as provided in this Agreement, the Note will have been duly issued and
will constitute the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, and entitled to
the benefits of the Indenture.
(n) Representations and Warranties in Program Documents. The
representations and warranties of the Borrower contained in each of the Program
Documents to which it is a party and in any document, certificate or instrument
delivered pursuant to any such Program Document are true and correct and the
Lender may rely on such representations and warranties, if not made directly to
the Lender, as if such representations and warranties were made directly to the
Lender.
(o) Solvency. The Borrower is Solvent and, immediately after giving
effect to the issue of the Note and the consummation of the other transactions
contemplated by this Agreement, the Borrower will be Solvent.
(p) Full Disclosure. The Program Documents to which it is a party
and any certificate, report, statement or other writing furnished to the Lender
by or on behalf of the Borrower in connection with the negotiation of any such
Program Document are accurate and complete with respect to the information
purported to be set forth therein. There is no fact known to the Borrower that
has not been disclosed to the Lender in writing that (i) materially and
adversely affects, or in the future may materially and adversely affect, the
business, earnings, prospects, properties or condition (financial or other) of
the Borrower, or (ii) materially and adversely affects, or in the future could
materially and adversely affect, the ability of the Borrower to perform its
obligations under the Program Documents or the Note.
(q) Non-Consolidation. The Borrower has been operated in such a
manner that it would not be substantively consolidated in the bankruptcy trust
estate of any Affiliate, such that the separate existence of the Borrower and
any Affiliate would be disregarded.
(r) Representations and Warranties Updated. The representations and
warranties set forth above shall be deemed repeated on, and as of, each Closing
Date.
11
<PAGE>
<PAGE>
Section 2.2 General Representations and Warranties of AutoBond.
AutoBond represents and warrants to the Lender, as of the date
hereof, and as of each Closing Date, as follows:
(a) Organization and Authority. AutoBond:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas;
(ii) has all requisite power and authority to own and operate its
properties and to conduct its business as currently conducted and as
proposed to be conducted as contemplated by the Program Documents to which
it is a party, to enter into the Program Documents to which it is a party
and to perform its obligations under the Program Documents to which it is
a party.
(iii) has made all filings and holds all franchises, licenses,
permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it or
the nature of its activities makes such filings, franchises, licenses,
permits or registrations necessary.
(b) Place of Business. The address of the principal place of
business and chief executive office of AutoBond is 301 Congress Avenue, Austin,
Texas 78701 and there have been no other such locations during the immediately
preceding four months except as may have been previously disclosed in writing to
the Initial Lender.
(c) Compliance with Other Instruments, etc. AutoBond is not in
violation of any term of its articles of incorporation or by-laws. The
execution, delivery and performance by AutoBond of the Program Documents to
which it is a party do not and will not (i) conflict with or violate the
articles of incorporation or by-laws of AutoBond, (ii) conflict with or result
in a breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any Lien on any of the Properties or
assets of AutoBond pursuant to the terms of any instrument or agreement to which
AutoBond is a party or by which it is bound, or (c) require any consent of or
other action by any trustee or any creditor of, any lessor to or any investor in
AutoBond.
(d) No Materially Adverse Contracts, etc. AutoBond is not a party to
or bound by (nor are any of its Properties affected by) any contract or
agreement, or subject to any order, writ, injunction or decree or other action
of any court or any governmental department, commission, bureau, board or other
administrative agency or official, or any charter or other corporate or
contractual restriction, which materially and adversely affects,
12
<PAGE>
<PAGE>
or in the future will materially and adversely affect, the business, earnings,
prospects, Properties or condition (financial or other) of AutoBond.
(e) Compliance with Law. AutoBond is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it is subject, the violation of which, either individually or in the
aggregate, could materially adversely affect the business, earnings, Properties
or condition (financial or other) of AutoBond, each taken as a whole. The
policies and procedures set forth in the AutoBond Program Manual are in
compliance with all applicable statutes, laws and ordinances and all
governmental rules and regulations. The execution, delivery and performance of
the Program Documents to which it is a party do not and will not cause AutoBond
to be in violation of any law or ordinance, or any order, rule or regulation, of
any federal, state, municipal or other governmental or public authority or
agency.
(f) Pending Litigation, etc. There is no action at law, suit in
equity or other proceeding or investigation (whether or not purportedly on
behalf of AutoBond) in any court, tribunal or by or before any other
governmental or public authority or agency or any arbitrator or arbitration
panel, pending or, to the best knowledge of AutoBond, threatened against or
affecting AutoBond or any of its respective Properties (i) an adverse
determination of which could materially and adversely affect the business,
earnings, prospects, Properties or condition (financial or other) of AutoBond,
each taken as a whole or (ii) that could question the validity of the Program
Documents. AutoBond is not in default with respect to any order, writ,
injunction, judgment or decree of any court or other governmental or public
authority or agency or arbitrator or arbitration panel.
(g) Taxes. AutoBond and each entity which might have tax liabilities
for which AutoBond is or may be liable, has filed all tax returns and paid all
taxes required by law to be filed or paid, which are due pursuant to said
returns (or which to the knowledge of AutoBond are due and payable) and on all
assessments received by AutoBond or such entity, as the case may be, other than
taxes being contested in good faith by appropriate proceedings diligently
conducted and for which adequate reserves have been established in accordance
with generally accepted accounting principles. No extensions of the time for the
assessment of deficiencies have been granted by AutoBond. There are no material
Liens on any Properties of AutoBond imposed or arising as a result of the
delinquent payment or the nonpayment of any tax, assessment, fee or other
governmental charge. There are no applicable taxes, fees or other governmental
charges due and payable by AutoBond in connection with the execution and
delivery of the Program Documents to which it is a party.
(h) Investment Company Act. AutoBond is not an "investment company",
or an "affiliated person" of an "investment company", or a company "controlled"
by an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended, and AutoBond is not an "investment adviser" or an
"affiliated person" of an
13
<PAGE>
<PAGE>
"investment adviser" as such terms are defined in the Investment Advisers Act of
1940, as amended.
(i) Proceedings. AutoBond has taken all action necessary to
authorize the execution and delivery by it of the Program Documents to which it
is a party and the performance of all obligations to be performed by it under
the Program Documents.
(j) No Event of Default. No event has occurred and is continuing,
and no condition exists, that constitutes a Default or an Event of Default.
(k) No Consents. No prior consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency, is,
was or will be required for the valid execution, delivery and performance by
AutoBond of the Program Documents to which it is a party. AutoBond has obtained
all consents, approvals or authorizations of, made all declarations or filings
with, or given all notices to, all federal, state or local governmental or
public authorities or agencies which are necessary for the continued conduct by
AutoBond of its respective businesses as now conducted, other than such
consents, approvals, authorizations, declarations, filings and notices which,
neither individually nor in the aggregate, materially and adversely affect, or
in the future will materially and adversely affect, the business, earnings,
prospects, properties or condition (financial or other) of AutoBond.
(l) Validity of Agreement. The Program Agreements to which it is a
party have been duly executed and delivered by AutoBond and constitute the
legal, valid and binding obligation of AutoBond, enforceable in accordance with
their terms.
(m) Representations and Warranties in Program Documents. (i) The
representations of AutoBond contained in any document, certificate or instrument
delivered pursuant to the Program Documents are true and correct in all material
respects and the Lender may rely on such representations and warranties, if not
made directly to the Lender, as if such representations and warranties were made
directly to the Lender.
(ii) Each acquisition of a Specified Auto Loan by the Borrower has
been or will be made in compliance with all requirements specified in the
Program Documents; and AutoBond has performed all of its obligations with
respect to such Specified Auto Loan, including, without limitation, the payment
to the related Dealer of all amounts then owing to such Dealer by AutoBond in
respect of such Specified Auto Loan.
(n) Solvency. AutoBond is Solvent.
14
<PAGE>
<PAGE>
(o) Full Disclosure. The Program Documents to which it is a party
and any certificate, report, statement or other writing furnished to the Lender
by or on behalf of AutoBond in connection with the negotiation of any such
Program Document and the issuance of the Note are accurate and complete with
respect to the information purported to be set forth therein. The reports of
AutoBond filed with the Securities and Exchange Commission did not, as of their
respective dates, contain any misstatements of any material facts or fail to
state any material facts necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and since the
balance sheet date contained in AutoBond's most recently publicly filed
financial statements, there has been no material adverse change in the financial
condition or results of operations of AutoBond or event that materially and
adversely affects the ability of AutoBond to perform its obligations under the
Program Documents.
(p) Representations and Warranties Updated. The representations and
warranties set forth above shall be deemed repeated on, and made as of, each
Closing Date.
Section 2.3 Representations and Warranties with Respect to the
Specified Auto Loans. (a) 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 Auto Loan, that:
(i) such Auto Loan complies in full with, and has been
acquired by AutoBond in accordance with, AutoBond's customary
underwriting guidelines and procedures;
(ii) AutoBond has conducted each of the procedures set forth
in the AutoBond Program Manual to evaluate the Obligor's application
in accordance with the criteria set forth in the AutoBond Program
Manual;
(iii) on and after such Closing Date, there shall exist under
each such Auto Loan a valid, subsisting and enforceable security
interest in the Financed Vehicle securing each such Auto Loan and at
such time an enforcement of such security interest is sought and at
all times there shall exist a valid, subsisting and enforceable
first priority perfected security interest in such Financed Vehicle
in favor of AutoBond;
(iv) such Auto Loan has not been satisfied, subordinated or
rescinded; and no provision of such Auto Loan has been waived,
altered or modified in any respect, except as identified in the Loan
File and made in accordance with the AutoBond Program Manual and the
Credit and Collection Policies;
15
<PAGE>
<PAGE>
(v) such Auto Loan is not and will not be subject to any right
of rescission, set-off, recoupment, counterclaim or defense, whether
arising out of transactions concerning such Auto Loan between the
Obligor and the Dealer, the Dealer and AutoBond, the Dealer and an
Originator, or otherwise and no such right has been asserted with
respect thereto; the operation of the terms of such Auto Loan or the
exercise of any right thereunder will not render any such Auto Loan
unenforceable in whole or in part;
(vi) upon assigning such Auto Loan to the Borrower, AutoBond
had full right to transfer such Auto Loan to the Borrower, and
AutoBond conveyed sole ownership of and good and marketable title to
such Auto Loan to the Borrower; upon assigning such Auto Loan to the
Trustee, the Borrower had full right to assign such Auto Loan to the
Trustee;
(vii) such Auto Loan is not a Defaulted Auto Loan on the date
of its transfer and there is no default, breach, violation, or event
permitting acceleration under such Auto Loan, and no event has
occurred which, with notice and the expiration of any grace or cure
period or both, would constitute a default, breach, violation, or
event permitting acceleration under such Auto Loan;
(viii) the Loan File related to such Auto Loan contains each
of the documents required by the AutoBond Program Manual and the
contractual documents contained in such Loan File constitute the
entire agreement with respect to such Auto Loan between the Obligor
and the related Dealer and, with the exception of the related Dealer
Agreement, between the Dealer and AutoBond;
(ix) the down payment described in the Loan File relating to
such Auto Loan was paid to the related Dealer in the manner stated
therein at the time of the origination of such Auto Loan, the
proceeds thereof were fully disbursed; there is no requirement for
further advances thereunder; and all fees and expenses in connection
thereof have been paid;
(x) the Financed Vehicle securing the Obligor's obligation to
pay under such Auto Loan has been delivered to and accepted by the
Obligor;
(xi) such Auto Loan is denominated and payable in United
States dollars;
16
<PAGE>
<PAGE>
(xii) the documents evidencing such Auto Loan contain
customary and enforceable provisions such as to render the rights
and remedies of the holder thereof adequate for the realization of
the security afforded by the related collateral;
(xiii) the Dealer Agreement relating to such Auto Loan is in
effect, whereby the related Dealer warrants delivery of title to
such Financed Vehicle, indemnifies AutoBond or the related
Originator against fraud and misrepresentation by the related Dealer
and its employees and represents and warrants that such Dealer did
not accept any side notes as any part of the down-payment portion of
the related Obligor's purchase price, and AutoBond's or the
Originator's (as the case may be) rights thereunder with regard to
such Auto Loan have been validly assigned to the Borrower, and are
enforceable against the related Dealer by, the Borrower or its
assignee, along with any other rights of recourse which AutoBond or
the Originator has against the related Dealer;
(xiv) each Auto Loan was acquired by AutoBond or an Originator
from an "Eligible Dealer"; each Auto Loan was acquired by the
Borrower from AutoBond, and the acquisition by AutoBond or an
Originator of any Auto Loan from a Dealer was not an extension of
financing to such Dealer but was acquired in a transaction
constituting a "true sale" under applicable state law;
(xv) AutoBond has no knowledge of any fact which should have
led it to expect at the time of sale of such Auto Loan, that (A)
such Auto Loan was made by the Selling Dealer and sold by such
Dealer to AutoBond with any conduct constituting fraud or
misrepresentation on the part of such Dealer or (B) that such Auto
Loan would not be paid in full when due because of fraud or
misrepresentation on the part of the related Obligor;
(xvi) such Auto Loan was not originated in any jurisdiction
the laws of which prohibit the Selling Dealer from transferring such
Auto Loan to AutoBond or an Originator, or prohibit AutoBond from
transferring such Auto Loan to the Borrower, or the Borrower from
assigning such Auto Loans to the Trustee, nor is such Auto Loan
subject to the laws of any such jurisdiction;
(xvii) the Indenture and each related Collateral Assignment
constitutes a valid sale, transfer, assignment set-over and
conveyance to the Trustee of all right, title and interest of the
Borrower, AutoBond, any Originator and the Selling Dealer in and to
such Auto Loan now existing and hereafter created, and upon its
receipt of such Auto Loan and payment of the
17
<PAGE>
<PAGE>
related Loan Acquisition Price to AutoBond, the Borrower will have
good and marketable title to such Auto Loan free and clear of any
Adverse Claim (other than that of the Trustee) and such Auto Loan
shall be freely transferable by the Borrower without the required
consent of any party (other than the Trustee); each Assignment is in
a form sufficient to (i) convey such Auto Loan to the Borrower under
all applicable law in the state in which the related Financed
Vehicles is located and (ii) permit the assignee or its agents to
exercise all rights granted by the Obligor under such Auto Loan and
such other documents and all rights available under applicable law
to the obligee under such Auto Loan;
(xviii) such Auto Loan does not (A) contravene in any material
respect any state and federal laws, rules or regulations applicable
thereto in connection with the origination of such Auto Loan,
including without limitation, usury, disclosure, truth in lending,
equal credit and similar laws, the Federal Trade Commission Act and
applicable state laws governing motor vehicle installment sale or
loan contracts, (but specifically excluding laws, rules or
regulations applicable thereto in connection with post-origination
compliance, including, but not limited to, laws, rules and
regulations applicable thereto in connection with fair credit
billing, fair credit reporting and fair debt collection practices)
or (B) except as required by applicable law, impose any liability or
obligation of the Dealer, AutoBond or the Borrower on the Trustee or
its assignee with respect to such Auto Loan;
(xix) there are no proceedings or investigations pending or,
to the best of the Borrower's or AutoBond's knowledge, threatened
before any Governmental Authority (A) asserting the invalidity of
such Auto Loan or the bankruptcy or insolvency of the related
Obligor, (B) seeking the payment of such Auto Loan or (C) seeking
any determination or ruling that might materially and adversely
affect the validity or enforceability of such Auto Loan;
(xx) the Borrower and AutoBond have duly fulfilled all
obligations on their part to be fulfilled under or in connection
with such Auto Loan and have done nothing to impair the rights of
the Trustee in such Auto Loan or the rights of the Borrower or the
Trustee in the proceeds with respect thereto; the Borrower and
AutoBond have paid in full all taxes and other charges payable in
connection with such Auto Loan and the transfer of such Auto Loan to
the Borrower, which could impair or become a lien prior to the
Borrower or Trustee's interest in such Auto Loan; there are no prior
liens for work performed affecting any Financed Vehicle which are or
may become a lien prior to or equal with the security interest
granted in the related Auto Loan;
18
<PAGE>
<PAGE>
(xxi) the applicable Assignment has been duly executed and
delivered by AutoBond and the information regarding the Auto Loans
in such Sale Assignment and Schedules attached thereto is true and
correct as of the Cut-Off Date relating to such Closing Date;
(xxii) the residence of the related Obligor is located within
the borders of the United States of America;
(xxiii) there is only one original of the retail installment
sale contract or promissory note and security agreement evidencing
such Auto Loan, such original has been delivered to the Trustee
pursuant to the Indenture and there are no custodial agreements in
effect that would adversely affect the ability of the Trustee to
maintain possession thereof pursuant to the Indenture;
(xxiv) the Obligor is not a Governmental Authority;
(xxv) the retail installment sale contract or promissory note
and security agreement evidencing such Auto Loan constitute "chattel
paper" within the meaning of the UCC in effect in the States of
Texas and Nevada and all filings required to be made and all actions
required to be taken or performed by any Person in any jurisdiction
to give the Borrower an ownership interest in such Auto Loan have
been made, taken or performed;
(xxvi) each such Auto Loan constitutes and shall continue to
constitute a legal, valid and binding obligation of the Obligor
thereunder and is enforceable in accordance with its terms, except
only as such enforcement may be limited by laws affecting the
enforcement of creditors' rights generally;
(xxvii) at the origination date of each such Auto Loan, the
related Financed Vehicle was covered by a comprehensive and
collision insurance policy (a) in an amount at least equal to the
lesser of (1) the actual cash value of the related Financed Vehicle
or (2) the unpaid balance owing on such Auto Loan and (b) insuring
against loss and damage due to fire, theft, transportation,
collision and other risks generally covered by comprehensive and
collision coverage;
(xxviii) the total amount financed by such Auto Loan does not
exceed $40,000;
(xxix) such Auto Loan was not purchased from the related
Dealer at a discount greater than 19%;
19
<PAGE>
<PAGE>
(xxx) the APR for such Auto Loan is not less than 14.5% per
annum; and
(xxxi) no selection procedures believed by AutoBond to be
adverse to the interest of the Lenders shall have been utilized in
selecting such Auto Loans for inclusion as Collateral;
(xxxii) such Auto Loan shall have not less than 12 monthly
payments annually scheduled at origination;
(xxxiii) such Auto Loan shall have a remaining maturity of not
more than 60 months; such Auto Loan shall have an original maturity
date not later than 72 months from its origination date;
(xxxiv) the first scheduled payment on such Auto Loan was
made, or, if the first scheduled payment on an Auto Loan has not yet
been made as of the related Closing Date preceding its transfer,
such Scheduled Payment will be made on or prior to the 60th day
after the due date for such Scheduled Payment;
(xxxv) each Auto Loan is eligible for coverage under and is
covered by a VSI Policy;
(xxxvi) no more than 10% of the aggregate Unpaid Principal
Balance of the Specified Auto Loans owned by the Borrower at any
time shall represent Financed Vehicles purchased from Dealers who
are not franchised new car Dealers; provided, however, that the
Borrower shall not be deemed to have breached this representation if
it cures any violation of the immediately preceding clause within 30
days of the earlier to occur of (A) the first Determination Date on
which the requirements specified in the immediately preceding clause
was determined to have been breached and (B) the date on which the
Borrower has actual knowledge that the requirements set forth in the
second preceding clause have been breached;
(xxxvii) the weighted average purchase discount with respect
to all such Specified Auto Loans owned by the Borrower shall not
exceed 15% and the weighted average APR shall not be less than 16%
per annum; provided, however, that the Borrower shall not be deemed
to have breached this representation if the Borrower cures any
violation of the immediately preceding clause within 30 days of the
earlier to occur of (A) the first Determination Date on which the
requirements specified in the immediately preceding clause was
determined to have been breached and (B) the date on
20
<PAGE>
<PAGE>
which the Borrower has actual knowledge that the requirements set
forth in the second preceding clause have been breached; and
(xxxviii) no more than 2% of the aggregate Unpaid Principal
Balance of the Specified Auto Loans owned by the Borrower at any time
shall be in respect of Financed Vehicles with a model year prior to 1989;
provided, however, that the Borrower shall not be deemed to have breached
this representation if it cures any violation of the immediately preceding
clause within 30 days of the earlier to occur of (A) the first
Determination Date on which the requirements specified in the immediately
preceding clause was determined to have been breached and (B) the date on
which the Borrower has actual knowledge that the requirements set forth in
the second preceding clause have been breached;
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive the sale or contribution
of a Specified Auto Loan to the Borrower and any assignment of such Specified
Auto Loan by the Borrower to the Trustee pursuant to the Indenture and shall
continue so long as any such Specified Auto Loan shall remain outstanding until
such time as such Specified Auto Loan is repurchased pursuant to the Indenture.
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE
ON INITIAL CLOSING DATE.
The Initial Lender's obligation to make the initial Advance
hereunder on the Initial Closing Date shall be subject to the satisfaction,
prior to or concurrently with the making of such Advance, of the conditions set
forth in Section 4 hereof, as well as the following conditions:
Section 3.1 Other Agreements. The Program Documents and the Note
shall each have been duly authorized by all necessary action. The Borrower and
AutoBond shall have duly executed and delivered the Program Documents to which
they are a party and, in the case of the Borrower, the Note and such Program
Documents are in full force and effect.
Section 3.2 Opinion of Special Counsel. The Initial Lender shall
have received from Dewey Ballantine, who are acting as special New York counsel
for the Lender in connection with the transactions contemplated by this
Agreement, an opinion, dated the Initial Closing Date, in the form attached
hereto as Exhibit E.
Section 3.3 Opinions of Local Counsel. The Initial Lender shall have
received from Butler & Binion and Woodburn & Wedge, who are acting as special
Texas counsel for AutoBond and special Nevada counsel for the Borrower,
respectively, in
21
<PAGE>
<PAGE>
connection with the transactions contemplated by this Agreement, opinions, dated
the Initial Closing Date, in the form attached as Exhibit F and Exhibit G,
respectively.
Section 3.4 Fitch Rating Letter. The Lender shall have received
written confirmation from Fitch that Fitch has assigned a rating of no less than
"A" to the Note.
Section 3.5 Officer's Certificates. The Initial Lender shall have
received (a) an officer's certificate from the Borrower with respect to the
matters set forth in Sections 4.1 and 4.2 and (b) an officer's certificate from
AutoBond with respect to the matters set forth in Sections 4.1, 4.2 and 4.6.
Section 3.6 Organizational and Other Documents. The Initial Lender
shall have received certified copies of the organizational documents of the
Borrower and of AutoBond and of all formalities authorizing the execution,
delivery and performance hereof and of the Program Documents to which each is a
party and, in the case of the Borrower, the Note.
Section 3.7 Financing Statements. Financing statements naming the
Borrower as debtor and the Trustee on behalf of the Lender as secured party
(each, a "Financing Statement") shall have been executed and delivered to the
Trustee for filing in accordance with the applicable Uniform Commercial Code
with the Secretary of State of the State of Nevada and with such other filing
officer within or without Nevada as the Initial Lender shall request, which
Financing Statements constitute all of the filings required to perfect the
security interests intended to be created by the Indenture.
Section 3.8 Necessary Consents. The Lender shall have received a
copy of all consents to, or releases of any lien in respect to any Specified
Auto Loans subject or to be subject hereto, in form and substance satisfactory
to the Lender.
Section 3.9 Payment of Commitment Fee. The Lender shall have
received the Commitment Fee.
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES
ON ANY CLOSING DATE.
The Initial Lender's obligation to make Advances hereunder on any
Closing Date shall be subject to the satisfaction, prior to or concurrently with
the making of such Advances, of the following conditions:
Section 4.1 Performance of Obligations; No Old Advances. The
Borrower and AutoBond shall each have performed all of their respective
obligations to be performed
22
<PAGE>
<PAGE>
hereunder prior to or on such Closing Date. No Advances shall have been
outstanding in excess of 120 days.
Section 4.2 Representations True; No Event of Default. The
representations and warranties of the Borrower pursuant to Section 2.1 and of
AutoBond pursuant to Section 2.2 shall be true on and as of such Closing Date
and the representations and warranties with respect to the Specified Auto Loans
shall be true on and as of the related Closing Date with the same effect as
though such representations and warranties had been made on and as of such
Closing Date. There shall exist on such Closing Date no Default or Event of
Default.
Section 4.3 Taxes. Any taxes, fees and other charges due in
connection with the borrowings hereunder or the issuance of the Note (other than
any income or franchise taxes incurred by the Lender) shall have been paid in
full by the Borrower.
Section 4.4 No Merger or Change in Control. Neither AutoBond nor the
Borrower shall have dissolved or liquidated or consolidated or merged with, or
been wound up into, or sold, leased or otherwise disposed of all or
substantially all of its Properties to, any Person (other than a merger into a
wholly-owned Subsidiary for the purposes of reincorporation); unless the
surviving or transferee entity has assumed all the obligations of AutoBond or
the Borrower hereunder, as applicable.
Section 4.5 Searches. The Borrower shall have delivered to the
Initial Lender such evidence (including without limitation, Uniform Commercial
Code search certificates, releases and termination statements) as the Initial
Lender may request to establish that there are no financing statements filed
against the Collateral other than with respect to Permitted Liens.
Section 4.6 Consents and Approvals. The Borrower and AutoBond shall
have obtained any necessary consents, waivers, approvals, authorizations,
registrations, filings, licenses and notifications (including, if necessary,
qualifying to do business in, and qualifying under the applicable consumer laws
of, each jurisdiction where the Borrower and AutoBond is then doing business, or
is expected to be doing business utilizing the proceeds of such Advance) and the
same shall be in full force and effect.
Section 4.7 Proceedings, Instruments, etc. All proceedings and
actions taken on or prior to such Closing Date in connection with the
transactions contemplated by this Agreement, the Program Documents and the Note,
and all instruments incident thereto, shall be in form and substance reasonably
satisfactory to the Initial Lender, and the Initial Lender shall have received
copies of all documents that the Initial Lender may reasonably request in
connection with such proceedings, actions and transactions.
23
<PAGE>
<PAGE>
Section 4.8 Loan Sale Agreement; Use of Proceeds. The Borrower shall
have entered into the Loan Sale Agreement and the proceeds of the Advances shall
not exceed the amount the Trustee, on behalf of the Borrower, is required to pay
on the date of making of such Advances in respect of Loan Acquisition Prices;
provided, that, so long as (after giving effect to the application of the
Advance proceeds) the aggregate amount of Permitted Investments is no greater
than $1,000,000, at the direction of AutoBond, as Administrator, a portion of
the Proceeds of the Advances may be applied to purchase Permitted Investments,
pending application to the acquisition of Eligible Auto Loans. The Loan Sale
Agreement shall have been duly authorized, executed and delivered by the parties
thereto. Copies of the duly executed Loan Sale Agreement, together with the
opinions of counsel and officer's certificates delivered in connection
therewith, shall have been delivered to the Initial Lender and to the Trustee.
Section 4.9 Other Documents. The Borrower and AutoBond shall have
delivered to the Initial Lender such other documents, instruments, approvals
(and if requested certified duplication of executed copies thereof) and opinions
as the Initial Lender may have reasonably requested. Each of the Program
Documents shall remain in full force and effect.
Section 4.10 Continuance of a Funding Termination Event or an Event
of Default. No Funding Termination Event or Event of Default shall have occurred
and be continuing; provided, however, that if the Lenders designate a Funding
Termination Event based upon clause (b) of the definition thereof, then the
Initial Lender shall return to the Borrower a pro-rated portion of the
Commitment Fee.
SECTION 5. COVENANTS OF AUTOBOND AND THE BORROWER WITH
RESPECT TO THE SPECIFIED AUTO LOANS.
Section 5.1 Additional Covenants. In addition to the covenants set
forth in Section 10 with respect to the Borrower and Section 11 with respect to
AutoBond, each of the Borrower and AutoBond hereby make the following additional
covenants, which shall be determined on each Determination Date:
(a) to their knowledge, there is no Borrowing Base Deficiency; and
(b) to calculate the Borrowing Base and determine the existence of
any Borrowing Base Deficiency on each Determination Date and to provide
such information to the Lender in the Monthly Servicer Report.
24
<PAGE>
<PAGE>
SECTION 6. [Reserved]
SECTION 7. CERTAIN SPECIAL RIGHTS.
Section 7.1 Home Office Payment. Notwithstanding any provision to
the contrary in the Program Documents, the Trustee, on behalf of the Borrower,
will punctually pay in immediately available funds prior to noon, New York City
time, all amounts payable with respect to the Advances in accordance with the
provisions of this Agreement and the Security Agreement (without the necessity
for any presentation or surrender thereof or any notation of such payment
thereon) in the manner and at any address as the Lender may from time to time
direct in writing. The Initial Lender agrees that, as promptly as practicable
after the payment or prepayment of any Advance, the Initial Lender will record
such payment or prepayment on the Note. The Borrower will afford the benefits of
this Section 7.1 to any Assignee, each of which, by its receipt and acceptance
of a Note, will be deemed to have made the same agreement relating to the
Advances as the Initial Lender has made in this Section 7.1. The Borrower shall
only be obligated to make payments on any Advance to an Assignee in the manner
provided in this Section 7.1 from and after the time such Assignee provides to
the Borrower and the Trustee written notice of its election to receive payments
in such manner and the address to which payments are to be directed (including
the account number of Assignee's bank account to which payments are to be
directed and the name, address and ABA number of the bank in which such account
is maintained, if payments are to be made to such Assignee by the wire transfer
of immediately available funds).
Section 7.2 Certain Taxes. The Borrower will pay all taxes (other
than income or franchise taxes incurred by the Lender) in connection with the
execution and delivery of this Agreement and the Security Agreement, the
issuance of the Note(s) by the Borrower, the borrowings hereunder and any
modification of the Program Documents or the Note requested or required by the
Borrower and will save the Lender harmless, without limitation as to time,
against any and all liabilities (including, without limitation, any interest or
penalty for nonpayment or delay in payment, or any income taxes paid by the
Lender or any Assignee in connection with any reimbursement by the Borrower for
the payment by any other Person of any such taxes) with respect to all such
taxes. The obligations of the Borrower under this Section 7.2 shall survive the
payment in full of the Advances and the termination of the Program Documents.
Section 7.3 Substitution of Initial Lender. The Initial Lender shall
have the right to substitute any of the Initial Lender's Affiliates as the maker
of all or any portion of the aggregate principal amount of Advances to be made
by the Initial Lender (so long as any such Affiliate is not engaged in any
principal line of business substantially similar to the general nature of the
business presently conducted by the Borrower), by written notice delivered to
the Borrower, which notice shall be signed by both the Initial Lender and such
25
<PAGE>
<PAGE>
Affiliate and shall contain such Affiliate's agreement to be bound by this
Agreement. The Borrower agrees that upon receipt of such notice (a) wherever the
word "the Initial Lender" is used in this Agreement (other than in this Section
7.3) such word shall be deemed to refer to such Affiliate in addition to or
instead of to the Initial Lender, as the case may be, and (b) the Initial Lender
shall, to the extent of the assumption by such Affiliate of the Initial Lender's
obligations hereunder, be released from its obligations under this Agreement.
The Borrower also agrees that if the Initial Lender, at any time, acquires from
any Affiliate all or any portion of such Affiliate's rights under this
Agreement, wherever the word "the Initial Lender" is used in this Agreement such
word shall thereafter be deemed to refer to the Initial Lender in addition to or
instead of to such Affiliate, as the case may be, and such Affiliate shall, to
the extent of the assumption by the Initial Lender of such Affiliates
obligations hereunder, be released from all of its obligations under this
Agreement. Notwithstanding any other provision of this Section 7.3, neither the
Initial Lender nor any Affiliate thereof shall be entitled to substitute any
other party as the maker of any Advances if as a result of such substitution the
Borrower would be required to register as an "investment company" under the
Investment Company Act of 1940, as amended.
SECTION 8. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 8.1 Advance Maturity. Each Advance shall be due and payable
on the related Maturity Date. On March 31, 1998, the remaining unpaid principal
amount of the Advances, together with accrued interest thereon and unpaid fees
with respect thereto, shall be due and payable.
Section 8.2 Mandatory Prepayments. The Borrower shall immediately
prepay, or (in the case of an Exchange) be deemed to have prepaid, the Advances,
without premium, together with interest accrued on the amount to be prepaid to
the date of prepayment and any unpaid fees with respect thereto, (a) to the
extent required on each Payment Date pursuant to Section 13.05 of the Indenture
and (b) upon the occurrence of an Exchange. No prepayment pursuant to this
Section 8.2 shall in and of itself have any effect on the obligation of the
Initial Lender to make Advances under this Agreement nor the right of the
Borrower to reborrow an amount equal to such repayment. Upon the occurrence of
an Event of Default, the Borrower will make payments on the Advances in
accordance with Section 13 hereof and Section 13.05 of the Indenture.
26
<PAGE>
<PAGE>
SECTION 9. ASSIGNMENTS AND PARTICIPATIONS.
Section 9.1 Assignments. (a) The Borrower may not assign its rights
or obligations hereunder or under the Note without the prior consent of the
Lender in its sole discretion (or, if multiple Lenders, the Lenders in respect
of a majority in aggregate principal amount of Advances outstanding).
(b) The Lender may assign to any commercial lending or financial
institution familiar with the asset-backed securities market (each, an
"Assignee"), all or any portion of the Advances and the Notes; provided that any
assignment of a portion of the Advances and the Notes shall be in an amount not
less than the Minimum Assignment Denomination. Upon written notice to the
Borrower of an assignment in accordance with the preceding sentence (which
notice shall identify the Assignee and the amount and the identity of the
Advances and Notes assigned), the Assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment), the obligations,
rights and benefits of the Lender hereunder with respect to the Advance(s)
assigned to it. For all purposes of this Agreement, the Assignee shall, so long
as the Advance(s) assigned to such Assignee remain unpaid, be entitled to the
rights and benefits of this Agreement with respect to the Advance(s) assigned to
it as if (and the Borrower shall be directly obligated to such Assignee under
this Agreement as if) such Assignee were the "Lender" for purposes of this
Agreement. Accordingly, unless otherwise provided, whenever any action, waiver,
notice or consent is to be provided to or by the Lender as herein specified,
such action, waiver, notice or consent shall (unless otherwise expressly
specified herein) also be provided to or by each Assignee.
(c) The Lender shall provide notice of each assignment to the
Trustee and AutoBond; provided that failure to provide such notice shall not
affect the validity of any assignment.
(d) Notwithstanding the provisions of this Section 9.1, no
assignment of an interest in an Advance to an entity outside the United States
of America shall be effective unless the prospective Assignee thereof certifies
to the Borrower and AutoBond that payments to it in respect of the Advances will
not be subject to withholding taxes imposed by any Governmental Authority in the
United States of America or any political subdivision or taxing authority
thereof or therein or that if it is subject to such withholding taxes it will
not seek reimbursement or gross-up from the Borrower or AutoBond.
Section 9.2 Participations. (a) The Lender may sell or agree to sell
to any commercial lending or financial institution familiar with the
asset-backed securities market a participation in all or any part of any Advance
held by it or Advances made or to be made by it, in which event each such
participant shall be entitled to the rights and benefits of the provisions of
Sections 12.1(f) and 12.2(i) hereof with respect to its participation in such
27
<PAGE>
<PAGE>
Advance as if (and the Borrower and AutoBond shall be directly obligated to such
participant under such provisions as if) such participant were the "Lender" for
purposes of said Sections, but shall not have any other rights or benefits under
this Agreement or any Note (the participant's rights against the Lender in
respect of such participation to be those set forth in the agreement executed by
the Lender in favor of the participant). All amounts payable by the Borrower to
the Lender under this Agreement shall be determined as if the Lender had not
sold or agreed to sell any participations in such Advance and as if the Lender
were funding all of such Advance in the same way that it is funding the Advance
in which no participations have been sold.
(b) The Lender may furnish any information concerning the Borrower,
AutoBond or any of their other Affiliates in the possession of the Lender from
time to time to assignees and participants (including prospective assignees and
participants); provided, however, that, prior to receipt of any such
information, and prior to any inspection by a Lender, other than the Initial
Lender, pursuant to Sections 12.4 or 13.4 hereof, such assignees and
participants or prospective assignees and participants, as the case may be, may
be required by the Borrower to execute a confidentiality agreement in form and
substance reasonably acceptable to the Borrower.
SECTION 10. CERTAIN COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that so long as any Advance shall
remain unpaid:
Section 10.1 Maintenance of Office. The Borrower will maintain at
its office located at its address shown at the head of this Agreement an office
where notices, presentations and demands in respect of this Agreement and the
Note may be given to and made upon it; provided, however, that it may, upon
fifteen (15) Business Days prior written notice to the Lender, move such office
to any other location within the boundaries of the continental United States of
America.
Section 10.2 Existence. The Borrower will take and fulfill, or cause
to be taken and fulfilled, all actions and conditions necessary to preserve and
keep in full force and effect its existence, rights and privileges as a
corporation and will not liquidate or dissolve, and it will take and fulfill, or
cause to be taken and fulfilled, all actions and conditions necessary to
qualify, and to preserve and keep in full force and effect its qualification, to
do business in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires such qualification.
28
<PAGE>
<PAGE>
Section 10.3 General Maintenance of Business, Etc. The Borrower
will:
(a) keep proper books of record and accounts in which entries will
be made of its business transactions in accordance with and to the extent
required by generally accepted accounting principles;
(b) enforce (or cause the Collection Agent or the Trustee, as the
case may be, to enforce) all of its rights under each of the Program
Documents to which it is a party and each other agreement entered into in
connection with the transactions contemplated hereby.
Section 10.4 Inspection. The Borrower will permit, upon reasonable
notice to it, the Lender, by its representatives, agents or attorneys: (a) to
examine all books of account, records, reports and other papers of the Borrower
(including the Loan Files), (b) to make copies and take extracts from any
thereof, (c) to discuss the affairs, finances and accounts of the Borrower with
its respective officers and independent certified public accountants (and by
this provision the Borrower hereby authorizes said accountants to discuss with
the Lender the finances and accounts of the Borrower) and (d) to visit and
inspect, at reasonable times during normal business hours, the properties of the
Borrower. It is understood and agreed by the parties hereto that all reasonable
expenses in connection with any such inspection or discussion incurred by the
Lender or the Borrower, any officers and employees thereof and the independent
certified public accountants therefor shall be expenses payable by the Person
making the inspection or discussion.
Section 10.5 Compliance with Law, etc. The Borrower will not (i)
violate any laws, ordinances, governmental rules or regulations to which it is
or may become subject, or (ii) fail to obtain or maintain any patents,
trademarks, service marks, trade names, copyrights, design patents, licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its property or to the conduct of its business except to the extent
that any such violation or failure could not materially and adversely affect the
business, earnings, prospects, properties or condition (financial or other) of
the Borrower.
Section 10.6 Payment of Taxes and Claims. The Borrower will pay, and
discharge, promptly when due all taxes, assessments and governmental charges and
levies imposed upon it, its income or profits or any of its properties;
provided, however, that the foregoing need not be paid while the same is being
contested in good faith by appropriate proceedings diligently conducted so long
as:
(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
29
<PAGE>
<PAGE>
(b) the right of the Borrower to use the particular property shall
not be materially and adversely affected thereby.
Section 10.7 Limitations on Indebtedness. The Borrower will not at
any time incur, create, assume or guarantee, or otherwise become or be liable in
any manner with respect to, any Indebtedness, except (i) the Advances and (ii)
Non-recourse Indebtedness.
Section 10.8 Restricted Investments. With respect to amounts on
deposit in the Collateral Account, the Borrower will not make any Restricted
Investments except in accordance with the Program Documents.
Section 10.9 Nature of Business. The Borrower will not engage in any
business or activity (whether or not pursued for gain or other pecuniary
advantage) other than financing, purchasing and disposing of Eligible Auto Loans
and Permitted Investments.
Section 10.10 Independence. Until 367 days have elapsed following
payment and satisfaction of all obligations of the Borrower hereunder and under
the Note, the Borrower shall be required to observe the applicable legal
requirements for the recognition of the Borrower as a legal entity separate and
apart from AutoBond and each other Affiliate of AutoBond, including, without
limitation, assuring that each of the following is complied with:
(a) the Borrower shall maintain separate records, books of account
and financial statements (each of which shall be sufficiently full and
complete to permit a determination of the Borrower's assets and
liabilities separate and apart from those of AutoBond and each other
Affiliate of AutoBond and to permit a determination of the obligees
thereon and the time for performance of each of the Borrower's obligations
separate and apart from those of AutoBond and each other Affiliate of
AutoBond) from those of AutoBond and each other Affiliate of AutoBond;
(b) the Borrower shall not commingle any of its assets or funds with
those of AutoBond or any of the other Affiliates of AutoBond;
(c) the Borrower shall maintain a separate board of directors
(including an "independent director" (as such term is defined in the
Borrower's Certificate of Incorporation)) and shall observe all separate
corporate formalities, and all decisions with respect to the Borrower's
business and daily operations shall be independently made by the officers
of the Borrower pursuant to resolutions of its board of directors;
(d) other than payment of dividends and return of capital, no
transactions shall be entered into between the Borrower and AutoBond or
between the Borrower
30
<PAGE>
<PAGE>
and any of the other Affiliates of AutoBond except such transactions as
are contemplated by the Loan Acquisition Agreement;
(e) except for such origination, collection and servicing functions
as AutoBond may perform on behalf of the Borrower pursuant to the Program
Documents, the Borrower shall act solely in its own name and through its
own authorized officers and agents and the Borrower will not act as agent
of AutoBond or any other person in any capacity;
(f) except for any funds received from AutoBond as a capital
contribution, the Borrower shall not accept funds from AutoBond or any of
the other Affiliates of AutoBond; and the Borrower shall not allow
AutoBond or any of the other Affiliates of AutoBond otherwise to supply
funds to, or guarantee any obligation of, the Borrower;
(g) the Borrower shall not guarantee, or otherwise become liable
with respect to, any obligation of AutoBond or any of the other Affiliates
of AutoBond; and
(h) the Borrower shall at all times hold itself out to the public
under the Borrower's own name as a legal entity separate and distinct from
AutoBond and the other Affiliates of AutoBond.
Section 10.11 Other Agreements and Parties. The Borrower will comply
with all terms of the Program Documents to which it is a party. The Borrower
will not (a) enter into any agreements other than the Program Documents to which
it is a party without the consent of the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding), such consent not to be unreasonably withheld, (b) except as
otherwise expressly set forth herein and in the Indenture, agree to any
amendment, supplement or modification to or waiver of the terms of the Program
Documents to which it is a party, the AutoBond Program Manual or any document
related thereto without the consent of the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding), such consent not to be unreasonably withheld, (c) appoint any
Successor Servicer, without the consent of the Lender (or, if multiple Lenders,
the Lenders in respect of a majority in aggregate principal amount of the
Advances outstanding), such consent not to be unreasonably withheld or (d)
consent to the appointment of any Subservicer, without the consent of the Lender
(or, if multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding), such consent not to be
unreasonably withheld.
31
<PAGE>
<PAGE>
Section 10.12 Investment Company Act. The Borrower will not take any
action which would require it to be registered as an "investment company" under
the Investment Company Act of 1940, as amended.
Section 10.13 Purchases of Auto Loans. The Borrower will cease
purchasing Specified Auto Loans from AutoBond for financing hereunder, if the
Borrower or the Initial Lender shall have determined that any of the following
shall have occurred:
(i) any Event of Default described in Section 13.1(g) through
(k) shall occur with respect to AutoBond;
(ii) there shall have occurred an Event of Purchase
Termination (as such term is defined in the Loan Acquisition
Agreement) under the Loan Acquisition Agreement;
(iii) any Advance is outstanding hereunder after the Maturity
Date;
(iv) a Funding Termination Event shall have occurred
hereunder;
(v) the Borrower has received written notice from the Lender
(or if multiple Lenders, the Lenders in respect of a majority in
aggregate principal amount of the Advances) that the continuation of
the activities contemplated hereby may reasonably be expected to
cause the Lender or any of its Affiliates to suffer materially
adverse regulatory, accounting or tax consequences; provided, that
the Borrower may require that the Lender deliver an Opinion of
Counsel or an opinion of a nationally recognized independent
accounting firm supporting the position of the Lender.
Section 10.14 Liens. The Borrower will not permit any Lien to exist
on any of its Properties, whether now owned or hereafter acquired, other than
Permitted Liens.
SECTION 11. CERTAIN COVENANTS OF AUTOBOND.
AutoBond covenants and agrees that so long as any Advances shall
remain unpaid:
Section 11.1 Existence. AutoBond will take and fulfill, or cause to
be taken and fulfilled, all actions and conditions necessary to preserve and
keep in full force and effect its existence, rights and privileges as a
corporation and will not liquidate or dissolve, and it will take and fulfill, or
cause to be taken and fulfilled, all actions and conditions necessary to
qualify, and to preserve and keep in full force and effect its qualification, to
do
32
<PAGE>
<PAGE>
business in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires such qualification.
Section 11.2 Compliance with Law, etc. AutoBond will not (a) violate
any laws, ordinances, governmental rules or regulations to which it is or may
become subject or (b) fail to obtain or maintain any patents, trademarks,
service marks, trade names, copyrights, design patents, licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its Property or to the conduct of its business.
Section 11.3 Payment of Taxes and Claims. AutoBond will pay and
discharge promptly, as and when due, all taxes, assessments and governmental
charges and levies imposed upon it, its income or profits or any of its
properties; provided, however, that the foregoing need not be paid while the
same is being contested in good faith by appropriate proceedings diligently
conducted so long as:
(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
(b) the right of AutoBond, as the case may be, to use the particular
property shall not be materially and adversely affected thereby.
Section 11.4 Inspection. AutoBond will permit, upon reasonable
notice to it, the Lender, by its representatives, agents or attorneys, (a) to
examine all books of account, records, reports and other papers of AutoBond
relevant to its role as Collection Agent (including the Loan Files), (b) to make
copies and take extracts from any thereof, (c) to discuss the affairs, finances
and accounts of AutoBond with its respective officers and independent certified
public accountants (and by this provision AutoBond hereby authorizes said
accountants to discuss with the Lender the finances and accounts of AutoBond),
and (d) to visit and inspect, at reasonable times during normal business hours,
the properties of AutoBond. It is understood and agreed by the parties hereto
that all reasonable expenses in connection with any such inspection or
discussion incurred by the Lender or AutoBond, any officers and employees
thereof and the independent certified public accountants therefor shall be
expenses payable by AutoBond.
Section 11.5 Consolidation and Merger. AutoBond will not merge into
or consolidate with any other Person (or permit any other Person to merge into
or consolidate with it) or sell, transfer or otherwise dispose of all or
substantially all of its Properties to any Person unless (a) the surviving or
transferee corporation following any merger or consolidation or sale expressly
assumes the obligations of AutoBond hereunder and under the other Program
Documents and (b) Fitch confirms in writing to the Lender that such merger,
consolidation or sale will not result in the reduction or withdrawal of its
rating of the Note below "A".
33
<PAGE>
<PAGE>
Section 11.6 Further Assurances. AutoBond will promptly execute and
deliver all further instruments and documents and take all further action that
may be necessary in order to give effect to the provisions of the Program
Documents and the transactions contemplated hereby.
Section 11.7 Independence. Until 367 days have elapsed following
payment and satisfaction of all obligations of the Borrower hereunder and in
respect of the Advances, AutoBond shall be required to (and shall assure that
each other Affiliate of AutoBond shall) observe the applicable legal
requirements for the recognition of the Borrower as a legal entity separate and
apart from AutoBond and each other Affiliate of AutoBond, including, without
limitation, assuring that each of the following is complied with:
(a) AutoBond and each other Affiliate of AutoBond shall maintain
separate records and books of account (each of which shall be sufficiently
full and complete to permit a determination of the assets and liabilities
of AutoBond or such Affiliate, as the case may be, separate and apart from
those of the Borrower and to permit a determination of the obligees
thereon and the time for performance on each of the obligations of
AutoBond or such Affiliate, as the case may be, separate and apart from
those of the Borrower) from those of the Borrower;
(b) neither AutoBond nor any of its other Affiliates shall commingle
any of its assets or funds with those of the Borrower;
(c) the board of directors of AutoBond shall not dictate decisions
with respect to the Borrower's business and daily operations and AutoBond
shall maintain its own corporate formalities and shall otherwise respect
the separate corporate identity of the Borrower;
(d) other than the making of capital contributions and the
transactions contemplated by the Loan Acquisition Agreement, neither
AutoBond nor any of its other Affiliates shall enter into any transactions
with the Borrower;
(e) neither AutoBond nor any of its other Affiliates shall accept
appointment as, or act as, an agent of the Borrower except, to the extent
AutoBond performs certain servicing and collection functions pursuant to
the Servicing Agreement;
(f) neither AutoBond nor any of its other Affiliates shall advance
funds to the Borrower (except for the making of capital contributions);
and neither AutoBond nor any of its other Affiliates will otherwise supply
funds to, or guarantee any obligation of, the Borrower;
34
<PAGE>
<PAGE>
(g) neither AutoBond nor any of its other Affiliates shall
guarantee, or otherwise become liable with respect to, any obligation of
the Borrower;
(h) AutoBond and each of its other Affiliates shall at all times
hold itself out to the public under its respective name as a legal entity
separate and distinct from the Borrower; and
(i) all financial reports prepared by AutoBond and each of its other
Affiliates shall comply with generally accepted accounting principles.
Section 11.8 Other Agreements and Parties. AutoBond will comply with
all terms of the Program Documents to which it is a party. AutoBond will not (a)
except as otherwise expressly set forth herein and in the Indenture, agree to
any amendment, supplement or modification to or waiver of the terms of the
Program Documents to which it is a party, the AutoBond Program Manual or any
document related thereto without the consent of the Lender (or, if multiple
Lenders, the Lenders in respect of a majority in aggregate principal amount of
Advances outstanding), such consent not to be unreasonably withheld, (b) appoint
any Successor Servicer, without the consent of the Lender (or, if multiple
Lenders, the Lenders in respect of a majority in aggregate principal amount of
the Advances outstanding), such consent not to be unreasonably withheld or (c)
consent to the appointment of any Subservicer, without the consent of the Lender
(or, if multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding), such consent not to be
unreasonably withheld.
Section 11.9 Servicing Arrangements. AutoBond will take any
necessary action to evidence that the Specified Auto Loans are to be serviced
and administered by the Servicer and AutoBond, as Collection Agent under the
Servicing Agreement. AutoBond will act as Collection Agent under the Servicing
Agreement and will perform its duties as Collection Agent thereunder in
accordance with the provisions of the Servicing Agreement, the AutoBond Program
Manual and this Agreement. So long as any Advances are outstanding, upon the
occurrence of an Event of Termination under the Servicing Agreement, AutoBond
agrees to provide prompt notice to the Lender of such Event of Termination and
to thereafter act in accordance with the instructions of the Lender, including
the appointment of a new Servicer and/or Collection Agent. Any optional
termination of the Servicer by AutoBond under the Servicing Agreement shall
require the prior written consent of Fitch and the Initial Lender.
Section 11.10 Preservation of Quality of Auto Loans. AutoBond will
use its best efforts to prevent a deterioration in the quality of the Specified
Auto Loans and will use its best efforts as Collection Agent to preserve the
credit quality and collectibility of the Specified Auto Loans.
35
<PAGE>
<PAGE>
SECTION 12. INFORMATION TO BE FURNISHED TO LENDER.
Section 12.1 Information to be Furnished by the Borrower.
The Borrower will deliver or cause to be delivered to the Lender the
following:
(a) promptly, and in any event within five (5) days, after any
Executive Officer of the Borrower shall have obtained knowledge of any
Default or Event of Default, an Officer's Certificate from the Borrower
specifying the nature and period of existence thereof, what action the
Borrower has taken or is taking or proposes to take with respect thereto,
and an estimate of the time necessary to cure such condition or event;
(b) promptly upon the release or distribution thereof, copies of all
press releases and other written statements made available generally by
the Borrower to one or more financial news services concerning material
developments in the business of the Borrower; and
(c) promptly upon request therefor, such other data, filings and
information as the Lender may from time to time reasonably request.
Section 12.2 Information to be Furnished by AutoBond. AutoBond shall
deliver or cause to be delivered to the Lender the following:
(a) promptly, and in any event within five (5) days, after any
Executive Officer of AutoBond shall have obtained knowledge of any Default
or Event of Default, an Officer's Certificate from AutoBond specifying the
nature and period of existence thereof, what action AutoBond has taken or
is taking or proposes to take with respect thereto, and an estimate of the
time necessary to cure such condition or event; and
(b) promptly upon the release or distribution thereof, copies of all
press releases and other written statements made available generally by
AutoBond to one or more financial news services concerning material
developments in the business of AutoBond.
SECTION 13. DEFAULTS, REMEDIES AND TERMINATION.
Section 13.1 Events of Default. Events of Default and Remedies
therefor in respect of the Advances and the Note are as set forth in the
Indenture.
36
<PAGE>
<PAGE>
SECTION 14. INTERPRETATION OF AGREEMENT.
Section 14.1 Definitions. Capitalized terms used herein but not
defined shall have the meaning set forth in the Indenture. Except as the context
shall otherwise require, the following terms shall have the following meanings
for all purposes of this 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 Agreement):
The term "Advances" means the advances provided for by Section 1.1.
The term "Affiliate," with respect to any Person (hereinafter "such
Person"), shall mean any other Person which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control with, such Person or another Affiliate of such Person. The
term "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or
otherwise.
The term "APR" shall mean the annual percentage rate of an Auto Loan
as determined according to the related contractual documents with the
Obligor thereof.
The term "Assignee" shall have the meaning set forth in Section
9.1(b).
The term "Authorized Officer" means, with respect to AutoBond or the
Borrower, any officer of AutoBond or the Borrower, as the case may be, who
is authorized to act for AutoBond or the Borrower, as the case may be, in
matters relating to transactions contemplated by this Agreement.
The term "AutoBond Program Manual" means the AutoBond Program Manual
(including the Credit and Collection Policies) attached hereto as Exhibit
J, as modified from time to time, with notice of each such modification to
Fitch, the Servicer, the Trustee and the Lender.
The term "Auto Loan" means a fixed-rate, fully amortizing,
closed-end installment loan (bearing interest calculable on a simple
interest basis or based upon the Rule of 78s, as set forth in Section 2(m)
of the Loan Acquisition Agreement) arising from the sale of a new or used
automobiles and light-duty trucks to a consumer which includes, without
limitation, (i) all security interests or liens and property subject
thereto from time to time purporting to secure payment by the obligor
thereunder, including, without limitation, AutoBond's rights under the
related dealer agreement, (ii) all guarantees, indemnities and warranties,
insurance policies, certificates of title and other agreements or
arrangements of whatever character from
37
<PAGE>
<PAGE>
time to time supporting or securing payment of such loan, (iii) all
collections and records with respect to the foregoing and (iv) all
proceeds of any of the foregoing.
The term "AutoBond" shall mean AutoBond Acceptance Corporation, a
Texas corporation.
The term "Available Facility Amount," on any date of determination,
shall mean the sum of (a) the Commitment on such date, minus (b) the
aggregate Advances outstanding on such day.
The term "Board" shall mean, with respect to any Person, its board
of directors or, if it does not have a board of directors, its governing
body which performs the same duties as a board of directors.
The term "Borrowing Base Deficiency" means, on any date of
determination, the excess of Advances outstanding on such Determination
Date over 91.74% of the sum of (a) the aggregate Unpaid Principal Balance
of all Specified Auto Loans other than Excluded Auto Loans and (b) all
amounts on deposit in the Loan Purchase Account, the Reserve Account and
Collection Account (to the extent allocable to principal).
The term "Borrowing Notice" shall have the meaning set forth in
Section 1.3 hereof.
The term "Business Day" shall mean any day other than a Saturday or
a Sunday, or another day on which commercial banks in the States of
Minnesota, New York or Texas (or in any other state in which the Servicer
or any Agent is located) are required, or authorized by law, to close or,
for purposes of calculating interest on the Advances, on which commercial
banks are not open for domestic and foreign exchange business in New York,
New York and London, England (as specified in writing from time to time by
the Borrower or an Agent).
The term "Capital Lease" shall mean any lease or other agreement for
the use of property which is required to be capitalized on a balance sheet
of the lessee or other user of property in accordance with generally
accepted accounting principles.
The term "Closing Date" shall have the meaning set forth in Section
1.2 hereof.
The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute, together with the
rules and regulations thereunder.
38
<PAGE>
<PAGE>
The term "Collateral" shall mean that portion of the Trust Estate
allocated to the Note.
The term "Collateral Account" shall have the meaning set forth in
the Indenture.
The term "Collection Period' shall mean each calendar month;
provided, however, the initial Collection Period shall be the period from
the Closing Date to July 31, 1997.
The term "Commitment" shall mean the obligation of the Initial
Lender to make Advances in an aggregate amount at any one time outstanding
up to but not exceeding (a) $40,000,000 until August 15, 1997 and (b)
$50,000,000 from August 15, 1997 until March 31, 1998, in each case less
the amount of advances outstanding under the Funding II Credit Agreement.
The term "Commitment Fee" shall mean the fee payable to the Lender
pursuant to Section 3.9 hereof in the amount agreed to by the Borrower and
the Lender.
The term "Credit and Collection Policies" means written credit
procedures and policies consistent with the requirements of this Agreement
and the Servicing Agreement, in effect from time to time formulated by
AutoBond as to the requirements of certain servicing matters and
comprising part of AutoBond Program Manual.
The term "Dealer" shall mean each automobile dealer with whom
AutoBond has entered into a Dealer Agreement.
The term "Dealer Agreement" shall mean each agreement between
AutoBond and a Dealer, which provides for acquisition of the Auto Loans.
The term "Default" shall mean any event or condition that would
become an Event of Default after notice or passage of time or both.
The term "Defaulted Auto Loan" shall mean an Auto Loan which by its
terms has more than 10% of any installment of principal or interest which
is 60 or more days contractually past due.
The term "Determination Date" shall mean the 10th day of each month
(or the immediately preceding Business Days if such day is not a Business
Day).
39
<PAGE>
<PAGE>
The term "Disposition" shall mean any pooling or disposition of
Specified Auto Loans by the Borrower, either (a) in structured-finance
securitization transactions, (b) pursuant to whole-loan sales or (c) in
some other form of disposition.
The term "Dollars" or "$" shall mean the lawful currency of the
United States of America, and in relation to any payment under this
Agreement, same day or immediately available funds.
The term "Eligible Auto Loan" shall mean any Auto Loan as to which
the representations and warranties set forth in Section 2.3(a) are true
and correct as of the related Closing Date.
The term "Eligible Dealer" shall mean a franchised Dealer (a) duly
licensed and authorized as a dealer in new or used Automobiles by
Governmental Authorities and (b) as to which AutoBond has entered into a
Dealer Agreement.
The term "Event of Collection Agent Termination" shall have the
meaning assigned thereto in Section 3.07 of the Servicing Agreement.
The term "Event of Default" shall have the meaning assigned thereto
in the Indenture.
The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
The term "Excluded Auto Loan" means, on any Determination Date, any
Specified Auto Loan (a) which is a Defaulted Auto Loan, (b) as to which
the Obligor is bankrupt or (c) as to which the related Auto has been
repossessed.
The term "Executive Officer" with respect to a Person shall mean the
Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer.
The "fair valuation" of the Properties of any Person shall be
determined on the basis of the amount which may be realized within a
reasonable time, either through collection or sale of such assets at the
regular market value, conceiving the latter as the amount which could be
obtained for the property in question within such period by a capable and
diligent businessman from an interested buyer who is willing to purchase
under ordinary selling conditions.
The term "Financing Statement" shall have the meaning set forth in
Section 3.8 hereof.
40
<PAGE>
<PAGE>
The term "Fitch" shall mean Fitch Investors Service, L.P.
The term "Funding II Credit Agreement" shall mean the Credit
Agreement, dated as of February 1, 1997, among AutoBond Funding
Corporation II, AutoBond and the Initial Lender.
The term "Funding Termination Event" shall have occurred if (a)
Fitch shall have indicated in writing that it has reduced or withdrawn its
rating of the Note below "A" or (b) upon 30 days' prior written notice,
deterioration has taken place in the quality of the Specified Auto Loans
or in the collectibility thereof which the Lender, in its reasonable
discretion, determines to be material.
The term "generally accepted accounting principles" shall mean, as
of the date of any determination with respect thereto, generally accepted
accounting principles as understood and applied in the United States at
the time in question.
The term "Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
The term "Guarantee," with respect to any Person, shall mean all
obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness (including, without limitation, liability in respect of a
joint venture or a partnership), dividend or other obligation or
Investment of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including obligations incurred through an
agreement, contingent or otherwise, by such Person (a) to purchase such
Indebtedness, obligation or Investment or any property or assets
constituting security therefor, (b) to advance or supply funds (i) for the
purchase or payment of such Indebtedness, obligation or Investment or (ii)
to maintain working capital or equity capital, or otherwise to advance or
make available funds for the purchase or payment of such Indebtedness,
obligation or Investment, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of such Indebtedness,
obligation or Investment of the ability of the primary obligor to make
payment of such Indebtedness, obligation or Investment, or (d) otherwise
to assure the owner of such Indebtedness, obligation or Investment against
loss in respect thereof.
The terms "hereof," "herein," "hereunder" and other words of similar
import shall be construed to refer to this Agreement as a whole and not to
any particular Section or other subsection.
41
<PAGE>
<PAGE>
The term "Increased Cost" shall have the meaning set forth in
Section 1.6(d) hereof.
The term "Indebtedness," with respect to any Person, shall mean all
items (other than capital stock, capital surplus, retained earnings and
deferred credits and deferred income taxes), which in accordance with
generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a balance sheet as at
the date on which Indebtedness is to be determined. The term
"Indebtedness" shall also include, whether or not so reflected, (a)
indebtedness, obligations and liabilities secured by any Lien on property
of such Person, whether or not the indebtedness secured thereby shall have
been assumed by such Person, (b) all obligations of such Person in respect
of Capital Leases, and (c) all Guarantees.
The term "Indemnifying Party" shall have the meaning set forth in
Section 15.1 hereof.
The term "Indenture" shall have the meaning set forth in Section 1.5
hereof.
The term "Independent Accountant" shall have the meaning set forth
in Section 1.6 hereof.
The term "Independent Public Accountant" shall mean any of (a)
Arthur Andersen & Co., (b) Deloitte & Touche, (c) Coopers & Lybrand, (d)
Ernst & Young, (e) KMPG Peat Marwick and (f) Price Waterhouse (and any
successors thereof); provided, that such firm is independent with respect
to the Borrower or AutoBond, as the case may be, within the meaning of the
Securities Act of 1933, as amended.
The term "Initial Closing Date" shall have the meaning set forth in
Section 1.2 hereof.
The term "Initial Lender" shall mean, subject to Section 7.3, Daiwa
Finance Corporation.
The term "Interest Payment Date" means each Payment Date and each
date upon which Advances are repaid, either in whole or in part.
The term "Interest Period" shall mean, with respect to any Advance,
the period commencing with the date of such Advance to and excluding the
Payment Date occurring in the month following the date of such Advance,
and thereafter, the period commencing with each Payment Date, to and
excluding the following Payment Date; provided that the final Interest
Period in respect of an Advance shall end on (but exclude) the Maturity
Date or prepayment date in respect of such Advance.
42
<PAGE>
<PAGE>
The term "Interest Rate" shall mean, for any Interest Period, LIBOR
plus 1.15; provided, however, that in no event shall the Interest Rate be
greater than 11%.
The term "Investment" shall mean any loan, advance, extension of
credit (except for accounts and notes receivable for merchandise sold or
services furnished in the ordinary course of business, and amounts paid in
advance on account of the purchase price of merchandise to be delivered to
the payor within one year of the date of the advance), or purchase of
stock, notes, bonds or other securities or capital contribution to any
Person, whether in cash or other property. The amount of any Investment
shall be its cost (the amount of cash or the fair market value of other
property given in exchange therefor).
The term "Lender" shall mean the Initial Lender and any Assignees
thereof.
The term "LIBOR" shall mean the per annum rate for deposits in
United States dollars for a period of one month which appears on Telerate
Page 3750 as of 11:00 a.m., London time, on the related LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750 on
such day, the rate will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on such day to prime banks in the
London interbank market for a period of one month commencing on that day.
The Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that day will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested,
the rate for that day will be the arithmetic mean of the rates quoted by
two or more major banks in New York City, selected by the Trustee, in its
sole discretion at approximately 11:00 a.m., New York City time, on that
day for loans in United States dollars to leading European banks for a
period of one month.
The term "LIBOR Determination Date" shall mean the second Business
Day prior to the commencement of each Interest Period; provided that with
respect to the first Interest Period such date shall be the first Business
Day prior to the Initial Closing Date.
The term "Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, civil
law, statute, civil code or contract, whether or not such interest shall
be recorded or perfected and whether or not such interest shall be
contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances, and including the
lien, privilege, security interest or other encumbrance arising from a
mortgage, deed of trust, hypothecation, cession, transfer, assignment,
pledge, adverse claim or
43
<PAGE>
<PAGE>
charge, conditional sale or trust receipt, or from a lease, consignment or
bailment for security purposes. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property. For the purposes of this Agreement, a
Person shall be deemed to be the owner of any property that such Person
shall have acquired or shall hold subject to a conditional sale agreement
or other arrangement (including a leasing arrangement) pursuant to which
title to the property shall have been retained by or vested in some other
Person for security purposes.
The term "Loan Acquisition Price" shall mean 91.74% of the Unpaid
Principal Balance for Specified Auto Loans as of the date of purchase
under the Loan Acquisition Agreement.
The term "Loan Documents" means, with respect to an Auto Loan (a) a
copy of the retail installment loan contract and security agreement
evidencing such Auto Loan, (b) a copy of the credit application, and (c) a
copy of an executed agreement to provide insurance signed by the Obligor,
a binder in respect thereof or the original confirmation of payment of
premiums required under the VSI Policy, if any.
The term "Loan File" means, with respect to any Auto Loan, the
original retail installment loan contract and security agreement
evidencing the Auto Loan and originals or copies of such other documents
and instruments relating to such Auto Loan and the security interest on
the selected Financed Vehicle as specified in the Credit and Collection
Policies.
The term "Loan Purchase Account" shall have the meaning set forth in
the Indenture.
The term "Loan Sale Agreement" shall mean the Loan Sale and
Contribution Agreement dated as of June 30, 1997 between the Borrower and
AutoBond, pursuant to which the Borrower agrees to acquire Eligible Auto
Loans, as from time to time further amended, supplemented or modified.
The term "Maturity Date" in respect of any Advance shall mean the
earlier to occur of (a) 120 days following the date of such Advance and
(b) March 31, 1998; provided, however, that the Maturity Dates for the
initial Advances made on the Issuance Date of the Note shall be the same
as the original maturity dates for the predecessor advances as incurred
under the Funding II Credit Agreement.
The term "Minimum Assignment Denomination" shall mean $500,000.
44
<PAGE>
<PAGE>
The term "Monthly Servicer Fee" shall have the meaning specified in
the Indenture.
The term "Moody's" shall mean Moody's Investors Service, Inc.
The term "Net Payoff Balance" means, in respect of any Precomputed
Auto Loans, the net payoff less any accrued but unpaid late charges, as
determined in accordance with the worksheet attached hereto as Schedule 2.
The term "Net Principal Balance" means, with respect to any
Precomputed Auto Loan, the Net Payoff Balance as of the due date of the
last full Scheduled Payment, or if more recent, the due date of the last
periodic payment of principal thereon.
The term "Net Unrealized Amount" means, (a) with respect to any Auto
Loan which is more than 90 days contractually past due or where the
Financed Vehicle is otherwise subject to repossession (including voluntary
or involuntary, or upon casualty), the Unpaid Principal Balance of such
Auto Loan minus the sum of (i) any repossession proceeds allocable to
principal actually received on such Auto Loan, (ii) any insurance proceeds
allocable to principal actually received from a claim with respect to such
Auto Loan and (iii) refunds received from the cancellation of any
insurance policies or service contracts with respect to such Auto Loan,
and (b) with respect to any Auto Loan where the related Obligor is in
bankruptcy, the amount of losses allocable to principal incurred thereon.
The term "Nondefaulted Auto Loan" shall mean an Auto Loan which is
not a Defaulted Auto Loan.
The term "Note(s)" shall have the meaning set forth in Section
1.2(b) hereof and shall include any subdivision of the Note issued in
accordance with Section 1.2(c).
The term "Obligor" shall mean, with respect to any Auto Loan, the
Person primarily obligated to make payments in respect thereto.
The term "Officer's Certificate" (i) with respect to the Trustee,
any officer within the structured capital division (or any successor
thereof) including any vice president, assistant vice president, or any
officer or assistant officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated
officers and (ii) with respect to AutoBond, the Trustee, the Servicer or
the Borrower shall mean a certificate executed on behalf of such party by
the Chairman of the Board, the President or any Vice President of the
relevant entity.
45
<PAGE>
<PAGE>
The term "Originator" means any Person, other than AutoBond, that
acquires Auto Loans directly from a Dealer.
The term "Payment Date" shall mean the 15th day of each month (or,
if such day is not a Business Day, the next succeeding Business Day),
commencing March 15, 1997.
The term "Permitted Liens" shall mean:
(a) Liens created under the Indenture;
(b) Liens securing taxes, assessments, governmental charges or
levies not yet due or the payment of which is not then required by
Section 10.6 hereof; and
(c) any Lien which is a mechanics lien assessed against an
Automobile securing a Specified Auto Loan.
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency or
political subsection thereof).
The term "Precomputed Auto Loan" shall mean any Auto Loan under
which earned interest (which may be referred to in the Auto Loan as the
add-on finance charge) and principal is determined according to the sum of
periodic balances or the sum of monthly balances or the sum of the digits
or any equivalent method commonly referred to as the "Rule of 78s".
The term "Program Documents" shall mean this Agreement, the
Indenture, the Servicing Agreement, the Collateral Assignments, the Note
and the Loan.
The term "Property" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible.
The term "Purchase Price" shall have the meaning set forth in the
Loan Acquisition Agreement.
The term "Reference Banks" shall mean four major banks in the London
interbank market selected by the Trustee.
The term "Repurchase Price" shall mean, with respect to any
Specified Auto Loan which AutoBond is obligated to repurchase, an amount
equal to (a) the Unpaid
46
<PAGE>
<PAGE>
Principal Balance of such Specified Auto Loan as of the end of the
preceding Collection Period, plus (b) accrued and unpaid interest in
respect thereof calculated at the Interest Rate from the last day to which
interest has been paid and credited to the Lockbox or Collateral Account
through the date of repurchase, minus (iii) the amount of any principal
deposited in the Lockbox or the Collection Account in respect of such Auto
Loan since the end of such Collection Period.
The term "Requirement of Law" shall mean, as to any Person, any law,
treaty, rule or regulation, or determination of an arbitrator or
Governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject, whether federal, state or local
(including, without limitation, usury laws, the federal Truth in Lending
Act and Regulation Z and Regulation B of the Board of Governors of the
Federal Reserve System).
The term "Restricted Investment" shall mean any Investment other
than a Permitted Investment.
The term "Securities" shall mean, with respect to any Person, any
shares of any class of such Person's capital stock, or any options or
warrants to purchase its capital stock or other security exchangeable for
or convertible into its capital stock.
The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
The term "Security Interest" shall mean the security interest and
rights created under the Indenture in the Collateral in favor of the
Trustee.
The term "Selling Dealer" shall mean with respect to each Specified
Auto Loan, the Dealer that sold such Specified Auto Loan to AutoBond.
The term "Servicer" means CSC Logic/MSA L.L.P., doing business as
"Loan Servicing Enterprises", a Texas limited liability partnership, or
any other entity, in the capacity as servicer under the Servicing
Agreement.
The term "Servicer Report" shall have the meaning set forth in the
Servicing Agreement.
The term "Servicing Agreement" shall mean the Servicing Agreement,
dated as of January 29, 1997 between AutoBond and the Servicer.
The term "Solvent" shall mean, with respect to any Person, that:
47
<PAGE>
<PAGE>
(a) the Properties of such Person, at a fair valuation, exceed
the total liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities) of such Person;
(b) based on current projections, which are based on
underlying assumptions which provide a reasonable basis for the
projections and which reflect such Person's judgment based on
present circumstances of the most likely set of conditions and such
Person's most likely course of action for the period projected, such
Person believes it has sufficient cash flow to enable it to pay its
debts as they mature; and
(c) such Person does not have an unreasonably small capital
with which to engage in its anticipated business.
The term "S&P" shall mean Standard & Poor's Ratings Group.
The term "Specified Auto Loan" shall mean each Auto Loan pledged by
the Borrower to the Trustee under the Indenture as security for its
obligations hereunder and under the Indenture.
The term "Subsequent Closing Date" shall have the meaning set forth
in Section 1.2 hereof.
The term "Successor Servicer" shall have the meaning set forth in
the Servicing Agreement.
The term "Telerate Page 3750" shall mean the display page so
designated on the Dow Jones Telerate Service (or such other page as may
replace that page on that service for the purpose of displaying comparable
rates or prices).
The term "this Agreement" shall mean this Credit Agreement
(including the annexed Exhibits and Schedules), as it may from time to
time be amended, supplemented or modified in accordance with its terms.
The term "Trustee" shall have the meaning set forth in Section 1.5
hereof.
The term "Unpaid Principal Balance" means, with respect to any Auto
Loan as of any Determination Date, (i) for an Auto Loan bearing interest
calculable on a simple interest basis, the unpaid principal amount for
such Auto Loan or (ii) for a Precomputed Auto Loan, the Net Principal
Balance, in each case as of the end of the most recent Collection Period;
provided that, for any Auto Loan where the Net Unrealized Amount equals
the Unpaid Principal Balance, such Unpaid Principal
48
<PAGE>
<PAGE>
Balance shall thereafter equal zero (other than for purposes of
calculating the Net Unrealized Amounts).
The term "VSI Policy" means a vendor's single interest insurance
policy insuring against risk of physical damage on the Financed Vehicles.
Section 14.2 Accounting Terms. All accounting terms used herein that
are not otherwise expressly defined shall have the respective meanings given to
them in accordance with generally accepted accounting principles at the
particular time.
Section 14.3 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
Section 14.4 Headings. The headings of the Sections and other
subsections of this Agreement have been inserted for convenience of reference
only and shall not affect the meaning of this Agreement.
Section 14.5 Independence of Covenants, etc. Each representation,
covenant or Event of Default herein shall be given independent effect so that if
any action or condition would violate any of such covenants, would breach any of
such representations or would constitute any of such Events of Default, the fact
that such action or condition would not violate or breach, any other covenant or
representation or constitute another Event of Default shall not avoid the
violation of such covenant or representation or the occurrence of such Event of
Default.
SECTION 15. INDEMNIFICATION AND FUNDING LOSSES.
Section 15.1 Indemnification. (a) The Borrower and AutoBond, jointly
and severally, agree to indemnify and hold harmless the Lender, the directors,
officers, employees and agents of the Lender and each Person who controls the
Lender within the meaning of the Securities Act or the Securities Exchange Act
from and against any and all claims, damages, losses, liabilities, costs or
expenses (including reasonable attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several, to
which any of them may become subject to the extent that any such claims,
damages, losses, liabilities, costs or expenses are attributable to the
transactions contemplated herein, including, without limitation, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise; provided, that the Borrower and AutoBond
shall not be liable to the Lender for any (i) credit losses incurred by the
Lender in its capacity as a
49
<PAGE>
<PAGE>
Lender with respect to the Advances resulting from the performance of the
Specified Auto Loans, (ii) losses incurred by the Lender as a result of breaches
by the Lender of any of its obligations hereunder or under any of the other
Program Documents, the fraudulent actions, misrepresentations, negligence or
willful misconduct of the Lender or (iii) losses, claims, damages, liabilities
and expenses arising out of the imposition by any taxing authority of any
federal income, state or local income or franchise taxes, or any other taxes
imposed on or measured by gross or net income, gross or net receipts, capital,
net worth and similar items (including any interest, penalties or additions with
respect thereto) upon the Lender (including any liabilities, costs or expenses
with respect thereto). The foregoing is in addition to any rights (including
without limitation rights to indemnity) to which the Lender may otherwise be
entitled.
(b) Promptly after receipt by the Lender of notice of the
commencement of any action, the Lender shall, if a claim in respect thereof is
to be made against the Borrower or AutoBond (each, an "Indemnifying Party")
under this Section 15.1, notify the Indemnifying Party in writing of the
commencement thereof; but the omission so to notify the Indemnifying Party will
not relieve it from any liability which it may have to the Lender except to the
extent such Indemnifying Party is prejudiced thereby. In case any action is
brought against the Lender, and it notifies the Indemnifying Party of the
commencement thereof, the Indemnifying Party will be entitled to appoint counsel
satisfactory to such Indemnifying Party (who shall not, except with the consent
of the Lender, be counsel to the Borrower or AutoBond) to represent the Lender
in such action; provided, however, that, if the defendants in any action include
both the Lender and an Indemnifying Party and the Lender shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Indemnifying Party, the Lender
shall have the right to select separate counsel to defend such action on behalf
of it. Upon receipt of notice from the Indemnifying Party to the Lender of its
election so to appoint counsel to defend such action and approval by the Lender
of such counsel, the Indemnifying Party will not be liable to the Lender under
this Section 15.1 for any legal or other expenses subsequently incurred by the
Lender in connection with the defense thereof unless (i) the Lender shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence, (ii) the Indemnifying Party shall not have employed counsel
satisfactory to the Lender to represent the Lender within a reasonable time
after notice of commencement of the action or (iii) the Indemnifying Party has
authorized the employment of counsel for the Lender at the expense of the
Indemnifying Party; and except that, if clause (i) or (iii) is applicable, such
liability shall be only in respect of the counsel referred to in such clause (i)
or (iii).
(c) If the indemnification provided for in this Section 15.1 is
unavailable or insufficient to hold harmless the Lender under subsection (a) or
(b) above, then the Indemnifying Parties shall contribute to the amount paid or
payable by the Lender as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (i) in
50
<PAGE>
<PAGE>
such proportion as is appropriate to reflect the relative benefits received by
the Indemnifying Parties on the one hand and the Lender on the other from the
transactions contemplated by this Agreement or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Indemnifying Parties on the one hand
and the Lender on the other in connection with the actions or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The Lender and the Indemnifying Parties agree
that it would not be just and equitable if contributions pursuant to this
subsection (c) were to be determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this subsection (c). The amount payable by
the Indemnifying Parties as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (c) shall be
deemed to include any legal or other expenses reasonably incurred by the Lender
in connection with investigating or defending any action or claim which is the
subject of this subsection (c). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The obligations of the Indemnifying Parties and the Lender under
this Section 15.1 shall be in addition to any liability which each of them may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Lender within the meaning of the Securities
Act; and, with respect to the obligation of the Indemnifying Parties to the
Lender as indemnified party, shall extend, upon the same terms and conditions,
to each director of the Lender.
(e) The Lender agrees to notify the indemnifying party in writing of
the commencement of any action with respect to which indemnification may be owed
to it pursuant to this Section 15.1 or Article V of the Servicing Agreement
after receipt by the Lender of notice of commencement thereof, but the omission
so to notify the indemnifying party will not relieve such indemnifying party
from any liability which it may have except to the extent the indemnifying party
is prejudiced thereby. For purposes of this Section 15.1(e), the Servicer shall
be a third party beneficiary of the agreements herein contained.
(f) The agreement, indemnities and other statements of the parties
hereto in or made pursuant to this Section 15.1 will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any other parties hereto or any of the officers,
directors or controlling persons referred to in this Section 15.1. The
provisions of this Section 15.1 shall survive the termination or cancellation of
this Agreement.
Section 15.2 Indemnification with respect to the Specified Auto
Loans. Without limiting any other rights that the Trustee or the Lenders (each
an "Indemnified
51
<PAGE>
<PAGE>
Party") may have hereunder or under applicable law, AutoBond hereby agrees,
jointly and severally, to pay on demand to each Indemnified Party any and all
amounts necessary to indemnify such Indemnified Party from and against any and
all claims, losses, damages and liabilities and related costs and expenses,
including taxes and reasonable attorneys' fees and disbursements ("Indemnified
Amounts") which may be imposed on, incurred by or asserted against an
Indemnified Party in any way arising out of or resulting from:
(a) the use by AutoBond of proceeds of any sale or in respect of any
Auto Loan;
(b) any representation or warranty made or deemed made by AutoBond
(or any of its officers) under this Agreement, or any report delivered by
AutoBond pursuant hereto or any other information delivered by AutoBond
pursuant hereto, having been incorrect in any material respect when made
or deemed made or delivered (except with respect to any representation and
warranty arising under Section 2.3(a) (other than Section 2.3(a)(xxi)(A)
in respect of losses to or damages imposed on Borrower or the Trustee in
excess of the Repurchase Price of a Specified Auto Loan) in respect of a
Specified Auto Loan, as to which the remedies are set forth in Section
2.3(b));
(c) the failure by AutoBond to comply with any applicable law, rule
or regulation with respect to any Specified Auto Loan, or the
nonconformity of any Specified Auto Loan with any such applicable law,
rule or regulation;
(d) the failure to vest and maintain vested in the Borrower and its
assignees, legal, equitable and marketable title to and ownership of the
Auto Loans which are, or are purported to be, Specified Auto Loans,
together with all proceeds in respect thereof, free and clear of any
Adverse Claim (except as permitted hereunder) whether existing at the time
of the proposed sale of such Auto Loan or at any time thereafter and
without limitation to the remedies set forth in Section 2.3(c);
(e) the actions or inactions of AutoBond or any officer, director,
employee or agent of AutoBond; or
(f) the assessment of any tax or governmental fee or charge (and all
interest or penalties with respect thereto) as the result of the purchase
or ownership of any Auto Loan, other than taxes on or measured by the
gross income of any Person.
excluding, however, (i) recourse for any uncollectible Specified Auto Loan;
provided, that the foregoing shall not be deemed to limit the Borrower's or the
Trustee's rights under Sections 2.3(c), or this Section 15.2 and, with respect
to a breach in the representation and warranty set forth in Section
2.3(a)(xxi)(A), Section 9(b), and (b) Indemnified Amounts to
52
<PAGE>
<PAGE>
the extent resulting from the gross negligence or willful misconduct on the part
of any Indemnified Party. AutoBond acknowledges that the Borrower has assigned
its rights of indemnity granted hereunder to the Trustee. AutoBond agrees that,
upon such assignment, such assignee may enforce directly, without joinder of the
Borrower, the indemnities set forth in this Section 15.2. It is understood and
agreed that the indemnity obligations of AutoBond hereunder shall survive the
termination of this Agreement or of any Specified Auto Loan.
Section 15.3 Funding Losses. Except in connection with a mandatory
prepayment pursuant to Section 8.2(a) or (b), if the Borrower makes, or the
Lender otherwise receives, any payment in respect of principal of any Advance
other than on the first day of an Interest Period, the Borrower and AutoBond
shall, jointly and severally, indemnify the Lender for any loss, or expense
("Funding Loss") incurred by the Lender as a result thereof, including without
limitation, lost profit and any loss, cost or expense from employing, obtaining
or liquidating deposits from third parties. The amount of any Funding Loss shall
be determined in good faith by the Lender. If the Borrower, within 30 days after
receiving a notice of the amount of such Funding Loss, disputes, the amount set
forth in such notice, the Lender and the Borrower shall consult in good faith to
resolve such dispute. If such consultation does not resolve such dispute within
45 days (or such longer period as the Lender and the Borrower may then agree)
after the Lender shall have provided the Borrower with such notice, the Borrower
may request that the Lender furnish to an Independent Accountant all information
reasonably necessary to permit the confirmation of the accuracy of the Lender's
computation of the Funding Losses described in such notice. Within 30 days of
the receipt of such information, the Independent Accountant either shall confirm
the accuracy of such computation or shall notify the Lender and the Borrower
that such computation proposed by the Lender is inaccurate. In the latter event,
the Lender shall consult with the Borrower and the Independent Account as to the
proper computation of the Funding Losses, whereupon the Lender shall recompute
the Funding Losses in such a manner as shall enable the Independent Accountant
to confirm their accuracy. The Borrower and the Lender agree that the sole
responsibility of the Independent Accountant shall be to verify the calculation
of the Funding Losses and that matters of interpretation of the Program
Documents are not within the scope of its responsibilities. All expenses
incurred by the Lender and the Borrower in connection with the verification
procedures described in this Section 15.3 (including the fees and expenses of
the Independent Accountant) shall be paid by the Borrower. Any information
provided to the Independent Accountant by the Lender shall be and remain the
exclusive property of the Lender and shall be deemed by the parties to be (and
the Independent Accountant shall confirm in writing that it will treat such
information as) the private, proprietary and confidential property of the
Lender, and no Person other than the Lender and the Independent Accountant shall
be entitled thereto or to any review thereof, and all such information shall be
returned to the Lender contemporaneously with the completion of the verification
procedure.
53
<PAGE>
<PAGE>
SECTION 16. MISCELLANEOUS.
Section 16.1 Notices. (a) All communications under this Agreement or
the Notes shall be in writing and shall be delivered or mailed or sent by
facsimile transmission and confirmed in writing (i) if to the Lender, to the
Lender, at such address as the Lender may have furnished to the Borrower in
writing, and (ii) if to the Borrower, at the address set forth in Section 2.2(b)
or at such other address or facsimile number as it shall have furnished in
writing to the Lender and (iii) if to AutoBond to it at the address set forth in
Section 2.3(b) or at such other address or facsimile number as it shall have
furnished in writing to the Lender.
(b) Any written communication so addressed and mailed by certified
or registered mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 16.2 Survival. All representations, warranties and covenants
made by the Borrower herein or by the Borrower in any certificate or other
instrument delivered under or in connection with this Agreement shall be
considered to have been relied upon by the Lender and shall survive regardless
of any investigation made by the Lender or on the Lender's behalf.
Section 16.3 Successors and Assigns. This Agreement shall be binding
upon the parties hereof and their respective successors and assigns, and shall
inure to the benefit of and be enforceable by the parties hereof and their
respective successors and assigns permitted hereunder. Whether or not expressly
so stated and subject to the restrictions set forth herein, the provisions of
Sections 5 through 16 of this Agreement are intended to be for the Lender's
benefit and shall be enforceable by the Lender; and, provided further, that the
provisions of Sections 7.2 and 10.1 hereof shall also be for the benefit of, and
shall be enforceable by, any Person who shall no longer be a Lender hereunder
but who shall have incurred any expense or been subjected to any liability
referred to therein while, or on the basis of being, a Lender.
Section 16.4 Amendment and Waiver. (a) This Agreement and the Notes
may be amended or supplemented, and the observance of any term hereof or thereof
may be waived, with the written consent of the Borrower, AutoBond and (i) on or
prior to the Initial Closing Date, the Initial Lender, and (ii) after the
Initial Closing Date, the Lender (or, if multiple Lenders, Lenders with respect
to at least 66-2/3% in aggregate unpaid principal amount of the Advances;
provided, however, that no such amendment, supplement or waiver shall, without
the written consent of all Lenders, (a) change, with respect to the Advances,
the amount or time of any required prepayment or payment of principal or premium
or the rate or time of payment of interest, or change the funds in which any
prepayment or payment
54
<PAGE>
<PAGE>
on the Advances is required to be made; (b) reduce the percentage of the
aggregate principal amount of Advances required for any amendment, consent or
waiver hereunder; or (c) release any material Lien of the Trustee, held for the
benefit of the Lender, on any of the Collateral or affect the priority thereof.
(b) Any amendment, supplement or waiver effected in accordance with
this Section 16.4 shall be binding upon the Lender, each Assignee and the
Borrower.
(c) The Borrower will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of the
Program Documents or the Note unless the Initial Lender (irrespective of the
amount of Advances made by it) shall be informed thereof by the Borrower and
shall be afforded the opportunity of considering the same and shall be supplied
by the Borrower with sufficient information to enable it to make an informed
decision with respect thereto. Executed or true and correct copies of any waiver
effected pursuant to the provisions of this Section 16.4 shall be delivered by
the Borrower to the Lender forthwith following the date on which the same shall
have been executed and delivered by the Lender of the requisite percentage of
Advances.
Section 16.5 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.
Section 16.6 Reproduction of Documents. This Agreement and all
documents relating hereto (other than the Note), including, without limitation,
(a) consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Initial Lender at the closing of the Initial Lender's
making of Advances, and (c) financial statements, certificates and other
information heretofore or hereafter furnished to the Lender, may be reproduced
by the Lender by any photographic or other similar process and the Lender may
destroy any original document so reproduced. The Borrower agrees and stipulates
that, to the extent permitted by applicable law and court or agency rules, any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.
Section 16.7 Consent to Jurisdiction and Venue. The Borrower and
AutoBond each hereby irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to the Program Documents or any Note 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
55
<PAGE>
<PAGE>
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 and AutoBond 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 Borrower at its
address for notices provided in Section 16.1 hereof. 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 16.7 shall
be by registered or certified mail, return receipt requested. Nothing in this
Section 16.7 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.
Section 16.8 No Petition. The Lender and each Assignee hereby
covenant and agree that, until the expiration of 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.
Section 16.9 Acts of Lender. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Agreement to
be given or taken by the Lender may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by the Lender in person or by
agents duly appointed in writing; and except as herein otherwise expressly
provided such action shall become effective when such instrument or instruments
is or are delivered to the Borrower. Proof of execution of any such instrument
or of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement if made in the manner provided in this Section 16.9.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Borrower deems
sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Lender or any Assignee shall bind the Lender and
such Assignee in respect of anything done, omitted or suffered to be done by the
Borrower in reliance thereon, whether or not notation of such action is made
upon such Note.
Section 16.10 Confidentiality. All non-public information relating
to this Agreement, the Program Documents and the transactions contemplated
thereby will be kept confidential by AutoBond, the Borrower and the Initial
Lender. The Initial Lender agrees to cause each assignee and Participant with
which it is a party to agree to keep such information
56
<PAGE>
<PAGE>
confidential. The provisions of this Section 16.10 shall survive the termination
of this Agreement.
57
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and year first above written.
AUTOBOND MASTER FUNDING
CORPORATION
By:
----------------------------------------
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:
----------------------------------------
Name:
Title:
DAIWA FINANCE CORPORATION
By:
----------------------------------------
Name:
Title:
58
<PAGE>
<PAGE>
EXHIBIT A
[Form of Note]
PROMISSORY NOTE
$50,000,000
February 19, 1997
New York, New York
FOR VALUE RECEIVED, AutoBond Funding Corporation II, a Nevada
corporation (the "Borrower") for value received, hereby promises to pay to Daiwa
Finance Corporation (the "Lender") or its assigns, the principal sum of Fifty
Million Dollars ($50,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Advances made by the Lender to the
Borrower under the Credit Agreement), in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Advance, in like money and funds, for the period
commencing on the date of such Advance until such Advance shall be paid in full,
at the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, interest rate and maturity date of each Advance
made by the Lender shall be recorded by the Lender on its books and, prior to
any transfer of this Note, endorsed by the Lender on the schedule attached
hereto or any continuation thereof.
This Note is the Note referred to in the Credit Agreement (as
modified and supplemented and in effect from time to time, the "Credit
Agreement") dated as of February 1, 1997 among the Borrower, AutoBond Acceptance
Corporation and the Lender, and evidences Advances made by the Lender
thereunder. Capitalized terms used in this Note have the respective meanings
assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity
of this Note upon the occurrence of certain events and for prepayments of
Advances upon the terms and conditions specified therein.
This Note is secured in accordance with and entitled to the benefits
of the Indenture. Copies of the Indenture may be examined at the office of the
Borrower maintained pursuant to Section 16 of the Credit Agreement.
A-1
<PAGE>
<PAGE>
The Borrower agrees to perform and observe duly and punctually each
of the covenants and agreements set forth in the Credit Agreement. All such
covenants and agreements are incorporated by reference in this Note, and this
Note shall be interpreted and construed as if all such covenants and agreements
were set forth in full in this Note at this place.
The Borrower hereby waives diligence, presentment and notice of any
kind. The non-exercise by the holder hereof of any right in any one instance
shall not limit the other (or further) exercise of that right in that (or any
other) circumstances.
By its holding of this Note, the Lender shall be deemed to accept
the terms of the Credit Agreement and the Indenture and agree to be bound
thereby.
This Note shall be governed by and construed in accordance with the
law of the State of New York.
A-2
<PAGE>
<PAGE>
IN WITNESS WHEREOF, AutoBond Funding Corporation II has caused this
Note to be duly executed on its behalf by its officers thereunto duly
authorized.
AUTOBOND FUNDING CORPORATION II
By:
----------------------------------------
Name:
Title:
A-3
<PAGE>
<PAGE>
SCHEDULE OF ADVANCES
The Note evidences Advances made under the within-described Credit
Agreement to the Borrower, on the dates, in the principal amounts, bearing
interest at the rates and maturing on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
Principal Initial Maturity Amount Unpaid
Date of Amount of Interest Date of Paid or Principal Notation
Advance Advance Rate Advance Prepaid amount Made By
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
EXHIBIT B
FORM OF BORROWING NOTICE
[Borrower's Letterhead]
[Date]
[Lender]
[Address]
Attention: __________________________
In accordance with Section 1.3 of the Credit Agreement, dated as of
February 1, 1997 (the "Credit Agreement"), among AutoBond Funding Corporation II
(the "Borrower"), AutoBond Acceptance Corporation and Daiwa Finance Corporation,
the undersigned hereby gives notice to the Lender that on ______________ the
Borrower proposes to borrow from the Lender $________________ in accordance with
and subject to the terms of the Credit Agreement. The Borrower hereby confirms
that all conditions to funding have been satisfied.
The Advance shall be wired to:
[insert wire instructions]
AUTOBOND FUNDING CORPORATION II
By:
-------------------------------
Name:
Title:
<PAGE>
<PAGE>
Execution Copy
================================================================================
AUTOBOND MASTER FUNDING CORPORATION,
as Company
AUTOBOND ACCEPTANCE CORPORATION,
as Administrator
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
---------------
TRUST INDENTURE
Dated as of June 30, 1997
---------------
Auto Loan-Backed Notes
================================================================================
<PAGE>
<PAGE>
TRUST INDENTURE
This TRUST INDENTURE dated as of June 30, 1997, is among AUTOBOND
MASTER FUNDING CORPORATION, a Nevada corporation, as Company (the "Company"),
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation, as Administrator (the
"Administrator") and individually ("AutoBond"), and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, as trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company is a bankruptcy-remote corporation formed for
the sole purpose of acquiring from AutoBond Funding Corporation II ("AutoBond
Funding II") certain automobile finance contracts ("Auto Loans") acquired by
AutoBond and certain other rights and properties pertaining thereto;
WHEREAS, the Company has duly authorized the execution and delivery
of this Indenture to provide for the issuance from time to time of its
debentures, notes or other evidences of indebtedness (herein called the
"Notes"), to be issued in one or more Series as in this Indenture provided;
WHEREAS, the Company intends that the Trustee, on behalf of the
Trust Estate (as defined herein) for the benefit of the Noteholders and the
Company, will take assignment of the Auto Loans and related rights and benefits,
including those under any collateral security agreement, insurance, guarantees
and dealer agreements from the Company simultaneously with the acquisition of
such Auto Loans by the Company; and
WHEREAS, the Administrator has been requested and is willing to
direct the Trustee to make certain distributions of funds to the Noteholders,
the Company and certain creditors in connection with amounts received as
proceeds from the Trust Estate and to otherwise perform certain administrative
functions in connection with the transactions contemplated hereby.
NOW, THEREFORE, THIS TRUST INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the holders thereof, it is mutually covenanted and agreed, for the
benefit of all Noteholders and the Company, as follows:
GRANTING CLAUSE
The Company hereby Grants to the Trustee for inclusion in the Trust
Estate on each Assignment Date, for the benefit and security of the Noteholders,
all of the Company's
<PAGE>
<PAGE>
right, title and interest in and to (a) the Transferred Assets specified in each
Collateral Assignment, including the Company's security interests in the
Financed Vehicles; (b) all moneys from time to time on deposit in any Trust
Accounts, including all investments and income from the investment of such
moneys, and (c) all proceeds of the conversion, whether voluntary or
involuntary, of any of the foregoing into cash or other property. Such Grant is
made in trust to secure (i) the payment of all amounts due on the Notes of each
Series, (ii) the payment of all other sums payable under this Indenture with
respect to the Notes and (iii) compliance with the provisions of this Indenture
with respect to the Notes.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions hereof, and agrees to perform the duties herein
required to the best of its ability and to the end that the Trust Estate and the
interests of the Noteholders and the Company may be adequately and effectively
protected as hereinafter provided.
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. General Definitions.
Except as otherwise specified or as the context may otherwise
require, the following terms have the meanings set forth below for all purposes
of this Indenture, and the definitions of such terms are applicable to the
singular as well as to the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
Act: with respect to any Noteholder, as defined in Section 1.04.
Acquisition Agreement: the Amended and Restated Loan Acquisition,
Sale and Contribution Agreement, dated as of February 1, 1997, between AutoBond
and AutoBond Funding II.
Administrator: AutoBond and any permitted successor to such
functions in accordance, and in connection with, this Indenture in its capacity
as Administrator hereunder, and if AutoBond is acting as Collection Agent under
the Servicing Agreement, also in its capacity as Collection Agent.
Administrator Duties: specified in Section 5.03.
2
<PAGE>
<PAGE>
Administrator Order: a written order or request delivered to the
Trustee and signed in the name of the Administrator by an Authorized Officer.
Adverse Claim: any claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other type
of preferential arrangement having the effect or purpose of creating a lien or
security interest, other than the interests created under this Indenture in
favor of the Trustee and the Noteholders.
Affiliate: of any specified Person, means any other Person which
directly or indirectly controls, or is controlled by, or is under common control
with, such specified Person. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
APR: the annual percentage rate of an Auto Loan as determined
according to the related contractual documents with the Obligor thereof.
Assignment: collectively, with respect to any Receivable, the
related Sale Assignment and any Collateral Assignment.
Assignment Date: each date when Auto Loans are transferred to the
Trust Estate.
Authorized Officer: with respect to any corporation or partnership,
the Chairman of the Board, the President, any Vice President, the Secretary, the
Treasurer, any Assistant Secretary, any Assistant Treasurer and each other
officer of such corporation or the general partner of such partnership
specifically authorized in resolutions of the Board of Directors of such
corporation to sign agreements, instruments or other documents in connection
with this Indenture on behalf of such corporation or partnership, as the case
may be.
AutoBond: AutoBond Acceptance Corporation, a Texas corporation.
AutoBond Funding II: AutoBond Funding Corporation II, a Nevada
corporation.
AutoBond Program Manual: the AutoBond Program Manual (including the
Credit and Collection Policies) attached hereto as Exhibit A, as modified from
time to time, with notice of each such modification to each Rating Agency, the
Servicer and the Trustee.
Auto Loan: set forth in the recitals hereto.
3
<PAGE>
<PAGE>
Automobile Loan Sale Agreement: any agreement under which AutoBond
purchases Auto Loans from an Originator.
Board of Directors: either the board of directors of the Company or
any duly authorized committee of that board.
Board Resolution: a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
Business Day: any day other than a Saturday or a Sunday, or another
day on which banks in the City of New York, or the City of Minneapolis,
Minnesota or in Texas (or such other cities and states in which the Corporate
Trust Office, the principal administrative offices of the Administrator, Note
Registrar and Transfer Agent and Paying Agent or the principal offices of the
Servicer or the Administrator are subsequently located, as specified in writing
by the Administrator to the other parties hereto) are required, or authorized by
law, to close.
Cash Reserve Account: the account or accounts has that name
established and maintained by the Trustee pursuant to Section 3.03.
Class: with respect to a Series of Notes, each class of Notes so
designated within such Series.
Collateral Assignment: a certificate of assignment by the Company to
the Trustee substantially in the form of Exhibit B giving notice of, and
evidencing, the transfer of Auto Loans by the Company to the Trustee on behalf
of the Trust Estate.
Collection Account: the account or accounts by that name established
and maintained by the Trustee pursuant to Section 3.02.
Collection Agent: means AutoBond, in its capacity as Collection
Agent under a Servicing Agreement and hereunder.
Commission: the Securities and Exchange Commission.
Company: the Person named as the "Company" in the first paragraph of
this instrument.
Company Order or Company Request: a written order or request
delivered to the Trustee and signed in the name of the Company by an Authorized
Officer.
4
<PAGE>
<PAGE>
Company's Interest: the interest of the Company in the Trust Estate,
including cash flows payable to in respect of any Series.
Corporate Trust Office: the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of the execution of this Indenture is located at the
address set forth in Section 12.05.
Credit and Collection Policies: written credit procedures and
policies consistent with the requirements of this Indenture and the Servicing
Agreement, in effect from time to time, as formulated by the Administrator and
comprising part of AutoBond Program Manual.
Cut-Off Date: with respect to the Receivables specified in any
Transfer, the date specified in the related Assignment.
Dealer: each automobile dealer with whom AutoBond or an Originator
has entered into a Dealer Agreement.
Dealer Agreement: each agreement between a Dealer and either
AutoBond or an Originator which provides for, among other things, origination of
the Receivables.
Debt: for any Person, (a) indebtedness of such Person for borrowed
money or credit extended, (b) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) obligations of such Person
to pay the deferred purchase price of property or services, (d) obligations of
such Person as lessee under leases which have been or should be, in accordance
with GAAP, recorded as capital leases, (e) obligations secured by any lien or
other charge upon property or assets owned by such Person, even though such
Person has not assumed or become liable for the payment of such obligations, (f)
obligations of such Person under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (e) above,
and (g) liabilities in respect of unfunded vested benefits under plans covered
by ERISA. For the purposes hereof, the term "guarantee" shall include any
agreement, whether such agreement is on a contingency or otherwise, to purchase,
repurchase or otherwise acquire Debt of any other Person, or to purchase, sell
or lease, as lessee or lessor, property or services, in any such case primarily
for the purpose of enabling another Person to make payment of Debt, or to make
any payment (whether as an advance, capital contribution, purchase of an equity
interest or otherwise) to assure a minimum equity, asset base, working capital
or other balance sheet or financial condition, in connection with the Debt of
another Person, or to supply funds to or in any manner invest in another Person
in connection with Debt of such Person.
5
<PAGE>
<PAGE>
Defaulted Auto Loan: an Auto Loan (a) which by its terms has more
than 10% of any installment of principal or interest which is 60 or more days
contractually past due and (b) which is not a Liquidated Receivable.
Defaulted Receivable: as of the end of any Due Period, (a) a
Defaulted Auto Loan, (b) a Receivable as to which the proceeds of the sale of
the related Financed Vehicle have been received by the Administrator or (c) a
Receivable as to which the Administrator has determined (or should have
determined in accordance with the Credit and Collection Policies) that no
further proceeds other than from the Insurance Policies are expected to be
received or that such Receivable is uncollectible and such determination was
made at or prior to the last day of such Due Period.
Default: any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
Deposit Date: the Business Day immediately preceding each related
Payment Date.
Depositary: with respect to Notes of any Series issuable in whole or
in part in the form of one or more Global Notes, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such Notes as
contemplated by Section 2.01.
Determination Date: the 10th day of each month (or the preceding
Business Day, if such day is not a Business Day), or as otherwise specified for
a Series.
Due Period: as specified for each Series.
Eligible Account: a segregated account, which may be an account
maintained with the Trustee, which is either (a) maintained with a depository
institution or trust company (including the Trustee) whose short term unsecured
debt obligations are rated at least P-1 by Moody's and whose long term unsecured
debt obligations are rated at least A by Fitch and at least A3 by Moody's;
provided, that if only Moody's rates such institution, such single rating shall
suffice, or (b) a segregated trust account or similar account maintained with a
federally or state chartered depository institution with corporate trust powers,
subject to regulations regarding fiduciary funds on deposit substantially
similar to 12 C.F.R. ss.9.10(b) and with a long term debt rating of at least A3
by Moody's.
Eligible Investments: any of the following:
(i) Aaa-rated obligations of, or guaranteed as to the full and
timely payment of principal and interest by, the United States or obligations of
any agency or
6
<PAGE>
<PAGE>
instrumentality thereof, when such obligations are backed by the full faith and
credit of the United States;
(ii) short-term repurchase agreements on obligations specified in
clause (a) having a maturity no greater than the next Payment Date ; provided,
that the short-term debt obligations of the party agreeing to repurchase are
rated no less than F-1 by Fitch and P-1 by Moody's (provided, that if only
Moody's rates such party, such single rating shall suffice);
(iii) federal funds, certificates of deposit, time deposits and
bankers' acceptances (which shall each have an original maturity of not more
than 90 days and, in the case of bankers' acceptances, shall in no event have an
original maturity of more than 365 days) of any United States depository
institution or trust company incorporated under the laws of the United States or
any state; provided, that the short-term obligations of such depository
institution or trust company are rated no less than F-1 by Fitch and P-1 by
Moody's (provided, that if only Moody's rates such party, such single rating
shall suffice);
(iv) commercial paper (having original maturities of not more than
30 days) of any corporation incorporated under the laws of the United States or
any state thereof which on the date of acquisition are rated no less than F-1 by
Fitch and P-1 by Moody's (provided, that if only Moody's rates such party, such
single rating shall suffice);
(v) securities of money market funds rated in the highest investment
category by Fitch and Moody's (provided, that if only Moody's rates such fund,
such single rating shall suffice); and
(vi) such other investment grade investments as shall be acceptable
to each Rating Agency and to the holders of at least 75% in aggregate
Outstanding principal amount of the Notes of each affected Series, upon prior
written approval.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
Event of Administrator Termination: as specified in the designated
Servicing Agreement.
Event of Default: as defined in Section 6.01, as supplemented with
respect to any Series.
Event of Servicing Termination: as specified in the designated
Servicing Agreement.
Exchange Act: the Securities Exchange Act of 1934, as amended.
7
<PAGE>
<PAGE>
Financed Vehicle: a new or used automobile, van or light-duty truck,
the purchase of which the Obligor financed with an Auto Loan.
Fitch: Fitch Investors Service, L.P., a nationally recognized
statistical rating organization, and any successor thereto.
GAAP: generally accepted accounting principles as in effect in the
United States, consistently applied, as of the date of such application.
Global Note: a Note that evidences all or part of the Notes of any
Series and bears such legend as may be specified as contemplated by Section 2.01
for such Notes.
Grant: grant, bargain, sell, convey, assign, transfer, mortgage,
pledge, create and grant a security interest in and right of set-off against,
deposit, set over and confirm. The Grant of the Trust Estate effected by this
Indenture shall include all rights, powers, and options (but none of the
obligations) of the Company with respect thereto, including, without limitation,
the immediate and continuing right to claim for, collect, receive, and give
receipts for Payments in respect of the Auto Loans and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
judicial proceedings in the name of the Company or otherwise, and generally to
do and receive anything that the Company is or may be entitled to do or receive
thereunder or with respect thereto.
Governmental Authority: the United States of America, any state,
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
Holder: a Person in whose name a Note is registered in the Note
Register.
Indenture: this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular Series of Notes
established as contemplated by Section 2.01.
Insurance Policies: the insurance policies issued by each of the
Insurers to AutoBond (the benefits of which have been assigned to the Trust
Estate as security for the Notes of a designated Series) and listed on Schedule
2 (as modified from time to time).
8
<PAGE>
<PAGE>
Insurers: each of the insurance companies named in the Insurance
Policies.
Intended Tax Characterization: as specified in Section 4.04(b).
Interest Payment Date: as specified with respect to a Series.
Interest Payments: as defined in Section 2.01(c).
Issuance Date: as specified with respect to a Series.
Liquidated Receivable: as specified with respect to a Series.
List of Receivables: a list containing the Required Information with
respect to each Receivable delivered to the Trustee, the Series to which such
Receivable is allocated and certified by a duly authorized officer of the
Company, which is attached hereto as Schedule 1 (as supplemented from time to
time).
Loan Documents: with respect to an Auto Loan (a) the fully executed
original retail installment loan contract and security agreement evidencing such
Auto Loan, including the assignment to AutoBond, (b) the original confirmation
of title, copy of the application for title or letter of guaranty from the
applicable Dealer, as the case may be, for the related Financed Vehicle, (c) a
copy of the credit application, and (d) a copy of an executed agreement to
provide insurance signed by the Obligor, a binder in respect thereof or the
original confirmation of payment of premiums required under the VSI Policy.
Loan File: with respect to any Auto Loan, the original retail
installment loan contract and security agreement evidencing the Auto Loan and
originals or copies of such other documents and instruments relating to such
Auto Loan and the security interest on the selected Financed Vehicle as
specified in the Credit and Collection Policies.
Lockbox: the lockbox established and maintained pursuant to the
Lockbox Operations Agreement.
Lockbox Account: the account at the Lockbox Bank designated for
AutoBond Master Funding Corporation and any Series and maintained pursuant to
the Lockbox Operations Agreement.
Lockbox Bank: as designated with respect to a Series.
Lockbox Operations Agreement: the agreement so designated with
respect to a Series.
9
<PAGE>
<PAGE>
Maturity: with respect to any installment of principal of or
interest on any Note, the date on which such installment is due and payable as
therein or herein provided, whether at the Stated Maturity, by declaration of
acceleration, or otherwise.
Monthly Trustee Fee: for any Payment Date, an amount equal to the
product of the aggregate Unpaid Principal Balance of Receivables at the
beginning of the related Due Period and the Trustee Fee Rate, multiplied by
1/12, plus amounts payable to the Trustee under Section 7.06 but not paid by the
Administrator.
Moody's: Moody's Investors Service, Inc. and any successors thereto.
Net Payoff Balance: in respect of any Precomputed Receivables, the
net payoff less any accrued but unpaid late charges.
Net Principal Balance: with respect to any Precomputed Receivable,
the Net Payoff Balance as of the due date of the last full Scheduled Payment, or
if more recent, the due date of the last periodic payment of principal thereon.
Net Unrealized Amount: (a) with respect to any Liquidated
Receivable, the Unpaid Principal Balance of such Auto Loan minus the sum of (i)
any repossession proceeds allocable to principal actually received on such Auto
Loan, (ii) any insurance proceeds allocable to principal actually received from
a claim with respect to such Auto Loan and (iii) refunds received from the
cancellation of any insurance policies or service contracts with respect to such
Auto Loan, and (b) with respect to any Auto Loan where the related Obligor is in
bankruptcy, the amount of losses allocable to principal incurred thereon.
Noteholder: at any time, any Person in whose name a Note is
registered in the Note Register.
Note Register: as defined in Section 2.03.
Notes: as set forth in the Recitals to this Indenture.
Obligor: with respect to any Auto Loan, the Person primarily
obligated to make payments in respect thereto.
Officer's Certificate: with respect to any Person, a certificate
signed by the Chairman of the Board, Vice Chairman of the Board, the President,
a Vice President, the Treasurer, the Secretary, an Assistant Secretary, or the
manager of such Person.
10
<PAGE>
<PAGE>
Opinion of Counsel: a written opinion, which shall be satisfactory
in form and substance to the Trustee, of counsel who may, except as otherwise
expressly provided in this Indenture, be inside or outside counsel for the
Company and who shall be satisfactory to the Trustee and the Rating Agencies.
Original Principal Balance: the Net Principal Balance of a
Precomputed Receivable and otherwise the outstanding Principal Balance of a
Receivable, in each case as of the related Cut-Off Date prior to its assignment
to the Trust Estate.
Originator: any Person, other than AutoBond, that acquires Auto
Loans directly from a Dealer.
Outstanding: with respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:
(a) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes or portions thereof for whose payment money in the
necessary amount has been theretofore irrevocably deposited with the
Trustee in trust for the holders of such Notes; and
(c) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
Person in whose hands the Note is a valid obligation;
provided, however, that in determining whether the holders of the requisite
percentage of the Outstanding Principal Amount of the Notes have given any
request, demand, authorization, direction, notice, consent, or waiver hereunder,
Notes owned by the Company or any Affiliate of the Company shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, or waiver, only Notes that a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded.
Outstanding Principal Amount: the aggregate unpaid principal amount
of the Notes of any Series Outstanding at any time.
Paying Agent: the Trustee.
11
<PAGE>
<PAGE>
Payment Date: the 15th day (or, if such day is not a Business Day,
the next succeeding Business Day) of each month, commencing as so designated
with respect to a Series and ending with the Stated Maturity of such Series.
Payments: for any Receivable for any Due Period, all amounts
received with respect to such Receivable during such Due Period, including,
without limitation, payments (including prepayments) from the relevant Obligor
(including principal, interest, late fees and other charges), payments from
Dealers and warranty rebates, proceeds from any insurance policy, including the
Insurance Policies (other than proceeds applied to the restoration or repair, or
in certain circumstances, replacement, of the related Financed Vehicle),
including amounts which constitute Recoveries on Receivables.
Percentage: means, with respect to a particular Note within a Class,
the percentage obtained by dividing the outstanding principal amount of the
related Note by the aggregate Outstanding Principal Amount of all Notes in such
Class, or with respect to Notes of a Class within a Series, the percentage
obtained by dividing the aggregate outstanding principal amount of the related
Notes of such Class, by the aggregate Outstanding Principal Amounts of such
Series.
Person: any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
Precomputed Receivable: any Auto Loan under which earned interest
(which may be referred to in the Auto Loan as the add-on finance charge) and
principal is determined according to the sum of periodic balances or the sum of
monthly balances or the sum of the digits or any equivalent method commonly
referred to as the "Rule of 78s".
Predecessor Notes: with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 in lieu of a lost, destroyed or
stolen Note (or a mutilated Note surrendered to the Trustee) shall be deemed to
evidence the same debt as the lost, destroyed or stolen Note (or a mutilated
Note surrendered to the Trustee).
Principal: with respect to a Note, the amount designated as such.
Principal Balance: of an Auto Loan means, on any date of
determination, the Original Principal Balance minus that portion of all payments
made on or prior to such date allocable to principal; provided that, for every
Due Period following the Due Period with respect to which an Auto Loan is
repurchased by the Administrator in accordance with the
12
<PAGE>
<PAGE>
provisions of Section 11.03 or as to which the Net Unrealized Amount equals the
Unpaid Principal Balance, the Principal Balance shall be deemed to be zero.
Principal Charge-offs: with respect to any Due Period, the aggregate
Net Unrealized Amount experienced for Auto Loans which have become Liquidated
Receivables during such Due Period.
Principal Payments: as defined in Section 2.01(b).
Rating Agency: any nationally recognized statistical organization
rating the Notes of any Series at the request of the Company.
Receivable: a fixed rate fully amortizing closed-end consumer
installment Auto Loan (upon which interest is calculated based upon either a
simple interest basis or the Rule of 78s) arising from the sale of a Financed
Vehicle and assigned to the Trustee by the Company as part of the Trust Estate,
and includes, without limitation, (a) the related Assignment, (b) all security
interests or liens and property subject thereto from time to time purporting to
secure payment by the Obligor thereunder, including, without limitation, the
Financed Vehicle, AutoBond's or an Originator's rights under the related Dealer
Agreement, AutoBond's rights under an Automobile Loan Sale Agreement, and
AutoBond Funding II's rights under the Acquisition Agreements and the Company's
rights under the Sale Agreement, (c) all guarantees, indemnities and warranties,
proceeds of insurance policies (including the Insurance Policies), certificates
of title or other title documentation and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such Auto
Loan, (d) all collections and all related Loan Documents, Loan Files and records
with respect to the foregoing, and (e) all proceeds of any of the foregoing.
Record Date: with respect to any Payment Date, the last day of the
calendar month immediately preceding such Payment Date.
Records: all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) prepared and
maintained by the Collection Agent, the Servicer or by or on behalf of the
Company with respect to Receivables and the related Obligors.
Recoveries on Receivables: for any Due Period, all amounts received
by the Servicer, the Administrator, the Company or the Trustee on behalf of the
Trust Estate during such Due Period with respect to (a) Defaulted Receivables
from any source, including, without limitation, net proceeds from the
repossession and liquidation of Financed Vehicles, proceeds of insurance
(including insurance maintained by Obligors and the Insurance
13
<PAGE>
<PAGE>
Policies), and (b) the Repurchase Price of Receivables repurchased by AutoBond
pursuant to Section 11.03.
Reimbursable Administrator Expenses: with respect to any Payment
Date, all reasonable and customary out-of-pocket fees and expenses of third
parties incurred by the Administrator (including fees and expenses of the
Trustee paid by the Administrator under Section 7.06 or otherwise, and expenses
related to financing statements and titles required to be paid by the
Administrator) in connection with their respective repossession and liquidation
activities, including, without limitation, fees of attorneys, appraisers, third
party collateral managers and others (who shall have been retained by the
Administrator, in accordance with the Servicing Agreement) for the Due Period
immediately preceding such Payment Date, but not including expenses paid net of
recoveries.
Related Documents: with respect to any Series each Sale Assignment,
each Collateral Assignment, any Automobile Loan Sale Agreement, the Sale
Agreement, each Acquisition Agreement, the Insurance Policies, the Servicing
Agreement and all documents and instruments required to be delivered hereunder
or thereunder.
Repurchase Price: for any repurchase on a Payment Date of any Auto
Loan which AutoBond is obligated to repurchase in accordance with the provisions
of Section 3.03, the sum of (a) the Unpaid Principal Balance of such Receivable
as of the end of the preceding Due Period, plus (b) an amount equal to the
amount of interest accrued on such Unpaid Principal Balance at the greater of
the APR or the Note Rate from the last day to which interest has been paid and
credited to the Lockbox or the Collection Account with respect to such
Receivable through the last day of such Due Period, minus (c) the amount of any
principal deposited in the Lockbox or the Collection Account in respect of such
Auto Loan since the end of such Due Period.
Required Information: with respect to a Receivable as of the related
Cut-Off Date, (a) the name of the Obligor and a description of the Financed
Vehicle, (b) the Original Principal Balance and original term, (c) the maturity
date of such Receivable, (d) the APR, (e) the state of origination (f) the
dollar amount and the number of Scheduled Payments and (g) whether such
Receivable calculates interest based upon a simple interest basis or the Rule of
78s.
Sale Agreement: the Loan Sale and Contribution Agreement, dated as
of June 30, 1997 among AutoBond, AutoBond Funding II and the Company, providing
for the sale or contribution of the Receivables to the Company.
14
<PAGE>
<PAGE>
Sale Assignment: each assignment executed by AutoBond Funding II in
favor of the Company from time to time pursuant to the Sale Agreement conveying
its interest in the Receivables to the Company.
Scheduled Payment: a payment due on an Auto Loan in accordance with
its terms.
Series: each Series of Notes designated as such pursuant to this
Indenture.
Securities Act: the Securities Act of 1933, as amended.
Servicer: the servicer designated as such, under the Servicing
Agreement and any successor thereto in accordance with this Indenture and the
Servicing Agreement.
Servicer Duties: specified in Section 2.04(a) of the Servicing
Agreement.
Servicer Order: a written order or request delivered to the Trustee
and signed in the name of the Servicer by an Authorized Officer.
Servicing Agreement: as designated with respect to a Series.
Stated Maturity: the date on which the entire remaining unpaid
Outstanding Principal Amount of a Class of Notes is due and payable.
Subservicer: any Person with whom the Servicer enters into a
Subservicing Agreement.
Subservicing Agreement: any written contract between the Servicer
and any Subservicer, relating to servicing and collection of Receivables, in
such form as has been approved by the Company, the Trustee and the Administrator
pursuant to the Servicing Agreement.
Subsidiary: as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
Successor Servicer: specified in Section 2.13(a) of the Servicing
Agreement.
Target Reserve Percentage: as so designated with respect to a
Series.
15
<PAGE>
<PAGE>
Tax or Taxes: all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, profits, withholding,
excise, property, sales, use, occupation and franchise taxes (including, in each
such case, any interest, penalties or additions attributable to or imposed on or
with respect to any such taxes, charges, fees or other assessments) imposed by
the United States, any state or political subdivision thereof, any foreign
government or any other jurisdiction or taxing authority.
Title Document: with respect to any Auto Loan and the related
Financed Vehicle, either (a) the certificate of title for, or other evidence of
a security interest in (including, without limitation, dealer guaranty or proof
of application for notice of lien), such Financed Vehicle or (b) with respect to
any jurisdiction in which the certificate of title or other evidence of
ownership is not issued to the holder of a lien, evidence of the security
interest in the Financed Vehicle, in each case issued by the department of motor
vehicles or other appropriate Governmental Authority in the jurisdiction in
which such Financed Vehicle or the Obligor is located.
Transfer: as specified in Section 4.02(a).
Transfer Notice: as specified in Section 4.02(b).
Transferred Assets: the Receivables, all monies due or paid in
respect of the Receivables after the related Cut-off Date, all rights under the
VSI Policy in respect of the Receivables (but not the obligation to make any
payment thereunder to the Insurer or for taxes on premiums paid or payable
thereon), all rights of the Company under the Acquisition Agreements, the
Servicing Agreement, each Sale Assignment and the Sale Agreement, including
AutoBond's assigned rights under the Dealer Agreements and any Automobile Loan
Sale Agreement and AutoBond Funding II's rights under the Acquisition Agreement,
all documents contained in the Loan Files relating to the Receivables, all
monies due or to become due and all amounts received with respect thereto and
all related rights and benefits (but not obligations) and all proceeds of the
foregoing.
Trust Accounts: the Collection Account, the Cash Reserve Account and
any other account so designated with respect to such Series.
Trust Estate: all money, instruments and other property and rights
subject to the lien of this Indenture, including all proceeds thereof.
Trustee: the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Person shall have become the Trustee pursuant
to the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Person; provided, that the provisions of Section 7.07 and
Section 8.11, as applicable to any Person at
16
<PAGE>
<PAGE>
any time serving as Trustee hereunder, shall survive the termination of such
Person's status as Trustee hereunder and the succession of any other Person to
such status.
Trustee Fee Rate: 0.20% per annum, unless otherwise designated with
respect to a Series.
Trust Indenture Act: the Trust Indenture Act of 1939 as in effect on
the date on which this Indenture is qualified under the Trust Indenture Act,
except as provided in Section 9.06 hereof.
UCC: the Uniform Commercial Code as in effect in the relevant state.
Unpaid Principal Balance: with respect to any Auto Loan as of any
Determination Date, (a) for an Auto Loan bearing interest calculable on a simple
interest basis, the unpaid principal amount for such Auto Loan or (b) for a
Precomputed Receivable, the Net Principal Balance, in each case as of the end of
the most recent Due Period; provided that, for any Auto Loan where the Net
Unrealized Amount equals the Unpaid Principal Balance, such Unpaid Principal
Balance shall thereafter equal zero (other than for purposes of calculating the
Repurchase Price, Net Unrealized Amounts and other items designated for such
Series.
VSI Policy: the Vendor's Single Interest Insurance Policy issued by
each of Insurers, as listed on Schedule 2 (as modified from time to time) and
delivered to the Trustee, insuring against risk of physical damage on the
Financed Vehicles, and designated as applicable for a particular Series.
SECTION 1.02. Compliance Certificates and Opinions.
Upon any written application or request (or oral application with
prompt written or telecopied confirmation) by the Company to the Trustee to take
any action under any provision of this Indenture, other than any request that
(a) the Trustee authenticate the Notes specified in such request, (b) the
Trustee invest moneys in any of the Trust Accounts pursuant to the written
directions specified in such request, or (c) the Trustee pay moneys due and
payable to the Company hereunder to the Company's assignee specified in such
request, the Trustee shall require the Company to furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and that the request otherwise is in accordance with the terms of the Indenture,
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such requested action as to which other evidence of
17
<PAGE>
<PAGE>
satisfaction of the conditions precedent thereto is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company delivered to
the Trustee may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such officer's certificate or
opinion and any Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company as to such factual matters unless such
officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any Opinion of Counsel may be based on the written opinion of
other counsel, in which event such Opinion of Counsel shall be accompanied by a
copy of such other counsel's opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Company shall
deliver any document as a condition of the granting of such application, or as
evidence of compliance with any term hereof, it is intended that the truth and
accuracy, at the time of the granting of such application or at the effective
date of such certificate or report (as the case may be), of the facts and
opinions stated in such document shall in such case be conditions precedent to
the right of the Company to have such application granted or to the sufficiency
of such certificate or report. The foregoing shall not, however, be construed to
affect the Trustee's right to rely upon the truth and accuracy of any statement
or opinion contained in any such document as provided in Section 7.01(b).
18
<PAGE>
<PAGE>
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default, Event of
Administrator Termination or Event of Servicing Termination is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Company, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Company's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default, Event of Administrator Termination or Event of
Servicing Termination. For all purposes of this Indenture, the Trustee shall not
be deemed to have knowledge of any Default or Event of Default, Event of
Administrator Termination or Event of Servicing Termination nor shall the
Trustee have any duty to monitor or investigate to determine whether a default
has occurred (other than an Event of Default of the kind described in Section
6.01(a)), Event of Administrator Termination or Event of Servicing Termination
unless a Responsible Officer of the Trustee shall have actual knowledge thereof
or shall have been notified in writing thereof by the Company, the Servicer, or
any Noteholder.
SECTION 1.04. Acts of Noteholders, etc.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 7.01) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section 1.04.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
19
<PAGE>
<PAGE>
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the holder of any Note shall bind every future holder of
the same Note and the holder of every Note issued upon the registration of
transfer thereof or in exchange therefore or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
(d) By accepting the Notes issued pursuant to this Indenture, each
Noteholder irrevocably appoints the Trustee hereunder as the special
attorney-in-fact for such Noteholder vested with full power on behalf of such
Noteholder to effect and enforce the rights of such Noteholder and the revisions
pursuant hereto for the benefit of such Noteholder; provided that nothing
contained in this Section 1.04(d) shall be deemed to confer upon the Trustee any
duty or power to vote on behalf of the Noteholders with respect to any matter on
which the Noteholders have a right to vote pursuant to the terms of this
Indenture.
SECTION 1.05. Notice to Noteholders; Waiver.
(a) Where this Indenture provides for notice to Noteholders of any
event, or the mailing of any report to Noteholders, such notice or report shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid or certified mail return receipt
requested, or sent by private courier or confirmed telecopy to each Noteholder
affected by such event or to whom such report is required to be mailed, at its
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice or
the mailing of such report. In any case where a notice or report to Noteholders
is mailed, neither the failure to mail such notice or report, nor any defect in
any notice or report so mailed, to any particular Noteholder shall affect the
sufficiency of such notice or report with respect to other Noteholders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Noteholders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
(b) In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to mail or send notice to
Noteholders, in accordance with Section 1.06(a), of any event or any report to
Noteholders when such notice or report is required to be delivered pursuant to
any provision of this Indenture, then such notification or delivery as shall be
made with the approval of the Trustee shall constitute a sufficient notification
for every purpose hereunder.
20
<PAGE>
<PAGE>
SECTION 1.06. Effect of Headings and Table of Contents.
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 1.07. Successors and Assigns.
All covenants and agreements in this Indenture by each of the
Company, the Administrator or the Trustee shall bind its respective successors
and permitted assigns, whether so expressed or not.
SECTION 1.08. GOVERNING LAW.
THIS TRUST INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. UNLESS MADE
APPLICABLE IN A SUPPLEMENT HERETO, THIS TRUST INDENTURE IS NOT SUBJECT TO THE
TRUST INDENTURE ACT OF 1939 AND SHALL NOT BE GOVERNED THEREBY AND CONSTRUED IN
ACCORDANCE THEREWITH.
SECTION 1.09. Legal Holidays.
In any case where any Payment Date or the Stated Maturity or any
other date on which principal of or interest on any Note is proposed to be paid
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) such payment need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such Payment Date, Stated Maturity, or other date on which principal of
or interest on any Note is proposed to be paid, provided that no interest shall
accrue for the period from and after such Payment Date, Stated Maturity, or any
other date on which principal of or interest on any Note is proposed to be paid,
as the case may be, until such next succeeding Business Day.
SECTION 1.10. Execution in Counterparts.
This Indenture may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
21
<PAGE>
<PAGE>
SECTION 1.11. Inspection.
The Company agrees that, on reasonable prior notice, it will permit
the representatives of the Trustee or any Noteholder holding Notes evidencing at
least 25% of the Outstanding Principal Amount of the Notes of any Series, during
the Company's normal business hours, to examine all of the books of account,
records, reports and other papers of the Company, to make copies thereof and
extracts therefrom, and to discuss its affairs, finances and accounts with its
officers, employees and independent accountants (and by this provision the
Company hereby authorizes its accountants to discuss with such representatives
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested for the purpose of reviewing or evaluating the
financial condition or affairs of the Company or the performance of and
compliance with the covenants and undertakings of the Company and the
Administrator in this Indenture, the Sale Agreement and the Servicing Agreement
or any of the other documents referred to herein or therein. Any expense
incident to the exercise by the Trustee at any time or any Noteholder during the
continuance of any Default or Event of Default, of any right under this Section
1.12 shall be borne by the Company. Nothing contained herein shall be construed
as a duty of the Trustee to perform such inspection.
SECTION 1.12. Survival of Representations and Warranties.
The representations, warranties and certifications of the Company
made in this Indenture or in any certificate or other writing delivered by the
Company pursuant hereto shall survive the authentication and delivery of the
Notes hereunder.
SECTION 1.13. Security Forms.
The Notes of each Series shall be in such form as shall be
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or Depositary therefor or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. If the form of Notes of any Series is
established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 2.03 for the
authentication and delivery of such Notes.
22
<PAGE>
<PAGE>
The definitive Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Notes, as evidenced by their execution of such
Notes.
ARTICLE 2.
THE NOTES
SECTION 2.01. General Provisions.
(a) Amount Unlimited; Issuable in Series; Denominations. The
aggregate principal amount of Notes which may be authenticated and delivered
under this Indenture is unlimited.
The Notes may be issued in one or more Series. Pursuant to an
Exchange permitted under Section 13.06, there shall be established in one or
more indentures supplemental hereto, prior to the issuance of Notes of any
Series (other than the Variable Funding Notes, Series A, established pursuant to
Article 13),
(1) the title of the Notes of the Series (which shall
distinguish the Notes of the Series from Notes of any other Series)
and the designation of each Class, if any, within such Series;
(2) any limit upon the aggregate principal amount of the Notes
of the Series which may be authenticated and delivered under this
Indenture (except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of,
other Notes of the Series pursuant to Section 2.04, 2.05 [9.06] or
[1107] and except for any Notes which, pursuant to Section 2.02, are
deemed never to have been authenticated and delivered hereunder);
(3) the Person to whom any interest on a Note of the Series
shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Notes) is registered at the
close of business on the Record Date for such interest;
(4) the Payment Date or Dates on which the principal of any
Notes of the Series is payable and the amount of principal payable
on such date or dates;
(5) the rate or rates at which any Notes of the Series shall
bear interest, if any, the date or dates from which any such
interest shall accrue,
23
<PAGE>
<PAGE>
the Interest Payment Dates on which any such interest shall be
payable and the Record Date for any such interest payable on any
Interest Payment Date;
(6) the designation of the Lockbox Account and Transferred
Assets specific to such Series;
(7) the designation of Trust Assets allocable to such Series
and the Cut-off Date or Dates applicable thereto;
(8) any form of credit enhancement, including surety bonds,
letters of credit, derivative contracts, guarantees or cash reserve
accounts applicable to such Series (as required by the applicable
Rating Agencies);
(9) the priority of payments to Noteholders of such Series and
to the Trustee, the Servicer, the Collection Agent, any providers of
credit enhancement, liquidity or hedging contracts, the Company and
any other party with an interest in the proceeds of the allocated
Trust Assets;
(10) the applicable Servicing Agreement and the Servicer and
Collection Agent thereunder, if other than AutoBond;
(11) the Trustee;
(12) representations and warranties of the Company with
respect to the allocated Trust Assets, as customarily required for
such Series;
(13) the place or places where the principal of and any
premium and interest on any Notes of the Series shall be payable;
(14) if other than denominations of $100,000 and any integral
multiple of $1,000 in excess thereof, the denominations in which any
Notes of the Series shall be issuable;
(15) the forms of the Notes of such Series;
(16) if applicable, that any Notes of the Series shall be
issuable in whole or in part in the form of one or more Global Notes
and, in such case, the respective Depositaries for such Global
Notes, the form of any legend or legends which shall be borne by any
such Global Security and any circumstances in addition to or in lieu
of those set forth in Clause (2) of the last paragraph of Section
____ in which any such Global Security may be
24
<PAGE>
<PAGE>
exchanged in whole or in part for Notes registered, and any transfer
of such Global Security in whole or in part may be registered, in
the name or names of Persons other than the Depositary for such
Global Security or a nominee thereof;
(17) any addition to or change in the Events of Default which
applies to any Notes of the Series and any change in the right of
the Trustee or the requisite Holders of such Notes to declare the
principal amount thereof due and payable pursuant to Section 6.02 or
to liquidate all or a portion of the Trust Estate (in each case,
only to the extent customarily required for such a Series);
(18) any addition to or change in the covenants which applies
to Notes of the Series (in each case, only to the extent customarily
required for such a Series); and
(19) any other terms of the Series (which terms shall not be
inconsistent with the provisions of this Indenture, except as
permitted by Section 9.02).
(b) Denominations. The Notes of each Series shall be issuable only
in registered form without coupons and only in such denominations as shall be
specified as contemplated by Section 2.01(a). In the absence of any such
specified denomination with respect to the Notes of any Series, the Notes of
such Series shall be issuable in denominations of $1,000 and any integral
multiple thereof.
(c) Principal Payments; Clean-up Call. For each Payment Date,
payments of principal (the "Principal Payments") on the Notes will be made in
accordance with Sections 3.04 or 6.06, as applicable. Except as otherwise
provided in Section 6.02, no part of the principal of any Note shall be paid
prior to the Payment Date on which such principal is due in accordance with the
preceding provisions of this Section 2.01(b), except that, upon the
Administrator's direction, the Company may redeem the Notes of any Series in
their entirety, without premium, as of any Payment Date on which the sum of the
Outstanding Principal Amount of the Notes of such Series is less than or equal
to ten percent (10%) of the initial Outstanding Principal Amount of the Notes of
such Series (after giving effect to all Principal Payments on such Payment
Date). The Administrator will give notice of any such redemption to each
Noteholder and the Trustee at least 30 days before the Payment Date fixed for
such prepayment by certified mail return receipt requested, hand delivery or
overnight courier. Notice of such prepayment having been so given, the remaining
unpaid principal as of the Payment Date fixed for prepayment together with all
interest accrued and unpaid to such Payment Date, shall become due and payable
on such Payment Date.
25
<PAGE>
<PAGE>
(d) Interest Payments. For each Payment Date, the interest due and
payable (the "Interest Payments") with respect to any Series of Notes will be
the interest that has accrued on the Notes during the previous Due Period, plus
unpaid interest from prior Due Periods, at the designated interest rates.
Interest Payments will be made in accordance with Sections 3.04 and 6.06, as
applicable. Interest will be calculated as designated with respect to a Series.
SECTION 2.02. Execution, Authentication, Delivery, and Dating.
(a) The Notes shall be manually executed on behalf of the Company by
its Chairman or Vice Chairman.
(b) Any Note bearing the signature of an individual who was at the
time of execution thereof a proper officer of the Company shall bind the
Company, notwithstanding that such individual ceases to hold such office prior
to the authentication and delivery of such Note or did not hold such office at
the date of such Note.
(c) No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Each Note shall be dated the date of
its authentication.
(d) The Notes may from time to time be executed by the Company and
delivered to the Trustee for authentication together with a Company Request to
the Trustee directing the authentication and delivery of such Notes and
thereupon the same shall be authenticated and delivered by the Trustee in
accordance with such Company Request.
SECTION 2.03. Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust Office
a register (the "Note Register") in which, subject to such reasonable
regulations as the Trustee may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby appointed
"Note Registrar" for the purpose of registering Notes and transfers of Notes as
herein provided.
No transfer of any Note may be made unless that transfer is made
pursuant to an effective registration statement under the Notes Act and an
effective registration or a qualification under applicable state securities
laws, or is made in a transaction that does not require such registration or
qualification because the transfer satisfies one of the following:
26
<PAGE>
<PAGE>
(i) such transfer is in compliance with Rule 144A under the Notes Act, to a
person who the transferor reasonably believes is a Qualified Institutional Buyer
(as defined in Rule 144A) that is purchasing for its own account or for the
account of a Qualified Institutional Buyer and to whom notice is given that such
transfer is being made in reliance upon Rule 144A under the Notes Act as
certified by such transferee in a letter in the form of Exhibit __ hereto; (ii)
after the appropriate holding period, such transfer is pursuant to an exemption
from registration under the Notes Act provided by Rule 144 under the Notes Act;
(iii) such transfer is to a transferee who is an accredited investor in a
transaction exempt from the registration requirements of the Notes Act, in each
case in accordance with any applicable securities laws of any State of the
United States or (iv) such transfer is otherwise exempt from the registration
requirements of the Notes Act. The Trustee will require, in order to assure
compliance with such laws, that the Noteholder's prospective transferee referred
to in the preceding clauses (iii) or (iv) deliver an investment letter
certifying to the Company and the Trustee as to the facts surrounding such
transfer in the form of Exhibit __ hereto. Except in the case of a transfer of
Notes to a transferee referred to in the preceding clause (i) or, in general, a
transfer that is to be made after two years from the Issuance Date, the
Administrator shall require an opinion of counsel satisfactory to it to the
effect that such transfer may be made pursuant to an exemption from the Notes
Act without such registration (which opinion of counsel shall not be an expense
of the Trustee, the Administrator or the Company). None of the Company, the
Administrator or the Trustee is obligated to register or qualify the Notes under
the Notes Act or any other securities law or to take any action not otherwise
required under this Indenture to permit the transfer of any Note without
registration.
Neither the Trustee nor the Note Registrar shall effect the
registration of transfer of any Note, if after giving effect to such transfer,
the Notes of such Series would be held by more than ninety-eight Noteholders.
(b) Subject to Section 2.03(a), upon surrender for registration of
transfer of any Note at the office of the Company designated pursuant to Section
8.02 for such purpose, the Company shall execute and the Trustee upon request
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations and of a like
aggregate original principal amount.
(c) Every Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the holder thereof
or his attorney duly authorized in writing.
(d) No service charge shall be made for any registration of transfer
or exchange of Notes, but the Company or the Trustee may require payment by the
transferor
27
<PAGE>
<PAGE>
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 9.05 not involving any transfer.
(e) The Administrator agrees to cause the Company, and the Company
agrees, to provide such information as required under Rule 144A under the Act so
as to allow resales of Notes to Qualified Institutional Buyers in accordance
herewith.
SECTION 2.04. Mutilated, Destroyed, Lost and Stolen Notes.
(a) If any mutilated Note is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefore a replacement Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of actual notice
to the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(c) In case the final installment of principal on any such
mutilated, destroyed, lost or stolen Note has become or will at the next Payment
Date become due and payable, the Company in its discretion may, instead of
issuing a replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this Section,
the Company or the Trustee may require the payment by the Noteholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed as
a result of the issuance of such replacement Note.
(e) Every replacement Note issued pursuant to this Section 2.04 in
lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.
28
<PAGE>
<PAGE>
(f) The provisions of this Section 2.04 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.05. Payment of Interest and Principal; Rights Preserved.
(a) Any installment of interest or principal, payable on any Note
that is punctually paid or duly provided for by or on behalf of the Company on
the applicable Payment Date shall be paid to the Person in whose name such Note
was registered at the close of business on the Record Date for such Payment Date
by check mailed to the address specified in the Note Register, or upon the
request of a holder of more than $1,000,000 aggregate principal amount of Notes,
by wire transfer of federal funds to the account and number specified in the
Note Register, in each case on such Record Date for such Person (which shall be,
as to each original purchaser of the Notes, the account and number specified by
such purchaser to the Trustee in writing, or, if no such account or number is so
specified, then by check mailed to such Person's address as it appears in the
Note Register on such Record Date.
(b) All reductions in the principal amount of a Note effected by
payments of installments of principal made on any Payment Date shall be binding
upon all holders of such Note and of any Note issued upon the registration of
transfer thereof or in exchange therefore or in lieu thereof, whether or not
such payment is noted on such Note. All payments on the Notes shall be paid
without any requirement of presentment but each holder of any Note shall be
deemed to agree, by its acceptance of the same, to surrender such Note at the
Corporate Trust Office against payment of the final installment of principal of
such Note.
SECTION 2.06. Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee, and any agent of the Company or the Trustee may treat the
registered Noteholder as the owner of such Note for the purpose of receiving
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee, nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.07. Cancellation.
All Notes surrendered for registration of transfer or exchange or
following final payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the
29
<PAGE>
<PAGE>
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly cancelled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee may be disposed of in the normal course of its
business or as directed by a Company Order.
SECTION 2.08. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. In the event the Trustee no longer serves as the Note Registrar,
the Company (or any other obligor upon the Notes) shall furnish to the Trustee
at least five Business Days before each interest payment date (and in all events
in intervals of not more than 6 months) and at such other times as the Trustee
may request in writing a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Noteholders.
SECTION 2.09. Treasury Notes.
In determining whether the Noteholders of the required Outstanding
Principal Amount of the Notes have concurred in any direction, waiver or
consent, Notes held or redeemed by the Company or any other obligor upon the
Notes or held by an Affiliate of the Company shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which a Responsible Officer knows are so owned shall be so disregarded.
ARTICLE 3.
ACCOUNTS; COLLECTION AND
APPLICATION OF MONEYS; REPORTS
SECTION 3.01. Trust Accounts; Investments by Trustee.
(a) On or before the Issuance Date for any Series, the Trustee shall
establish in the name of the Trustee for the benefit of the Noteholders of such
Series and the Company to the extent of their interests therein as provided in
this Indenture and in the Servicing Agreement, the Trust Accounts designated for
such Series, which accounts shall be Eligible Accounts maintained at the
Corporate Trust Office.
30
<PAGE>
<PAGE>
Subject to the further provisions of this Section 3.01(a), the Trustee shall,
upon receipt or upon transfer from another account, as the case may be, deposit
into such accounts all amounts received by it which are required to be deposited
therein in accordance with the provisions of this Indenture. All such amounts
and all investments made with such amounts, including all income and other gain
from such investments, shall be held by the Trustee in such accounts as part of
the Trust Estate as herein provided, subject to withdrawal by the Trustee in
accordance with, and for the purposes specified in the provisions of, this
Indenture.
(b) The Trustee shall hold in trust but shall not be required to
deposit in any account specified in Section 3.01(a) any payment received by it
until such time as the Trustee shall have identified to its reasonable
satisfaction the nature of such payment and, on the basis thereof, the proper
account or accounts into which such payment is to be deposited. In determining
into which of the accounts, if any, referred to above any amount received by the
Trustee is to be deposited, the Trustee may conclusively rely (in the absence of
bad faith on the part of the Trustee) on the advice of the Administrator. Unless
the Trustee is advised differently in writing by the Administrator, the Trustee
shall assume that any amount remitted to it is to be deposited into the
designated Collection Account pursuant to Section 3.03. The Trustee may
establish from time to time such deadline or deadlines as it shall determine are
reasonable or necessary in the administration of the Trust Estate after which
all amounts received or collected by the Trustee on any day shall not be deemed
to have been received or collected until the next succeeding Business Day.
(c) Neither the Administrator, the Trustee nor the institution then
acting as Trustee shall have any right of set-off with respect to any Lockbox
Account or any Trust Account, or any investment therein.
(d) So long as no Event of Default shall have occurred and be
continuing, all or a portion of the amounts in any Trust Account shall be
invested and reinvested by the Trustee pursuant to an Administrator Order in one
or more Eligible Investments. Subject to the restrictions on the maturity of
investments set forth in Section 3.01(f), each such Administrator Order may
authorize the Trustee to make the specific Eligible Investments set forth
therein, to make Eligible Investments from time to time consistent with the
general instructions set forth therein, or to make specific Eligible Investments
pursuant to instructions received in writing or by telegraph or facsimile
transmission from the employees or agents of the Administrator, as the case may
be, identified therein, in each case in such amounts as such Administrator Order
shall specify.
(e) In the event that either the Administrator, as the case may be,
shall have failed to give investment directions to the Trustee by 9:30 A.M., New
York City time on any Business Day on which there may be uninvested cash or (ii)
an Event of Default shall
31
<PAGE>
<PAGE>
be continuing, the Trustee shall promptly invest and reinvest the funds then in
the designated Trust Account, as the case may be, to the fullest extent
practicable in one or more Eligible Investments, in accordance with Section
3.02(d). All investments made by the Trustee shall mature no later than the
maturity date therefore permitted by Section 3.01(f) unless the Trustee shall
have received written confirmation from each Rating Agency, that the liquidation
of such Eligible Investments prior to their respective maturity dates, will not
result in the reduction or withdrawal of such Rating Agency's then-current
rating of the Notes of such Series.
(f) No investment of any amount held in any Trust Account shall
mature later than the Deposit Date that is the Business Day immediately
preceding the Payment Date which is scheduled to occur immediately following the
date of investment. All income or other gains (net of losses) from the
investment of moneys deposited in any Trust Account shall be deposited by the
Trustee in such account immediately upon receipt.
(g) Any investment of any funds in any Trust Account and any sale of
any investment held in such accounts, shall be made under the following terms
and conditions:
(i) each such investment shall be made in the name of the Trustee or
in the name of a nominee of the Trustee, in each case in such manner as
shall be necessary to maintain the identity of such investments as assets
of the Trust Estate;
(ii) any certificate or other instrument evidencing such investment
shall be delivered directly to the Trustee or its agent and the Trustee
shall have sole possession of such instrument, and all income on such
investment; and
(iii) the proceeds of any sale of an investment shall be remitted by
the purchaser thereof directly to the Trustee for deposit in the account
in which such investment was held.
(h) If any amounts are needed for disbursement from any Trust
Account and sufficient uninvested funds are not collected and available therein
to make such disbursement, in the absence of an Administrator Order for the
liquidation of investments held therein in an amount sufficient to provide the
required funds, the Trustee shall select and cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such accounts.
(i) The Trustee shall not in any way be held liable by reason of any
insufficiency in any Trust Account resulting from losses on investments made in
accordance with the provisions of this Section 3.01 (but the institution serving
as Trustee shall at all times remain liable for its own debt obligations, if
any, constituting part of such
32
<PAGE>
<PAGE>
investments). The Trustee shall not be liable for any investment made by it in
accordance with this Section 3.01 on the grounds that it could have made a more
favorable investment or a more favorable selection for sale of an investment.
The Trustee may trade with itself or an Affiliate in the purchase or sale of
Eligible Investments.
SECTION 3.02. Establishment and Administration of the Lockbox and
the Collection Accounts. (a) The Administrator shall cause to be established and
maintained at all times a Lockbox and related Lockbox Account pursuant to the
designated Lockbox Agreement for such Series, of which such Lockbox and Lockbox
Account and shall be in the name of the Servicer, as custodian, and shall be
maintained on behalf of the Trustee for the benefit of the allocated Trust
Estate. Each Collection Account shall be an Eligible Account initially
established at the office of the Trustee, bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Series. The Trustee shall possess all right, title and interest in all funds on
deposit from time to time in each Lockbox Account and each Collection Account
and in all proceeds thereof. Each Lockbox Account and each Collection Account
shall be under the sole dominion and control of the Trustee for the benefit of
the Noteholders as their interests appear in the designated Trust Estate. The
Administrator or Servicer agrees to cause the Lockbox Bank to sweep funds from
each Lockbox to the related Lockbox Account on a daily basis and from each
Lockbox Account to related Collection Account at least once each week. The
Administrator agrees to require, and to cause the Servicer to require, that all
Payments by Obligors on Auto Loans be made to the Lockbox Account (and that only
Payments on Receivables will be received in the Lockbox Account and no other
funds other than funds in which the Trust Estate has an interest hereunder will
be commingled therein). If, at any time, the Collection Account ceases to be an
Eligible Account, the Administrator and the Trustee shall within 5 Business Days
establish a new Collection Account which shall be an Eligible Account, transfer
any cash and/or any investments to such new Collection Account and from the date
such new Collection Account is established, it shall be the "Collection
Account".
(b) The Administrator shall cause the Servicer to deposit into the
applicable Collection Account, as soon as practicable, but in no event later
than the close of business on the second Business Day after the date of receipt
thereof (i) all amounts representing Payments (net of insufficient fund fees and
overpayment credits), if any, collected by the Servicer or anyone else and (ii)
all Recoveries on Receivables received by the Servicer during such Due Period.
(c) Each of the Administrator and the Company shall immediately
deposit and pay directly into the applicable Lockbox Account any Payments it may
receive, all Recoveries on Receivables and the Repurchase Price of Receivables
repurchased by it pursuant to the Sale Agreement and pursuant to Section 3.03
hereof, with a written notice to the Servicer of such remittance.
33
<PAGE>
<PAGE>
(d) The Administrator shall direct the Trustee in writing to invest,
and the Trustee shall so invest, the amounts in each Collection Account in
specified Eligible Investments that mature not later than the next succeeding
Deposit Date; provided, that any Eligible Investment as to which the Trustee is
the obligor in its individual capacity may mature not later than such Payment
Date. If the Trustee receives no such direction, such amounts shall be invested
in mutual funds maintained by the Trustee (or an Affiliate of the Trustee),
provided such mutual funds constitute Eligible Investments; and provided,
further, that such mutual funds maintain at all times a net asset value of $1
per share. The Trustee may trade with itself or an Affiliate in the purchase or
sale of Eligible Investments. The Trustee shall not be liable for any losses
suffered on amounts invested hereunder so long as such investments are Eligible
Investments satisfying the timing requirements specified in the first sentence
of this Section 3.02(d).
(e) Subject to Section 3.06, the Administrator shall instruct the
Trustee in writing to make withdrawals and payments from each Collection Account
for the purposes of carrying out the Administrator's and the Trustee's duties
hereunder.
SECTION 3.03. Establishment and Administration of Cash Reserve
Accounts. (a) If so designated, on or prior to each Issuance Date, the
Administrator shall cause to be established and maintained at all times a Cash
Reserve Account on behalf of and in the name of the Trustee for the benefit of
the Trust Estate allocated to such Series. Each Cash Reserve Account shall be an
Eligible Account initially established at the offices of the Trustee. If, at any
time, the Cash Reserve Account ceases to be an Eligible Account, the
Administrator on behalf of the Trustee shall within 5 Business Days establish a
new Cash Reserve Account which shall be an Eligible Account, transfer any cash
and/or any investments to such new Cash Reserve Account and from the date such
new Cash Reserve Account is established, it shall be the "Cash Reserve Account"
in the name of the Trustee for the benefit of the Trust Estate. On the Issuance
Date, the Company shall deposit an amount equal to the Initial Cash Reserve
Account Deposit into the Cash Reserve Account which amounts shall be allocated
in the manner provided herein.
(b) The Administrator shall deliver or cause to be delivered to the
Trustee no later than the Business Day following any applicable Determination
Date a written notice (a "Cash Reserve Account Withdrawal Notice") requesting
the withdrawal and application of funds in each Cash Reserve Account in
accordance with the terms of the designated Series, and the Trustee shall so
withdraw and allocate such funds.
(c) Funds on deposit in the Cash Reserve Account shall be invested
in accordance with Section 3.01.
34
<PAGE>
<PAGE>
SECTION 3.04. Distributions.
(a) Distributions from that portion of Trust Assets allocated to
such Series will be made by the Trustee in accordance with the terms of such
Series.
(b) On the first Business Day following the Payment Date on which
all Noteholders of a given Series have been paid in full, all amounts held in
the applicable Trust Accounts, if any, shall be disbursed to the Company and all
interests of the Trust Estate in all Receivables allocated to such Series which
have an outstanding balance shall be reconveyed by the Trustee to the Company.
Such disbursement and reconveyance shall constitute the final payment to which
the Company is entitled with respect to its Company Interest pursuant to the
terms of this Indenture.
SECTION 3.05. Reports to Noteholders. On each Payment Date,
concurrently with the distribution or allocation to the Noteholders, the Trustee
shall furnish to the Noteholders (with a copy to each Rating Agency), a report
(which the Administrator covenants to timely prepare and deliver to the Trustee
at least one Business Day prior to such Payment Date) prepared by the
Administrator substantially in the form designated for such Series. Such report
shall include a certification (i) that the information contained in such report
is accurate, (ii) that no Event of Administrator Termination, or event that with
notice or lapse of time or both would become an Event of Administrator
Termination, has occurred, or if an Event of Administrator Termination or such
event has occurred and is continuing, specifying the Event of Administrator
Termination or such event and its status and (iii) that the representations and
warranties of the Administrator contained in the Servicing Agreement are true
and correct as though made on and as of the date of such certificate.
Notwithstanding any provision of this Agreement to the contrary, the
Trustee shall have no duty or obligation with respect to the information
provided via the monthly computer tape or diskette, including, without
limitation, to verify, monitor or otherwise supervise or administer the
performance of the Servicer or the Administrator.
SECTION 3.06. Returned Payments. If the principal amount of any Note
or any other amount payable under any Note (including interest) shall have been
reduced by any distribution or allocation of any portion of collections or other
Payments on Receivables, and thereafter such distribution or allocation is
rescinded or must otherwise be returned by or on behalf of the recipient thereof
to the Company, the Trust Estate or any other creditor of the Company for any
reason, such principal or other amount distributed or allocated in respect of
such Note shall be increased by the amount of such distribution or allocation to
the extent so returned, all as though such distribution or allocation had not
been made.
35
<PAGE>
<PAGE>
ARTICLE 4.
THE TRUST ESTATE
SECTION 4.01. Acceptance by Trustee and Agreement to Act as
Custodian. (a) Pursuant to each Collateral Assignment, the Trustee will
acknowledge the conveyance of the Transferred Assets and the receipt of Loan
Files and other Transferred Assets conveyed by the Company pursuant to such
Collateral Assignment and the Trustee will hold such Receivables, the Loan Files
and all other Trust Assets comprising the Trust Estate, to the extent allocated
to a Series, in trust for the benefit of the Noteholders of such Series and the
Company, subject to the terms and provisions hereof.
(b) The Trustee shall perform its duties under this Section 4.01 and
hereunder on behalf of the Trust Estate and for the benefit of the Noteholders
and the Company in accordance with the terms of this Indenture and applicable
law and, in each case, taking into account its other obligations hereunder, but
without regard to:
(i) any relationship that the Trustee or any Affiliate of the
Trustee may have with the related Obligor;
(ii) the ownership of any Note by the Trustee or any Affiliate of
the Trustee;
(iii) the Trustee's right to receive compensation for its services
hereunder or with respect to any particular transaction; or
(iv) the ownership, or holding in trust for others, by the Trustee
of any other automobile loans or property.
(v) The Trustee shall promptly report to the Administrator, each
Rating Agency and the Noteholders any failure by it to hold the Loan Files as
herein provided and shall promptly take appropriate action to remedy any such
failure but shall be liable therefor only to the extent (i) any such failure is
caused by the acts or omissions of the Trustee and (ii) such remedial action is
or was at the time of such failure otherwise within its capabilities or control.
As custodian, the Trustee shall have and perform the following powers and
duties:
(A) hold the Loan Files on behalf of the Trust Estate as
allocated for the benefit of the Noteholders of each Series and the
Company, maintain accurate records pertaining to each Receivable to enable
it to comply with the terms and conditions of this Indenture, and maintain
a current inventory thereof;
36
<PAGE>
<PAGE>
(B) implement policies and procedures in accordance with the
Trustee's normal business practices with respect to custody of the Loan
Files so that the integrity and physical possession of the Loan Files will
be maintained; and
(C) attend to all details in connection with maintaining
custody of the Loan Files on behalf of the Trust Estate.
(vi) In acting as custodian of the Loan Files and as Trustee
hereunder, the Trustee agrees further that it does not and will not have or
assert any interest in the Trust Assets in its individual capacity. Promptly
upon the Trustee's receipt thereof, the Trustee on behalf of the Trust Estate
shall mark the Loan Files and its master data processing records to reflect that
the Trust Estate has been assigned the Receivables as provided herein.
(vii) The Trustee agrees to maintain the related Loan Files at its
office located in Minneapolis, Minnesota or at such other offices of the Trustee
as shall from time to time be identified by prior written notice to the
Administrator and the Noteholders; provided that prior to relocating any Loan
Files at any of such other offices, the Trustee shall have obtained an Opinion
of Counsel as to the Trustee's perfected security interest in the Auto Loans.
Subject to the foregoing, the Trustee may temporarily move individual Loan Files
or any portion thereof without notice as necessary to conduct collection and
other servicing activities.
SECTION 4.02. Subsequent Transfers. (a) On each Assignment Date the
Company shall request that the Trust Estate acquire and the Trust Estate shall
so acquire Receivables (each, a "Transfer") from the Company on the terms and
subject to the conditions of this Indenture; provided, however, that the
conditions specified in Section 4.03 shall have been satisfied; and provided,
further, that the Administrator may cause Company to contribute (i) Receivables
that satisfy Section 11.02(a) to the Trust Estate as allocated to a Series on
any Payment Date and (ii) funds for deposit in a Cash Reserve Account at any
time.
(b) On any Business Day which is an Assignment Date after the
Issuance Date for a Series, the Company shall give the Administrator, the
Trustee and the Servicer written notice of each Transfer (in each case, a
"Transfer Notice") specifying the Unpaid Principal Balance of each Receivable
transferred thereby to the Trust Estate on such Assignment Date. The
Administrator shall independently confirm and hereby represents and warrants as
to, and the Trustee may, without any duty to make any independent investigation
with respect thereto, rely on, the facts set forth in such Transfer Notice.
(c) On each Assignment Date following its delivery of a Transfer
Notice, the Company will complete, execute and deliver a Collateral Assignment
to the Administrator
37
<PAGE>
<PAGE>
and the Trustee. The Administrator and the Trustee, as custodian for and on
behalf of the Trust Estate, shall thereupon execute such Collateral Assignment
and deliver executed copies thereof to each other and to the Company and the
Noteholders.
(d) Following delivery of a duly executed Collateral Assignment,
subject to the satisfaction of the conditions set forth in Sections 4.02(a) and
4.03, all Receivables specified in such Collateral Assignment (including all
Payments allocable to principal and interest received after the related Cut-off
Date) will be assigned to the Trustee on behalf of the Trust Estate and such
Receivables shall become Trust Assets and part of the Trust Estate, as allocated
to a particular Series.
SECTION 4.03. Conditions Precedent to All Transfers.
Each Transfer shall be subject to the conditions precedent that:
(a) On the related Assignment Date (including the initial Transfer
on the date hereof), the Company and the Administrator shall have certified and
are deemed to have represented and warranted hereunder and shall so represent
and warrant in the related Collateral Assignment that:
(i) the representations and warranties (A) of the Company and
AutoBond set forth in Sections 11.01 and 11.02 hereof and (B) of the
Administrator set forth in the applicable Servicing Agreement, are true
and correct on and as of such date, before and after giving effect to such
Transfer, as though made on and as of such date;
(ii) no event has occurred, or would result from such Transfer
or from the application of the proceeds therefrom, which constitutes an
Event of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse or both;
(iii) each of the Company and AutoBond is in material
compliance with each of its covenants set forth herein and in all Related
Documents;
(iv) no event has occurred which constitutes an Event of
Servicing Termination or would constitute an Event of Servicing
Termination but for the requirement that notice be given or time elapse or
both; and
(v) no event has occurred which constitutes an Event of
Administrator Termination or would constitute an Event of Administrator
Termination but for the requirement that notice be given or time elapse or
both;
38
<PAGE>
<PAGE>
(b) The Company shall have delivered to the Trustee (with a copy to
each Rating Agency and the Noteholders) as custodian for and on behalf of the
Trust Estate an executed copy of the related Collateral Assignment and an
Officer's Certificate stating and representing and warranting (and hereby
represents and warrants) that all conditions precedent to the effectiveness
thereof as specified herein shall have been satisfied;
(c) The Trustee shall have confirmed receipt of the Loan Files with
respect to the Receivables subject to such Transfer; and
(d) No Responsible Officer of the Trustee has actual knowledge that
any conditions to such Transfer have not been fulfilled and no Noteholder shall
have notified the Trustee of the same, and the Trustee shall have received such
other documents, opinions, certificates and instruments as any Noteholder or the
Trustee may request.
SECTION 4.04. Grant of Security Interest; Tax Treatment. (a) For
purposes of legal form and the Intended Tax Characterization, it is the
intention of the parties hereto that this Indenture and each related Collateral
Assignment shall constitute a security agreement under applicable law, and that
the Company has granted to the Trustee on behalf of the Trust Estate for the
benefit of the Noteholders, the Company and other creditors of the Trust Estate,
a first priority perfected security interest in all of the Company's right,
title and interest in, to and under the Transferred Assets and the other Trust
Assets. The Trustee shall treat the Trust Estate as a security device for tax
purposes and shall not file tax returns or obtain an employer identification
number on behalf of the Trust Estate; provided, however, that if any Class of
Notes is recharacterized as equity interests in the Trust Estate for tax
purposes, the parties hereto agree to treat the Trust Estate as a partnership
under the New York Uniform Partnership Act in which the Company was a general
partner and each such recharacterized Noteholder was a limited partner. The
provisions of this Indenture shall be construed in furtherance of the foregoing
intended tax treatment. The conveyance by the Company of the Transferred Assets
to the Trustee on behalf of the Trust Estate on each Assignment Date shall not
constitute and are not intended to result in an assumption by the Trustee or any
Noteholder (other than the Company or any Affiliate of any obligations at the
Trust Estate or of the Company) of any obligation of the Company or the
Administrator to the Obligors, the insurers under any insurance policies
including the VSI Policies, or any other Person in connection with the
Transferred Assets.
(b) It is the intention of the parties hereto that, with respect to
all Taxes, the Notes will be treated as indebtedness of the Company to the
Noteholders secured by the Transferred Assets (the "Intended Tax
Characterization"). The Company, the Administrator and the Trustee, by entering
into this Agreement, and each Noteholder by the purchase of a Note, agree to
report such transactions for purposes of all Taxes in a manner consistent with
the Intended Tax Characterization.
39
<PAGE>
<PAGE>
(c) The Company and the Administrator shall take no action
inconsistent with the Trust Estate's interest in the Transferred Assets and
shall indicate or shall cause to be indicated in its books and records held on
its behalf that each Receivable and the other Transferred Assets has been
assigned to the Trustee on behalf of the Trust Estate and the Noteholders.
SECTION 4.05. Further Action Evidencing Assignments. (a) The Company
and the Administrator each agrees that, from time to time, at its respective
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or appropriate, or
that the Administrator, the Servicer or the Trustee or Noteholders of a Series
with a Percentage greater than 50% may reasonably request, in order to perfect,
protect or more fully evidence the security interest in the Transferred Assets
allocated to such Series or to enable the Trustee to exercise or enforce any of
its rights hereunder, and under any Collateral Assignment. Without limiting the
generality of the foregoing, the Company will, without the necessity of a
request and upon the request of the Administrator or the Trustee, execute and
file (or cause to be executed and filed) such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate including, without
limitation, recording and filing UCC-1 financing statements, amendments or
continuation statements with the office of the Secretary of State of the state
of Nevada (and other locations): (i) each Assignment Date, and (ii) prior to the
effective date of any change of the name, identity or structure or relocation of
its chief executive office or any change that would or could affect the
perfection pursuant to any financing statement or continuation statement or
assignment previously filed or make any UCC-1 or continuation statement
previously filed pursuant to this Agreement seriously misleading within the
meaning of applicable provisions of the UCC (and the Company shall give the
Trustee at least 10 Business Days prior notice of any circumstance in (ii)
before the same occurs). The Company shall deliver promptly to the Trustee
file-stamped copies of any such filing.
(b) (i) The Company hereby grants to each of the Administrator and
the Trustee a power of attorney to execute all documents on behalf of the
Company as may be necessary or desirable to effectuate the foregoing and (ii)
AutoBond hereby grants to the Trustee a power of attorney to execute all
documents on behalf of AutoBond as may be necessary or desirable to effectuate
the foregoing; provided, however, that such grant shall not create a duty on the
Trustee to file, prepare, record or monitor or any responsibility for the
contents or adequacy of any such documents.
40
<PAGE>
<PAGE>
ARTICLE 5.
SERVICING OF TRUST ASSETS
SECTION 5.01. Appointment of Servicer. (a) For each Series
hereunder, there shall be designated a Servicing Agreement for the servicing,
administration and collection of the Receivables and the Trustee shall enforce
the provisions thereof on behalf of the Noteholders.
(b) The Servicer shall not be obligated to perform the duties and
functions of the Collection Agent under any Servicing Agreement unless the
Servicer has succeeded to such duties pursuant to the terms thereof.
SECTION 5.02. Appointment of Administrator; Monthly Administration
Fee. (a) AutoBond agrees to act as the Administrator under this Indenture and
the Noteholders by their acceptance of Notes consent to AutoBond acting as
Administrator subject to the terms and conditions hereof. AutoBond shall cease
to act as the Administrator hereunder with respect to any Series, in each case
after the determination of the Trustee or the holders of more than 50% of the
principal amount of the affected Notes upon the occurrence of an Event of
Administrator Termination under the related Servicing Agreement, whereupon the
Trustee shall assume the Administrator's duties hereunder (but not including
Collection Agent duties under the Servicing Agreement and the duties specified
in Section 5.03(a)(i)-(vi), which shall remain duties of the Collection Agent)
as additional Trustee duties. The Administrator shall have no right to
voluntarily resign from its duties and obligations hereunder.
(b) The Administrator shall conduct the duties specified herein and
as Collection Agent, as specified in each Servicing Agreement (together, the
"Administrator Duties") in accordance with (i) customary and prudent business
practices for the performance of similar activities, all applicable laws, rules
and regulations and contracts with respect to it, its business and properties
and all Receivables, Insurance Policies, and other Trust Assets with respect
thereto and, (ii) to the extent consistent with the foregoing, in the same
manner in which, and the same care, skill, prudence and diligence with which, it
performs similar management and administrative services for its own account or
on behalf of other Persons giving due consideration to customary and prudent
business practices.
(c) As compensation for its services hereunder and as Collection
Agent under the Servicing Agreement subject to the terms and conditions hereof,
the Trustee shall remit to the Administrator such fees as may be designated from
time to time in respect of a particular Series.
41
<PAGE>
<PAGE>
SECTION 5.03. Duties and Responsibilities of the Administrator. (a)
In addition to the other duties specified in this Agreement and in the Servicing
Agreement, the Administrator Duties shall, on behalf of the Trust Estate,
consist of: (i) administering collections on the Receivables; (ii) arranging for
and administering repossessions of the Financed Vehicles related to the
Receivables; (iii) disposing of each Financed Vehicle related to a Receivable
whether following repossession or otherwise; (iv) maximizing collections of
Receivables, and filing of insurance claims under and in accordance with the VSI
Policy with respect to each Auto Loan affected by a repossession or otherwise;
(v) delivering to the Trustee and to any Noteholder with a Percentage of at
least 50% in respect of a Series upon the request of such Noteholder the List of
Receivables allocated to such Series as amended from time to time, on each
Assignment Date; and (vi) formulating the Credit and Collection Policies, from
time to time;
(b) Other than in connection with its duty as Collection Agent to
effect liquidations of Financed Vehicles and its obligation to make repurchases
of Receivables hereunder, AutoBond shall not sell, assign (by operation of law
or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse
Claim upon or written respect to, any Receivable (or any right to receive income
in respect thereof), or the Collection Account.
ARTICLE 6.
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default.
"Event of Default," wherever used herein with respect to Notes of
any Series, means any one of the following :
(a) (i) default in the making of Principal Payments or Interest
Payments in respect of any Note of that Series when such become due and
payable, and continuance of such default for one Business Day; or (ii)
failure to make any deposit when due hereunder or under the applicable
Servicing Agreement and continuance of such default for one Business Day;
(b) failure of AutoBond to repurchase pursuant to Section 11.03 any
Auto Loans allocated to such Series, and such failure continues for 30
days;
(c) default in the performance, or breach, of any covenant of the
Company or the Administrator in this Indenture and applicable to such
Series (other than a covenant dealing with a default in the performance of
which or the breach of which is
42
<PAGE>
<PAGE>
specifically dealt with elsewhere in this Section 6.01) and continuance of
such default or breach for a period of 30 days after the earliest of (i)
any officer of the Company or the Administrator first acquiring knowledge
thereof, (ii) the Trustee's giving written notice thereof to the Company
or (iii) the holders of a majority of the then Outstanding Principal
Amount of the Notes of such Series giving written notice thereof to the
Company and the Trustee;
(d) if any representation or warranty of the Company or the
Administrator made in this Indenture and applicable to such Series shall
prove to be incorrect in any material respect as of the time when the same
shall have been made, and such breach is not remedied within 30 days after
notice of breach from the Trustee; provided, however, that a breach of any
representation or warranty made by the Company or the Administrator in
Section 11.02 with respect to any of the Auto Loans or the interests in
the Financed Vehicles shall not constitute an Event of Default if the
Company or the Administrator repurchases such Receivables in accordance
with Section 11.03(a);
(e) the entry by a court having jurisdiction in the premises of (i)
a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or (ii) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Company under any applicable federal
or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator, or other similar official of the Company or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(f) the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or similar official of the Company or of any substantial
part of its property, or the making by it of an assignment for the benefit
of
43
<PAGE>
<PAGE>
creditors, or the Company's failure to pay its debts generally as they
become due, or the taking of corporate action by the Company in
furtherance of any such action.
(g) an Event of Administrator Termination under the Servicing
Agreement applicable to such Series shall have occurred and be continuing;
or
(h) any Transfer shall for any reason (other than pursuant to the
terms hereof) cease to create a valid and perfected first priority
security interest (within the meaning of the UCC) in the Auto Loans taken
as a whole and the related security and collections with respect thereto
in favor of the Trustee on behalf of the Trust Estate, or the applicable
Note shall for any reason cease to be entitled to the benefits of security
interest (within the meaning of the UCC) in the Receivables and related
security and other Transferred Assets allocated to such Series, to the
extent of such Note's purported interest therein; or
(i) AutoBond shall at any time cease to own, directly or indirectly,
at least 100% of the outstanding shares of common stock of the Company; or
(j) a judgment or judgments aggregating in excess of $25,000 shall
be entered against the Company and shall not be paid, stayed or dismissed
within 30 days thereof; or
(k) any other Event of Default provided with respect to Notes of
that Series.
SECTION 6.02. Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default of the kind specified in Section 6.01(e)
or Section 6.01(f) occurs, the unpaid principal amount of the Notes of each
Series shall automatically become due and payable at par together with all
accrued and unpaid interest thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company. If an Event
of Default (other than an Event of Default of the kind described in Section 6.01
(e) and Section 6.01(f)) with respect to Notes of any Series occurs and is
continuing, then and in every such case the Trustee shall, if so directed by the
holders of Notes evidencing 66-2/3% of the then Outstanding Principal Amount of
the most senior Class of such Series (or if the Notes of such Class are no
longer Outstanding, the holders of Notes evidencing 66-2/3% of the then
Outstanding Principal Amount of the next most senior Class, and so on), or the
holders of 66-2/3% of the then Outstanding Principal Amount of Notes of such
Series may, declare the unpaid principal amount of all the Notes of such Series
to be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Noteholders), and upon any such declaration such
principal amount shall
44
<PAGE>
<PAGE>
become immediately due and payable together with all accrued and unpaid interest
thereon, without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Company.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the holders of
a like percentage of Notes of such Series by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all Principal Payments on any Notes of such Series which
have become due otherwise than by such declaration of acceleration
and interest thereon from the date when the same first became due
until the date of payment or deposit at the appropriate Note
Interest Rate,
(B) all Interest Payments due with respect to any Notes of
such Series and, to the extent that payment of such interest is
lawful, interest upon overdue interest from the date when the same
first became due until the date of payment or deposit at a rate per
annum equal to the appropriate Note Interest Rates, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements, and advances of
each of the Trustee, the Servicer and the Administrator, its agents
and counsel;
and
(ii) all Events of Default with respect to Notes of that Series,
other than the non-payment of the Outstanding Principal Amount of the
Notes of such Series which become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
45
<PAGE>
<PAGE>
SECTION 6.03. Remedies.
(a) If an Event of Default with respect to Notes of any Series
occurs and is continuing of which a Responsible Officer has actual knowledge,
the Trustee shall immediately give notice to each Noteholder of such Series as
set forth in Section 7.02 and shall solicit such Noteholders for advice. The
Trustee shall then take such action as so directed by the holders of 66-2/3% of
the Outstanding Principal Amount of the Notes of such Series, subject to the
provisions of this Indenture.
(b) Following any acceleration of the Notes of any Series, the
Trustee shall have all of the rights, powers and remedies with respect to the
Trust Estate allocated to such Series as are available to secured parties under
the Uniform Commercial Code or other applicable law, subject to subsection (d)
below. Such rights, powers and remedies may be exercised by the Trustee in its
own name as trustee of an express trust.
(c) (i) If an Event of Default specified in Section 6.01(a) occurs
and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the
whole amount of principal and interest remaining unpaid with respect to
the affected Series of Notes.
(ii) If an Event of Default occurs and is continuing, the
Trustee may in its discretion, and at the instruction of an aggregate
Percentage of greater than 50% of the Noteholders of each affected Series
shall, proceed to protect and enforce its rights and the rights of the
Noteholders of such Series by such appropriate judicial or other
proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy. The Trustee
shall notify the Company, the Administrator, the Servicer, the Noteholders
of such Series and each applicable Rating Agency of any such action.
(d) If (i) the Trustee shall have received instructions within 90
days from the date notice pursuant to Section 6.03(a) is first given from
holders of each Class of Notes of such Series evidencing more than 50% of the
aggregate unpaid principal amount of such Class of Notes, to the effect that
such Persons approve of or request the liquidation of the Trust Assets allocated
to such Series and do not wish to continue such Trust Estate pursuant to the
terms of this Indenture or (ii) upon an Event of Default set forth in Section
6.01(e) or (f), the Trust Estate allocated to such Series shall be terminated
and, the Trustee shall to the extent lawful, promptly sell, dispose of or
otherwise liquidate the Trust Assets allocated to such Series in a commercially
reasonable manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids; provided, however, that, upon an
46
<PAGE>
<PAGE>
Event of Default set forth in Section 6.01(e) or (f), to the extent holders of
Notes evidencing more than 50% of the aggregate principal amount of each Class
of Notes of such Series notify the Trustee that they wish to reconstitute such
Trust Estate, such liquidation shall not occur and the parties hereto agree that
the Trust Estate allocated to such Series shall be reconstituted pursuant to a
new indenture or amendment hereto on applicable terms identical hereto. The
Trustee may obtain a prior determination from any such conservator, receiver or
liquidator of the Company that the terms and manner of any proposed sale,
disposition or liquidation are commercially reasonable.
SECTION 6.04. Trustee May File Proofs of Claim. (a) In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company, or any other obligor upon the Notes, or the
property of the Company, or such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes or any
amounts owing on the Receivables or the other Trust Assets and to file
such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee and any predecessor Trustee (including
any claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and
counsel) and of the Noteholders allowed in such judicial proceeding; and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Noteholder to make such payments to the Trustee and to pay to the Trustee
any amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and counsel,
and any other amounts due the Trustee and any predecessor Trustee under Section
7.06.
(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, agreement, adjustment or composition
affecting the Notes or the rights of any
47
<PAGE>
<PAGE>
Noteholder thereof or affecting the Receivables or the other Trust Assets or to
authorize the Trustee to vote in respect of the claim of any Noteholder in any
such proceeding.
SECTION 6.05. Trustee May Enforce Claims Without Possession of
Notes. All rights of action and claims under this Agreement, the Notes, the
Receivables or the other Trust Assets may be prosecuted and enforced by the
Trustee without the possession of any of the Notes or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provisions for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, be for the benefit of the
Noteholders in respect of which such judgment has been recovered, and pursuant
to the priorities contemplated by Section 3.04.
SECTION 6.06. Application of Money Collected. Any money collected by
the Trustee pursuant to this Article 6 shall be deposited in the applicable
Collection Account or Accounts for disbursement in accordance with the
provisions of Article 3.
SECTION 6.07. Limitation on Suits. No Noteholder of any Series shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture or for any other remedy hereunder, unless:
(a) there is a continuing Event of Default with respect to such
Series and such Noteholder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) within 30 days after notice, each of the Noteholders holding an
aggregate Percentage of greater than 50% of such Series shall not have objected
to such Noteholder's written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Noteholder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee, for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Noteholders of 66 2/3% in
aggregate principal amount of the Outstanding Notes of such Series;
48
<PAGE>
<PAGE>
it being understood and intended that no one or more of such Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Agreement to affect, disturb or prejudice the rights of any
other Noteholders, or to obtain or to seek to obtain priority or preference over
any other Noteholders or to enforce any right under this Indenture, except in
the manner herein provided and for the ratable benefit of all such Noteholders.
It is further understood and intended that so long as any portion of the Notes
remains Outstanding, AutoBond shall not have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture (other than
for the enforcement of Section 3.04) or for the appointment of a receiver or
trustee (including without limitation a proceeding under the Bankruptcy Code),
or for any other remedy hereunder. Nothing in this Section 6.07 shall be
construed as limiting the rights of otherwise qualified Noteholders to petition
a court for the removal of a Trustee pursuant to Section 7.09 hereof.
SECTION 6.08. Unconditional Right of Noteholders to Receive
Principal and Interest.
Notwithstanding any other provision in this Indenture, other than
the provisions hereof limiting the right to recover amounts due on the Notes to
recoveries from the property of the allocated Trust Estate, the holder of any
Note shall have the absolute and unconditional right to receive payment of the
principal of and interest on such Note on the Maturities for such payments,
including the Stated Maturity, and such right shall not be impaired without the
consent of such Noteholder.
SECTION 6.09. Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Noteholders
continue as though no such proceeding had been instituted.
SECTION 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost, or stolen Notes in the last paragraph of
Section 2.04, no right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
49
<PAGE>
<PAGE>
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 6.12. Control by Noteholders.
Except as may otherwise be provided in this Indenture, until such
time as the conditions specified in Sections 10.01(a)(i) and (ii) have been
satisfied in full, the holders of 66-2/3% of the then Outstanding Principal
Amount of the Notes of any Series shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, with respect
to the Notes of such Series. Notwithstanding the foregoing,
(i) no such direction shall be in conflict with any rule of law or
with this Indenture;
(ii) the Trustee shall not be required to follow any such direction
which the Trustee reasonably believes might result in any personal
liability on the part of the Trustee for which the Trustee is not
adequately indemnified; and
(iii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with any such direction; provided that
the Trustee shall give notice of any such action to each Noteholder of
such Series.
SECTION 6.13. Waiver of Events of Default.
(a) The holders of 66-2/3% of the then Outstanding Principal Amount
of the Notes of any Series may, by one or more instruments in writing, waive any
Event of Default on behalf of all Noteholders of such Series hereunder and its
consequences, except a continuing Event of Default:
(i) in respect of the payment of the principal of or interest on any
Note (which may only be waived by the holder of such Note), or
50
<PAGE>
<PAGE>
(ii) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
holder of each Outstanding Note affected (which only may be waived by the
holders of all Outstanding Notes affected).
(b) A copy of each waiver pursuant to Section 6.13(a) shall be
furnished by the Company to the Trustee. Upon any such waiver, such Event of
Default shall cease to exist and shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Event of Default or impair any right consequent thereon.
SECTION 6.14. Undertaking for Costs.
All parties to this Indenture agree (and each holder of any Note by
its acceptance thereof shall be deemed to have agreed) that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% of the then Outstanding Principal Amount
of the Notes of any Series, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or interest on any Note on or
after the Maturities for such payments, including the Stated Maturity as
applicable.
SECTION 6.15. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted allocated to a Series of
Notes.
SECTION 6.16. Sale of Trust Estate.
51
<PAGE>
<PAGE>
(a) The power to effect any sale of any portion of the Trust Estate
allocated to a Series of Notes pursuant to Section 6.03 shall not be exhausted
by any one or more sales as to any portion of the Trust Estate remaining unsold,
but shall continue unimpaired until the entire Trust Estate so allocated shall
have been sold or all amounts payable on the Notes of such Series shall have
been paid. The Trustee may from time to time, upon directions in accordance with
Section 6.12, postpone any public sale by public announcement made at the time
and place of such sale.
(b) To the extent permitted by applicable law, the Trustee shall not
sell to a third party the Trust Estate, or any portion thereof except as
permitted under Section 6.03(d).
(c) In connection with a sale of all or any portion of the Trust
Estate:
(i) any one or more Noteholders may bid for and purchase the
property offered for sale, and upon compliance with the terms of sale may
hold, retain, and possess and dispose of such property, without further
accountability, and any Noteholder may, in paying the purchase money
therefore, deliver in lieu of cash any Outstanding Notes or claims for
interest thereon for credit in the amount that shall, upon distribution of
the net proceeds of such sale, be payable thereon, and the Notes, in case
the amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Noteholders after being appropriately stamped to
show such partial payment;
(ii) the Trustee shall execute and deliver an appropriate instrument
of conveyance transferring its interest in any portion of the Trust Estate
in connection with a sale thereof;
(iii) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Company to transfer and convey its interest in any
portion of the Trust Estate in connection with a sale thereof, and to take
all action necessary to effect such sale; and
(iv) no purchaser or transferee at such a sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(d) The method, manner, time, place and terms of any sale of all or
any portion of the Trust Estate shall be commercially reasonable.
52
<PAGE>
<PAGE>
ARTICLE 7.
THE TRUSTEE
SECTION 7.01. Certain Duties. (a) The Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee (including, without limitation, the duties
referred to in the Servicing Agreement during the continuance of an Event of
Servicing Termination, or an Event of Administrator Termination resulting in the
appointment of the Trustee as Successor Servicer).
(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(c) In case an Event of Default, an Event of Servicing Termination
(resulting in the appointment of the Trustee as Successor Servicer) or an Event
of Administrator Termination (resulting in the appointment of the Trustee as
successor Administrator) has occurred and is continuing with respect to any
Series, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs; provided, however, that no provision in this
Indenture shall be construed to limit the obligations of the Trustee to provide
notices under Section 7.02.
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Noteholders pursuant to this Indenture, unless such Noteholders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(e) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) this Section shall not be construed to limit the effect of
Section 7.01(a) and (b);
53
<PAGE>
<PAGE>
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it shall be proved that
the Trustee shall have been negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the written direction of the holders of the requisite principal amount of
the outstanding Notes, or in accordance with any written direction
delivered to it under Section 6.02(a), relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture.
(f) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 7.01.
(g) The Trustee makes no representations or warranties with respect
to the Trust Assets or the validity or sufficiency of any assignment of the
Receivables to the Company or to the Trust Estate.
SECTION 7.02. Notice of Events of Default. The Trustee shall
promptly (but in any event within five Business Days) notify the applicable
Rating Agencies, the Administrator, the Servicer and the Noteholders of any
Series upon a Responsible Officer obtaining actual knowledge of any event which
constitutes an Event of Default, an Event of Servicing Termination, or an Event
of Administrator Termination or would constitute an Event of Default, an Event
of Servicing Termination, or an Event of Administrator Termination but for the
requirement that notice be given or time elapse or both, in each case with
respect to such Series. In addition, the Trustee shall, within 10 Business Days
following a Responsible Officer receiving actual knowledge of any Event of
Default, Event of Servicing Termination or Event of Administrator Termination
specified in the immediately preceding sentence, transmit to all Noteholders, as
their names and addresses appear in the Note Register notice of such event known
to the Trustee, unless such default shall have been cured or waived; provided,
further, that this Section 7.02 shall not limit the obligations of the Trustee
to provide notices expressly required by this Indenture.
SECTION 7.03. Certain Matters Affecting the Trustee. Subject to the
provisions of Section 7.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or
54
<PAGE>
<PAGE>
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request or direction of any Noteholders, the Administrator,
the Company, or the Servicer mentioned herein shall be in writing;
(c) Whenever in the performance of its duties hereunder the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate or Opinion of Counsel;
(d) The Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be deemed authorization in respect of
any action taken, suffered, or omitted by it hereunder in good faith and in
reliance thereon;
(e) Prior to the occurrence of an Event of Default, an Event of
Servicing Termination, or an Event of Administrator Termination, or after the
curing of all Events of Default, Events of Servicing Termination or Events of
Administrator Termination which may have occurred, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper document, unless
requested in writing so to do by Noteholders of any affected Series holding an
aggregate Percentage of more than 50%; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
reasonable opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such cost, expense or liability as a condition to
so proceeding. The reasonable expense of every such examination shall be paid by
the Administrator or, if paid by the Trustee, shall be reimbursed by the
Administrator upon demand; and
(f) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian (which may be Affiliates of the Trustee) and the
Trustee shall not be liable for any acts or omissions of such agents, attorneys
or custodians appointed with due care by it hereunder.
SECTION 7.04. Trustee Not Liable for Notes or Receivables. (a) The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or any Related Document, the Notes (other than the authentication
thereof) or of any Receivable. The Trustee shall not be accountable for the use
or application by the Company of funds paid to the Company in consideration of
conveyance of the Receivables to the Trust Estate.
55
<PAGE>
<PAGE>
(b) Except with respect to the Trustee in its capacity as Successor
Servicer pursuant to the Servicing Agreement, the Trustee shall have no
responsibility or liability for or with respect to: the validity of any security
interest in any Financed Vehicle; the existence or validity of any Receivable,
the validity of the assignment of any Receivable to the Trust Estate or of any
intervening assignment; the review of any Receivable, any Loan File or the
Electronic Ledger as defined in the Servicing Agreement, the completeness of any
Loan File, the receipt by it or its custodian of any Receivable or Loan File (it
being understood that the Trustee has not reviewed and does not intend to review
such matters); the performance or enforcement of any Receivable; the compliance
by the Administrator, the Company or the Servicer with any covenant or the
breach by the Administrator or the Company of any warranty or representation
made hereunder or in any related document or the accuracy of any such warranty
or representation; the acts or omissions of the Administrator, the Servicer or
any Obligor or Dealer; or any action of the Administrator or the Servicer taken
in the name of the Trustee.
SECTION 7.05. Trustee May Own Notes. The Trustee in its individual
or any other capacity may become the owner or pledgee of Notes with the same
rights as it would have if it were not Trustee.
SECTION 7.06. The Administrator to Pay Trustee's Fees and Expenses.
The Administrator agrees to reimburse the Trustee upon its request for all
reasonable third-party expenses, disbursements and advances incurred or made by
the Trustee in its capacity as such in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursement of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith. The
obligations of the Administrator under this Section 7.06 shall survive the
termination of this Indenture and the resignation or removal of the Trustee.
SECTION 7.07. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times (a) be a corporation, depository institution, or
trust company organized and doing business under the laws of the United States
of America or any state thereof authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $250,000,000,
(b) be subject to supervision or examination by federal or state authority, (c)
be capable of maintaining an Eligible Account and (d) have a long-term unsecured
debt rating of not less than Baa2 from Moody's and BBB+ from Fitch or such other
rating as may be acceptable to the Rating Agencies, and shall be acceptable to
Noteholders of each Series with a Percentage of more than 50%. If such
institution publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section 10.07, the combined capital and surplus of such
institution shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any
56
<PAGE>
<PAGE>
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section 10.07, the Trustee shall resign immediately in the manner and with
the effect specified in Section 7.08.
SECTION 7.08. Resignation or Removal of Trustee. (a) The Trustee may
at any time resign and be discharged with respect to the Notes of one or more
Series by giving 90 days' written notice thereof to the Administrator, the
Servicer, the Company, the Noteholders of such Series and the Rating Agencies.
Upon receiving such notice of resignation, the Administrator shall promptly
appoint a successor Trustee not objected to by Noteholders of such Series with a
Percentage of more than 50% within 30 days after prior written notice, by
written instrument, in quintuplicate, one counterpart of which instrument shall
be delivered to each of the Company, the Servicer, the successor Trustee and the
predecessor Trustee. A copy of such instrument shall be delivered to the Rating
Agencies. If no successor Trustee shall have been so appointed and have accepted
appointment within 90 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.07 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Administrator or Noteholders of each Series with a Percentage greater than 50%
may direct, and the Administrator shall follow such direction and remove the
Trustee. If it removes the Trustee under the authority of the immediately
preceding sentence, the Administrator shall promptly appoint a successor Trustee
not objected to by Noteholders of each Series with a Percentage of more than
50%, within 30 days after prior written notice, by written instrument, in
quintuplicate, one counterpart of which instrument shall be delivered to each of
the Company, the Servicer, the Noteholders, the successor Trustee and the
predecessor Trustee. Copies of such instrument shall also be delivered by the
Administrator to each of the Rating Agencies.
(c) The Trustee may be removed by the Administrator at any time by
giving written notice thereof to the Trustee and each of the holders of the
Notes then outstanding. Such removal by the Administrator will become effective
unless the holders of 51% of the principal amount of the Notes of each Series
then outstanding deliver a written statement to the Administrator opposing such
removal within 30 days following receipt of such notice of removal from the
Administrator.
57
<PAGE>
<PAGE>
(d) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 7.08 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 7.09.
SECTION 7.09. Successor Trustee. (a) Any successor Trustee appointed
as provided in Section 7.08 shall execute, acknowledge and deliver to each of
the Administrator, the Company, the Servicer, the Noteholders and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder with like effect as if originally named
a Trustee. The predecessor Trustee shall deliver or cause to be delivered to the
successor Trustee or its custodian any related documents and statements held by
it or its custodian hereunder; and the Administrator and the Company and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for the full and certain vesting and
confirmation in the successor Trustee of all such rights, powers, duties and
obligations.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Notes of one or more (but not all) Series, the Company, the
retiring Trustee and each successor Trustee with respect to the Notes of one or
more Series shall execute and deliver an indenture supplemental hereto wherein
each successor Trustee shall accept such appointment and which (1) shall contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Notes of that or those Series to
which the appointment of such successor Trustee relates, (2) if the retiring
Trustee is not retiring with respect to all Notes, shall contain such provisions
as shall be deemed necessary or desirable to confirm that all the rights,
powers, trusts and duties of the retiring Trustee with respect to the Notes of
that or those Series as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (3) shall add to or change
any of the provisions of this Indenture s shall be necessary to provide for or
facilitate the administration of the Trust Estate hereunder by more than one
Trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such Trustees co-trustees of the same allocated trust
and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustee; and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Notes of that or those
Series to which the appointment of such successor trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign,
58
<PAGE>
<PAGE>
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Notes of that or those
Series to which the appointment of such successor Trustee relates.
Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts referred
to in the preceding paragraph.
(c) No successor Trustee shall accept appointment as provided in
this Section 7.09 unless at the time of such acceptance such successor Trustee
shall be eligible under the provisions of Section 7.07.
(d) Upon acceptance of appointment by a successor Trustee as
provided in this Section 7.09, the Administrator shall mail notice of the
succession of such Trustee hereunder to each Noteholder of each affected Series
at its address as shown in the Note Register and to the Rating Agencies. If the
Administrator fails to mail such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Company and the Administrator.
SECTION. 7.10. Merger or Consolidation of Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be eligible
under the provisions of Section 7.07, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
ARTICLE 8.
COVENANTS
SECTION 8.01. Payment of Principal and Interest.
The Company will cause the due and punctual payment of the principal
of and interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 8.02. Maintenance of Office or Agency; Chief Executive
Office.
59
<PAGE>
<PAGE>
(a) The Company will maintain at the Corporate Trust Office an
office or agency where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company hereby appoints the Trustee
as its agent to receive all such presentations, surrenders, notices and demands.
(b) The Company will not change the location of its principal place
of business without giving the Trustee and the Rating Agencies at least 30 days'
prior written notice thereof.
SECTION 8.03. Money for Payments to Noteholders to be Held in Trust.
(a) All payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Trust Accounts
pursuant to Section 3.04 or Section 6.06 shall be made on behalf of the Company
by the Trustee, and no amounts so withdrawn from the applicable Collection
Account for payments of Notes shall be paid over to the Company under any
circumstances except as provided in this Section 8.03, in Section 3.04 or
Section 6.06.
(b) In making payments hereunder, the Trustee will hold all sums
held by it for the payment of amounts due with respect to the Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and pay such sums to
such Persons as herein provided.
(c) Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of or interest on any Notes,
deposit with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Noteholders
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will hold all sums held by it for the payment of the principal
of or interest on Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided.
(d) Except as required by applicable law, any money held by the
Trustee in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for three years after such amount has become due and payable
to the Noteholder shall be
60
<PAGE>
<PAGE>
discharged from such trust and, subject to applicable escheat laws, and so long
as no Event of Default has occurred and is continuing, paid to the Company upon
request; otherwise, such amounts shall be redeposited in the Collection Account
as available funds, and such Noteholder shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof (but only to the
extent of the amounts so paid to the Company), and all liability of the Trustee
with respect to such trust money shall thereupon cease.
SECTION 8.04. Corporate Existence; Merger; Consolidation, etc.
(a) The Company will keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Nevada, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes or any of
the Auto Loans.
(b) The Company shall at all times observe and comply in all
material respects with (i) all laws applicable to it, (ii) all requirements of
law in the declaration and payment of dividends on its capital stock, and (iii)
all requisite and appropriate corporate and other formalities (including without
limitation meetings of the Company's board of directors and, if required by law,
its charter or otherwise, meetings and votes of the shareholders of the Company
to authorize corporate action) in the management of its business and affairs and
the conduct of the transactions contemplated hereby.
(c) The Company shall not issue or register the transfer of any of
its common stock to any Person other than AutoBond or a wholly-owned subsidiary
of AutoBond.
(d) The Company shall not (i) consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any other Person or (ii) commingle its assets with those of any
other Person.
SECTION 8.05. Protection of Trust Estate; Further Assurances.
The Company will from time to time execute and deliver all such
supplements and amendments hereto and all such Financing Statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable
to:
(i) Grant more effectively the Trust Assets comprising all or any
portion of the Trust Estate;
61
<PAGE>
<PAGE>
(ii) maintain or preserve the lien of this Indenture or carry out
more effectively the purposes hereof;
(iii) publish notice of, or protect the validity of, any Grant made
or to be made by this Indenture and perfect the security interest
contemplated hereby in favor of the Trustee in each of the Receivables and
all other property included in the Trust Estate; provided, that the
Company shall not be required to cause the recordation of the Trustee's
name as lienholder on the related certificates of title for the Financed
Vehicles so long as no Event of Default has occurred and is continuing;
(iv) enforce or cause the Administrator to enforce any of the
Receivables;
(v) preserve and defend title to the Receivables (including the
right to receive all payments due or to become due thereunder), the
interests in the Financed Vehicles, or other property included in the
Trust Estate and preserve and defend the rights of the Trustee in such
Trust Assets (including the right to receive all payments due or to become
due thereunder) against the claims of all Persons and parties other than
as permitted hereunder; and
(vi) cause the Trustee to be added as an additional named insured on
each of the Insurance Policies.
The Company, upon the Company's failure to do so, hereby designates the Trustee
its agent and attorney-in-fact to execute any Financing Statement or
continuation statement required pursuant to this Section 8.05; provided,
however, that such designation shall not be deemed to create a duty in the
Trustee to monitor the compliance of the Company with the foregoing covenants,
and provided, further, that the duty of the Trustee to execute any instrument
required pursuant to this Section 8.05 shall arise only if a Responsible Officer
of the Trustee has actual knowledge of any failure of the Company to comply with
the provisions of this Section 8.05.
SECTION 8.06. Servicing Agreement.
(a) If any Authorized Officer of the Administrator shall have
knowledge of the occurrence of a default under any Servicing Agreement, the
Administrator shall promptly notify the Trustee and the Noteholders of each
affected Series, and shall specify in such notice the action, if any, the
Administrator and the Company is taking in respect of such default. Unless
consented to by the holders of 66 2/3% of the then Outstanding Principal Amount
of the Notes of each affected Series, the Company may not waive any material
default under or amend the Servicing Agreement in a manner materially adverse to
the Noteholders of such Series.
62
<PAGE>
<PAGE>
SECTION 8.07. Additional Covenants.
(a) The Company will not:
(i) sell, transfer, exchange or otherwise dispose of any portion of
the Trust Estate except as expressly permitted by this Indenture;
(ii) claim any credit on, or make any deduction from, the principal
of, or interest on, any of the Notes by reason of the payment of any taxes
levied or assessed upon any portion of the Trust Estate;
(iii) (A) permit the validity or effectiveness of this Indenture or
any Grant hereby to be impaired, or permit the lien of this Indenture to
be amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations under
this Indenture, except as may be expressly permitted hereby, (B) permit
any lien, charge, security interest, mortgage or other encumbrance to be
created on or to extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds thereof
other than the lien of this Indenture, or (C) except as otherwise
contemplated in this Indenture, permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust Estate.
(b) Notice of Event of Default - immediately upon becoming aware of
the existence of any condition or event which constitutes a Default or an
Event of Default, the Company shall deliver to the Trustee a written
notice describing its nature and period of existence and what action the
Company is taking or proposes to take with respect thereto.
(c) Report on Proceedings - promptly upon the Company's becoming
aware of
(i) any proposed or pending investigation of it by any governmental
authority or agency, or
(ii) any pending or proposed court or administrative proceeding
which involves or may involve the possibility of materially and adversely
affecting the properties, business, prospects, profits or condition
(financial or otherwise) of the Company
63
<PAGE>
<PAGE>
the Company shall deliver to the Trustee a written notice specifying the nature
of such investigation or proceeding and what action the Company is taking or
proposes to take with respect thereto and evaluating its merits.
SECTION 8.08. Taxes.
The Company shall pay all Taxes when due and payable or levied
against its assets, properties or income, including any property that is part of
the Trust Estate.
ARTICLE 9.
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without Consent of
Noteholders.
(a) Without the consent of any Noteholders, the Company, by a
Company Order, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or to better assure, convey
and confirm unto the Trustee any property subject or required to be
subjected to the lien of this Indenture; provided such action pursuant to
this clause (ii) shall not adversely affect the interests of the
Noteholders of any Series in any respect; or
(ii) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes of one or more
series and to add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the requirements of
Section 7.09; or
(iii) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided that such action pursuant
to this Clause (iv) shall not adversely affect the interests of the
Holders of Notes of any Series.
64
<PAGE>
<PAGE>
(b) The Trustee shall promptly deliver to each Noteholder of an
affected Series of an affected Series and each Rating Agency a copy of any
supplemental indenture entered into pursuant to Section 9.01(a).
SECTION 9.02. Supplemental Indentures with Consent of Noteholders.
(a) With the consent of the holders of not less than 66-2/3% of the
then Outstanding Principal Amount of the Notes of each Series affected by such
supplemental indenture and by Act of said Noteholders delivered to the Company
and the Trustee, the Company, by a Company Order, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Noteholders of
such Series under this Indenture; provided, that no supplemental indenture
shall, without the consent of the holder of each Outstanding Note affected
thereby,
(i) change the Stated Maturity of any Note or the Principal Payments
or Interest Payments due or to become due on any Payment Date with respect
to any Note, or change the priority of payment thereof as set forth
herein, or reduce the principal amount thereof or the Note Interest Rate
thereon, or change the place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Maturity thereof;
(ii) reduce the percentage of the Outstanding Principal Amount of
the Notes of any Series, the consent of whose Noteholders is required for
any such supplemental indenture, for any waiver of compliance with
provisions of this Indenture or Events of Default and their consequences,
provided for in this Indenture;
(iii) modify any of the provisions of this Section or Section 6.13
except to increase any percentage or fraction set forth therein or to
provide that certain other provisions of this Indenture cannot be modified
or waived without the consent of the holder of each Outstanding Note
affected thereby;
(iv) modify or alter the provisions of the proviso to the definition
of the term "Outstanding"; or
(v) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust
Estate or, except as provided in the applicable Servicing Agreement,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Noteholder of the security afforded by the lien of
this Indenture;
65
<PAGE>
<PAGE>
provided, no such supplemental indenture may modify or change any terms
whatsoever of the Indenture that could be construed as increasing the Company's
or AutoBond's discretion hereunder.
(b) The Trustee shall promptly deliver to each Noteholder of an
affected Series and each Rating Agency a copy of any supplemental indenture
entered into pursuant to Section 9.02(a).
SECTION 9.03. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture (a) pursuant to Section 9.01 of this Indenture or (b)
pursuant to Section 9.02 of this Indenture without the consent of each holder of
the Notes to the execution of the same, or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 7.01) shall be, fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any supplemental indenture which affects the Trustee's
own rights, duties, projections, or immunities under this Indenture or
otherwise.
SECTION 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 9.05. Reference in Notes to Supplemental Indentures.
Notes of any Series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. New Notes of any Series
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes of
such Series.
66
<PAGE>
<PAGE>
ARTICLE 10.
SATISFACTION AND DISCHARGE
SECTION 10.01. Satisfaction and Discharge of Indenture.
(a) This Indenture shall cease to be of further effect (except as to
any surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(i) 100 days shall have elapsed since either
(A) all Notes theretofore authenticated and delivered (other
than (1) Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.04 and (2) Notes
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
8.03(c)) have been delivered to the Trustee for cancellation; or
(B) the final installments of principal on all such Notes not
theretofore delivered to the Trustee for cancellation
(1) have become due and payable, or
(2) will become due and payable at their Stated
Maturity, as applicable, within one year,
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of
Notes which have become due and payable) or to the Stated Maturity
thereof;
(ii) the Company and the Administrator have paid or caused to be
paid all other sums payable hereunder by the Company and the Administrator
for the benefit of the Noteholders and the Trustee; and
67
<PAGE>
<PAGE>
(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
At such time, the Trustee shall deliver to the Company all cash, securities and
other property held by it as part of the Trust Estate other than funds deposited
with the Trustee pursuant to Section 10.01(a)(i)(B), for the payment and
discharge of the Notes.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Sections 7.07 and
8.11, and, if money shall have been deposited with the Trustee pursuant to
Section 10.01(a)(i)(B), the obligations of the Trustee under Section 10.02 and
Section 8.03(c) shall survive.
(c) The Trustee shall provide prompt written notice to each Rating
Agency of any satisfaction and discharge of this Indenture pursuant to this
Article 10.
SECTION 10.02. Application of Trust Money.
Subject to the provisions of Section 8.03(c), all money deposited
with the Trustee pursuant to Sections 10.01 and 8.03 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment to the Persons entitled thereto, of the principal and
interest for whose payment such money has been deposited with the Trustee.
SECTION 10.03. Trust Termination Date. Upon the full application of
(a) moneys deposited pursuant to this Article 10 or (b) proceeds of the Trust
Assets pursuant to Sections 3.04 or 6.06, the Trust Estate created by this
Indenture shall be deemed to have terminated (the "Trust Termination Date").
ARTICLE 11.
REPRESENTATIONS AND WARRANTIES
SECTION 11.01. Representations and Warranties of the Company. The
Company represents and warrants to the Trustee and the Noteholders, as of the
Issuance Date and on each day until the discharge of this Indenture, as follows:
(a) The Company is a wholly-owned bankruptcy remote subsidiary of
[AutoBond Funding Corporation II] ("AutoBond Funding") and is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Nevada and is
68
<PAGE>
<PAGE>
duly qualified to do business, and is in good standing in each jurisdiction in
which the nature of its business requires it to be so qualified and which
permits such qualification;
(b) The Company has the power and authority to own and convey all of
its properties and to execute and deliver this Indenture and the Related
Documents and to perform the transactions contemplated hereby and thereby;
(c) The Company is operated in such a manner and is constituted so
that it would not be substantively consolidated in the bankruptcy trust estate
of any Affiliate, such that the separate existence of the Company and any
Affiliate would be disregarded, and to such end:
(i) the Company maintains separate records, books of account
and financial statements from those of AutoBond and each other Affiliate
of AutoBond;
(ii) the Company does not commingle any of its assets or funds
with those of AutoBond or any of the other Affiliates of AutoBond;
(iii) the Company maintains a separate board of directors with
at least two independent directors and observes all separate corporate
formalities, and all decisions with respect to the Company's business and
daily operations have been and shall be independently made by the officers
of the Company pursuant to resolutions of its board of directors;
(iv) other than contributions of capital, payment of dividends
and return of capital, no transactions have been entered into between the
Company and [AutoBond] or between the Company and any of the other
Affiliates of AutoBond except such transactions as are contemplated by
this Indenture and the Related Documents;
(v) except for such administration and collection and
functions as Auto Bond may perform on behalf of the Company and the Trust
Estate pursuant to this Indenture and the Related Documents, the Company
acts solely in its own name and through its own authorized officers and
agents and the Company does not act as agent of AutoBond or any other
Person in any capacity;
(vi) except for any funds received from AutoBond Funding (or
from AutoBond indirectly by way of AutoBond Funding) as a capital
contribution, the Company shall not accept for its own account funds from
AutoBond or any of the other Affiliates of AutoBond; and the Company shall
not allow AutoBond or any of
69
<PAGE>
<PAGE>
the other Affiliates of AutoBond otherwise to supply funds to, or
guarantee any obligation of, the Company;
(vii) the Company shall not guarantee, or otherwise become
liable with respect to, any obligation of AutoBond or any of the other
Affiliates of AutoBond; and
(viii) the Company shall at all times hold itself out to the
public under the Company's own name as a legal entity separate and
distinct from AutoBond and the other Affiliates of AutoBond.
(d) The Company is a special purpose company and has not engaged,
and does not presently engage and shall not engage, in any activity other than
the activities undertaken pursuant to this Agreement and the Related Documents
and contemplated hereby and thereby and activities ancillary or incident
thereto, and has no Debt other than the Notes;
(e) The execution, delivery and performance by the Company of this
Agreement, the Related Documents and the transactions contemplated hereby and
thereby, (i) have been duly authorized by all necessary corporate or other
action on the part of the Company, (ii) do not contravene or cause the Company
to be in default under (A) the Company's certificate of incorporation or bylaws,
(B) any contractual restriction contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other agreement
or instrument binding on or affecting the Company or its property, (C) any law,
rule, regulation, order, writ, judgment, award, injunction, or decree applicable
to, binding on or affecting the Company or its property, and (iii) do not result
in or require the creation of any Adverse Claim upon or with respect to any of
the property of the Company;
(f) This Indenture and the Related Documents have each been duly
executed and delivered on behalf of the Company;
(g) No consent of, or other action by, and no notice to or filing
with, any Governmental Authority or any other party, is required for the due
execution, delivery and performance by the Company of this Agreement or any of
the Related Documents or for the perfection of or the exercise by the Trustee or
the Noteholders of any of their rights or remedies thereunder which have not
been duly obtained;
(h) Each of this Agreement, and each other Related Document is the
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other laws relating to or affecting the
70
<PAGE>
<PAGE>
rights of creditors generally, and by general principles of equity (regardless
of whether such enforcement is considered in a proceeding in law or in equity);
(i) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of any nature against
or affecting the Company, its officers or directors, or the property of the
Company, in any court or tribunal, or before any arbitrator of any kind or
before or by any Governmental Authority (i) asserting the invalidity of this
Agreement or any of the Related Documents, (ii) seeking to prevent the sale and
assignment of any Receivable or the consummation of any of the transactions
contemplated thereby, (iii) seeking any determination or ruling that might
materially and adversely affect (A) the performance by the Company of this
Agreement or any of the Related Documents or the interests of the Noteholders,
(B) the validity or enforceability of this Agreement or any of the Related
Documents, (C) any Receivable, (D) the Intended Tax Characterization, or (iv)
asserting a claim for payment of money adverse to the Company or the conduct of
its business or which is inconsistent with the due consummation of the
transactions contemplated by this Agreement or any of the Related Documents;
(j) The principal place of business and chief executive office of
the Company are located at the address in Nevada indicated in Section 12.05 and
there are now no, and there have not been any, other locations where the Company
is located (as that term is used in the UCC) or keeps Records except, after the
date of this Agreement, as disclosed in writing to the Trustee and the
Noteholders and the Administrator at least 30 Business Days prior to any such
change;
(k) The legal name of the Company is as set forth in the beginning
of this Agreement and the Company has not changed its name since its formation,
and during such period, the Company did not use, nor does the Company now use
any tradenames, fictitious names, assumed names or "doing business as" names;
(l) The Company does not have any Subsidiaries;
(m) The Company is solvent and will not become insolvent after
giving effect to the transactions contemplated by this Indenture and each of the
Related Documents; the Company's transfers of Transferred Assets to the Trust
Estate have been and will be made for reasonably equivalent value and fair
consideration; and the Company, after giving effect to the transactions
contemplated by this Indenture and each of the Related Documents, will have an
adequate amount of capital to conduct its business in the future; and
(n) The Company has complied in all material respects with all
applicable laws, rules, regulations, and orders with respect to it, its business
and properties and all of the Transferred Assets.
71
<PAGE>
<PAGE>
SECTION 11.02. Representations and Warranties as to Each Receivable.
(a) In connection with the establishment of each Series of Notes, each of the
Company and AutoBond will make the representations and warranties designated
with respect to such Series.
(b) The Company and the Administrator each hereby certifies that the
representations and warranties contemplated in this Section 11.02 shall survive
the transfer of the Receivables to the Trust Estate.
SECTION 11.03. Repurchases and Transfers. (a) Upon the occurrence of
(i) a breach of any of the representations and warranties set forth in Sections
11.01 and 11.02, without regard to any limitation set forth in such
representation or warranty concerning the knowledge of the Company or the
Administrator as to the facts stated therein, which may, or does materially and
adversely affect the interests of the Trust Estate or the Noteholders in any
Receivable, (ii) a failure of any Loan Files to contain original documents as
set forth in Section 4.01, if the Trustee is unable, or is adversely affected in
its ability, to enforce the obligations of the related Obligor by reason of not
having possession of such original documentation, or if the original certificate
of title for any Financed Vehicle has not been obtained within 180 days after
the applicable Transfer Date, or (iii) a failure to make any filing or take
other action referred to in Section 4.05, the party discovering such breach
shall give prompt written notice to the others. If within 30 days of such
notice, occurrence or discovery referred to in the immediately preceding
sentence, such breach or failure shall remain uncured, the Receivable as to
which the breach or failure relates shall be repurchased or purchased for the
Repurchase Price as follows:
(i) in respect of matters set forth in Sections 4.05, 11.01,
and 11.02(a), by the Company;
(ii) in respect of the matters set forth in Section 4.05 or
11.02(a), by AutoBond; and
(iii) the Trustee may demand that AutoBond repurchase
Receivables pursuant to any the Agreement.
(b) Upon receipt by the Trustee of written certification of the
Administrator to the effect that the Repurchase Price has been deposited in the
Collection Account, the Trustee as custodian on behalf of the Trust shall
contemporaneously therewith release such Receivable and the related Loan Files
to the Company or AutoBond, as the case may be, and the Trustee on behalf of the
Trust Estate shall assign to the Company or AutoBond, as the case may be, all of
the Trust Estate's right, title and interest in such purchased or
72
<PAGE>
<PAGE>
repurchased Receivable, and all property and rights conveyed to the Trustee and
the Trust Estate relating thereto (excluding, however, payments previously
received under the Insurance Policies), and the Assignments to the extent such
payments relate to such repurchased or purchased Receivables, without recourse,
representation or warranty. The Trustee and the Company shall execute and
deliver to the Company or AutoBond, as the case may be, an assignment
substantially in the form of Exhibit __. The repurchase and purchase obligations
pursuant to this Section 11.03 constitute the sole remedy available to the
Trustee and the Noteholders for a breach of a representation or warranty or
agreement of the Company or AutoBond, set forth in Sections 4.05 and 11.02;
provided, that the foregoing limitation shall not be construed to limit in any
manner the right of the Trustee or the Noteholders to declare an Event of
Default to have occurred or to terminate the responsibilities of the
Administrator as Collection Agent under the Servicing Agreement to the extent
such breaches also constitute or contribute to the determination of an Event of
Default or an Event of Administrator Termination. For the purposes of this
Agreement, a Receivable has not been "repurchased" or "purchased" by the Company
or AutoBond, as the case may be, pursuant to this Section 3.03 unless the
Repurchase Price therefor has been deposited into the Collection Account.
(c) As used herein, references to the "repurchase" of Auto Loans by
the Company means the release of the Lien of this Indenture with respect to such
Auto Loans.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. Indemnities of the Administrator.
(a) The Administrator agrees to indemnify (i) the Trust Estate from,
and hold it harmless against, any and all losses, liabilities, damages, claims
or expenses (including reasonable attorneys' fees of counsel) arising as a
result of the Administrator's acts or omissions (subject to the administration
standard set forth in Section 5.02(b)) in violation of this Indenture and (ii)
the Trustee, its directors, officers, employees and agents, from, and hold it
harmless against, any and all losses, liabilities, damages, claims, expenses
(including attorney's fees and disbursements), fines or penalties, or judgments
arising out of or in connection with the performance by the Trustee of its
duties hereunder or in connection with the Trust Estate, or the issuance of the
Notes except to the extent the Trustee's own bad faith, willful misconduct or
negligence contributes to the loss, liability, damage, claim or expense.
73
<PAGE>
<PAGE>
(b) This Section 12.01 shall survive the termination of this
Indenture or the resignation or removal of the Trustee in respect of rights
accrued prior to such resignation or removal.
SECTION 12.02. Officers' Certificate and Opinion of Counsel as to
Conditions Precedent.
Upon any request or application by the Company (or any other obligor
upon the Notes) to the Trustee to take any action under this Indenture, the
Company (or such other Obligor) shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements set
forth in Section 12.04) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set
forth in Section 12.04) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 12.03. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 12.04. Notices. (a) All communications, instructions,
directions and notices to the parties thereto shall be (i) in writing (which may
be by telecopy, followed
74
<PAGE>
<PAGE>
by delivery of original documentation within one Business Day), (ii) effective
when received and (iii) delivered or mailed first class mail, postage prepaid to
it at the following address:
If to the Company:
AutoBond Master Funding Corporation
300 South Fourth Street, Suite 620
Las Vegas, Nevada 89101
If to the Administrator:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services - Asset Backed Administration
Facsimile Number: (612) 667-3539
Telephone Number: (612) 667-1117
If to the Rating Agencies:
Moody's Investor Service
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
75
<PAGE>
<PAGE>
Fitch Investors Service
One State Street Plaza
New York, New York 10004
Attention: ABS Monitoring Department
or at such other address as the party may designate by notice to the other
parties hereto, which shall be effective when received.
(b) All communications and notices pursuant hereto to a Noteholder
shall be in writing and delivered or mailed first class mail, postage prepaid or
overnight courier at the address shown in the Note Register. The Trustee agrees
to deliver to each Noteholder upon receipt, all notices and reports that the
Trustee may receive hereunder and under any Servicing Agreement and Related
Documents. Unless otherwise provided herein (including Section 8.11 hereof) the
Trustee may consent to any requests received under such documents or, at its
option, follow the directions of Noteholders with a Percentage of greater than
50% within 30 days after prior written notice to the Noteholders. All notices to
Noteholders (or any Class thereof) shall be sent simultaneously.
SECTION 12.05. Notices and Reports to be Delivered to the Rating
Agencies. On or before the later to occur of each Payment Date and, the Business
Day following its receipt thereof, the Administrator shall promptly deliver to
each of the Rating Agencies the notices, reports and certificates referred to in
Section 3.05.
SECTION 12.06. No Proceedings. The Noteholders, the Administrator
and the Trustee each hereby agrees that it will not, directly or indirectly
institute, or cause to be instituted, against the Company or the Trust any
proceeding of the type referred to in Section 6.01(e) so long as there shall not
have elapsed one year plus one day since the Trust Termination Date.
ARTICLE 13.
VARIABLE FUNDING NOTES
SECTION 13.01. Designation.
(a) There is hereby created a Series of Notes to be issued pursuant
to this Indenture designated as "AutoBond Master Funding Corporation -- Variable
Funding Notes, Series A (the "Variable Funding Notes"). The Variable Funding
Notes shall initially be evidenced by a single certificated note in the form
attached hereto as Exhibit C.
76
<PAGE>
<PAGE>
(b) The maximum aggregate principal amount of the Variable Funding
Notes which may be Outstanding at anytime is $50,000,000, subject to the
exceptions contained in Section 2.01(a)(2).
(c) The first Payment Date with respect to the Variable Funding
Notes shall be the July 15, 1997 Payment Date.
(d) The Variable Funding Notes shall bear interest at the rate set
forth in the Credit Agreement (as defined in Section 13.02); principal and
interest shall be payable to the Holder in whose name a Variable Funding Note is
registered as of the end of the month preceding the applicable Payment Date; and
principal and interest shall be payable on the Payment Dates and such other
dates as set forth in the Credit Agreement.
(e) The Trust Assets allocated to the Variable Funding Notes are as
set forth in Schedule 1, as modified from time to time in accordance with this
Indenture.
(f) The Issuance Date in respect of the Variable Funding Notes shall
be June 30, 1997.
(g) The representations and warranties with respect to the Auto
Loans allocated to such Series, additional covenants, and conditions precedent
to Advances are set forth in the Credit Agreement.
SECTION 13.02. Certain Definitions.
(a) As used in this Article 13 and with respect to the Variable
Funding Notes, the following terms shall have the following meanings:
"Accounts" shall mean the Lockbox Account, the Cash Reserve Account,
the Loan Purchase Account and the Collection Account.
"Advances" shall have the meaning specified in the Credit Agreement.
"Automobile" shall mean a new or used automobile, light-duty truck
or van.
"Cash Reserve Account" shall have the meaning assigned to such term
in Section 13.03 hereof.
"Collection Account" shall have the meaning assigned to such term in
Section 13.03 hereof.
77
<PAGE>
<PAGE>
"Collection Agent" shall mean AutoBond, as collection agent under
the Servicing Agreement.
"Credit Agreement" means the Credit Agreement, dated as of June 30,
1997 among the Company, AutoBond and the Note Agent.
"Collection Agent Fee" shall mean, a fee equal to the product of (i)
$7 and (ii) the total number of Specified Auto Loans which were outstanding at
any time during the preceding Interest Period, plus Reimbursable Collection
Agent Expenses.
"Due Period" shall mean, (a) with respect to the initial Due Period,
the month of June, 1997, and (b) thereafter, with respect to any Payment Date,
the period commencing on the first day of the calendar month preceding the
calendar month in which such Payment Date occurs and ending on the last day of
the calendar month preceding the calendar month in which such Payment Date
occurs.
"Delinquency Ratio" shall mean, as of any Determination Date, the
percentage equivalent of a fraction (a) the numerator of which equals the sum of
(i) the aggregate Unpaid Principal Balance of Auto Loans which have become
Defaulted Auto Loans as of the end of the most recently ended Due Period minus
(ii) the sum of the aggregate Unpaid Principal Balance of (A) all Auto Loans
against which insurance claims have been filed as of the end of the most
recently ended Due Period and (B) Auto Loans for which the related Financed
Vehicles are subject to repossession as of the end of the most recently ended
Due Period and which are not included in (A), and (B) the denominator of which
equals the aggregate Unpaid Principal Balance of Auto Loans outstanding as of
the end of the most recently ended Due Period minus the amount determined
pursuant to clause (ii) above.
"Exchange" has the meaning set forth in Section 13.
"Excess Reserve Account Amount" shall mean, as of each Payment Date,
the amount, if any, held in the Cash Reserve Account in excess of the Reserve
Account Required Balance after giving effect to any withdrawals from the Reserve
Account pursuant to Section 13.05(c)(i), (ii) and (iii) on such Payment Date.
"Excess Spread Notes" means Notes issued by the Company to the
extent their principal amount is derived from the discounting of excess spread
cash flows on the Auto Loans allocated to such Series of Notes.
"Funding Date" shall have the meaning set forth in the Credit
Agreement.
78
<PAGE>
<PAGE>
"Interest Period" means the period beginning with a Payment Date (or
in the case of the initial Interest Period, June 15, 1997) to and excluding the
following Payment Date.
"Liquidated Receivable" means, as of any date of determination, any
Auto Loan upon the earlier to occur of (a) receipt of all Recoveries on
Receivables reasonably expected to be received in respect thereof and (b) the
date such Auto Loan is more than 180 days contractually past due.
"Loan Acquisition Price" shall have the meanings set forth in the
Credit Agreement.
"Loan Purchase Account" shall have the meaning assigned to such term
in Section 13.03 hereof.
"Lockbox" means the Lockbox established and maintained pursuant to
the Lockbox Agreement.
"Lockbox Account" means the account in the name of the Servicer, as
custodian for AutoBond and the Trustee, or in the name of the Trustee,
established in respect of the Auto Loans at the Lockbox Bank and maintained
pursuant to the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Operations Agreement, dated as
of September 30, 1996 between the Servicer, as custodian for AutoBond and the
Trustee, and the Lockbox Bank, or any successor agreement hereunder.
"Lockbox Bank" means Banc One, Texas, N.A or any successor
hereunder.
"Monthly Administrator Fee" shall mean, as of any Payment Date, so
long as AutoBond is acting as Administrator hereunder and as Collection Agent
under the Servicing Agreement, the sum of (a) a fee, payable monthly, equal to
the product of (i) $7.00 and (ii) the total number of Auto Loans included in the
Trust Estate and allocated to the Variable Funding Notes at any time during the
immediately preceding Due Period and (b) Reimbursable Administrator Expenses;
provided, that to the extent the Servicer assumes the duties of the Collection
Agent under the Servicing Agreement, such fee shall be payable to the Servicer
and shall equal the amount set forth in the preceding clause.
"Monthly Repossession Ratio" shall mean on any Determination Date, a
fraction (a) the numerator of which is equal to the aggregate Unpaid Principal
Balance of all Designated Auto Loans which were put out for repossession as of
the end of the related Due Period and (b) the denominator of which is the
aggregate Unpaid Principal Balance of all Designated Auto Loans as of the end of
the related Due Period.
79
<PAGE>
<PAGE>
"Monthly Servicing Fee" means, as of any Payment Date, the sum of
(a) unless previously boarded under a servicing agreement with the Servicer, an
initial booking fee equal to the product of (i) $10 and (ii) the number of Auto
Loans transferred to the Trust Estate and allocated to the Variable Funding
Notes during the previous Due Period, (b) the servicing fee, payable monthly
hereunder, equal to the product of (i) $8.00 and (ii) the total number of Auto
Loans subject to the lien of this Indenture and allocated to the Variable
Funding Notes at any time during such Due Period, and (c) expenses of the
Servicer reimbursable from the Trust Estate pursuant to the Servicing Agreement;
provided, however, that to the extent that the Servicer is not an Affiliate of
the Company and has assumed the obligations of the Collection Agent under the
Servicing Agreement, the Monthly Servicing Fee shall include the Monthly
Administrator Fee.
"Note Agent" means Daiwa Finance Corporation, its successors and
assigns.
"Payment Date" shall mean the 15th day of each month (or, if such
day is not a Business Day, the next succeeding Business Day), commencing July
15, 1997, and each other date on which Advances and interest thereon are paid or
payable.
"Reimbursable Collection Agent Expenses" means, with respect to any
Payment Date, all reasonable and customary out-of-pocket fees and expenses of
third parties incurred by the Collection Agent (including expenses related to
financing statements and titles required to be paid or reimbursed by the
Collection Agent) in connection with their respective repossession activities,
including, without limitation, fees of attorneys, appraisers, third party
collateral managers and others (who shall have been retained by the Collection
Agent, in accordance with the Servicing Agreement) for the Due Period
immediately preceding such Payment Date, but not including expenses paid net of
recoveries.
"Repossession Ratio" shall mean, on any Determination Date on or
after July 10, 1997, the product of (a) the average of the Monthly Repossession
Ratios for the three immediately preceding calendar months and (b) 12.
"Reserve Account Balance" shall mean the amount of funds on deposit
in the Cash Reserve Account.
"Reserve Account Deficiency Amount" shall mean as of any Payment
Date the amount by which the Reserve Account Required Balance exceeds the
Reserve Account Balance as of such Payment Date.
"Reserve Account Required Balance" shall mean, as of any
Determination Date, the greater of (a) $150,000 and (b) the product of (i) the
Target Reserve Percentage
80
<PAGE>
<PAGE>
and (ii) the aggregate Unpaid Principal Balance of the Specified Auto Loans as
of the end of the preceding Due Period.
"Servicer" means the entity designated as such under the Servicing
Agreement.
"Servicing Agreement" means the Servicing Agreement, dated January
29, 1997 between AutoBond and CSC Logic/MSA LLP, as Servicer.
"Specified Auto Loan" shall mean each Auto Loan subject to the Lien
of this Indenture and allocated to the Variable Funding Notes.
"Target Reserve Percentage" shall mean 6%; provided, that if, as of
a Determination Date,
(a) the Delinquency Ratio on such Determination Date or any
prior Determination Date is greater than or equal to the 7%, then
the Target Reserve Percentage shall thereafter equal 9%;
(b) the Repossession Ratio on such Determination Date or any
prior Determination Date is greater than or equal to 20%, then the
Target Reserve Percentage shall thereafter equal 9%; and
(c) the Repossession Ratio on such Determination Date or any
prior Determination Date is greater than or equal to 27%, then the
Target Reserve Percentage shall thereafter equal 12%.
If more than one of the foregoing clauses is applicable as of a
particular Determination Date, then the applicable Target Reserve Percentage
shall be the highest amount so applicable.
"Unused Facility Fee" shall have the meaning specified in the Credit
Agreement.
SECTION 13.03. Establishment and Maintenance of Lockbox and Trust
Accounts. The Administrator shall cause to be established and maintained at all
times a lockbox and related account (the "Lockbox" and the "Lockbox Account") in
the name of the Servicer, as custodian for the Administrator and the Trustee, or
in the name of the Trustee. The Administrator agrees to cause the Lockbox Bank
to sweep funds from the Lockbox Account to the Collection Account at least once
each week. The Administrator agrees to require, and to cause the Servicer to
require, that all payments by Obligors on
81
<PAGE>
<PAGE>
Specified Auto Loans be made to the Lockbox. Only payments on Specified Auto
Loans will be received in the Collection Account and no other funds other than
funds in which the Trustee has an interest hereunder will be commingled therein.
In addition, concurrently with the execution and delivery hereof, the Trustee
shall establish the following segregated accounts entitled (a) the "AutoBond
Master Funding Corporation -- Loan Purchase Account, Norwest Bank Minnesota,
National Association, as Trustee" (the "Loan Purchase Account"); (b) the
"AutoBond Master Funding Corporation -- Variable Funding, Series A Collection
Account, Norwest Bank Minnesota, National Association, as Trustee" (the
"Collection Account"); and (c) the "AutoBond Funding Corporation -- Variable
Funding, Series A Reserve Account, Norwest Bank Minnesota, National Association,
as Trustee" (the "Cash Reserve Account"). The Loan Purchase Account, the
Collection Account and the Cash Reserve Account are sometimes collectively
referred to in this Article 13 as the "Trust Accounts".
SECTION 13.04. Required Deposits to the Accounts. (a) The Company
shall cause the following amounts to be paid to the Trustee for deposit to the
accounts established pursuant to Section 13.03:
(i) on the Issuance Date, an amount equal to $ __________ shall be
deposited in the Cash Reserve Account;
(ii) all amounts payable to or for the account of the Company by or
on behalf of the Holders of Variable Funding Notes in respect of Advances
shall be deposited directly in the Loan Purchase Account;
(iii) all amounts representing payments in respect of Specified Auto
Loans (including, without limitation, all Recoveries on Receivables, all
late charges, all payments in respect of the Repurchase Price of Specified
Auto Loans repurchased by AutoBond or the Company in accordance with
Section 11.03 and all proceeds of any Exchange) shall be sent to the
Lockbox Account and then deposited in the Collection Account.
(b) The Trustee acting on behalf of the Holders and the Company
agree (i) that the Trust Accounts shall be maintained in the name of the
Trustee, (ii) that the Trust Accounts shall be subject to the exclusive dominion
of the Trustee, and (iii) that the Trustee shall have the sole right of
withdrawal from the Trust Accounts. The Company, the Holders and AutoBond shall
timely provide written remittance information to the Trustee specifying payment
instructions with respect to amounts payable pursuant to each provision of
Section 13.05. The Trustee shall have no liability to the Company, any Holder or
any other Person for failure to pay funds to any Person in accordance with
Section 13.05 in the absence of
82
<PAGE>
<PAGE>
timely receipt of such written remittance instructions or in the event of any
errors in such written remittance instructions.
SECTION 13.05. Application of Funds in the Trust Accounts. (a)
Except as otherwise provided in Section 13.06, if no Event of Default shall have
occurred and be continuing, the Trustee, in the case of clause (iii), on each
Payment Date or, in the case of clause (ii), on each Business Day, shall apply
funds in the Loan Purchase Account in the following order of priority pursuant
to written instructions of the Company in the case of clauses (i) and (ii) or
pursuant to the Servicer Report (as defined in the Servicing Agreement) in the
case of clause (iii):
(i) on each Funding Date, deposit to the Reserve Account, 2% of each
related Advance;
(ii) to pay to AutoBond (for the account of the Company) an amount
equal to the Loan Acquisition Price (less the amount deposited in (i)
above), in respect of all Specified Auto Loans, if any, to be purchased by
the Company on such date on or before 10:00 a.m., New York City time;
provided that, with respect to each such Specified Auto Loan, such amounts
shall be payable only if the Trustee has received each of the Loan
Documents with respect to such Specified Auto Loan from AutoBond; and
(iii) to pay to the Noteholders, all interest on the Advances and
any Unused Facility Fee then due to the extent funds on deposit in the
Collection Account and the Cash Reserve Account on such date are
insufficient therefor;
and, if any such funds shall remain unused after being applied for the foregoing
purposes, so long as any Advances remain outstanding the remaining funds shall
be retained in the Loan Purchase Account and continue to be part of the Trust
Estate hereunder, and if so instructed in writing by AutoBond, may be invested
or withdrawn by the Trustee in accordance with Section 13.06 hereof. The Trustee
may liquidate any investment when required to make an application pursuant to
clauses (i), (ii) and (iii) above. No investment made pursuant to this section
will have a maturity later than one Business Day prior to the date on which such
funds will be needed to make payments on the Variable Funding Notes.
(b) If no Event of Default shall have occurred and be continuing,
the Trustee on each Payment Date shall apply funds held in the Collection
Account in respect of the prior Due Period in the following order of priority:
83
<PAGE>
<PAGE>
(i) to the Noteholders, an amount equal to accrued and unpaid
interest on the Advances and an amount equal to the Unused Facility Fee
payable on such Payment Date;
(ii) to the Trustee and the Servicer, an amount equal to the Monthly
Trustee Fee and the Monthly Servicer Fee, respectively, payable on such
Payment Date;
(iii) to the Loan Purchase Account as Advances to fund Auto Loans,
unless directed by the Note Agent to pay to the Noteholders principal on
the Advances, an amount equal to any principal received in respect of
Specified Auto Loans during the immediately preceding Due Period;
(iv) to the Cash Reserve Account, an amount equal to the Reserve
Account Deficiency Amount, until the Reserve Account Balance equals the
Reserve Account Required Balance;
(v) to the Administrator, an amount equal to the sum of (i) the
Monthly Administrator Fee payable on such Payment Date and (ii) any late
charges received in respect of Specified Auto Loans during the immediately
preceding Due Period;
(vi) to the discharge of all other obligations of the Company which
are then due under the Credit Agreement (or, to the extent such
obligations have not yet matured, to be set aside and held in trust solely
to satisfy such obligations, as and when they mature or otherwise become
due) in an amount equal to such obligations; and
(vii) to the Company, an amount equal to any funds remaining in the
Collection Account.
(c) If no Event of Default shall have occurred and be continuing,
the Trustee on each Payment Date shall apply funds held in the Cash Reserve
Account in the following order of priority (in accordance with the Servicer
Report):
(i) to the Noteholders, an amount equal to the accrued and unpaid
interest and fees on the Variable Funding Notes (including, any accrued
and unpaid Unused Facility Fees) to the extent that funds on deposit in
the Collection Account on such date are insufficient therefor;
(ii) to the Noteholders, an amount equal to the principal of the
Notes due and payable on such date to the extent that funds on deposit in
the Collection Account on such date are insufficient therefor; and
84
<PAGE>
<PAGE>
(iii) to the Collection Account, an amount equal to the Excess
Reserve Account Amount.
(d) If an Event of Default shall have occurred and be continuing,
the Trustee shall apply all amounts held in the Loan Purchase Account, the
Collection Account and the Cash Reserve Account and the proceeds of any
collection, recovery, receipt, appropriation, realization or sale of any Trust
Assets in connection with any Event of Default (after deducting all reasonable
costs and expenses of every kind incurred in any way relating to the exercise of
rights of the Trustee with respect to the Trust Assets upon an Event of Default,
including reasonable attorney's fees and expenses) in the following order of
priority:
(i) to the Trustee, an amount equal to all fees, costs and expenses
owing to the Trustee under this Indenture;
(ii) to the Servicer (if other than AutoBond), an amount equal to
all fees, costs and expenses owing to the Servicer under the Servicing
Agreement;
(iii) to the Noteholders, in the following order of priority (A) an
amount equal to all unpaid interest on, (B) other amounts due or to become
due with respect to including, without limitation, any accrued and unpaid
Unused Facility Fees, and (C) principal of, the Notes (in the event any
such principal is not due and the Notes have not been accelerated, all
such amounts shall be retained in the Trust Accounts and applied solely to
pay principal of and interest on, and other amounts due or to become due
with respect to, the Notes, as and when due until all principal and
interest on, and other amounts due or to become due with respect to, the
Notes shall have been paid and satisfied in full);
(iv) to the discharge of all other obligations of the Company which
are then due under the Credit Agreement and the Servicing Agreement (or,
to the extent such obligations have not yet matured, to be set aside and
held in trust solely to satisfy such obligations, as and when they mature
or otherwise become due) in an amount equal to such obligations; and
(v) to the Company, an amount equal to any funds remaining in the
Trust Accounts.
(e) To the extent that the sum of amounts held in the Loan Purchase
Account exceeds $5,000,000, the Trustee shall notify the Company and the Note
Agent. In the event that three (3) Business Days following the Business Day on
which the amount on deposit in the Loan Purchase Account exceeded $5,000,000,
the amount on deposit in the Loan Purchase Account (after giving effect to any
disbursements pursuant to Section 13.05 on such
85
<PAGE>
<PAGE>
date) is still greater than $5,000,000, the Trustee, unless otherwise directed
by the Note Agent, shall withdraw an amount equal to the amount by which the
amount on deposit in the Loan Purchase Account exceeds $4,000,000 and disburse
such amount to the Noteholders as a prepayment of the Notes in accordance with
Section 8.2 of the Credit Agreement.
SECTION 13.06. Exchanges for New Series.
(a) From time to time, on any Business Day on or before March 31,
1998, and upon 7 days' written notice to the Administrator and the Trustee, the
Note Agent on behalf of the Noteholders (after consultation with the
Administrator), may elect to exchange all or a portion of the unpaid Outstanding
Principal Amount of the Variable Funding Notes for a new Series of Notes (the
"Term Notes") to be issued in accordance with Section 2.01(a) of this Indenture
(each such election, an "Exchange").
(b) The Company agrees to cause the creation of such Series of Term
Notes under the Indenture and to execute and order the authentication of the
Notes of such Series so long as, as designated by the Note Agent:
(1) The aggregate principal amount of the Term Notes of such
Series (other than Excess Spread Notes) shall equal the Unpaid Principal
Balance of the Auto Loans in the Trust Estate allocated to such Series.
(2) the Stated Maturity of the Term Notes is 5 years from the
Issuance Date for such Series;
(3) (A) at least 90% of the aggregate principal amount of the
Term Notes (the "Senior Class") are rated at least A by Fitch and A3 by
Moody's; and (B) up to 10% of the aggregate principal amount of the Term
Notes (the "Mezzanine Class") are rated at least BB by Fitch or Moody's;
(4) (A) the fixed interest rate of the Senior Class shall be
"at the market" and in any event shall not exceed 200 basis points over
comparable U.S. Treasury securities; and (B) the fixed interest rate of
the Mezzanine Class shall be "at the market" and in any event shall not
exceed 280 basis points over comparable U.S. Treasury securities;
(5) the Unpaid Principal Balance of the Auto Loans allocated
to the Term Notes shall equal 109% of the aggregate principal amount of
the portion of the Variable Funding Notes tendered for an Exchange;
86
<PAGE>
<PAGE>
(6) if risk default insurance is purchased, the Series shall
provide for a Class of Excess Spread Notes, sized to obtain a rating of at
least "BB" from Fitch or a similar rating from Moody's and with an
interest rate no greater than 17% per annum, which shall be retained by
the Company until sold;
(7) funds released from the Cash Reserve Account for the
Variable Funding Notes shall be deposited in the Cash Reserve Account for
the Term Notes;
(8) upon payment of risk default insurance premiums, the Auto
Loans allocated to the Term Notes shall be covered by a risk default
Insurance Policy;
(9) a Trustee shall have been appointed for such Series;
(10) after such Exchange, pending their sale by the Note
Agent, payments on the Notes in excess of the aggregate principal amount
of, and accrued interest on, the Variable Funding Notes exchanged for the
Notes shall be for the Company's account; and
(11) after such Exchange, the Term Notes will be sold at least
at par and the proceeds of such sale less a customary underwriting
commission for Notes placed by the Holder thereof (not to exceed 1.00%),
shall be applied as follows:
(A) to the Holders of Variable Funding Notes exchanged for the
Notes, an amount equal to the aggregate principal amount of the
portion of the Variable Funding Notes so exchanged, plus interest
accrued thereon at the weighted average interest rate on the Senior
Notes and Mezzanine Notes through the date of sale;
(B) to the Cash Reserve Account for the Term Notes additional
amounts needed to fill such Trust Account to the initial required
amount (not to exceed 2%); and
(C) the remainder, to the Company.
SECTION 13.07. Additional Events of Default; Remedies. (a) In
addition to the Events of Default set forth in Section 6.01, the following
additional Events of Default shall be applicable to the Variable Funding Notes:
(i) a Borrowing Base Deficiency (as defined in the Credit Agreement)
is determined to exist on a Determination Date and continues unremedied
after giving
87
<PAGE>
<PAGE>
effect to the transactions on the related Payment Date, in each case
within five (5) Business Days after notice from the Note Agent; or
(ii) the Company or AutoBond shall default in the due and punctual
performance of or compliance with any material covenant, condition or
agreement to be performed or observed by it under the Credit Agreement,
respectively, hereof and any such default shall continue unremedied for a
period of twenty (20) Business Days after an Authorized Officer of the
Company or AutoBond obtains knowledge thereof; or
(iii) any representation, warranty, certification or statement of
the Company or AutoBond made or contained in the Credit Agreement or in
any agreement, instrument, certificate, statement or other writing
furnished in connection herewith or therewith or pursuant hereto or
thereto, shall prove to have been false or inaccurate in any material
respect on the date as of which such representation or warranty was made
and any such breach shall continue unremedied for a period of thirty (30)
days after an Authorized Officer of the Company or AutoBond obtains
knowledge thereof.
(b) in addition to the remedies set forth in Article 6, upon the
occurrence and continuance of any Event of Default set forth in this Section
13.07 by AutoBond, the Note Agent may remove AutoBond as Collection Agent under
the Servicing Agreement and appoint a successor Collection Agent.
SECTION 13.08. Resignation or Removal of Trustee. Notwithstanding
Section 7.08(a), the Trustee may at any time resign and be discharged with
respect to the Variable Funding Notes by giving 30 days' written notice thereof
to the Administrator, the Company, the Note Agent and Fitch. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Trustee not objected to by Note Agent within 30 days after prior written notice,
by written instrument, in quintuplicate, one counterpart of which instrument
shall be delivered to each of the Company, the successor Trustee and the
predecessor Trustee. A copy of such instrument shall be delivered to Fitch.
88
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Indenture to be duly executed as of the day and year first above written.
AUTOBOND MASTER FUNDING CORPORATION
as Issuer
By
--------------------------------------------------
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION, as
Administrator and individually
By
--------------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, not in its individual capacity, but
solely as Trustee
By
--------------------------------------------------
Name:
Title: Corporate Trust Officer
89
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION......................... 2
SECTION 1.01. General Definitions..................................... 2
SECTION 1.02. Compliance Certificates and Opinions.................... 17
SECTION 1.03. Form of Documents Delivered to Trustee.................. 18
SECTION 1.04. Acts of Noteholders, etc................................ 19
SECTION 1.05. Notice to Noteholders; Waiver........................... 20
SECTION 1.06. Effect of Headings and Table of Contents................ 21
SECTION 1.07. Successors and Assigns.................................. 21
SECTION 1.08. GOVERNING LAW........................................... 21
SECTION 1.09. Legal Holidays.......................................... 21
SECTION 1.10. Execution in Counterparts............................... 21
SECTION 1.11. Inspection.............................................. 22
SECTION 1.12. Survival of Representations and Warranties.............. 22
SECTION 1.13. Security Forms.......................................... 22
ARTICLE 2.
THE NOTES............................... 23
SECTION 2.01. General Provisions...................................... 23
SECTION 2.02. Execution, Authentication, Delivery, and Dating......... 26
SECTION 2.03. Transfer and Exchange................................... 26
SECTION 2.04. Mutilated, Destroyed, Lost and Stolen Notes............. 28
SECTION 2.05. Payment of Interest and Principal; Rights Preserved..... 29
SECTION 2.06. Persons Deemed Owners................................... 29
SECTION 2.07. Cancellation............................................ 29
SECTION 2.08. Noteholder Lists........................................ 30
SECTION 2.09. Treasury Notes.......................................... 30
ARTICLE 3.
ACCOUNTS; COLLECTION AND
APPLICATION OF MONEYS; REPORTS..................... 31
SECTION 3.01. Trust Accounts; Investments by Trustee.................. 31
i
<PAGE>
<PAGE>
Page
----
SECTION 3.02. Establishment and Administration of the Lockbox and the
Collection Accounts.............................................. 33
SECTION 3.03. Establishment and Administration of Cash Reserve
Accounts......................................................... 34
SECTION 3.04. Distributions............................................ 35
SECTION 3.05. Reports to Noteholders................................... 35
SECTION 3.06. Returned Payments........................................ 36
ARTICLE 4.
THE TRUST ESTATE............................ 36
SECTION 4.01. Acceptance by Trustee and Agreement to Act as
Custodian........................................................ 36
SECTION 4.02. Subsequent Transfers................................. 37
SECTION 4.03. Conditions Precedent to All Transfers................ 38
SECTION 4.04. Grant of Security Interest; Tax Treatment............ 39
SECTION 4.05. Further Action Evidencing Assignments................ 40
ARTICLE 5.
SERVICING OF TRUST ASSETS....................... 41
SECTION 5.01. Appointment of Servicer.............................. 41
SECTION 5.02. Appointment of Administrator; Monthly Administration
Fee.............................................................. 41
SECTION 5.03. Duties and Responsibilities of the Administrator..... 42
ARTICLE 6.
EVENTS OF DEFAULT; REMEDIES...................... 43
SECTION 6.01. Events of Default....................................... 43
SECTION 6.02. Acceleration of Maturity; Rescission and Annulment...... 45
SECTION 6.03. Remedies................................................ 46
SECTION 6.04. Trustee May File Proofs of Claim........................ 47
SECTION 6.05. Trustee May Enforce Claims Without Possession of
Notes............................................................ 48
SECTION 6.06. Application of Money Collected....................... 48
SECTION 6.07. Limitation on Suits.................................. 49
SECTION 6.08. Unconditional Right of Noteholders to Receive Principal
and Interest..................................................... 49
SECTION 6.09. Restoration of Rights and Remedies...................... 50
SECTION 6.10. Rights and Remedies Cumulative.......................... 50
SECTION 6.11. Delay or Omission Not Waiver............................ 50
ii
<PAGE>
<PAGE>
Page
----
SECTION 6.12. Control by Noteholders.................................. 50
SECTION 6.13. Waiver of Events of Default............................. 51
SECTION 6.14. Undertaking for Costs................................... 51
SECTION 6.15. Waiver of Stay or Extension Laws........................ 52
SECTION 6.16. Sale of Trust Estate.................................... 52
ARTICLE 7.
THE TRUSTEE.............................. 53
SECTION 7.01. Certain Duties......................................... 53
SECTION 7.02. Notice of Events of Default.......................... 55
SECTION 7.03. Certain Matters Affecting the Trustee................... 55
SECTION 7.04. Trustee Not Liable for Notes or Receivables.......... 56
SECTION 7.05. Trustee May Own Notes................................ 57
SECTION 7.06. The Administrator to Pay Trustee's Fees and Expenses. 57
SECTION 7.07. Eligibility Requirements for Trustee................. 57
SECTION 7.08. Resignation or Removal of Trustee.................... 57
SECTION 7.09. Successor Trustee.................................... 58
SECTION. 7.10. Merger or Consolidation of Trustee................... 60
ARTICLE 8.
COVENANTS ............................... 60
SECTION 8.01. Payment of Principal and Interest....................... 60
SECTION 8.02. Maintenance of Office or Agency; Chief Executive Office. 60
SECTION 8.03. Money for Payments to Noteholders to be Held in Trust... 60
SECTION 8.04. Corporate Existence; Merger; Consolidation, etc......... 61
SECTION 8.05. Protection of Trust Estate; Further Assurances.......... 62
SECTION 8.06. Servicing Agreement..................................... 63
SECTION 8.07. Additional Covenants.................................... 63
SECTION 8.08. Taxes................................................... 64
ARTICLE 9.
SUPPLEMENTAL INDENTURES........................ 65
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.. 65
SECTION 9.02. Supplemental Indentures with Consent of Noteholders..... 65
SECTION 9.03. Execution of Supplemental Indentures.................... 67
SECTION 9.04. Effect of Supplemental Indentures....................... 67
iii
<PAGE>
<PAGE>
Page
----
SECTION 9.05. Reference in Notes to Supplemental Indentures........... 67
ARTICLE 10.
SATISFACTION AND DISCHARGE....................... 67
SECTION 10.01. Satisfaction and Discharge of Indenture................ 67
SECTION 10.02. Application of Trust Money............................. 69
SECTION 10.03. Trust Termination Date................................. 69
ARTICLE 11.
REPRESENTATIONS AND WARRANTIES
.................................... 69
SECTION 11.01. Representations and Warranties of the Company........ 69
SECTION 11.02. Representations and Warranties as to Each Receivable 72
SECTION 11.03. Repurchases and Transfers............................ 72
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. Indemnities of the Administrator..................... 74
SECTION 12.02. Officers' Certificate and Opinion of Counsel as to
Conditions Precedent............................................. 74
SECTION 12.03. Statements Required in Certificate or Opinion.......... 75
SECTION 12.04. Notices.............................................. 75
SECTION 12.05. Notices and Reports to be Delivered to the Rating
Agencies......................................................... 77
SECTION 12.06. No Proceedings....................................... 77
ARTICLE 13.
VARIABLE FUNDING NOTES......................... 77
SECTION 13.01. Designation.......................................... 77
SECTION 13.02. Certain Definitions.................................. 78
SECTION 13.03. Establishment and Maintenance of Lockbox and Trust
Accounts............................................. 82
SECTION 13.04. Required Deposits to the Accounts.................... 83
SECTION 13.05. Application of Funds in the Trust Accounts........... 83
SECTION 13.06. Exchanges for New Series............................. 87
iv
<PAGE>
<PAGE>
SECTION 13.07. Additional Events of Default; Remedies................. 88
SECTION 13.08. Resignation or Removal of Trustee...................... 89
Schedules
Schedule 1 - List of Trust Assets allocated to each Series.
Schedule 2 - VSI Policies
EXHIBITS
EXHIBIT A - AutoBond Program Manual
EXHIBIT B - Form of Collateral Assignment
EXHIBIT C - Forms of Variable Funding Note
EXHIBIT D - Form of Rule 144A Transferee Letter
EXHIBIT E - Form of Investor Letter
EXHIBIT F - Form of Administrator Report
EXHIBIT G - Form of Repurchase Assignment
v
<PAGE>
<PAGE>
EXHIBIT C
FORM OF VARIABLE FUNDING NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. BY ITS ACCEPTANCE
HEREOF, EACH PURCHASER REPRESENTS AND AGREES THAT THIS NOTE MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT IN COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE PROVISIONS
UNDER STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
PROVISIONS. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH
IN THE INDENTURE REFERRED TO HEREIN.
NEITHER THIS NOTE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE REPRESENTS THAT EITHER (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN, TRUST
OR ACCOUNT, WHETHER OR NOT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR DESCRIBED IN SECTION 4975(e)(1)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL
RETIREMENT ACCOUNT, OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY
REASON OF AN INVESTMENT IN SUCH ENTITY BY A PLAN, TRUST OR ACCOUNT DESCRIBED
ABOVE, OR (B) THE ACQUISITION AND HOLDING OF SUCH NOTES WILL BE COVERED BY A
DEPARTMENT OF LABOR CLASS EXEMPTION.
AUTOBOND MASTER FUNDING CORPORATION
VARIABLE FUNDING NOTE, SERIES A
$50,000,000 June 30, 1997
New York, New York
FOR VALUE RECEIVED, AutoBond Master Funding Corporation, a Nevada
corporation (the "Company") for value received, hereby promises to pay to Daiwa
Finance Corporation (the "Holder") or its assigns, the principal sum of Fifty
Million Dollars ($50,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Advances made by the Holder to the
Company under the Credit Agreement (as modified and supplemented and in effect
from time to time, the "Credit Agreement") dated as of June 30, 1997 among the
Company, AutoBond Acceptance Corporation and the Holder), in lawful money of the
United States of America and in immediately available funds, on the dates and in
the
C-1
<PAGE>
<PAGE>
principal amounts provided in the Indenture referred to below, and to pay
interest on the unpaid principal amount of this Note until paid in full, at the
rates per annum and on the dates provided in the Indenture and the Credit
Agreement.
The date, amount, interest rate and maturity date of each Advance
made by the Holder shall be recorded by the Holder on its books and, prior to
any transfer of this Note, endorsed by the Holder on the schedule attached
hereto or any continuation thereof.
By its holding of this Note, the Holder shall be deemed to accept
the terms of the Credit Agreement and the Indenture and agree to be bound
thereby.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to herein by manual signature, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Notes of the Company
designated as its "Variable Funding Notes, Series A" (herein called the "Notes")
limited in aggregate principal amount of $50,000,000, issued under the Trust
Indenture, dated as of June 30, 1997 (herein called the "Indenture"), among the
Company, AutoBond Acceptance Corporation ("AutoBond") and Norwest Bank
Minnesota, National Association, as trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, AutoBond, the Trustee and the Holders and of the terms upon
which the Notes are authenticated and delivered. Unless otherwise defined
herein, all capitalized terms used herein shall have the meanings set forth in
the Indenture.
This Note is secured by the pledge to the Trustee under the
Indenture of the Trust Estate allocated to the Notes. The amounts owed under
this Note shall not include any recourse to AutoBond, the Servicer, the Trustee
or any affiliates thereof.
In addition to the Notes, the Company may from time to time issue
additional Series of Notes under the Indenture, including in exchange for all or
a portion of the outstanding principal amount of this Note.
If certain Events of Default under the indenture have been declared,
the unpaid principal of the Notes may be declared immediately due and payable in
the manner and with the effect provided in the Indenture. Notice of Note
declaration will be given by mail to Noteholders, as their names and addresses
appear in the Note Register, as provided in the Indenture. Upon payment of such
principal amount together with all accrued interest, the
C-2
<PAGE>
<PAGE>
obligations of the Company with respect to the payment of principal and interest
on this Note shall terminate.
The Indenture permits with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Noteholders under the Indenture at any time by the
Company and the Trustee with the consent of the Noteholders of the percentages
specified in the Indenture at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Notes, at the time Outstanding, on behalf of all the
Holders, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by he Holder of this Note shall be conclusive and
binding upon such Holder and upon all future Holders of this Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Note.
Each Class A Note may be issued only in registered form and only in
minimum denominations of at least $100,000 and integral multiples of $1,000 in
excess thereof; provided that the foregoing shall not restrict or prevent the
transfer in accordance with Section 2.03 of the Indenture of any Note having a
remaining Outstanding Principal Amount of other than an integral multiple of
$1,000, or the issuance of a single Note with a denomination less than $100,000.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note may be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture and this Note shall be deemed to be contracts made
under the laws of the State of New York and shall for all purposes be governed
by, and construed in accordance with, the laws of the State of New York.
C-3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual signature of its duly authorized officer.
Dated: June 30, 1997
AUTOBOND MASTER FUNDING CORPORATION
By:
--------------------------------
C-4
<PAGE>
<PAGE>
Trustee's Certificate of Authentication
This is one of the Variable Funding Notes, Series A referred to in
the within mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By:
------------------------------------------
Authorized Signatory
C-5
<PAGE>
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _________________, agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
Dated: ____________________ Signed:
(sign exactly as the name appears on the
other side of this Note)
Signature Guarantee
Important Notice: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorney", this Note becomes fully
negotiable, similar to a check endorsed in blank. Therefore, to safeguard a
signed Note, it is recommended that you fill in the name of the new owner in the
"Assignee" blank. Alternatively, instead, of using this
C-6
<PAGE>
<PAGE>
Assignment Form, you may sign a separate "power of attorney" form and then mail
the unsigned Note and the signed "power of attorney" in separate envelopes. For
added protection, use certified or registered mail for a Note.
C-7
<PAGE>
<PAGE>
SCHEDULE OF ADVANCES
The Note evidences Advances made under the within-described Indenture and
Credit Agreement to the Company, on the dates, in the principal amounts, bearing
interest at the rates and maturing on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
Principal Initial Maturity Amount Unpaid
Date of Amount of Interest Date of Paid or Principal Notation
Advance Advance Rate Advance Prepaid amount Made By
- --------------------------------------------------------------------------------
C-8
<PAGE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
DATED AS OF
JUNE 30, 1997
BY AND AMONG
AUTOBOND ACCEPTANCE CORPORATION,
AS THE ISSUER,
AND
LION CAPITAL PARTNERS, L.P.
AND
INFINITY EMERGING OPPORTUNITIES LIMITED
AS THE PURCHASERS
<PAGE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of June 30, 1997, among AutoBond Acceptance
Corporation (the "Company"), and LION CAPITAL PARTNERS, L.P., a Texas limited
partnership and INFINITY EMERGING OPPORTUNITIES LIMITED, a Nevis West Indies
business corporation (collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Additional Shares" has the meaning set forth in the Registration Rights
Agreement.
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of the
Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 7.20.
"AutoBond Manual" means that manual in effect on the date hereof, as
amended, supplemented or otherwise modified from time to time, which sets forth
the appropriate standards for determining which Finance Contracts owned, held or
acquired by the Company may be sold or contributed to special purpose
corporations and/or trusts established by the Company for the purpose of
securitizing same.
"Balance Sheet" has the meaning set forth in Section 4.5
"Balance Sheet Date" has the meaning set forth in Section 4.5.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
SECURITIES PURCHASE AGREEMENT - Page 1
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Benefit Plans" has the meaning set forth in Section 4.7(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Call Date" has the meaning as set forth in Section 3.2(b).
"Capital Expenditures" means any expenditure by the Company or any
Subsidiary for an asset which will be used in a year or years subsequent to the
year in which the expenditure is made and which asset is properly classifiable
in relevant financial statements as property, equipment, improvements or fixed
assets, or a similar type of capitalized asset in accordance with GAAP.
"Capital Reorganization" has the meaning set forth in Section 10.5.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured as to principal and interest by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof),
maturing within one year of the date of acquisition, (ii) time deposits and
certificates of deposit of any domestic commercial bank having combined capital,
surplus and undivided profits of not less than $100,000,000 (including a
domestic branch of a foreign bank) whose outstanding senior long-term debt
securities are rated, or that is a wholly owned Subsidiary of a bank holding
company whose outstanding senior long-term debt securities are rated, either A-
or higher by Standard & Poor's Ratings Service or A3 or higher by Moody's
Investors Service, Inc., maturing within one year of the date of acquisition,
(iii) repurchase obligations with a term of not more than 7 days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above, (iv) commercial paper
rated at least A-1 or the equivalent thereof by Standard & Poor's Ratings
Service or at least P-1 or the equivalent thereof by Moody's Investors Service,
Inc., maturing within one year after the date of acquisition and (v) investments
in money market funds substantially all of whose assets are comprised of
securities of the types described in clauses (i) through (iv) above.
"Cash Flow Coverage Ratio" means the ratio of Consolidated EBITDA to
Consolidated Fixed Charges.
"Change of Control" means (i) after the date of this Agreement any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
Sections) shall have acquired beneficial ownership (within the meaning of Rules
13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act) of
33 1/3% or more of the outstanding shares of Common Stock of the Company, (ii)
any sale or other disposition (other than by reason of death or disability) of
any Common Stock of the Company held by any of William Winsauer, John S.
Winsauer and Adrian Katz resulting in such Persons owning, in the aggregate less
than 50.1% of the outstanding shares of such Common Stock; or (iii) individuals
constituting the board of directors of the Company on the date hereof (together
with any new directors whose election by such board of directors or whose
SECURITIES PURCHASE AGREEMENT - Page 2
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
nomination for election by the stockholders of the Company was approved by a
vote of at least 50.1% of the directors then still in office who were either
directors as of the date hereof or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Company then in office.
"Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"Closing Date" means the date on which all of the conditions set forth
in Sections 6.1 and 6.2 shall have been satisfied and the Securities have been
issued by the Company and the Purchase Price paid by the Purchasers.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in the Security Agreement.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" means AutoBond Acceptance Corporation, a corporation
incorporated under the laws of Texas, and its successors.
"Company Corporate Documents" means the certificate of incorporation and
by-laws of the Company.
"Consolidated EBITDA" means, without duplication, with respect to the
Company for any period the sum of (a) Consolidated Net Earnings after taxes and
(b) the sum of (i) interest expense for such period, (ii) federal, state and
local income taxes deducted in determining such net income, (iii) amortization
of goodwill and other intangibles (including, without limitation, deferred
financing costs and debt discount) deducted in determining such net income and
(iv) depreciation, depletion and obsolescence of property, in each case,
determined in accordance with GAAP.
"Consolidated Fixed Charges" means, for any period, the sum of (i) cash
interest payable on all Debt of the Company and its Consolidated Subsidiaries
during such period plus (ii) rentals payable by the Company and its Consolidated
Subsidiaries under leases of real or personal, or mixed, property during such
period and (iii) principal amounts of all Debt of the Company and its
Consolidated Subsidiaries payable during such period resulting from borrowings
or the granting of credit (other than normal trade credit) plus (iv) the amount
of Capital Expenditures of the Company and its Consolidated Subsidiaries during
such period; provided, however, Consolidated Fixed Charges shall not include
non-recourse Debt issued by any Consolidated Subsidiary of the
SECURITIES PURCHASE AGREEMENT - Page 3
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Company in connection with warehousing or securitization transactions entered
into in the ordinary course of its business.
"Consolidated Net Earnings" means, at any date, the consolidated net
income (or loss) of the Company determined on a consolidated basis, provided
there shall be excluded therefrom (a) the net income (but not net loss) of any
Subsidiary of the Company which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to the Company to
the extent of such restrictions, (b) the net income of any Person that is not a
Subsidiary of the Company except to the extent of the amount of dividends or
other distributions actually paid in cash to the Company by such other Person
during such period, (c) gains or losses on asset dispositions by the Company or
its Subsidiaries other than the sale of Finance Contracts pursuant to a
securitization consummated in accordance with the terms of the AutoBond Manual,
(d) all extraordinary gains and extraordinary losses and (e) the net income of
any Person accrued prior to the date it becomes a Consolidated Subsidiary of the
Company or is merged into or consolidated with the Company.
"Consolidated Subsidiary" means at any date with respect to any Person
any Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise .
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a Convertible
Note by the holder thereof to the Company and the Transfer Agent.
"Conversion Price" shall mean the formula F/P where F = the outstanding
principal amount of the Convertible Note being converted, and P = the lesser of
(x) the Maximum Conversion Price and (y) 85% of the average of the five (5)
lowest Closing Bid Prices during the Lookback Period.
"Convertible Notes" means the Company's 18% senior secured convertible
promissory notes substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 9.3.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person,
SECURITIES PURCHASE AGREEMENT - Page 4
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
whether or not such Debt is otherwise an obligation of such Person and (vi) all
Debt of others Guaranteed by such Person.
"Debt Financing" means a public or private financing consummated
(meaning closing and funding) through the issuance of debt securities (or
securities convertible into or exchangeable for debt securities) of the Company,
other than Permitted Debt Financings.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in the Registration Rights
Agreement.
"Derivative Securities" has the meaning set forth in Section 9.2.
"Designated Subsidiary" means those Subsidiaries of the Company known as
(1) AutoBond Funding Corporation 1995-A, (2) AutoBond Funding Corporation
1996-A, (3) AutoBond Funding Corporation 1996-B, and (4) AutoBond Funding
Corporation 1996-C.
"Discounted Equity Offerings" has the meaning set forth in Section 9.2.
"Directors" means the individuals then serving on the board of directors
or similar such management council of the Company.
"Early Repayment Price" has the meaning set forth in Section 3.2(b).
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XI hereof.
SECURITIES PURCHASE AGREEMENT - Page 5
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Finance Contracts" means fixed rate, closed end consumer installment
finance contracts acquired by the Company in the ordinary course of its business
arising from the sale of new and used automobiles, vans and light-duty trucks.
"Financing Documents" means this Agreement, the Warrants, the Transfer
Agent Agreement, the Registration Rights Agreement, the Security Agreement and
the Convertible Notes.
"First Required Effectiveness Date" has the meaning set forth in the
Registration Rights Agreement.
"Fixed Price(s)" has the meaning set forth in Section 10.1.
"Funded Debt" shall mean any and all non-convertible and/or convertible
debt financings where the holder of such debt may not acquire shares of Common
Stock at a price less than the prevailing Market Price on the date of issuance
or, if such debt has a conversion price based on any formula (other than
standard anti-dilution provisions) based on the Market Price on a date later
than the date of issuance, the date of conversion of such debt, (whether through
discounts to the Market Price at the time of issuance or conversion (if
applicable), warrants or other equity components, or commissions or fees in
excess of ordinary placement or underwriting commissions or fees).
"Formula Price" has the meaning set forth in Section 3.3(c).
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
SECURITIES PURCHASE AGREEMENT - Page 6
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Intellectual Property" has the meaning set forth in Section 4.19.
"Investment" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contribution, loan, time deposit
or otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Limitation on Conversion" has the meaning set forth in Section 9.5.
"Listing Applications" shall have the meaning set forth in Section 4.3.
"Lookback Period" shall mean each of the sixty (60) Trading Days
immediately preceding the Conversion Date or the applicable date of repayment
(as specified by Section 3.2 herein), as the case may be.
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Majority Stockholders" shall have the meaning set forth in Section 8.4.
"Make-Whole Amount" means, with respect to any Convertible Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Convertible Note
over the amount of such Called Principal; provided that the Make-Whole Amount
may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any Convertible Note,
the principal of such Convertible Note that is to be prepaid or has
become or is declared to be immediately due and payable, as the context
requires.
"Discounted Value" means, with respect to the Called Principal of
any Convertible Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice
and at a discount factor (applied on the same periodic basis as that on
which interest on the Convertible Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
SECURITIES PURCHASE AGREEMENT - Page 7
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Reinvestment Yield" means, with respect to the Called Principal
of any Convertible Note, the yield to maturity implied by (a) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called Principal,
on the display designated as "Page PX1" of the Bloomberg Financial
Markets Services Screen (or, if not available, any other national
recognized trading screen reporting on-line intraday trading in the U.S.
Treasury securities) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date, or (b) if such yields are not reported as of
such time or the yields reported as of such time are not ascertainable,
the Treasury Constant Maturity Series Yields reported, for the latest
day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied
yield will be determined, if necessary, by (i) converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (ii) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to and
greater than the Remaining Average Life and (2) the actively traded U.S.
Treasury security with the duration closest to and less than the
Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum of
the products obtained by multiplying (i) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by
(ii) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Convertible Note, all payments of such Called Principal
and interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date; provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Convertible Notes, then the amount of the
next succeeding scheduled interest payment will be reduced by the amount
of interest accrued to such Settlement Date and required to be paid on
such Settlement Date.
"Settlement Date" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid or
has become or is declared to be immediately due and payable, as the
context requires.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
SECURITIES PURCHASE AGREEMENT - Page 8
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Notes; specifically, June 30, 2000.
"Maximum Conversion Price" shall mean $5.00, as such price is adjusted
as provided herein.
"Minimum Number" has the meaning set forth in the Transfer Agent
Agreement.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Nasdaq Market" means the Nasdaq Stock Market's National Market.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Transfer
Agent and the Company substantially in the form of Exhibit B attached hereto.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit C attached hereto.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit G attached hereto.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"Par Value Redemption Price" has the meaning set forth in Section
3.2(d).
SECURITIES PURCHASE AGREEMENT - Page 9
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, permits and approvals
required for the full operation of the Company and the Subsidiaries, including
state, federal, city and county permits and approvals.
"Permitted Debt" has the meaning set forth in Section 7.8.
"Permitted Debt Financings" shall mean (i) Permitted Debt and (ii)
Funded Debt not to exceed $10,000,000 in the aggregate.
"Permitted Transferee" means any Person that acquires the Convertible
Notes or Warrants, or the shares of Common Stock issuable upon conversion of the
Convertible Notes or exercise of the Warrants, in compliance with Article VIII
other than any Person who acquires such Convertible Notes, Warrants or shares of
Common Stock issuable upon conversion or exercise thereof (i) in a public
offering or (ii) in the open market, pursuant to sales under Rule 144 of the
Securities Act or otherwise.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any member of
the ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a member of
the ERISA Group for employees of any Person which was at such time a member of
the ERISA Group.
"Principal Transactions" means the payment of fees and expenses relating
to the issuance and sale of the Securities.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.1 hereof.
"Purchasers" means, collectively, those entities listed in the
introduction to this Agreement and their successors and assigns, including
holders from time to time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in the Registration
Rights Agreement.
"Registration Maintenance Period" has the meaning set forth in the
Registration Rights Agreement.
SECURITIES PURCHASE AGREEMENT - Page 10
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Registration Statement" has the meaning set forth in Section 9.1(b).
"Registration Rights Agreement" means the agreement between the Company
and the Purchasers dated the date hereof substantially in the form set forth in
Exhibit D attached hereto.
"Restricted Payment" means, with respect to any Person, (i) any dividend
or other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business.
"Revolving Credit Debt" means any borrowing by the Company under a
revolving credit facility, provided the amount of Debt owed thereunder is
required to be or is reduced to zero for at least thirty (30) consecutive days
during the fiscal year in which such facility is established.
"Rights Offering" has the meaning set forth in Section 10.3.
"SEC Reports" shall have the meaning set forth in Section 4.5.
"Securities" means the Convertible Notes, the Warrants and, as
applicable, the shares of Common Stock issuable upon conversion of the
Convertible Notes and the exercise of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interests" has the meaning set forth in Section 3.5.
"Security Agreement" shall mean the Security Agreement in the form of
Exhibit E attached hereto dated the Closing Date and executed by the Company
pursuant to which the Company grants to the Purchasers security interests in the
Collateral as collateral security for the payment of the Convertible Notes and
the other obligations of the Company to the Purchasers under the Financing
Documents.
"Share Reorganization" has the meaning set forth Section 10.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
Principal Transactions, which such Solvency Certificate shall be in the form of
Exhibit F attached hereto.
"Special Distribution" has the meaning set forth in Section 10.4.
SECURITIES PURCHASE AGREEMENT - Page 11
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary, "Subsidiary"
means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of incorporation
and by-laws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Trading Price" shall mean any price at which the Company's Common Stock
has been traded, as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Transfer Agent" means the Company's stock transfer agent; specifically,
American Stock Transfer & Trust Company.
"Transfer Agent Agreement" means the agreement dated the date hereof
among the Company, the Transfer Agent and the Purchasers, dated the date hereof
substantially in the form set forth in Exhibit H attached hereto.
"Trust Agreement" means that Trust Securities Purchase Agreement
contemplated between the parties hereto on the date hereof which such agreement
shall be on terms substantially in conformity with the Commitment Letter dated
June 25, 1997 between HW Partners, L.P. (as representative of, among others, the
Purchasers) and the Company; provided, however, that no party shall be under any
obligation to enter into such Trust Agreement unless it approves of the terms
and conditions ultimately agreed upon therein in its sole discretion.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
SECURITIES PURCHASE AGREEMENT - Page 12
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers on the Closing Date in the form of Exhibit I hereto to purchase
200,000 shares of Common Stock in the aggregate (subject to adjustment as set
forth therein).
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"); provided that if the Company notifies
each of the Purchasers that it wishes to amend any covenant in Article VII to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if any of the Purchasers notify the Company that the Majority Holders wish to
amend Article VII for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Majority Holders. All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. COMMITMENT TO PURCHASE. (a) Subject to the terms and
conditions set forth herein, the Company agrees to issue and sell and, subject
to the terms and conditions set forth herein and in reliance on the
representations and warranties of the Company contained herein, the Purchasers
agree to purchase, the Securities as set forth below.
(b) Each Purchaser shall acquire a portion of the Convertible
Notes on the Closing Date in an aggregate principal amount of $2,000,000.
(c) In connection with the Purchasers agreement to purchase the
Convertible Notes specified in this Article II, the Company shall issue and
deliver to each Purchaser, on the Closing Date, a portion of the Warrants to
purchase 200,000 shares of Common Stock.
(d) The portion of the Convertible Notes and Warrants to be
acquired by each Purchaser is set forth on Schedule I attached hereto.
(e) The aggregate consideration payable by the Purchasers to the
Company for the Convertible Notes and the Warrants shall be $2,000,000 (the
"Purchase Price").
SECTION 2.2. PURCHASE OF SECURITIES. (a) On the Closing Date, subject to
the satisfaction of all terms and conditions set forth herein, each of the
Purchasers shall deliver by wire transfer to the Transfer Agent immediately
available funds in an amount equal to the portion
SECURITIES PURCHASE AGREEMENT - Page 13
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
of the Purchase Price of the Convertible Notes to be purchased by it on the
Closing Date, in the proportions as set forth on Schedule I attached hereto.
(b) On the Closing Date, against payment as set forth in subsection 2.2
(a) above, the Company shall deliver to the Transfer Agent (i) a single
Convertible Note for each Purchaser representing the principal amount of such
Convertible Note issued to such Purchaser as of the Closing Date and (ii) a
single Warrant for each Purchaser representing the aggregate Warrants issued to
such Purchaser as of the Closing Date.
(c) As contemplated by the Transfer Agent Agreement, immediately upon
receipt of the items specified in subsections 2.2 (a) and (b) above, the
Transfer Agent shall (i) disburse the Purchase Price in accordance with Section
1 of the Transfer Agent Agreement, (ii) deliver the Warrants to the Purchasers
and (iii) retain the Convertible Notes for the benefit of the Purchasers, as
described therein.
(d) As further contemplated by Section 1(d) of the Transfer Agent
Agreement, in lieu of effecting the closing of the purchase and sale of the
Securities through the Transfer Agent, the Company and the Purchasers may
consummate the deliveries described above in the manner described in Section
1(d) of the Transfer Agent Agreement.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTES; COLLATERAL SECURITY
SECTION 3.1. PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. So
long as any Purchaser or its nominee shall be the holder of any Convertible
Note, the Company will pay all sums becoming due on such Convertible Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below such Person's name on Schedule I, or by
such other method or at such other address as such Person shall have from time
to time specified to the Company in writing for such purpose, without the
presentation of surrender of such Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of any Convertible
Note, the holder shall surrender such Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible Note
held by any Purchaser or its nominee, such Person will, at its election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Convertible Note to the Company
in exchange for a new Convertible Note or Notes. The Company will afford the
benefits of this Section 3.1 to any direct or indirect transferee of any
Convertible Note purchased under this Agreement and that has made the same
agreement relating to such Convertible Note as the Purchaser has in this Section
3.1; provided that such transferee is an "accredited investor" under rule 501 of
the Securities Act.
SECTION 3.2. VOLUNTARY PREPAYMENTS. (a) Subject to the terms of this
Section 3.2, the Company may, at its option, following thirty (30) days prior
written notice to the
SECURITIES PURCHASE AGREEMENT - Page 14
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Purchasers (the expiration of such 30 day period being referred to as the
"prepayment date"; provided, however, if such date is not a Business Day, the
prepayment date shall be the next Business Day thereafter) prepay all or any
portion of the Convertible Notes remaining unconverted on the prepayment date,
specifying the amount of the prepayment pursuant to the terms of this Article
III. Partial prepayments shall be in an aggregate principal amount of $250,000
or a multiple thereof.
(b) If the prepayment date is before June 30, 1998 (the "Call Date"),
the price to be paid by the Company to prepay the Convertible Notes shall be the
Early Repayment Price. The "Early Repayment Price" shall mean that amount equal
to the sum of (a) the aggregate principal amount of the Convertible Notes being
repaid, plus (b) the applicable amount of accrued but unpaid interest thereon
through the date of consummation of the repayment (as specified in Section 3.4
below), plus (c) the Make-Whole Amount.
(c) If the prepayment date is after the Call Date, the price to be paid
by the Company to prepay the Convertible Notes shall be the Formula Price. The
"Formula Price" shall mean the sum of (a) the product of (i) the number of
shares of Common Stock into which the Convertible Notes being redeemed are then
convertible at the then current Conversion Price and (ii) the highest Trading
Price during the Lookback Period, and (b) the applicable amount of accrued but
unpaid interest on the Convertible Notes being repaid through the date of
consummation of the repayment (as specified in Section 3.4 below).
(d) On the Call Date, the Company shall have the one time right, but not
the obligation, to redeem the Convertible Notes at the Par Value Redemption
Price. The "Par Value Redemption Price" shall mean the aggregate principal
amount of the applicable Convertible Notes being redeemed, plus any accrued and
unpaid interest on the Convertible Notes through the applicable date of
consummation of the redemption (as specified in Section 3.4 below).
SECTION 3.3. MANDATORY PREPAYMENTS.
(a) Upon (i) the occurrence of a Change of Control of the Company, (ii)
a transfer of all or substantially all of the assets of the Company to any
Person in a single transaction or series of related transactions or (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
(other than a merger (x) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock or
(y) which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of Common Stock), the Company shall
redeem all of the Convertible Notes in cash for the Formula Price.
(b) Upon the consummation of one or more Debt Financings, the Company
shall use up to 100% of the Net Cash Proceeds therefrom to redeem the
Convertible Notes. The redemption price payable upon any such redemption shall
be (x) the Early Repayment Price, if such redemption occurs (as specified in
Section 3.4 below) prior to the Call Date, and (y) the Formula Price, if such
redemption occurs (as specified in Section 3.4 below) after the Call Date.
SECURITIES PURCHASE AGREEMENT - Page 15
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(c) Upon the consummation of one or more Discounted Equity Offerings,
the Company shall use up to 100% of the Net Cash Proceeds therefrom to redeem
the Convertible Notes. The redemption price payable upon any such redemption
shall be (x) the Early Repayment Price, if such redemption occurs (as specified
in Section 3.4 below) prior to the Call Date and (y) the Formula Price, if such
redemption occurs (as specified in Section 3.4 below) after the Call Date.
(d) If Taxes are imposed upon the Company and the holders of Convertible
Notes subject to such Taxes have not exercised their right to transfer the
Convertible Notes to a qualified assignee as set forth in Section 3.6 (either by
notice to the Company to that effect or failure to exercise such right within
the thirty-day period prescribed), the Company shall, on the fifth (5th)
Business Day after the failure to exercise such right (such day being referred
to as the "redemption date") prepay all of the Convertible Notes remaining
unconverted on the redemption date and held by a party subject to Taxes for the
Par Value Redemption Price.
SECTION 3.4. PREPAYMENT PROCEDURES.
(a) Any prepayment or redemption of the Convertible Notes pursuant to
Sections 3.2 or 3.3 above shall be deemed to be effective and consummated (for
purposes of determining the Early Repayment Price, Par Value Redemption Price or
Formula Price, as applicable, and the time at which the Purchasers shall
thereafter not be entitled to deliver a Notice of Conversion for the Convertible
Notes) as follows:
(I) A redemption pursuant to Sections 3.2(b) and (c), the
"prepayment date" specified therein;
(II) A redemption pursuant to Section 3.2(d), the Call Date;
(III) A redemption pursuant to Section 3.3(a), the date of
consummation of the applicable Change of Control, merger or asset sale;
(IV) A redemption pursuant to Section 3.3(b), the date of
consummation of the applicable Debt Financing (meaning closing and
funding);
(V) A redemption pursuant to Section 3.3(c), five (5) Business
Days following the receipt by the Company of the Net Cash Proceeds
specified therein;
(VI) A redemption pursuant to Section 3.3(d), the "redemption
date" specified therein.
(b) Within one (1) Business Day after (x) the Maturity Date or (y) the
effective date of a repayment or redemption of the Convertible Notes as
specified in Section 3.4(a) above, the Company shall deposit the applicable
repayment/redemption price with the Transfer Agent for immediate delivery to
each Purchaser of the Convertible Notes subject to redemption as
SECURITIES PURCHASE AGREEMENT - Page 16
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
contemplated by the Transfer Agent Agreement. Should any Purchaser not receive
payment of any amounts due on redemption of its Convertible Notes by reason of
the Company's failure to make payment at the times prescribed above for any
reason, the Company shall pay to the applicable holder on demand (x) interest on
the sums not paid when due at an annual rate equal to the lesser of (I) the
maximum lawful rate and (II) the then applicable interest rate on the
Convertible Notes being redeemed plus three percent (3%) compounded at the end
of each thirty (30) days, until the applicable holder is paid in full and (y)
all costs of collection, including, but not limited to, reasonable attorneys'
fees and costs, whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed in any
redemption in which not all of the Convertible Notes are to be redeemed so that
the ratio of the Convertible Notes of each holder selected for redemption to the
total Convertible Notes owned by that holder shall be the same as the ratio of
all such Convertible Notes selected for redemption bears to the total of all
then outstanding Convertible Notes. Should any Convertible Notes be required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Notes shall be redeemed
on the earliest possible dates thereafter that the applicable Convertible Notes
may be redeemed to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company and the Transfer Agent prior to the (x)
Maturity Date or (y) effective date of a redemption specified in Section 3.4(a)
above, shall be honored by the Company and the conversion of the Convertible
Notes shall be deemed effected on the Conversion Date.
SECTION 3.5. RANKING; COLLATERAL. The Convertible Notes will rank as
senior, secured obligations of the Company. As collateral security for the
payment and performance of the Convertible Notes, the Purchasers shall be
granted first priority liens and security interests (collectively, the "Security
Interests") on, in and to the Collateral (as defined in the Security Agreement).
Upon payment in full of the Convertible Notes, the Purchasers shall promptly
release such Security Interests and deliver to the Company appropriate
terminations of all Uniform Commercial Code filings, or their equivalent, made
in favor of the Purchasers.
SECTION 3.6. PAYMENT OF ADDITIONAL AMOUNTS. (a) Any and all payments by
the Company hereunder or under the Convertible Notes to any Purchaser and each
"qualified assignee" thereof shall be made free and clear of and without
deduction or withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") unless such Taxes are
required by law or the administration thereof to be deducted or withheld. If the
Company shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the Convertible
Notes (i) the holders of Convertible Notes subject to such Taxes shall have the
right, but not the obligation, for a period of thirty (30) days commencing upon
the day it shall have received written notice from the Company that it is
required to withhold Taxes to transfer all or any portion of the Convertible
Notes to a qualified assignee to the extent such transfer can be effected in
accordance with the other provisions of this Agreement and applicable law; (ii)
the
SECURITIES PURCHASE AGREEMENT - Page 17
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Company shall make such deductions or withholdings; and (iii) the Company shall
forthwith pay the full amount deducted or withheld to the relevant taxation or
other authority in accordance with applicable law. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (I) the United States
or (II) any jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to each of the Company
that payments of the Company to such assignee under the laws in existence on the
date of this Agreement would not be subject to any Taxes and (z) from time to
time, as and when requested by the Company, executes and delivers to the Company
and the Internal Revenue Service forms, and provides the Company with any
information necessary to establish such assignee's continued exemption from
Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Financing Documents
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement other than Taxes payable solely as a result of the transfer
from the Purchasers to a Person of any Security.
(c) Within 30 days after the date of any payment of Taxes, the Company
will furnish to each Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(d) Infinity Emerging Opportunities Limited shall provide to the Company
a Form W-8, stating that it is a non-U.S. person, together with any additional
tax forms which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them,
as of the Closing Date as set forth herein.
SECTION 4.1. CORPORATE EXISTENCE AND POWER. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to conduct business as a foreign
corporation, and has all corporate power and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted and as proposed to be conducted, except where such
failure would not have a material adverse effect on the Company or the ability
of the Company to continue its current operations.
SECTION 4.2. AUTHORIZATION AND EXECUTION. The execution, delivery and
performance by the Company of each Financing Document and the issuance by the
Company of the Securities have been duly and validly authorized and are within
its corporate powers. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and
SECURITIES PURCHASE AGREEMENT - Page 18
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
binding agreement of the Company. Each of the Financing Documents constitutes
the valid and binding obligation of the Company, in each case enforceable
against the Company in accordance with its respective terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the enforceability
of creditors rights generally and (ii) equitable principles of general
applicability.
SECTION 4.3. GOVERNMENTAL AUTHORIZATION; THE SECURITIES. The execution
and delivery by the Company of the Financing Documents does not and will not,
the issuance and sale by the Company of the Securities does not and will not,
and the consummation of the transactions contemplated hereby and thereby will
not, require any action by or in respect of, or filing with, any governmental
body, agency or governmental official except (a) such actions or filings that
have been undertaken or made prior to the date hereof and that will be in full
force and effect (or as to which all applicable waiting periods have expired) on
and as of the date hereof or which are not required to be filed on or prior to
the Closing Date, (b) such actions or filings that, if not obtained, would not
in the aggregate impose materially adverse conditions upon the Company and (c)
listing applications ("Listing Applications") to be filed with the Nasdaq Market
relating to the shares of Common Stock issuable upon conversion of the
Convertible Notes and exercise of the Warrants. Upon conversion in accordance
with the terms of the Convertible Notes, or upon exercise in accordance with the
terms of the Warrants (assuming the payment of the exercise price set forth in
the Warrants), the shares of Common Stock when issued upon conversion or
exercise thereof shall be duly and validly issued and outstanding, fully paid
and nonassessable, free and clear of any claims or pre-emptive rights. Assuming
the representations and warranties of the Purchasers herein are true and correct
in all material respects, each of the Securities will have been issued in
material compliance with all applicable U.S. federal and state securities laws.
SECTION 4.4. CONTRAVENTION. The execution and delivery by the Company of
the Financing Documents to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and thereby will not,
contravene or constitute a default under or violation of (i) any provision of
applicable law or regulation, (ii) the Company Corporate Documents or the
Subsidiary Corporate Documents relating to the Designated Subsidiaries (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary. The Company and each Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except where such failure would not have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of such corporation.
SECTION 4.5. FINANCIAL INFORMATION AND SEC REPORTS. The Company has
timely filed all forms, reports and documents with the Commission since November
8, 1996, required to be filed by it under the Exchange Act through the date
hereof (collectively, the "SEC Reports"). Such SEC Reports, at the time filed,
complied in all material respects with the requirements of the Exchange Act.
None of the SEC Reports, including without limitation any financial statements
or schedules included therein, contains any untrue statement of a material fact
or omits to state a material
SECURITIES PURCHASE AGREEMENT - Page 19
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. There have been no
material adverse changes in the Company=s business, properties, results of
operations, condition (financial or otherwise) or prospects since the date of
the Company=s most recent Report on Form 10-K for the year ended December 31,
1996, which have not been disclosed to the Purchasers in writing. The audited
and unaudited consolidated balance sheets of the Company and its Subsidiaries
contained in the SEC Reports, and the related consolidated statements of income,
changes in stockholders= equity and changes in cash flows for the periods ended
December 31, 1996 (the consolidated balance sheet of the Company and its
subsidiaries as of December 31, 1996 is hereinafter referred to as the "Balance
Sheet"), including the footnotes thereto, except as indicated therein, have been
prepared in accordance with GAAP consistently followed throughout the periods
indicated, except that the unaudited financial statements do not contain notes
and may be subject to normal audit adjustments and normal annual adjustments.
The Balance Sheet fairly presents the financial condition of the Company and its
Subsidiaries at the date thereof and, except as indicated therein, reflects all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or contingent, as at the date thereof and the related
statements of income, stockholders= equity and changes in cash flows fairly
present the results of the operations of the Company and its Subsidiaries and
the changes in their financial position for the period indicated. Since December
31, 1996 (the "Balance Sheet Date"), except as disclosed in the SEC Reports,
there has been (x) no material adverse change in the assets or liabilities, or
in the business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company and its subsidiaries, whether as a
result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects, of the Company and its Subsidiaries except in the ordinary course
of business; and no fact or condition exists or is contemplated or threatened
which might cause such a change in the future.
SECTION 4.6. LITIGATION. There is no action, suit or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary, before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
which challenges the validity of any Financing Document.
SECTION 4.7. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or
SECURITIES PURCHASE AGREEMENT - Page 20
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
the Code or (iii) incurred any liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.8. ENVIRONMENTAL MATTERS. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 4.9. TAXES. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes or other governmental charges have been established in accordance with
GAAP.
SECTION 4.10. INVESTMENTS, JOINT VENTURES. The Company has no
Subsidiaries or other direct or indirect Investment in any Person, and the
Company is not a party to any partnership, management, shareholders' or joint
venture or similar agreement other than as set forth on Schedule II hereto.
SECTION 4.11. NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECURITIES PURCHASE AGREEMENT - Page 21
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SECTION 4.12. FULL DISCLOSURE. The information heretofore furnished by
the Company to the Purchasers for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to the
Purchasers will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.13. CAPITALIZATION. As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on Schedule
III hereto; and no other shares of capital stock of the Company will be
outstanding. Other than as set forth on Schedule III hereto, there are no
subscriptions, options, warrants, rights, convertible securities, exchangeable
securities or other agreements or commitments of any character pursuant to which
the Company is required to issue any shares of its capital stock.
SECTION 4.14. SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company in connection with the offer and
sale of the Securities. Neither the Company, nor, to its knowledge, any Person
acting on behalf of the Company, has, either directly or indirectly, sold or
offered for sale to any Person (other than the Purchasers) any of the Securities
or, within the six months prior to the date hereof, any other similar security
of the Company except as contemplated by this Agreement, and the Company
represents that neither itself nor any Person authorized to act on its behalf
(except that the Company makes no representation as to the Purchasers and their
Affiliates) will sell or offer for sale any such security to, or solicit any
offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby to cause the issuance
or sale of any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act.
SECTION 4.15. PERMITS. (a) Each of the Company and its Subsidiaries has
all material Permits as are necessary for the conduct of its business as it has
been carried on; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
SECTION 4.16. LEASES. Except as disclosed on Schedule IV hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 4.17. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued,
SECURITIES PURCHASE AGREEMENT - Page 22
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to Section 4.5
hereof and (ii) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Company.
SECTION 4.18. GOVERNMENTAL REGULATION. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Financing
Document.
SECTION 4.19. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.20. INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company. All insurance
coverages of the Company and its Subsidiaries are in full force and effect and
there are no past due premiums in respect of any such insurance.
SECTION 4.21. TITLE TO PROPERTIES. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.5, and, except for the Liens (x)
permitted by Section 7.11 or (y) listed on Schedule VI hereto (which list shall
specify that the Collateral is not encumbered thereby), there is no Lien on any
asset of the Company or its Subsidiaries. Except for financing statements (or
their equivalent) filed, recorded or registered with respect to Liens permitted
by Section 7.11, there are no currently effective financing statements (or their
equivalent) of record in any jurisdiction covering (i) any portion of the
Collateral or (ii) any tangible or intangible assets of the Company (other than
those assets referenced in (i) above), the existence of which could impair to
any significant extent the value to the Purchasers of the Security Interests
granted to the Purchasers in the Collateral.
SECURITIES PURCHASE AGREEMENT - Page 23
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. PURCHASE FOR INVESTMENT; AUTHORITY; BINDING AGREEMENT. Each
Purchaser as to itself only hereby represents and warrants to the Company that:
(a) the Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and not with a view
toward, or for sale in connection with, any distribution thereof except in
compliance with applicable United States federal and state securities law;
provided that the disposition of the Purchaser's property shall at all times be
and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Financing
Documents to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Purchasers;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations on
transfer described herein; the Purchaser has been afforded access to information
about the Company and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to evaluate its
investment in the Securities; the Purchaser has been afforded the opportunity to
ask such
SECURITIES PURCHASE AGREEMENT - Page 24
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and the Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
the Purchaser concerning the Company. The foregoing does not in any way relieve
the Company of its representations and other undertakings hereunder, and shall
not limit the Purchasers' ability to rely thereon;
(i) Lion Capital Partners, L.P. is a Texas limited partnership and
Infinity Emerging Opportunities Limited is a Nevis West Indies business
corporation; and
(j) no part of the source of funds used by the Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
the Purchaser in which any employee benefit plan (or its related trust) has any
interest.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. CLOSING. The closing hereunder shall occur upon the date
upon which each of the following conditions shall be satisfied:
(a) Receipt by each of the Purchasers of a Solvency Certificate executed
by the chief financial officer of the Company;
(b) Receipt by each of the Purchasers of evidence satisfactory to it as
to (i) the receipt by the Company of all governmental, board of directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities, or the consummation of
the Principal Transactions, (ii) the expiration of all applicable waiting
periods without any action having been taken by any competent authority that
could restrain, prevent or impose any materially adverse conditions thereon or
that could seek or threaten any of the foregoing and (iii) the absence of any
law or regulation that, in the judgment of any Purchaser, could have any such
effect;
(c) Receipt by each of the Purchasers of duly executed counterparts of
this Agreement, the Registration Rights Agreement, the Security Agreement and
the Transfer Agent Agreement signed by the Company and, with respect to the
Transfer Agent Agreement, signed by the Transfer Agent;
(d) Each of the Purchasers shall have received opinions, dated the
Closing Date, of Butler & Binion, L.L.P., Houston, Texas and/or Dewey
Ballantine, New York, New York, each counsel to the Company, substantially in
the form attached as Exhibit J hereto.
SECURITIES PURCHASE AGREEMENT - Page 25
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(e) All fees and expenses due and payable by the Company on or prior to
the Closing Date shall have been paid or duly provided for in full as
contemplated by the Transfer Agent Agreement;
(f) The Convertible Notes and the Warrants shall have been duly executed
by the parties thereto as provided in the Transfer Agent Agreement;
(g) The Purchasers shall have received an Officer's Certificate executed
by the President, chief executive officer or chief financial officer of the
Company;
(h) The Company shall not have any Debt outstanding other than as
specifically identified on Schedule V attached hereto;
(i) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or condition
thereof shall have been amended, waived or otherwise modified without the prior
written consent of the Purchasers;
(j) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since March 31, 1997;
(k) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect any Financing Document, any Principal Transaction or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company and its
Subsidiaries, taken as a whole, the enforceability of the Financing Documents or
the Securities or the rights of the holders of the Securities or the Purchasers
hereunder;
(l) The representations and warranties of the Company contained in each
Financing Document shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or in all
material respects (in the case of any representation or warranty without any
materiality qualification) and the Company shall have performed and complied
with all covenants and agreements required by such Financing Documents to be
performed or complied with by it at or prior to the Closing Date;
(m) The Purchasers or the Transfer Agent, as applicable, shall have
confirmed receipt of the Convertible Notes and the Warrants to be issued, duly
executed by the Company in the denominations and registered in the names of the
Purchasers specified in or pursuant to Schedule I;
(n) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock, which the Purchasers reasonably deem material in connection with the
purchase of the Securities;
SECURITIES PURCHASE AGREEMENT - Page 26
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(o) Immediately before and after the Closing Date, no Default shall have
occurred and be continuing;
(p) Receipt by the Purchasers of Uniform Commercial Code financing
statements, or their equivalent, duly executed by the Company or other
appropriate party with respect to the Collateral, for filing in all
jurisdictions as may be necessary to perfect the Security Interests created in
such Collateral in such jurisdictions pursuant to the Financing Documents; and
(q) The Purchasers shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request.
SECTION 6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of
the Company to issue and sell to the Purchasers the Securities to be issued and
sold pursuant to this Agreement are subject to the satisfaction, at or prior to
the Closing Date, of the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the Closing Date
and the Purchasers shall have performed and complied in all material respects
with all agreements required by this Agreement to be performed or complied with
by the Purchasers at or prior to the Closing Date;
(b)The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Registration Rights Agreement, the Security Agreement and the
Transfer Agent Agreement signed by the Purchasers, and, with respect to the
Transfer Agent Agreement, signed by the Transfer Agent; and
(d) The Company shall have received payment of the Purchase Price of the
Convertible Notes and Warrants.
ARTICLE VII
COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Securities remain outstanding and for the benefit of the Purchasers
and such holders from time to time of the Securities:
SECTION 7.1. INFORMATION. The Company will deliver to each holder of the
Convertible Notes:
SECURITIES PURCHASE AGREEMENT - Page 27
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(a) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Company or any Subsidiary has filed with the Commission;
(b) simultaneously with the delivery of each item referred to in clause
(a) above, a certificate from the Company stating that no Default has occurred
and is continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth the
details of such Default and the action which the Company is taking or proposes
to take with respect thereto;
(c) within two (2) days after any officer of the Company obtains
knowledge of a Default, a certificate of the chief financial officer or the
chief accounting officer of the Company setting forth the details thereof and
the action which the Company is taking or proposes to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed and any other document generally distributed to shareholders;
(e) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Code, a copy of such application; (v) gives notice of intent
to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any required payment or contribution to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Company setting forth
details as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take;
(f) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which the
Company or any Subsidiary is a party in which the amount involved is $250,000 or
more and not covered by insurance or in which injunctive or similar relief is
sought; and
SECURITIES PURCHASE AGREEMENT - Page 28
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(g) at least thirty (30) days prior to any material change in the
AutoBond Manual, written notice thereof to each Purchaser setting forth in
reasonable detail the change to be made and the reasons therefor.
SECTION 7.2. PAYMENT OF OBLIGATIONS. The Company and its Subsidiaries
will pay and discharge, at or before maturity, all their respective material
obligations, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings and will
maintain, in accordance with GAAP, appropriate reserves for the accrual of any
of the same.
SECTION 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company and each
Subsidiary will keep, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted. In addition, the
Company and each Subsidiary will maintain insurance in at least such amounts and
against such risks as it has insured against as of the Closing Date.
SECTION 7.4. MAINTENANCE OF EXISTENCE. The Company will continue, and
each Subsidiary will continue, to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 7.5. COMPLIANCE WITH LAWS. The Company and each Subsidiary will
comply, in all material respects, with all federal, state, municipal, local or
foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
SECTION 7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company and
each Subsidiary will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to their respective businesses and activities; and will permit, during normal
business hours, H.W. Partners, L.P., or an affiliate thereof, as representatives
of the Purchasers, to visit and inspect any of their respective properties, upon
reasonable prior notice, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective executive officers and independent public
accountants, all at such reasonable times.
SECTION 7.7. INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECURITIES PURCHASE AGREEMENT - Page 29
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SECTION 7.8. LIMITATION ON DEBT OR OTHER LIABILITIES. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at any
time after the Closing Date, after giving effect to the application of the
proceeds of the issuance of the Securities) any Debt exceeding, in the
aggregate, $10,000,000, except for the following (such Debt being referred to as
"Permitted Debt"):
(i) Debt incurred or assumed solely to pay all or any part of the
purchase price or cost of construction, of any real or personal property (or any
improvement thereon) acquired or constructed by the Company or a Subsidiary
after the Closing Date provided: (a) any Lien with respect to such Debt shall
extend solely to the item or items of such property (or improvements thereon) so
acquired or constructed and, if required by the terms of the instrument
originally creating such Lien, other property (or improvement thereon) which is
an improvement to or is acquired for specific use in connection with such
acquired or constructed property (or improvement thereon) or which is real
property being improved by such acquired or constructed property (or improvement
thereon); (b) the principal amount of the Debt for such property shall at no
time exceed an amount equal to the cost of the acquisition or the operation of
the property (or improvement thereon) so acquired or constructed; and (c) any
Lien with respect to such Debt shall be created substantially contemporaneously
with the acquisition or construction of such property;
(ii) Non-recourse Debt which such Debt, by its terms, bars the lender
thereof from action against the Company or any Subsidiary, as borrower, if the
security value falls below the amount required to repay such Debt;
(iii) Debt incurred in connection with equipment leases to which the
Company or its Subsidiary is a party incurred in the ordinary course of
business;
(iv) Debt incurred in connection with trade accounts payable, imbalances
and refunds arising in the ordinary course of business;
(v) Revolving Credit Debt;
(vi) Debt incurred with respect to the Convertible Notes;
(vii) Debt incurred in connection with the Company's warehouse
facilities and asset securitization transactions in compliance with the AutoBond
Manual; and
(viii) the Convertible Notes.
SECTION 7.9. RESTRICTED PAYMENTS. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $50,000 during any
calendar year.
SECTION 7.10. INVESTMENTS. Neither the Company nor any Subsidiary will
make or acquire any Investment in any Person exceeding, in the aggregate
$2,000,000, other than (a)
SECURITIES PURCHASE AGREEMENT - Page 30
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Investments in Cash Equivalents, (b) Investments in Subsidiaries existing on the
Closing Date and (c) Investments in special purpose corporations and/or trusts
formed for the purpose of facilitating securitizations of Finance Contracts and
related lines of businesses, in each case, in accordance with the Company's
current and past practices and the AutoBond Manual.
SECTION 7.11. LIENS. Neither the Company nor any Subsidiary will create,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by it, except:
(i) (A) inchoate mechanics, workmen's and carriers' liens,
incident to current construction, (B) mechanics, warehousemen's, unpaid
vendors and carriers' liens incident to such construction, (C) statutory
and common law Liens of landlords under equipment leases to which the
Company or any Subsidiary is a party and (D) Liens of carriers,
warehousemen, mechanics and materialmen or other similar statutory
Liens;
(ii) Liens incurred on deposits made in the ordinary course of
business in connection with workers' compensation, performance bonds,
unemployment insurance and other types of social security, other than
any Lien imposed by or under ERISA;
(iii) Liens for taxes not yet due;
(iv) Easements, rights of way, permits, licenses, zoning
ordinances, covenants, restrictions, defects, minor irregularities of
title and other similar Liens on property which in the case of any
particular parcel of real property do not materially detract from the
value or utilization of such real property;
(v) Liens created by or resulting from any litigation or legal
proceeding which is currently being contested by such Company or
Subsidiary in good faith and by appropriate proceedings;
(vi) Liens securing Permitted Debt;
(vii) Liens granted to the Purchasers pursuant to the Security
Agreement; and
(viii) Liens with respect to assets of the Company, other than
the Collateral, associated with interests in Finance Contracts, or
otherwise established to facilitate warehouse facilities or
securitizations thereof.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition of stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, any Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule VII attached hereto
(with a copy of such agreements annexed to such Schedule VII) and
SECURITIES PURCHASE AGREEMENT - Page 31
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(2) on terms to the Company or such Subsidiary no less favorable than terms that
could be obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business. It is expressly
acknowledged that the sale of Finance Contracts made in accordance with current
and past practice and pursuant to Section 7.24 shall be deemed to be entered
into in the ordinary course of business. In addition, transactions between the
Company and its wholly owned Subsidiaries or among such Subsidiaries which do
not violate any other provisions of this Agreement shall not be prohibited.
SECTION 7.13. MERGER OR CONSOLIDATION. The Company will not, in a single
transaction or a series of related transactions, (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless (w) either (A) the Company shall be the survivor
of such merger or consolidation or (B) the surviving Person shall expressly
assume by supplemental agreement all of the obligations of the Company under the
Securities and this Agreement; (x) immediately before and immediately after
giving effect to such transaction (including any indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing and, following the
transaction, the Company may incur $1.00 of Debt without violating Section 7.8
hereof; (y) if the Company is not the surviving entity, such surviving entity's
common shares shall be listed on either The New York Stock Exchange, American
Stock Exchange, or the Nasdaq Stock Market's National Market or the Nasdaq Small
Cap Market and (z) the Company has delivered to the Purchasers an officers'
certificate and opinion of counsel, each stating that such consolidation, merger
or transfer complies with this Agreement, that the surviving Person agrees to be
bound thereby and that all conditions precedent in this Agreement relating to
such transaction have been satisfied; provided, however, nothing contained in
this Section 7.13 shall alter or diminish the Company's obligations under
Section 3.3(a) of this Agreement.
SECTION 7.14. SUPPLEMENTAL INFORMATION. If at any time the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.15. USE OF PROCEEDS. The proceeds from the issuance and sale
of the Securities by the Company shall be used solely for general corporate
purposes. None of the proceeds from the issuance and sale of Securities by the
Company pursuant to this Agreement will be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin stock" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System.
SECTION 7.16. LIMITATION ON RESTRICTIONS AFFECTING SUBSIDIARIES. The
Company will not enter into, or suffer to exist, any agreement with any Person
which prohibits or limits the ability of any Subsidiary to (a) pay dividends or
make other distributions or pay any
SECURITIES PURCHASE AGREEMENT - Page 32
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Debt owed to the Company or any Subsidiary, (b) make loans or advances to the
Company or any Subsidiary or (c) transfer any of its properties or assets to the
Company or any Subsidiary; provided, however, nothing contained in this Section
7.16 shall be deemed to preclude any agreement executed in connection with a
transaction effected to consummate the securitizations of Finance Contracts in
accordance with the Company's current and past practices and the AutoBond
Manual.
SECTION 7.17. RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company
nor any Subsidiary will waive any provision of, amend, or suffer to be amended,
any provision of such entity's existing indebtedness, any material contract or
agreement previously or hereafter filed by the Company with the Commission as
part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate
Document if such amendment would materially adversely affect the Purchasers or
the holders of the Securities without the prior written consent of the Majority
Holders which such consent shall not be unreasonably withheld.
SECTION 7.18. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL
CONTRACTS. The Company will comply, in all material respects, with all terms and
conditions of all material contracts to which it is subject.
SECTION 7.19. FINANCIAL COVENANT. The Company will not permit its Cash
Flow Coverage Ratio to be less than 1.0 to 1.0, for every 12-month period ending
March 31, June 30, September 30 or December 31. The Company shall furnish to
H.W. Partners, L.P., as representatives of the Purchasers, a compliance
certificate for (and executed by the chief financial officer of) the Company
within five (5) Business Days after each Annual Report on Form 10-K or Quarterly
Report on Form 10-Q shall have been filed (or should have been filed) with the
Commission, which such compliance certificate shall indicate the Company's Cash
Flow Coverage Ratio for the preceding 12-month period and the method of
calculating same.
SECTION 7.20. LIMITATION ON ASSET SALES. Neither the Company nor any
Subsidiary will consummate an Asset Sale unless (i) it receives consideration in
cash at the time of such Asset Sale at least equal to the fair market value of
the assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors) and (ii) the Net Cash Proceeds of such sale are
used to either (a) purchase similar assets in the same line of business of
equivalent value within 12 months of the date of the Asset Sale or (b)
immediately redeem or prepay the Convertible Notes or (c) a combination of
purchases and prepayment permitted by the foregoing clauses (a) and (b). As used
herein, "Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of capital
stock of a Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition"), including any disposition by means of a merger, consolidation or
similar transaction (other than as permitted under Section 7.13), other than a
disposition of property or assets at fair market value in the ordinary course of
business; provided, however, nothing contained in this Section 7.20 shall be
deemed to preclude the sale of any assets to a Subsidiary for the purpose of
facilitating securitizations of Finance Contracts in accordance with the
Company's current and past practices and the AutoBond Manual.
SECURITIES PURCHASE AGREEMENT - Page 33
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SECTION 7.21. LIMITATION ON SUBSIDIARIES. Neither the Company nor any
Subsidiary shall permit the creation of any Subsidiaries not in existence on the
Closing Date unless approved, in writing, by the Majority Holders which such
consent shall not be unreasonably withheld; provided, however, nothing contained
in this Section 7.21 shall be deemed to preclude the creation of any Subsidiary
formed for the purpose of facilitating securitizations of Finance Contracts in
accordance with the Company's current and past practices and the AutoBond
Manual.
SECTION 7.22. RESERVED SHARES AND LISTINGS.
(a) The Company will reserve from its authorized but unissued
shares of Common Stock a sufficient number of shares of Common Stock to
permit issuance of the conversion in full of the then outstanding
Convertible Notes and the exercise in full of the then outstanding
Warrants;
(b) The Company will maintain the listing of its Common Stock on
the Nasdaq Market;
(c) The Company will not repurchase or otherwise enter into any
other transaction (including stock split, recapitalization or other
transaction) which would cause a decrease in the number of its shares of
Common Stock issued and outstanding (other than transactions that
similarly decrease the number of shares of Common Stock into which the
Convertible Notes and Warrants are convertible or exercisable, as the
case may be);
(d) The Company will (i) retain the Transfer Agent as the stock
transfer agent for the Company's Common Stock, and (ii) if the Transfer
Agent voluntarily or involuntarily fails to so serve, select an
independent, unaffiliated replacement stock transfer agent willing to
perform the duties of the Transfer Agent under the Transfer Agent
Agreement; and
(e) On or prior to the date that the Commission declares
effective the Registration Statement, the Company shall properly file
all Listing Applications with the Nasdaq Market associated with the
shares of Common Stock covered by such registration statement.
SECTION 7.23 ISSUANCE OF SHARES OF COMMON STOCK. Upon conversion of any
Convertible Notes in accordance with their terms, and/or exercise of any Warrant
in accordance with their terms, the Company will, and will use its best lawful
efforts to cause the Transfer Agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective the shares of Common
Stock issuable upon conversion of Convertible Notes or exercise of the Warrants
shall be issued to any transferee of
SECURITIES PURCHASE AGREEMENT - Page 34
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
such shares from a Purchaser without restrictive legend. The Company further
warrants and agrees that no instructions other than these instructions have been
or will be given to the Transfer Agent. Nothing in this Section shall affect in
any way a Purchaser's obligations to comply with all securities laws applicable
to such Purchaser upon resale of such shares of Common Stock, including any
prospectus delivery requirements.
SECTION 7.24 MAINTENANCE OF UNDERWRITING STANDARDS. The Company agrees
that, until the Convertible Notes are repaid in full, it will not originate,
acquire or sell any Finance Contracts which do not meet the then current
standards of the AutoBond Manual. Furthermore, the Company agrees that, until
the Convertible Notes are repaid in full, it will not modify the AutoBond Manual
to provide that a Finance Contract not meeting each of the minimum standards
below is or could be deemed a Finance Contract satisfying the standards of such
AutoBond Manual:
1. The Finance Contract must be secured by a new or used vehicle;
2. The Finance Contract must have originated in the United
States;
3. The Finance Contract must provide for level monthly payments
that fully amortize the amount financed over its original term;
4. The Finance Contract must have an original term of between 24
and 72 months;
5. The Finance Contract must provide for finance charges of
between 14.00% and 29.95% annual percentage rate;
6. The Finance Contract must not be more than two payments past
due as of the date of securitization; and
7. The obligor under the Finance Contract may not have a related
financed vehicle which is in repossession.
ARTICLE VIII
LIMITATION ON TRANSFERS
SECTION 8.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article VIII, which conditions are intended to
ensure compliance with the provisions of the Securities Act in respect of the
Transfer of any of such Securities or any interest therein. Each Purchaser will
use its best efforts to cause any proposed transferee of any Securities held by
it to agree to take and hold such Securities subject to the provisions and upon
the conditions specified in this Article VIII.
SECURITIES PURCHASE AGREEMENT - Page 35
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SECTION 8.2. RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.23 and Section
9.3 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT.
SECTION 8.3. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities other than a transfer (i) registered under the
Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act, provided
that any such transferee shall agree to be bound by the terms of this Agreement,
and (iii) to be made in reliance on Rule 144 under the Securities Act, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such Transfer, setting forth the manner and circumstances of
the proposed Transfer, which shall be accompanied by (A) an opinion of counsel
to the Company, confirming that such transfer does not give rise to a violation
of the Securities Act, (B) representation letters in form and substance
reasonably satisfactory to the Company to ensure compliance with the provisions
of the Securities Act and (C) letters in form and substance reasonably
satisfactory to the Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the Company shall have
received such notice of transfer, opinion of counsel, representation letters and
other letters referred to in the immediately preceding sentence, whereupon the
holder of such Securities shall be entitled to Transfer such Securities in
accordance with the terms of the notice delivered by the holder to the Company.
SECTION 8.4. RESTRICTIONS ON CERTAIN STOCKHOLDERS. Each of William
Winsauer, John S. Winsauer and Adrian Katz (collectively, the "Majority
Stockholders") covenants and agrees that he will not (and the Company agrees to
use its best efforts to ensure that such Majority Stockholders will not),
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of more than an aggregate of ten percent (10%) of
the shares of the Company's common stock legally or beneficially owned by such
Majority Stockholders on the date of this Agreement until the Convertible Notes
have been paid in full, redeemed, fully converted or otherwise cease to be
outstanding obligations of the Company, without the prior written consent of the
Majority Holders.
SECURITIES PURCHASE AGREEMENT - Page 36
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
ARTICLE IX
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 9.1. REGISTRATION RIGHTS.
(a) The Company shall grant the Purchasers registration rights covering
all of the shares of Common Stock issuable on conversion of the Convertible
Notes or upon exercise of the Warrants on the terms set forth in the
Registration Rights Agreement. The Registration Rights Agreement shall also
provide for subsequent registrations by the Company covering the Additional
Shares.
(b) The Company shall prepare and file on or before fifteen (15)
calendar days after the Closing Date, a registration statement (the
"Registration Statement") on Form S-3 (or such other form as is then available
for registration) covering the sale of the shares of Common Stock issuable upon
conversion of the Convertible Notes and upon exercise of the Warrants. The
Company shall use its best efforts to cause the Registration Statement to be
declared effective by the Commission no later than the First Required
Effectiveness Date. If the Registration Statement is (x) not declared effective
by the Commission by the First Required Effectiveness Date, or (y) such
effectiveness is not maintained for the Registration Maintenance Period, the
Company shall pay to each Purchaser monthly, as liquidated damages and not as a
penalty, its pro rata portion of the Default Fee specified in the Registration
Rights Agreement.
(c) Any such Default Fee shall be paid in cash by the Company to the
Purchasers by wire transfer in immediately available funds on the last day of
each calendar month following the event requiring its payment.
SECTION 9.2. PROHIBITION ON DISCOUNTED EQUITY OFFERINGS. Until such time
as the Convertible Notes have been repaid in full, the Company agrees that it
will not issue (or, unless such issuance would, upon the closing thereof, result
in the repayment in full of the Convertible Notes, agree to issue) any of its
equity securities (or securities convertible into or exchangeable or exercisable
for equity securities (the "Derivative Securities")), on terms that allow a
holder thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance or, if
such debt has a conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than the
date of issuance, the date of conversion (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be limited to, (1)
any warrant, right or other security granted or offered in connection with such
issuance which, on the applicable date of grant is offered with an exercise or
conversion price, as the case may be, at less than the then current Market Price
of the Common Stock or, if such security has an exercise or conversion price
based on any formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance, then such price shall be
at least equal to the Market Price on such date of exercise or conversion, as
the case may be, or (2) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or placement
agent commissions, fees or allowances). The restrictions contained in this
Section 9.2 shall not apply to the issuance by the Company of (or the agreement
to issue) Common
SECURITIES PURCHASE AGREEMENT - Page 37
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Stock or (Derivative Securities) in connection with (x) the acquisition of a
business or of assets otherwise permitted under this Agreement, or (y) stock
option or other compensatory plans.
SECTION 9.3. LIQUIDATED DAMAGES.
(a) The Company shall, and shall use its best efforts to cause the
Transfer Agent to, issue and deliver shares of Common Stock within three (3) New
York Stock Exchange Trading Days of delivery of a Notice of Conversion or Notice
of Exercise, as applicable (the "Deadline") to the Purchaser (or any party
receiving Securities by Transfer from such Purchaser) at the address of the
Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the
case may be. As contemplated by Section 5 of the Transfer Agent Agreement, and
consistent with Section 7.23 hereof, if such Notice of Conversion or Notice of
Exercise, as applicable, is delivered while the Registration Statement is
effective, such certificates shall be delivered without restrictive legend. The
Company understands that a delay in the issuance of such certificates after the
Deadline could result in economic loss to the Purchaser. If for any reason
(other than as a result of actions taken by a Purchaser in breach of this
Agreement) the Company fails to issue such certificates of Common Stock by the
Deadline, as compensation, and not as a penalty, the Company agrees to pay
liquidated damages to the Purchasers for such late issuance of such certificates
an amount equal to $1,000 per day for each day such certificates are not
delivered for the first ten (10) days after the Deadline and $2,000 per day for
each day thereafter.
(b) Upon demand, the Company shall promptly pay the Purchasers any
liquidated damages incurred under this Section by wire transfer in immediately
available funds to an account designated by the Purchasers. Nothing herein shall
waive the Company's obligations to deliver shares of Common Stock upon a
conversion of the Convertible Notes or exercise of the Warrants or limit any
Purchaser's right to pursue actual damages (less the amount of any liquidated
damages received pursuant to the foregoing) for the Company's failure to issue
and deliver shares of Common Stock to such Purchaser consistent with the terms
of this Agreement.
SECTION 9.4. CONVERSION NOTICE. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, including, but not
limited to, the remedies available under Section 9.3, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates as
contemplated by Section 9.3 representing the Minimum Number of shares of Common
Stock on or prior to the Deadline after conversion of any Convertible Notes, or
certificates contemplated by Section 9.3 after exercise of any Warrant, such
Purchaser will be entitled, if prior to the delivery of such certificates, to
revoke the Notice of Conversion or Notice of Exercise, as applicable, by
delivering a notice to such effect to the Company and the Transfer Agent
whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion
or Notice of Exercise.
SECTION 9.5. LIMITATION ON CONVERSION PRIOR TO DEFAULT.
(a) In addition to and not in lieu of the limitations on conversion set
forth in the Convertible Notes and Warrants, the conversion and exercise rights
of the Purchasers set forth in the
SECURITIES PURCHASE AGREEMENT - Page 38
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Convertible Notes and Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that in no instance shall the maximum
number of shares of Common Stock which the Purchasers (singularly, together with
any Persons who in the determination of such Purchasers, together with such
Purchasers, constitute a group as defined in Rule 13d-5 of the Exchange Act) may
receive in respect of any conversion of the Convertible Notes or exercise of the
Warrants, exceed, at any one time, an amount equal to the remainder of (i) 4.99%
of the then issued and outstanding shares of Common Stock of the Company
following such conversion or exercise minus (ii) the number of shares of Common
Stock of the Company then owned by the Purchasers (but exclusive of any shares
of Common Stock deemed beneficially owned due to ownership of the Convertible
Notes and Warrants) (the foregoing being herein referred to as the "Limitation
on Conversion"). At the written request of the Company, the applicable
Purchasers shall certify in each Notice of Conversion and Notice of Exercise
that it is in compliance with the Limitation on Conversion.
(b) The Limitation on Conversion shall not apply, and shall be of no
further force and effect, (i) upon the occurrence of any redemption transaction
described in Sections 3.2 or 3.3 hereof, (ii) on the Maturity Date or (iii) the
occurrence of any Event of Default described in Section 11.1 hereof and for
which the Purchaser has provided written notice thereof and which is not cured
within the greater of the applicable time period specified in either (A) such
written notice of the Purchaser or (B) Section 11.1 hereof.
(c) Subject to the foregoing limitations, each Purchaser shall, at its
option, have the sole right to determine whether to exercise the right of
conversion or exercise for the Convertible Notes and Warrants. The Company shall
honor each Notice of Conversion and Notice of Exercise in the order received.
ARTICLE X
ADJUSTMENT OF FIXED PRICE
SECTION 10.1. REORGANIZATION. The exercise price of the Warrants set
forth therein and the Maximum Conversion Price (collectively, the "Fixed
Prices") shall be adjusted as hereafter provided.
SECTION 10.2. SHARE REORGANIZATION. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
SECURITIES PURCHASE AGREEMENT - Page 39
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(iv) make a distribution on the outstanding Common Stock to all
or substantially all the holders of Common Stock payable in Common Stock
or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization", then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to
the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
SECTION 10.3. RIGHTS OFFERING. If and whenever the Company shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock), at a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share at
the date of issue of such securities) of less than 95% of the Market Price of
the Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of Common
Stock are determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at which
such shares are so offered, or
SECURITIES PURCHASE AGREEMENT - Page 40
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and
the conversion or exchange price of such securities,
or, as the case may be, by
(B) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of securities convertible into
or exchangeable for Common Stock, the maximum number of shares of Common
Stock for or into which the securities so offered for subscription or
purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
securities exchangeable into Common Stock) actually delivered upon the exercise
of such rights, options or warrants.
SECTION 10.4. SPECIAL DISTRIBUTION. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary
course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common Stock
on such date; and
SECURITIES PURCHASE AGREEMENT - Page 41
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of
the Common Stock on such date.
SECTION 10.5. CAPITAL REORGANIZATION. If and whenever there shall
occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares,
other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets of
the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion; provided, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
such holders shall thereafter be entitled to receive such number of shares or
other securities of the Company or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
SECTION 10.6. ADJUSTMENT RULES. The following rules and procedures shall
be applicable to adjustments made in this Article X:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would otherwise
have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment;
SECURITIES PURCHASE AGREEMENT - Page 42
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(b) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article XI in respect of the issue from time to time of
Common Stock to holders of Common Stock who exercise an option to
receive substantially equivalent dividends in Common Stock in lieu of
receiving cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
accountants selected by the Directors and any such determination shall
be binding upon the Company and Purchasers.
SECTION 10.7. CERTIFICATE AS TO ADJUSTMENT. The Company shall from time
to time promptly after the occurrence of any event which requires an adjustment
in the applicable Fixed Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 10.8. NOTICE TO NOTEHOLDERS. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. EVENTS OF DEFAULT. If one or more of the following
events (each an "Event of Default") shall have occurred and be continuing:
SECURITIES PURCHASE AGREEMENT - Page 43
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(a) failure by the Company to pay or prepay when due, all or any
part of the principal or Make Whole Amount on any of the Convertible
Notes;
(b) failure by the Company to pay (i) within three (3) Business
Days of the due date thereof any interest on any Convertible Notes or
(ii) within five (5) Business Days following the delivery of notice to
the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement;
(c) failure by the Company to timely comply with the requirements
of Section 9.3(a) or (b) hereof, which failure is not cured within seven
(7) days of such failure;
(d) an event of default shall have occurred and is continuing
under any Financing Document;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 7.7 - 7.13, 7.15, 7.20, 7.22, 7.23 and
7.24 of this Agreement;
(f) failure on the part of the Company to observe or perform any
covenant contained in any Financing Document (other than those covered
by clauses (a), (b), (c), (d) or (e) above) for 30 days from the date of
such occurrence;
(g) the trading in the Common Stock shall have been suspended by
the Commission or by the Nasdaq Market (except for any suspension of
trading of limited duration solely to permit dissemination of material
information regarding the Company and except if, at the time there is
any suspension on the Nasdaq Market, the Common Stock is then listed and
approved for trading on either the New York Stock Exchange, the American
Stock Exchange, the Nasdaq Stock market's Small Cap Market, or the
Nasdaq National Market within two (2) Trading Days thereof);
(h) failure of the Company to file the Listing Applications,
which failure is not cured within fifteen (15) Business Days of such
failure;
(i) the Company shall have its Common Stock delisted from the
Nasdaq Market for at least ten (10) consecutive Trading Days and is
unable to obtain a listing on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock market's Small Cap Market or
the Nasdaq Stock Market's National Market within such ten (10) Trading
Days;
(j) the Registration Statement shall not have been declared
effective by the Commission, with such effectiveness maintained for the
Registration Maintenance Period, which results in the Company incurring
the Default Fee for a period in excess of 60 days;
SECURITIES PURCHASE AGREEMENT - Page 44
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(k) the Company or any Designated Subsidiary has commenced a
voluntary case or other proceeding seeking liquidation, winding-up,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or has made a
general assignment for the benefit of creditors, or has failed generally
to pay its debts as they become due, or has taken any corporate action
to authorize any of the foregoing;
(l) an involuntary case or other proceeding has been commenced
against the Company or any Designated Subsidiary, seeking liquidation,
winding-up, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency, moratorium or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against the Company or any
Designated Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(m) default in respect of any Debt in excess of $100,000 of the
Company or any Subsidiary, or the Company or any Subsidiary has failed
to pay at maturity or within any applicable period of grace any such
Debt;
(n) judgments or orders for the payment of money which in the
aggregate at any one time exceed $250,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days;
(o) any representation, warranty, certification or statement made
by the Company in any Financing Document or which is contained in any
certificate, document or financial or other statement furnished at any
time under or in connection with any Financing Document shall prove to
have been untrue in any material respect when made;
(p) any member of the ERISA Group has failed to pay when due an
amount or amounts aggregating in excess of $100,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan has been filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC has instituted proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition has existed by
reason of which the PBGC is entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there has occurred a
complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c) (5) of ERISA, with respect to, one or more Multiemployer
Plans which could cause one or more
SECURITIES PURCHASE AGREEMENT - Page 45
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
members of the ERISA Group to incur a current payment obligation in
excess of $100,000; or
(q) failure by the Company to timely and completely comply with
its obligations under the Trust Agreement,
then, and in every such occurrence, any Purchaser may, with respect to
an Event of Default specified in paragraphs (a) or (b), and the Majority
Holders may, with respect to any other Event of Default, by notice to
the Company, declare the Convertible Notes to be, and the Convertible
Notes shall thereon become immediately due and payable; provided that in
the case of any of the Events of Default specified in paragraph (k) or
(l) above with respect the Company or any Designated Subsidiary, then,
without any notice to the Company or any other act by any Purchaser, the
entire amount of the Convertible Notes shall become immediately due and
payable, provided further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Note has been
declared immediately due and payable hereunder, any Purchaser of
Convertible Notes may proceed to protect and enforce the rights of such
Purchaser by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
contained herein or in any Convertible Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of
the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of an Event of Default, the
amount declared due and payable on the Convertible Notes shall be (x)
prior to the Call Date, the Early Repayment Price thereof and (y) on or
after the Call Date, the Formula Price thereof.
SECTION 11.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as
SECURITIES PURCHASE AGREEMENT - Page 46
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
aforesaid or (iii) if given by any other means, when delivered at the address
specified in or pursuant to this Section.
SECTION 12.2. NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Convertible Note affected thereby, an amendment or
waiver may not (a) reduce the aggregate principal amount of Convertible Notes
whose holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible Note or (d)
make any Convertible Note payable in money or property other than as stated in
such Convertible Note. In determining whether the holders of the requisite
principal amount of Convertible Notes have concurred in any direction, consent,
or waiver as provided in any Financing Document, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the Convertible
Notes, or by any Person Controlling, Controlled by, or under Common Control with
any of the foregoing, shall be disregarded and deemed not to be outstanding for
the purpose of any such determination; and provided further that no such
amendment, supplement or waiver which affects the rights of the Purchasers and
their affiliates otherwise than solely in their capacities as holders of
Convertible Notes shall be effective with respect to them without their prior
written consent.
SECTION 12.3. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each Purchaser, its affiliates, and each Person, if any, who controls
such Purchaser, or any of its affiliates, within the meaning of the Securities
Act or the Exchange Act (a Controlling Person"), and the respective partners,
agents, employees, officers and directors of the Purchasers, their affiliates
and any such Controlling Person (each an Indemnified Party" and collectively,
the "Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any such
claim or action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs to any
Indemnified Party other than the Purchasers unless it has received from such
Indemnified Party an undertaking to repay to the Company the costs so advanced
if it should be determined by final judgment of a court of competent
jurisdiction that such Indemnified Party was not entitled to indemnification
hereunder with respect to such costs) which may be incurred by such Indemnified
Party in connection with any investigative, administrative or judicial
proceeding brought or threatened that relates to or arises out of, or is in
connection with any activities contemplated by any Financing Document or any
other services rendered in connection herewith; provided that the Company will
not be responsible for any claims, liabilities losses, damages or expenses that
are
SECURITIES PURCHASE AGREEMENT - Page 47
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
determined by final judgment of a court of competent jurisdiction to result from
such Indemnified Party's gross negligence, willful misconduct or bad faith.
If any action shall be brought against an Indemnified Party with respect
to which indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under this
Agreement or otherwise unless the Company is materially adversely affected by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ counsel or
(ii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company, in which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the reasonable fees and expenses of more than one such
firm of separate counsel, in addition to any local counsel, which counsel shall
be designated by the Purchasers. The Company shall not be liable for any
settlement of any such action effected without the written consent of the
Company (which shall not be unreasonably withheld) and the Company agrees to
indemnify and hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written consent of
the Purchasers, settle or compromise or consent to the entry of any judgment in
or otherwise seek to terminate any pending or threatened action, claim, suit or
proceeding in respect to which indemnification or contribution may be sought
hereunder (whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties, satisfactory in
form and substance to the Purchasers, from all liability arising out of such
action, claim, suit or proceeding.
If for any reason the foregoing indemnity is unavailable (otherwise than
pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchasers on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the
SECURITIES PURCHASE AGREEMENT - Page 48
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
relative fault of the Company and the Purchasers as well as any other relevant
equitable considerations. Notwithstanding the provisions of this Section 12.3,
the aggregate contribution of all Indemnified Parties shall not exceed the
amount of interest and fees actually received by the Purchasers pursuant to this
Agreement. It is hereby further agreed that the relative benefits to the Company
on the one hand and the Purchasers on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of material fact or the omission
or alleged omission to state a material fact related to information supplied by
the Company or by the Purchasers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation
The indemnification, contribution and expense reimbursement obligations
set forth in this Section 12.3 (i) shall be in addition to any liability the
Company may have to any Indemnified Party at common law or otherwise, (ii) shall
survive the termination of this Agreement and the other Financing Documents and
the payment in full of the Convertible Notes and (iii) shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Purchasers or any other Indemnified Party.
SECTION 12.4. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay (i)
the out-of-pocket costs, expenses and other payments in connection with the
purchase and sale of the Securities as contemplated by this Agreement, including
the fees and disbursements of special counsel for the Purchasers incurred in
connection with the preparation of the Financing Documents, in the amount of
$25,000 as contemplated by Section 1 of the Transfer Agent Agreement, (ii) all
reasonable out-of-pocket expenses of the Purchasers, including fees and
disbursements of counsel, in connection with any waiver or consent hereunder or
under any other Financing Document or any amendment hereof or thereof and (iii)
all reasonable out-of-pocket expenses of the Purchasers and each holder of
Securities, including fees and disbursements of counsel, in connection with any
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. In addition, the Company agrees to pay any and all stamp, transfer
and other similar taxes, assessments or charges payable in connection with the
execution and delivery of any Financing Document or the issuance of the
Securities to the Purchasers, excluding their assigns.
SECTION 12.5. PAYMENT. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to such Purchaser of all amounts due thereon by wire
transfer by 1:00 P.M. (New York City time) on the date of payment to the
Transfer Agent Agreement for disbursement to the Purchasers as required by the
Transfer Agent Agreement.
SECTION 12.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon the Purchasers and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the prior
written consent of the Majority Holders. All provisions
SECURITIES PURCHASE AGREEMENT - Page 49
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
hereunder purporting to give rights to Purchasers and their affiliates or to
holders of Securities are for the express benefit of such Persons and their
successors and assigns.
SECTION 12.7. BROKERS. The Company represents and warrants that it has
not employed any broker, finder, financial advisor or investment banker who
would be entitled to any brokerage, finder's or other fee or commission payable
by the Company or the Purchasers in connection with the sale of the Securities.
Each Purchaser hereby warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any brokerage,
finder's or other fee or commission payable by the Company in connection with
the sale of the Securities.
SECTION 12.8. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
The Company and each Purchaser hereby irrevocably designates, appoints
and empowers Dewey Ballantine with offices at 1301 Avenue of the Americas, New
York, New York 10019-6092 as its designees, appointee and agent to receive,
accept and acknowledge for and on its behalf, and in respect of its property,
service of any and all legal process, summons, notices and documents which may
be served in any such action or proceeding. If for any reason such designee,
appointee and agent shall cease to be available to act as such, the Company and
Purchasers agree to designate a similarly qualified entity as their new
designee, appointee and agent in New York.
SECTION 12.9. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
SECTION 12.10 SURVIVAL. In addition to the survival of the
indemnification, contribution and expense reimburse obligations set forth in
Section 3.6 and Section 12.3 hereof,
SECURITIES PURCHASE AGREEMENT - Page 50
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
the provisions contained herein which are incorporated by reference into the
Warrants and the provisions set forth in Sections 9.1 and 9.3 hereof shall
survive the termination of this Agreement and the payment in full of the
Convertible Notes and shall remain operative and in full force and effect.
SECTION 12.11.COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[SIGNATURE PAGES FOLLOW]
SECURITIES PURCHASE AGREEMENT - Page 51
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AUTOBOND ACCEPTANCE CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
Address: 301 Congress Avenue
Suite 900
Austin, Texas 78701
Fax: (512) 472-1548
Attn: Will Winsauer,
Chief Executive Officer
With a copy to: Butler & Binion, L.L.P.
1000 Louisiana Street
Suite 1600
Houston, Texas 77002-5093
Fax: (713) 237-3202
Attn: John W. Menke, Esq.
INFINITY EMERGING
OPPORTUNITIES LIMITED
By:_________________________________
Name:_______________________________
Title:______________________________
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
SECURITIES PURCHASE AGREEMENT - Page 52
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management, L.L.C.,
its general partner
By:
Name:
Title:
Address: 1601 Elm Street
4000 Thanksgvg Twr
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
MAJORITY STOCKHOLDERS' ACKNOWLEDGEMENT OF SECTION 8.4
The undersigned persons hereby acknowledge Section 8.4 of this Agreement
and agree to be bound by the restrictions imposed by such Section in their
individual capacities.
___________________________________ _____________________________
William Winsauer Adrian Katz
___________________________________
John S. Winsauer
SECURITIES PURCHASE AGREEMENT - Page 53
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SCHEDULES
Schedule I - Pro Rata Portion of Securities
Schedule II - Investments, Joint Ventures
Schedule III - Capitalization
Schedule IV - Leases
Schedule V - Debt
Schedule VI - Liens
Schedule VII - Transactions with Affiliates
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Notice of Conversion
Exhibit C - Form of Notice of Exercise
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Security Agreement
Exhibit F - Form of Solvency Certificate
Exhibit G - Form of Officer's Certificate
Exhibit H - Form of Transfer Agent Agreement
Exhibit I - Form of Warrant
Exhibit J - Form of Company Counsel's Opinion
SECURITIES PURCHASE AGREEMENT - Page 54
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SCHEDULE 1
SECURITIES
<TABLE>
<CAPTION>
- ----------------------------------------- --------------------------- --------------------------
AGGREGATE PRINCIPAL
NAME/ADDRESS AMOUNT OF NOTES NUMBER OF WARRANT SHARES
- ----------------------------------------- --------------------------- --------------------------
<S> <C> <C>
Lion Capital Partners, L.P.
Address: 1601 Elm Street 1,000,000 100,000
4000 Thanksgiving Tower
Dallas, TX 75201
Wire Instructions:
Bank One, Texas N.A.
ABA 111 000 614
Credit: Lion Capital Partners
Acct No: 182 215 0536
- ----------------------------------------- --------------------------- --------------------------
Infinity Emerging Opportunities Limited
Address: 38 Hertford Street 1,000,000 100,000
London, England WIY 7TG
Wire Instructions:
Citibank New York
ABA 021 000 089
Credit: Bear Stearns
Account No. 0925-3186
Further credit: Infinity Emerging
Opportunities Ltd.
Acct No: 102-06022-2
- ----------------------------------------- --------------------------- --------------------------
TOTAL $2,000,000 200,000
- ----------------------------------------- --------------------------- --------------------------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT D TO SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 30,
1997, among AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation (the
"Company"), and the other undersigned parties hereto, (collectively, the
"Funds").
1. INTRODUCTION. The Company and the Funds have today executed that
certain Securities Purchase Agreement (the "Purchase Agreement"), pursuant to
which the Company has agreed, among other things, to issue an aggregate of $2.0
million (U.S.) principal amount of 18% Convertible Notes of the Company (the
"Notes") to the Funds or their successors, assigns or transferees (collectively,
the "Holders"). The Notes are convertible into an indeterminable number of
shares (the "Conversion Shares") of the Company's common stock, no par value per
share (the "Common Stock"), pursuant to the terms of the Notes. In addition,
pursuant to the terms of the Purchase Agreement and the transactions
contemplated thereby, the Company has issued to the Funds certain Common Stock
Purchase Warrants exercisable for an aggregate of up to 200,000 shares of Common
Stock (the "Warrant Shares"). The number of Conversion Shares and Warrant Shares
is subject to adjustment upon the occurrence of stock splits, recapitalizations
and similar events occurring after the date hereof. Additionally, the parties
hereto are currently negotiating the terms of a Trust Securities Purchase
Agreement (the "Trust Agreement"), pursuant to which the Company may issue,
although it is currently under no obligation to issue, (either directly or upon
conversion, exchange or exercise of certain derivative securities issued) an
indeterminable number of additional shares of Common Stock (the "Additional
Shares") upon the occurrence of certain events described therein. The parties
desire that if and to the extent they can come to agreement on the precise terms
of the Trust Agreement, the Additional Shares potentially issuable as a result
thereof should also be covered by this Agreement. The Company represents and
warrants that the Company's Common Stock is currently eligible for trading on
the Nasdaq Stock Market's National Market (the "National Market") under the
symbol "ABND". This Agreement shall become effective upon the issuance of the
Notes to any of the Holders pursuant to the Purchase Agreement. Certain
capitalized terms used in this Agreement are defined in Section 3 hereof;
references to sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 IMMEDIATE REGISTRATION.
(a) REGISTRATION OF CONVERSION SHARES AND WARRANT SHARES. As soon
as practicable after the date hereof, but in any event prior to fifteen (15)
calendar days after the issuance of the Notes to any Holders, the Company shall
prepare and file a registration statement to effect the registration under the
Securities Act of all, but not less than all, of the Registrable Securities
which relate to the Conversion Shares and the Warrant Shares, demand for which
is hereby given and acknowledged; all to the extent requisite to permit the
public resale of the Conversion Shares and Warrant Shares to be so registered.
The Company shall use its best efforts to cause the registration statement which
is the subject of this Section 2.1(a) (the "First Registration Statement") to be
declared effective by the Commission upon the earlier to occur of
REGISTRATION RIGHTS AGREEMENT - Page 1
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(i) ninety (90) calendar days after the original filing thereof and (ii) five
(5) days after receipt of a "no review" or similar letter from the Commission
("First Required Effectiveness Date").
(b) REGISTRATION OF ADDITIONAL SHARES. As soon as practicable
after the issuance of any of the Additional Shares, should this occur (or,
derivative securities convertible, exchangeable or exercisable therefor), but in
any event prior to fifteen (15) calendar days thereafter, the Company shall
prepare and file a registration statement to effect the registration under the
Securities Act of all, but not less than all, of the then outstanding
Registrable Securities which relate to the Additional Shares, without
requirement of further demand or notice; all to the extent requisite to permit
the public resale of the Additional Shares to be so registered. The Company
shall use its best efforts to cause each of the registration statements which
are the subject of this Section 2.1(b) (each, a "Subsequent Registration
Statement" and, collectively, with each other Subsequent Registration Statement
and the First Registration Statement, the "Registration Statements") to be
declared effective by the Commission upon the earlier of (i) ninety (90)
calendar days from the original filing thereof and (ii) five (5) days after
receipt of a "no review" or similar letter from the Commission (each, a
"Subsequent Effectiveness Date").
(c) REGISTRATION IN FULL. Nothing contained herein shall be
deemed to limit the number of Registrable Securities to be registered by the
Company hereunder. As a result, should the First Registration Statement filed by
the Company and declared effective by the Commission pursuant to the terms
hereof not relate to the maximum number of Registrable Securities acquired by
(or potentially acquirable by) the holders thereof upon conversion of the Notes
or upon exercise of the Warrants, the Company shall be required to file a
separate registration statement (utilizing Rule 462 promulgated under the
Exchange Act, where applicable) relating to such Registrable Securities which
then remain unregistered. Furthermore, the Company undertakes to utilize Rule
462, as applicable, to register Additional Shares, when and as issued.
(d) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission as shall
(i) be reasonably selected by the Company and (ii) permit the disposition of
such Registrable Securities in accordance with the intended method or methods of
disposition specified by the Funds.
(e) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
(f) EFFECTIVE REGISTRATION STATEMENT. A registration pursuant to
this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective within the time
period specified herein, provided that a registration which does not become
effective after the Company has filed a registration statement with respect
thereto solely by reason of the refusal to proceed of any holder of Registrable
Securities (other than a refusal to proceed based upon the advice of counsel
relating to a disclosure matter unrelated to such holder) shall be deemed to
have been effected by the Company unless the holders of the Registrable
Securities shall have elected to pay all Registration Expenses in connection
with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason, (iii) if, after it has become
REGISTRATION RIGHTS AGREEMENT - Page 2
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
effective, such registration ceases to be effective or useful to the sellers of
the Registrable Securities for more than an aggregate of ninety (90) days or
(iv) the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied, other than by reason of some act or omission by the Holders.
(g) SELECTION OF UNDERWRITERS. The offerings contemplated by this
Section 2.1 may be, at the option of a majority (by number of Securities) of the
holders of the Registrable Securities so included, an underwritten offering and
the underwriter or underwriters thereof shall be selected by the holders of at
least a majority (by number of Securities) of the Registrable Securities as to
which registration has been requested and shall be acceptable to the Company.
(h) PRIORITY IN REQUESTED REGISTRATIONS. If a registration
pursuant to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities) that, in its opinion, the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, to the extent of the
number which the Company is so advised can be sold in such offering, Registrable
Securities, pro rata among such holders on the basis of the number of such
securities held (or then acquirable upon conversion of the Securities) by such
holders. In connection with any registration in which any Registrable Securities
requested for inclusion are excluded, no securities other than Registrable
Securities shall be covered by such registration.
2.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after
the date hereof the Company proposes to register any of its securities under the
Securities Act (other than by a registration in connection with an acquisition
in a manner which would not permit registration of Registrable Securities for
sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or
any successor form thereto and other than pursuant to Section 2.1), on an
underwritten basis (either best-efforts or firm-commitment) it will each such
time give prompt written notice to all Holders of its intention to do so and of
such Holders' rights under this Section 2.2. Upon the written request of any
such Holder made within twenty (20) days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder and the intended method of disposition thereof), the Company
will, subject to the terms of this Agreement, effect the registration under the
Securities Act of that number of Registrable Securities which the Company has
been so requested to register by the Holders thereof, to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of such Registrable Securities so to be registered, by inclusion of
such Registrable Securities in the registration statement which covers the
securities which the Company proposes to register, provided that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason either not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection
REGISTRATION RIGHTS AGREEMENT - Page 3
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 2.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 2.2 shall relieve
the Company of its obligation to effect any registration upon request under
Section 2.1, nor shall any such registration hereunder be deemed to have been
effected pursuant to Section 2.1. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.2. The right provided the Holders of the Registrable
Securities pursuant to this Section shall be exercisable at their sole
discretion and will in no way limit any of the Company's obligations to pay the
Securities according to their terms.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in (or
during the time of) such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in (or during the time of) such offering, (i) first securities proposed by
the Company to be sold for its own account, and (ii) second Registrable
Securities and securities of other selling security holders requested to be
included in such registration pro rata on the basis of the number of shares of
such securities so proposed to be sold and so requested to be included;
provided, however, the holders of Registrable Securities shall have priority to
all shares sought to be included by officers and directors of the Company as
well as holders of ten percent (10%) or more of the Company's Common Stock.
2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as
expeditiously as possible:
(i) prepare and file with the Commission the Registration
Statement to effect such registration (including such audited financial
statements as may be required by the Securities Act or the rules and
regulations promulgated thereunder) and thereafter use its best efforts
to cause such registration statement to be declared effective by the
Commission, as soon as practicable, but in any event no later than the
First Required Effectiveness Date or Subsequent Effectiveness Date, as
applicable, provided, however, that before filing such registration
statement or any amendments thereto, the Company will furnish to the
counsel selected by the holders of Registrable Securities which are to
be included in such registration, copies of all such documents proposed
to be filed;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement until the earlier to occur of (I)
with respect to the First Registration Statement, six (6) years after
the date of this Agreement, (II) with respect to
REGISTRATION RIGHTS AGREEMENT - Page 4
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
any Subsequent Registration Statement, two (2) years after the issuance
of the Additional Shares covered thereby and (III) in each case, such
time as all of the securities which are the subject of such registration
statement cease to be Registrable Securities (such period, in each case,
the "Registration Maintenance Period") subject, however, to the right of
the Company to suspend effectiveness of the registration statement for
not more than 30 consecutive days or an aggregate of 90 days during such
Registration Maintenance Period, provided the reference to 30
consecutive days shall be 60 consecutive days in the event the Company
has publicly announced a transaction and, in connection therewith, the
Company's independent certified public accountants have delivered a
certificate to the Holders stating that it is not practicable to prepare
and file with the Commission all necessary accounting information
associated with such transaction to cause the registration statement to
be reinstated during such 30 day period;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and each underwriter, if any, of the
Registrable Securities being sold by such seller such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such seller and underwriter, if any,
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws as any seller thereof
and any underwriter of the securities being sold by such seller shall
reasonably request, to keep such registrations or qualifications in
effect for so long as such registration statement remains in effect, and
take any other action which may be reasonably necessary or advisable to
enable such seller and underwriter to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be obligated
to be so qualified or to consent to general service of process in any
such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any, of:
(x) an opinion of counsel for the Company, dated
the effective date of such registration statement (or, if such
registration includes an underwritten public
REGISTRATION RIGHTS AGREEMENT - Page 5
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
offering, an opinion dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and
substance to such seller, and
(y) a "comfort" letter (or, in the case of any such
Person which does not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on Auditing Standards No.
72, an "agreed upon procedures" letter), dated the effective date
of such registration statement (and, if such registration
includes an underwritten public offering, a letter of like kind
dated the date of the closing under the underwriting agreement),
signed by the independent public accountants who have certified
the Company's financial statements included in such registration
statement, covering substantially the same matters with respect
to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with
respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters
in underwritten public offerings of securities (with, in the case
of an "agreed upon procedures" letter, such modifications or
deletions as may be required under Statement on Auditing
Standards No. 35) and, in the case of the accountants' letter,
such other financial matters, and, in the case of the legal
opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(vii) notify the holders of Registrable Securities, their counsel
and the managing underwriter or underwriters, if any, promptly and
confirm such advice in writing promptly thereafter:
(v) when the registration statement, the prospectus
or any prospectus supplement related thereto or post-effective
amendment to the registration statement has been filed, and, with
respect to the registration statement or any post-effective
amendment thereto, when the same has become effective;
(w) of any request by the Commission for amendments
or supplements to the registration statement or the prospectus or
for additional information;
(x) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement
or the initiation of any proceedings by any Person for that
purpose;
(y) if at any time the representations and
warranties of the Company made herein cease to be true and
correct in all material respects;
(z) of the receipt by the Company of any
notification with respect to the suspension of the qualification
of any Registrable Securities for sale under the securities or
blue sky laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose;
REGISTRATION RIGHTS AGREEMENT - Page 6
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
(viii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(ix) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the
earliest possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earning
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xi) enter into such agreements and take such other actions as
sellers of such Registrable Securities holding 51% of the shares so to
be sold shall reasonably request in writing (at the expense of such
sellers) in order to expedite or facilitate the disposition of such
Registrable Securities; and
(xii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the holders of at least a majority of the
Registrable Securities covered by such registration statement or the underwriter
or underwriters, if any, shall reasonably object, provided that the Company may
file such document in a form required by law or upon the advice of its counsel.
REGISTRATION RIGHTS AGREEMENT - Page 7
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
If any such registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
then such holder shall have the right to require (a) the insertion therein of
language, in form and substance satisfactory to such holder, to the effect that
the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (b)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
2.4 UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.7.
The holders of the Registrable Securities will cooperate with the Company in the
negotiation of the underwriting agreement and will give consideration to the
reasonable suggestions of the Company regarding the form thereof, provided that
nothing herein contained shall diminish the foregoing obligations of the
Company. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations and warranties contained in a writing
furnished by such holder expressly for use in such registration statement or
representations, warranties and
REGISTRATION RIGHTS AGREEMENT - Page 8
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in section 2.2 and subject to the
provisions of section 2.2(b), use its best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters,
provided that if the managing underwriter of such underwritten offering shall
inform the holders of the Registrable Securities requesting such registration,
in respect of such underwritten offering, by letter of its belief that inclusion
in such underwritten distribution of all or a specified number of such
Registrable Securities so requested to be included would interfere with the
successful marketing of the securities (other than such Registrable Securities
and other securities so requested to be included which may be included in such
underwritten offering without such effect) then, the Company may, upon written
notice to all holders of such Registrable Securities and of such other shares so
requested to be included) exclude pro rata from such underwritten offering (if
and to the extent stated by such managing underwriter to be necessary to
eliminate such effect) the number of such Registrable Securities and shares of
such other securities so requested to be included the registration of which
shall have been requested by each holder of Registrable Securities and by the
holders of such other securities so that the resultant aggregate number of such
Registrable Securities and of such other shares or securities so requested to be
included which are included in such underwritten offering shall be equal to the
approximate number of shares stated in such managing underwriter's letter. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
(c) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person may
participate in any underwritten offering hereunder unless such Person (i) agrees
to sell such Person's securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement in
connection with such offering) shall require any holder of Registrable
Securities to make any representations or warranties to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder
REGISTRATION RIGHTS AGREEMENT - Page 9
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
expressly for use in the related registration statement or representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by law.
2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the reasonable opinion of such holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6 DEFAULT FEE. In the event (I) the First Registration Statement is
either (i) not declared effective by the Commission by the First Required
Effectiveness Date or (ii) such effectiveness is not maintained during the
applicable Registration Maintenance Period or (II) any Subsequent Registration
Statement is either (i) not declared effective by the Commission by the
Subsequent Effectiveness Date or (ii) such effectiveness is not maintained
during the applicable Registration Maintenance Period, then, in each such event,
the Company shall pay to the Funds, as liquidated damages and not as a penalty,
an amount equal to two percent (2%) of the sum of the aggregate outstanding
principal balance of the Notes; provided, however, if the default causing the
payment of such liquidated damages has not been cured within thirty (30) days
after the occurrence thereof, such fee shall be increased to three percent (3%)
of the sum of the aggregate outstanding principal balance of the Notes, which
such amount shall be due and payable monthly for each month (or portion thereof)
which such obligations are not being completely performed (the "Default Fee").
Such Default Fee shall be paid in cash by the Company to the Funds by wire
transfer in immediately available funds on the last day of each calendar month
following the event requiring payment.
2.7 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does agree to, indemnify and hold harmless the holder
of any Registrable Securities covered by such registration statement, its
directors and officers, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such holder or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or
REGISTRATION RIGHTS AGREEMENT - Page 10
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such holder and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such holder or underwriter stating that it is for use in the
preparation thereof and, provided further that the Company shall not be liable
to any Person who participates as an underwriter in the offering or sale of
Registrable Securities or to any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
within the time required by the Securities Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such holder.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.7) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such seller.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein
REGISTRATION RIGHTS AGREEMENT - Page 11
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
shall not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 2.7, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability, or a covenant not to
sue, in respect to such claim or litigation. No indemnified party shall consent
to entry of any judgment or enter into any settlement of any such action the
defense of which has been assumed by an indemnifying party without the consent
of such indemnifying party.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.7(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.7 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
REGISTRATION RIGHTS AGREEMENT - Page 12
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
initial sale of the Registrable Securities by the Company to the purchasers
pursuant to the Note Purchase Agreement and the Warrants bear to the gain, if
any, realized by the selling holder or the underwriting discounts and
commissions received by the underwriter, as the case may be. The relative fault
of the Company on the one hand and of the holder or underwriter, as the case may
be, on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the Company, by the
holder or by the underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission,
provided that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.7, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (f) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (b) of
this Section 2.7 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (f)
were determined by pro rata allocation (even if the holders and any 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 the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding sentence and subdivision
(c) of this Section 2.7, 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 subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Additional Shares": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Additional Shares.
"Commission": The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
REGISTRATION RIGHTS AGREEMENT - Page 13
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
"Company": As defined in the introductory paragraph of this Agreement.
"Conversion Shares": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Conversion Shares.
"Default Fee": As defined in Section 2.6.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"First Registration Statement": As defined in Section 1.
"First Required Effectiveness Date": As defined in Section 2.1(a).
"Holders": As defined in Section 1.
"National Market": As defined in Section 1.
"Notes": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"Person": A corporation, association, partnership, organization,
business, individual, governmental or political subdivision thereof or a
governmental agency.
"Purchase Agreement": As defined in Section 1.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, (e) in the case of
securities covered by the First Registration Statement, on the sixth (6th)
anniversary of this Agreement, or (f) in the case of securities covered by a
Subsequent Registration Statement, on the second (2nd) anniversary of the
issuance of such securities.
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and NASD fees, all stock exchange and National Market
listing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
REGISTRATION RIGHTS AGREEMENT - Page 14
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of not more than one law firm
(not to exceed $25,000) retained by the holder or holders of more than 50% of
the Registrable Securities, premiums and other costs of policies of insurance of
the Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Registration Statements": As defined in Section 2.1(a).
"Securities": Collectively, the Conversion Shares, Warrant Shares and
Additional Shares.
"Securities Act": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Subsequent Effectiveness Date": As defined in Section 1.
"Subsequent Registration Statements": As defined in Section 1.
"Trust Agreement": As defined in Section 1.
"Warrant Shares": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Warrants.
4. RULE 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 4.
REGISTRATION RIGHTS AGREEMENT - Page 15
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent is sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
Note Purchase Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) in
the case of the Company, at the address set forth on the signature page hereto,
to the attention of its President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address specified
above, provided that any such notice, request or communication shall not be
effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
or percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
REGISTRATION RIGHTS AGREEMENT - Page 16
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
14. SEVERABILITY. If any provision of this Agreement, or the application
of such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
[SIGNATURE PAGE FOLLOWS]
REGISTRATION RIGHTS AGREEMENT - Page 17
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
AUTOBOND ACCEPTANCE CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 301 Congress Avenue
Suite 900
Austin, Texas 78701
Fax: (512) 472-1548
Attn: Will Winsauer
With a copy to: Butler & Binion, L.L.P.
1000 Louisiana Street
Suite 1600
Houston, Texas 77002-5093
Fax: (713) 237-3202
Attn: John W. Menke, Esq.
INFINITY EMERGING
OPPORTUNITIES LIMITED
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
REGISTRATION RIGHTS AGREEMENT - Page 18
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management, L.L.C.,
its general partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address: 1601 Elm Street
4000 Thanksgvg Twr
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
REGISTRATION RIGHTS AGREEMENT - Page 19
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
EXHIBIT E TO SECURITIES PURCHASE AGREEMENT
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of June 30, 1997 between AUTOBOND ACCEPTANCE
CORPORATION ("Borrower"), a Texas corporation, and LION CAPITAL PARTNERS, L.P.,
as agent for and representative (in such capacity, "Pledgee") of INFINITY
EMERGING OPPORTUNITIES LIMITED and LION CAPITAL PARTNERS, L.P. ("Purchasers")
under the Purchase Agreement (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement dated
the date hereof between Borrower and Purchasers (as the same may from time to
time be amended, modified or supplemented, the "Purchase Agreement"), Borrower
has issued to Purchasers its Convertible Notes dated the date hereof (the
"Notes") in the aggregate principal amount of $2,000,000 payable by Borrower to
the order of Purchasers; and
WHEREAS, Purchasers are willing to purchase the Notes but only upon the
condition, among others, that Borrower shall have executed and delivered to
Pledgee this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Purchase Agreement are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and plural forms of the terms defined):
"Collateral" shall have the meaning assigned to such term in
Section 2 of this Security Agreement.
"Contracts" shall mean the agreements listed on Schedule I hereto
and all amendments, renewals, modifications, restatements and extensions
of such agreements.
"hereby," "herein," "hereof," "hereunder" and words of similar
import refer to this Security Agreement as a whole (including, without
limitation, any schedules hereto) and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Proceeds" shall mean "proceeds," as such term is defined in
Section 9-306(a) of the UCC.
SECURITY AGREEMENT PAGE 1
<PAGE>
<PAGE>
"Secured Obligations" shall mean (i) all indebtedness,
obligations and liabilities of Borrower to Secured Parties of any kind
or character, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, arising under or
pursuant to the Purchase Agreement, the Notes or any of the other
Financing Documents, (ii) all accrued but unpaid interest on any of the
indebtedness described in (i) above, (iii) all obligations of Borrower
to Secured Parties under any documents evidencing, securing, governing
and/or pertaining to all or any part of the indebtedness described in
(i) and (ii) above, (iv) all costs and expenses incurred by Pledgee or
Secured Parties in connection with the collection and administration of
all or any part of the indebtedness and obligations described in (i),
(ii) and (iii) above or the protection or preservation of, or
realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all
reasonable attorneys' fees, and (v) all renewals, extensions,
modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii) and (iv) above.
"Secured Parties" means each of the Purchasers and any subsequent
holders of the Notes.
"Security Agreement" shall mean this Security Agreement, as the
same may from time to time be amended, modified or supplemented and
shall refer to this Security Agreement as in effect of the date such
reference becomes operative.
"UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of Pledgee's
security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
New York, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations and to induce
Purchasers to enter into the Purchase Agreement and to purchase the Notes in
accordance with the terms thereof, Borrower hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to Pledgee (on behalf of and as agent for
Secured Parties), and hereby grants to Pledgee a security interest in, all of
Borrower's right, title and interest in and to any and all now existing and
hereafter arising dividend payments from its Subsidiaries, to the extent
representing cash flows from each "Transferor's Interest" under, and as defined
in, the Contracts (all of which being hereinafter collectively called the
"Collateral").
SECURITY AGREEMENT PAGE 2
<PAGE>
<PAGE>
3. Rights of Pledgee; Limitations on Pledgee's Obligations.
(a) It is expressly agreed by Borrower that, anything herein to
the contrary notwithstanding, Borrower and its Subsidiaries shall remain liable
under each of the Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Borrower and such
Subsidiaries shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract.
Pledgee and Secured Parties shall not have any obligation or liability with
respect to any Collateral by reason of or arising out of this Security Agreement
or the granting to Pledgee of a security interest in the Collateral or the
receipt by Pledgee of any payment relating to any Collateral pursuant hereto,
nor shall Pledgee or any Secured Party be required or obligated in any manner to
perform or fulfill any of the obligations of any such Subsidiary under or
pursuant to any Contract, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party with respect to any Collateral, or to present or
file any claim, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
(b) If required by Pledgee at any time during the continuation of
any Default or Event of Default, any Proceeds or payments, when first collected
by Borrower, received in payment in respect of the Collateral shall be promptly
deposited by Borrower in precisely the form received (with all necessary
endorsements) in a special bank account maintained by Pledgee subject to
withdrawal by Pledgee only, as hereinafter provided, and until so turned over
shall be deemed to be held in trust by Borrower for Pledgee and Secured Parties
and shall not be commingled with Borrower's other funds or properties. Such
Proceeds, when deposited, shall continue to be collateral security for all of
the Secured Obligations and shall not constitute payment thereof until applied
as hereinafter provided. At any time, Pledgee may elect to apply all or part of
the funds on deposit in said special account to the principal of or interest on
or both in respect of any of the Secured Obligations in accordance with the
provisions of Section 8(d) hereof, and any part of such funds which Pledgee
elects not so to apply and deemed not required as collateral security for the
Secured Obligations shall be paid over from time to time by Pledgee to Borrower.
(c) Pledgee may at any time, upon the occurrence and during the
continuance of any Event of Default (whether or not waived), notify obligors
under the Collateral, including Subsidiaries of Borrower that are parties to
Contracts, that the right, title and interest of Borrower in and under such
Collateral, including without limitation Borrower's rights to or interest in
dividend payments from such Subsidiary, have been assigned to Pledgee and that
payments shall be made directly to Pledgee. Pledgee may at any time in its own
name or in the name of others communicate with such obligors, including such
Subsidiaries, to verify with such Persons to Pledgee's satisfaction the
existence, amount and terms of any Collateral.
4. Representations and Warranties. Borrower hereby represents and
warrants that:
(a) Except for the security interest granted to Pledgee pursuant
to this Security Agreement, Borrower is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto, free and clear of any and all liens,
SECURITY AGREEMENT PAGE 3
<PAGE>
<PAGE>
security interests or other encumbrances. No amount payable to Borrower with
respect to any Collateral is evidenced by promissory notes or other instruments
which have not been delivered to Pledgee.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation agreement covering all or
any part of the Collateral is on file or of record in any public office, except
such as may have been filed by Borrower in favor of Pledgee pursuant to this
Security Agreement.
(c) Upon the filing of appropriate financing statements in the
jurisdictions listed on Schedule II hereto, this Security Agreement will be
effective to create a valid and continuing first priority lien on and first
priority perfected security interest in the Collateral with respect to which a
security interest may be perfected by filing pursuant to the UCC in favor of
Pledgee, prior to all other security interests (other than the security
interests granted to Pledgee under this Security Agreement), and is enforceable
as such as against creditors of and purchasers from Borrower. All action
necessary or desirable to protect and perfect such security interest in each
item of the Collateral will have been duly taken within seven days of the date
hereof.
(d) The address of Borrower's principal place of business and the
place where its records concerning the Collateral are kept is set forth on
Schedule III hereto, and Borrower will not change such principal place of
business or remove such records unless it has taken such action as is necessary
to cause the security interest of Pledgee in the Collateral to continue to be
perfected. Borrower will not change its principal place of business or the place
where its records concerning the Collateral is kept without giving 40 days prior
written notice thereof to Pledgee.
(e) The amount represented by Borrower to Pledgee from time to
time as the value of the "Transferor's Interest" in respect of each Contract
will have been determined in accordance with GAAP.
5. Covenants. Borrower covenants and agrees with Pledgee that from
and after the date of this Security Agreement and until the Secured Obligations
are fully satisfied:
(a) Further Documentation; Legending of Stock Certificates;
Dividending Stock of Subsidiaries. At any time and from time to time, upon the
written request of Pledgee, and at the sole expense of Borrower, Borrower will
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Pledgee may reasonably deem necessary
to obtain the full benefits of this Security Agreement and of the rights and
powers herein granted, including, without limitation, using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
Pledgee of any Collateral held by Borrower or in which Borrower has any rights
not heretofore assigned and the filing of any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereby. Borrower also hereby authorizes Pledgee to file any such
financing or continuation statement without the signature of Borrower to the
extent permitted by applicable law. A photocopy of this Security Agreement may
be filed as a financing statement. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any instrument, such
instrument shall be immediately pledged to
SECURITY AGREEMENT PAGE 4
<PAGE>
<PAGE>
Pledgee hereunder, and shall be duly endorsed in a manner satisfactory to
Pledgee and delivered to Pledgee. Within five days after the date hereof,
Borrower shall cause AutoBond Funding Corporation I, AutoBond Funding
Corporation II and AutoBond Funding Corporation III to dividend all of the
shares of common stock held by them in AutoBond Funding Corporation 1995-A,
AutoBond Funding Corporation 1996-A, AutoBond Funding Corporation 1996-B and
AutoBond Funding Corporation 1996-C (collectively, the "Funding Corporations")
to Borrower. Within five days after the date hereof, Borrower agrees to cause
each stock certificate representing shares of capital stock of each of AutoBond
Funding Corporation I, AutoBond Funding Corporation II and AutoBond Funding
Corporation III (which shall not, in each case, be less than 100% of the issued
and outstanding capital stock of each such corporation) to be reissued with a
legend to the following effect:
"DIVIDEND RIGHTS ASSOCIATED WITH THE SHARES OF STOCK REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO A SECURITY AGREEMENT, DATED
JUNE 30, 1997 BETWEEN AUTOBOND ACCEPTANCE CORPORATION AND LION
CAPITAL PARTNERS, L.P., A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE ISSUER HEREOF, AND SAID SHARES MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE TERMS OF THAT
AGREEMENT"
(b) Maintenance of Records. Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral.
Borrower will mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the security interests granted hereby. For
Pledgee's further security, Borrower agrees that Pledgee shall have a special
property interest in all of Borrower's books and records pertaining to the
Collateral and, upon the occurrence and during the continuation of any Event of
Default, Borrower shall permit inspection of any such books and records to
Pledgee or to its representatives at any time on demand of Pledgee. Prior to the
occurrence of an Event of Default and upon reasonable notice from Pledgee,
Borrower shall permit any representative of Pledgee to inspect such books and
records during normal business hours, and will provide photocopies thereof to
Pledgee.
(c) Indemnification. In any suit, proceeding or action brought by
Pledgee or any Secured Party relating to any of the Collateral for any sum owing
thereunder, or to enforce any provision of any Contract, Borrower will save,
indemnify and keep Pledgee and Secured Parties harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder,
arising out of a breach by Borrower or any Subsidiary of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from Borrower,
and all such obligations of Borrower shall be and remain enforceable against and
only against Borrower and shall not be enforceable against Pledgee or any
Secured Party.
(d) Compliance with Laws, etc. Borrower will comply, in all
material respects, with all acts, rules, regulations, orders, decrees and
directions of any governmental authority, applicable
SECURITY AGREEMENT PAGE 5
<PAGE>
<PAGE>
to the Collateral or any part thereof or to the operation of Borrower's
business; provided, however, that Borrower may contest any act, regulation,
order, decree or direction in any reasonable manner which shall not, in the sole
opinion of Pledgee, adversely affect Pledgee's rights hereunder or adversely
affect the first priority of its security interest in the Collateral.
(e) Compliance with Terms of Contracts. Borrower will perform and
comply with, and will cause each Subsidiary that is a party to a Contract to
comply with, all obligations in respect of Contracts, the Collateral and all
other agreements to which it is a party or by which it is bound.
(f) Limitation on Liens on Collateral. Borrower will not create,
permit or suffer to exist, and will defend the Collateral against and take such
other action as is necessary to remove, any lien, security interest or other
encumbrance on the Collateral, and will defend the right, title and interest of
Pledgee in and to any of Borrower's rights under any Collateral and in and to
the Proceeds thereof against the claims and demands of all Persons whomsoever.
(g) Limitations on Modifications. Borrower will not, without
Pledgee's prior written consent, permit any amendment or modification to any of
the Collateral that would decrease the value of the "Transferor's Interest"
thereunder.
(h) Limitations on Disposition. Borrower will not sell, lease,
assign, transfer or otherwise dispose of any of the Collateral or any capital
stock of any Subsidiary that is a party to a Contract.
(i) Further Identification of Collateral. Borrower will if so
requested by Pledgee furnish to Pledgee, as often as Pledgee reasonably
requests, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Pledgee
may reasonably request, all in reasonable detail.
(j) Notices. Borrower will advise Pledgee promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral, (ii) of any material change in the
composition of the Collateral, and (iii) of the occurrence of any other event
which would have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereunder.
(k) Declaration and Payment of Dividends. At the request of
Pledgee, Borrower agrees to cause each of its Subsidiaries that is a party to
any Contract to declare and pay dividends with respect to its capital stock in
the maximum amount then legally payable under applicable law to the full extent
of payments received by such Subsidiaries in respect of the "Transferor's
Interest" under each Contract, and to direct that each such Subsidiary pay such
dividends directly to Pledgee. Borrower further agrees that a breach of any of
the covenants contained in this Section 5(k) will cause irreparable injury to
Pledgee and Secured Parties, and that Pledgee and Secured Parties have no
adequate remedy at law in respect of such breach and, as a consequence, agrees
that each and every covenant contained in this Section 5(k) shall be
specifically enforceable against Borrower, and that Borrower hereby waives and
agrees, to the fullest extent permitted by law, not to assert
SECURITY AGREEMENT PAGE 6
<PAGE>
<PAGE>
as a defense against any action for specific performance of such covenants that
(x) Borrower's failure to perform such covenants will not cause irreparable
injury to Pledgee or any Secured Party or (y) Pledgee and Secured Parties have
an adequate remedy at law in respect of such breach.
(l) Continuous Perfection. Borrower will not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(g) of the UCC (or any other then applicable
provision of the UCC) unless Borrower shall have given Pledgee at least 40 days
prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Pledgee to amend such financing statement or continuation statement
so that it is not seriously misleading.
(m) Limited Purpose Corporations. Each Subsidiary that is a party
to a Contract is and shall at all times continue to be a limited purpose
corporation whose primary activities shall be limited, as set forth in its
certificate or articles of incorporation, to purchasing motor vehicle retail
installment finance contracts and related assets from Borrower, transferring its
interest in such assets to trusts pursuant to structured-finance transactions
and conducting such other activities as it deems necessary or appropriate to
carry out such primary activities. Borrower will not permit any such Subsidiary
to (x) amend its certificate or articles of incorporation without obtaining the
prior written consent of Lender to such amendment, (y) issue any additional
capital stock or (z) agree to or permit to exist any encumbrance or restriction
on its ability to pay dividends with respect to its capital stock.
6. Pledgee's Appointment as Attorney-in-Fact.
(a) Borrower hereby irrevocably constitutes and appoints Pledgee
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of Borrower and in the name of Borrower or in its own name, from
time to time in Pledgee's reasonable discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any and all appropriate action and
to execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purpose of this Security Agreement and,
without limiting the generality of the foregoing, hereby gives Pledgee the power
and right, on behalf of Borrower, without notice to or assent by Borrower to do
the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of Borrower or its own name or
otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the
payment of monies due under any Collateral, to access all post
office boxes maintained by or for Borrower for the collection of
any of the Collateral, and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise
deemed appropriate by Pledgee for the purpose of collecting any
and all such moneys due under any Collateral whenever payable and
to file any claim or to take any other action or proceeding in
any
SECURITY AGREEMENT PAGE 7
<PAGE>
<PAGE>
court of law or equity or otherwise deemed appropriate by
Pledgee for the purpose of collecting any and all such moneys due
under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, and to pay all or any part of the insurance premiums
therefor and the costs thereof; and
(iii) (A) to direct any party liable (including any Subsidiary
that is a party to any Contract) for any payment under any of the
Collateral to make payment of any and all moneys due, and to
become due thereunder, directly to Pledgee or as Pledgee shall
direct; (B) to receive payment of and receipt for any and all
moneys, claims and other amounts due, and to become due at any
time, in respect of or arising out of any Collateral; (C) to
commence and prosecute any suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (D) to defend any suit, action or
proceeding brought against Borrower with respect to any
Collateral; (E) to settle, compromise or adjust any suit, action
or proceeding described above and, in conjunction therewith, to
give such discharges or releases as Pledgee may deem appropriate;
(F) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully
and completely as though Pledgee were the absolute owner thereof
for all purposes, and to do, at Pledgee's option and Borrower's
expense, at any time, or from time to time, all acts and things
which Pledgee reasonably deems necessary to protect, preserve or
realize upon the Collateral and Pledgee's security interest
therein, in order to effect the intent of this Security
Agreement, all as fully and effectively as Borrower might do.
(b) Pledgee agrees that, except upon the occurrence and during
the continuation of an Event of Default, it will forebear from exercising the
power of attorney or any rights granted to Pledgee pursuant to this Section 6.
Borrower hereby ratifies, to the extent permitted by law, all that said
attorneys shall lawfully do or cause to be done by virtue hereof. The power of
attorney granted pursuant to this Section 6 is a power coupled with an interest
and shall be irrevocable until the Secured Obligations are indefeasibly paid in
full.
(c) The powers conferred on Pledgee hereunder are solely to
protect Pledgee's interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Pledgee shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and neither
it nor any of its officers, directors, employees or agents shall be responsible
to Borrower for any act or failure to act, except for its or their own gross
negligence or willful misconduct.
(d) Borrower also authorizes Pledgee, at any time and from time
to time upon the occurrence and during the continuation any Event of Default,
(i) to communicate in its own name with any Subsidiary that is party to any
Contract with regard to the assignment of the right, title and interest of
Borrower in and under the Collateral hereunder and other matters relating
thereto and (ii) to execute, in connection with the sale provided for in Section
8 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
SECURITY AGREEMENT PAGE 8
<PAGE>
<PAGE>
7. Performance by Pledgee of Borrower's Obligations. If Borrower fails
to perform or comply with any of its agreements contained herein and Pledgee, as
provided for by the terms of this Security Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
reasonable expenses of Pledgee incurred in connection with such performance or
compliance, together with interest thereon at the rate then in effect in respect
of the Notes, shall be payable by Borrower to Pledgee on demand and shall
constitute Secured Obligations secured hereby.
8. Remedies, Rights Upon Default.
(a) If any Event of Default shall occur and be continuing,
Pledgee may (on behalf of and as agent for Secured Parties) exercise in addition
to all other rights and remedies granted to it in this Security Agreement and in
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Borrower expressly agrees that
in any such event Pledgee, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Borrower or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's board or
at any of Pledgee's offices or elsewhere at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Pledgee shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Borrower hereby releases. Borrower
further agrees, at Pledgee's request, to assemble the Collateral and make it
available to Pledgee at places which Pledgee shall reasonably select, whether at
Borrower's premises or elsewhere. Pledgee shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, as
provided in Section 8(d) hereof, Borrower remaining liable for any deficiency
remaining unpaid after such application, and only after so paying over such net
proceeds and after the payment by Pledgee of any other amount required by any
provision of law, including Section 9-504(a)(3) of the UCC, need Pledgee account
for the surplus, if any, to Borrower. To the maximum extent permitted by
applicable law, Borrower waives all claims, damages, and demands against Pledgee
or any Secured Party arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of Pledgee. Borrower agrees that the Pledgee need not give more than
ten days' notice (which notification shall be deemed given when mailed or
delivered on an overnight basis, postage prepaid, addressed to Borrower at its
address referred to in Section 11 hereof) of the time and place of any public
sale or of the time after which a private sale may take place and that such
notice is reasonable notification of such matters. Borrower shall remain liable
for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Secured Parties are entitled,
Borrower also being liable for the reasonable fees of any attorneys employed by
Pledgee or any Secured Party to collect such deficiency.
SECURITY AGREEMENT PAGE 9
<PAGE>
<PAGE>
(b) Borrower also agrees to pay all costs of Pledgee and Secured
Parties, including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
(c) Borrower hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by Pledgee in the
following order of priorities:
first, to Pledgee in an amount sufficient to pay in full the
expenses of Pledgee and Secured Parties in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Pledgee in connection therewith,
including, without limitation, reasonable attorney's fees;
second, to Pledgee or Secured Parties in an amount equal to the
then unpaid principal of and accrued interest and prepayment premiums,
if any, on the Secured Obligations;
third, to Pledgee or Secured Parties in an amount equal to any
other Secured Obligations which are then unpaid; and
finally, upon payment in full of all of the Secured Obligations,
to pay to Borrower, or its representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such Proceeds.
9. Limitation on Pledgee's Duty in Respect of Collateral. Pledgee shall
use reasonable care with respect to the Collateral in its possession or under
its control. Pledgee shall not have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. Upon request of Borrower,
Pledgee shall account for any moneys received by it in respect of any
foreclosure on or disposition of the Collateral.
10. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Borrower
for liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Borrower's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
SECURITY AGREEMENT PAGE 10
<PAGE>
<PAGE>
11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other party any other communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be given as set forth in Section 12.1 of the Purchase
Agreement. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Pledgee shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by Pledgee,
and then only to the extent therein set forth. A waiver by Pledgee of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Pledgee would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Pledgee, any
right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law. None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Pledgee and Borrower.
14. Successors and Assigns; Governing Law.
(a) This Security Agreement and all obligations of Borrower
hereunder shall be binding upon the successors and assigns of Borrower, and
shall, together with the rights and remedies of Pledgee hereunder, inure to the
benefit of Pledgee, all future holders of the Notes and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Secured Obligations or any portion thereof or interest therein
shall in any manner affect the security interest granted to Pledgee hereunder.
(b) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECURITY AGREEMENT PAGE 11
<PAGE>
<PAGE>
15. Waiver of Jury Trial. BORROWER HEREBY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES
HEREUNDER.
[SIGNATURE PAGES FOLLOW]
SECURITY AGREEMENT PAGE 12
<PAGE>
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
AUTOBOND ACCEPTANCE CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
Accepted and acknowledged by:
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management, L.L.C.,
its general partner
By:__________________________________
Name:________________________________
Title:_______________________________
SECURITY AGREEMENT PAGE 13
<PAGE>
<PAGE>
Acknowledged and agreed to:
AUTOBOND FUNDING CORPORATION 1995-A
By:_______________________________________
Name:_____________________________________
Title:____________________________________
AUTOBOND FUNDING CORPORATION 1996-A
By:_______________________________________
Name:_____________________________________
Title:____________________________________
AUTOBOND FUNDING CORPORATION 1996-B
By:_______________________________________
Name:_____________________________________
Title:____________________________________
AUTOBOND FUNDING CORPORATION 1996-C
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SECURITY AGREEMENT PAGE 14
<PAGE>
<PAGE>
SCHEDULE I
LIST OF CONTRACTS
<PAGE>
<PAGE>
SCHEDULE II
FILINGS
DEBTOR JURISDICTION FILING OFFICE
AutoBond Acceptance Corporation Texas Secretary of State
<PAGE>
<PAGE>
SCHEDULE III
LOCATION OF RECORDS
Principal Place of
Location of Records
301 Congress Avenue
9th Floor
Austin, Texas 78701
<PAGE>
<PAGE>
EXHIBIT H TO SECURITIES PURCHASE AGREEMENT
TRANSFER AGENT AGREEMENT
THIS TRANSFER AGENT AGREEMENT (this "Agreement"), dated June 30, 1997,
between AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation (the "Company"),
LION CAPITAL PARTNERS, L.P., a Texas limited partnership ("Lion") and INFINITY
EMERGING OPPORTUNITIES LIMITED, a Nevis West Indies business corporation
("Emerging Opportunities") (Lion and Emerging Opportunities being collectively
referred to herein as the "Holders") and AMERICAN STOCK TRANSFER & TRUST
COMPANY, the transfer agent for the Company's common stock (the "Transfer
Agent").
R E C I T A L S:
WHEREAS, pursuant to that certain Securities Purchase Agreement dated
June 30, 1997 (the "Purchase Agreement") by and among the Company and the
Holders, the Company agreed to issue to the Holders (1) $2,000,000 aggregate
principal amount of 18% senior secured convertible notes (the "Convertible
Notes"), which are convertible, at the option of the Holders, into shares of
common stock, no par value per share, of the Company (the "Common Stock") (such
shares issuable upon such conversion being referred to as the "Shares") and (2)
Common Stock Purchase Warrants (the "Warrants") exercisable for certain
additional shares of Common Stock; and
WHEREAS, the Company and the Holders have agreed to enter into this
Agreement with the Transfer Agent to (i) facilitate the closing of the Purchase
Agreement (the "Closing"), (ii) provide for a system of accounting for the
Convertible Notes and (iii) facilitate the conversion of the Convertible Notes
and issuance of the Shares associated therewith.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. CLOSINGS. The Transfer Agent hereby agrees to act as an escrow agent
to facilitate the Closing as follows:
(a) On the date hereof, the Holders shall wire transfer to an
account designated by the Transfer Agent $2,000,000 in the aggregate (the
"Purchase Price"), and the Company shall deliver to the Transfer Agent the
Convertible Notes and the Warrants in the names of the Holders and in the
amounts as set forth on Schedule 1 hereto. The Transfer Agent may, at its
discretion, confirm the authenticity of the Convertible Notes and the Warrants
by transmitting a copy of same in the form received from the Company to Lion, on
behalf of the Holders or its counsel, for written or oral verification as to the
form thereof.
(b) Immediately following such deliveries, together with a
delivery from the Company to the Transfer Agent of a fully executed copy of the
Purchase Agreement, the Transfer
TRANSFER AGENT AGREEMENT-Page 1
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Agent shall wire transfer to the Company the Purchase Price less $25,000 (the
"Expense Reimbursement Fee"), pursuant to wire transaction instructions as
provided by the Company. The Transfer Agent shall also wire transfer the Expense
Reimbursement Fee to the Holders, care of HW Partners L.P., at the wire transfer
account set forth on Schedule 2 attached hereto.
(c) Contemporaneous with the transfer of funds as described in
Subsection (b) above, the Transfer Agent shall (i) hold the Convertible Notes
for the benefit of the respective Holders, as hereafter described and (ii)
deliver the Warrants to the Holders at the address(es) set forth herein.
(d) Notwithstanding the foregoing, by joint written agreement the
Holders and the Company may agree to effect the Closing (either partially or
entirely) without using the services of the Transfer Agent. In such event, the
Holders shall (i) wire the Purchase Price, less the Expense Reimbursement Fee to
the Company against counter-delivery by the Company of the original Convertible
Notes and Warrants to the Holders or their designee, (ii) retain or wire
transfer the Expense Reimbursement Fee to HW Partners, L.P., and (iii)
thereafter deliver the Convertible Notes to the Transfer Agent to be held for
the benefit of the Holders pursuant to the terms of this Agreement.
2. OWNERSHIP OF CONVERTIBLE NOTES. Record and beneficial ownership of
the Convertible Notes shall remain in the name of the Holders (unless and until
transferred pursuant to the terms thereof, with written notice thereof to the
Transfer Agent). Any transfer or purported transfer of the Convertible Notes (a)
not made pursuant to the terms of the Convertible Notes and (b) not properly
noticed to the Transfer Agent shall be null and void ab initio and shall not be
given effect thereto by the Transfer Agent. The Transfer Agent shall not be
required to acknowledge any transfer of the Convertible Notes unless accompanied
by written confirmation thereof from the Holders.
3. PAYING AGENT. The Transfer Agent shall act as paying agent for the
Convertible Notes. Accordingly, all payments of interest or principal amounts
required of the Company related to the Convertible Notes shall be made to the
Transfer Agent for the account and benefit of the holders of such Convertible
Notes as registered on the books of the Transfer Agent (each, a "Registered
Holder"). Upon the receipt of any such payment of interest or principal amounts,
in cash, the Transfer Agent shall promptly wire transfer such sum to the account
of the Registered Holders as reflected on the books of the Transfer Agent.
4. ACCOUNTING AGENT. The Transfer Agent shall act as the accounting
agent of the Company and the Registered Holders and shall establish and maintain
an accounting ledger for the Convertible Notes (the "Accounting Ledger"). The
Transfer Agent shall credit (reduce) the outstanding balance of the Convertible
Notes by all (i) payments of principal and interest made by the Company to the
Transfer Agent as paying agent as required pursuant to Section 3 above, and (ii)
by the appropriate amount upon delivery of Shares to the applicable Registered
Holder following receipt of a Notice of Conversion (as defined in Section 5
below). At such time as the balance of the Convertible Notes, as reflected on
the Account Ledger is zero following the procedures described in this Agreement,
the Transfer Agent shall return such convertible Notes to the Company marked
"paid in full" or "cancelled."
TRANSFER AGENT AGREEMENT-Page 2
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
5. ISSUANCE OF CONVERTED SHARES.
(a) Consistent with Article 4 of each Convertible Note, in order
to convert all or a portion of a Convertible Note into Shares, a Registered
Holder shall deliver written notice (each, a "Notice of Conversion"), in the
form prescribed by the Convertible Notes, to the Transfer Agent for the portion
of the Convertible Note that it elects to so convert and a calculation of the
number of Shares to be issued upon such conversion. Upon receipt by the Transfer
Agent of any such Notice of Conversion (including receipt via facsimile) from
any Registered Holder, the Transfer Agent shall immediately deliver a copy
thereof to the Company, via facsimile, requesting the Company to confirm the
number of Shares to be issued to such Registered Holder in connection therewith.
The Company shall, within two (2) Business Days (as defined in the Purchase
Agreement) of the receipt thereof, in good faith confirm or dispute the number
of Shares to be issued to the Registered Holder, providing written notice (with
supporting calculations and related information) thereof via facsimile to the
Transfer Agent and the Registered Holder (the "Company Notice"). In any event,
the Company shall include in the Company Notice that number of Shares which it
believes, in good faith, are in fact issuable upon conversion of the Convertible
Note (the "Minimum Number"). In the event the Company confirms the number of
Shares to be so issued, it shall, as part of the Company Notice, direct the
Transfer Agent to issue such Shares. In the event the Company Notice disputes
the number of Shares to be so issued, the Company and the Registered Holder
shall immediately, in good faith, seek to resolve such dispute.
(b) The Transfer Agent shall not be required to issue any Shares
unless and until receipt (including via facsimile) of (i) written notice from
either (x) the Company, confirming the number of Shares to be issued or (y) the
Registered Holder and the Company, setting forth the number of Shares to be
issued, or (ii) a final nonappealable order of a court of competent jurisdiction
directing the Transfer Agent to issue a specified number of Shares.
Notwithstanding the foregoing, each Holder expressly reserves all rights and
remedies against the Company for the failure of the Company to confirm to the
Transfer Agent in any applicable Company Notice the number of Shares issuable as
set forth in a properly completed and accurate Notice of Conversion.
(c) Reference is hereby made to that certain Registration Rights
Agreement appended to the Purchase Agreement. At such time as the First
Registration Statement as contemplated therein has been declared effective by
the Securities and Exchange Commission covering the resale of the Shares, the
Company shall cause its legal counsel to deliver to the Transfer Agent an
opinion certifying that Shares may be sold by the Registered Holder pursuant to
such registration statement with the purchaser thereof receiving share
certificates, without restrictive legend, which opinion shall remain effective
so long as such First Registration Statement remains in full force and effect.
In the event that, at any time, the First Registration Statement ceases to be
effective, the Company or its legal counsel shall immediately deliver written
notice thereof to the Transfer Agent and the Registered Holders stating that the
opinion of the Company's legal counsel may no longer be relied upon by the
Transfer Agent (unless and until an additional or amended, as applicable,
registration statement is so declared effective with an accompanying opinion to
that effect from the Company's
TRANSFER AGENT AGREEMENT-Page 3
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
legal counsel). Upon the receipt of any Notice of Conversion while the First
Registration Statement is effective, the share certificates representing the
Shares described above shall be with a restrictive legend unless the Registered
Holder, either in connection with the delivery of the Notice of Conversion or
thereafter, delivers written notice to the Transfer Agent and the Company
(including notice via telecopy) that the Shares have been sold by the Registered
Holder pursuant to such registration statement, whereupon the Transfer Agent
shall issue share certificates to the purchaser thereof without restrictive
legend.
(d) Each time a payment of principal is recorded in the
Accounting Ledger (whether by virtue of a cash payment or by virtue of a
conversion into Shares), the Transfer Agent may, at its option, deliver the
Convertible Notes to the Company requiring the Company to reissue Convertible
Notes in the names of the Registered Holders with new principal balances
reflecting such payment.
6. TERMINATION. This Agreement shall terminate promptly upon the earlier
to occur of (i) written demand by the Company and all Registered Holders or (ii)
no unpaid balance remains with respect to any of the Convertible Notes.
Notwithstanding the foregoing, the Transfer Agent may terminate its obligations
under this Agreement at such time as the Transfer Agent no longer serves as the
Transfer Agent for the Company's Common Stock, by delivery of written notice
thereof to the Registered Holders and the Company. Upon delivery of such notice,
the Transfer Agent shall deliver the original Convertible Notes to Lion, on
behalf of all Registered Holders, together with a copy of the Accounting Ledger
(with corresponding copies delivered to the Company). Immediately thereafter,
Lion, as representative of the Holders, and the Company shall, in good faith,
attempt to establish an agreement similar to this Agreement with the Company's
new stock transfer agent.
7. FEES. The Company hereby agrees to pay the Transfer Agent for
customary fees charged for all services rendered hereunder.
8. NOTICES. Any notice or demand to be given or that may be given under
this Agreement shall be in writing and shall be (a) delivered by hand, or (b)
delivered through or by expedited mail or package service, or (c) transmitted by
telecopy, in each case with personal delivery acknowledged, addressed to the
parties as follows. Each such notice or demand shall be effective (i) if given
by telecopy, when such telecopy is transmitted to telecopier number specified in
this Agreement, (ii) if given by any other means, when delivered at the
addressed as specified herein.
TRANSFER AGENT AGREEMENT-Page 4
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
As to the Company: AutoBond Acceptance Corporation
301 Congress Avenue, Suite 900
Austin, Texas 78701
Fax: 512/472-1548
Attn: Will Winsauer
Chairman and Chief
Executive Officer
With a copy to: Butler & Binion, L.L.P.
1000 Louisiana Street
Suite 1600
Houston, Texas 77002
Fax: (713) 237-3202
As to: Infinity Emerging Opportunities Limited
38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1689
Fax: 214/720-1662
Attn: Stuart Chasanoff, Esq.
As to: Lion Capital Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1689
Fax: 214/720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1689
Fax: 214/720-1662
Attn: Stuart Chasanoff, Esq.
TRANSFER AGENT AGREEMENT-Page 5
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
As to any other As set forth on the books of
Registered Holder: the Transfer Agent.
As to the Transfer
Agent: American Stock Transfer & Trust Company
2601 15th Avenue
Brooklyn, New York 11219
Fax: 718/331-1852
Attn: Herbert J. Lemmer
9. NONCONTRAVENTION. The Company agrees that it will not at any time
take any action or undertake any activity that would in any way impede, restrict
or limit the right and ability of the Registered Holders to convert the
Convertible Notes and receive Shares pursuant to the terms and provisions of
this Agreement.
10. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Transfer Agent, each officer, director, employee and agent of the Transfer
Agent, and each person, if any, who controls the Transfer Agent within the
meaning of the Securities Act of 1933, as amended (the "Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") against any losses,
claims, damages, or liabilities, joint or several, to which it, they or any of
them, or such controlling person, may become subject, under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
performance by the Transfer Agent of its duties pursuant to the Agreement; and
will reimburse the Transfer Agent, and each officer, director, employee and
agent of the Transfer Agent, and each such controlling person for any reasonable
legal or other expenses reasonably incurred by it or any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any case if
such loss, claim, damage or liability arises out of or is based upon any action
not taken in good faith, or any action or omission that constitutes gross
negligence or willful misconduct.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the Company under this Section,
notify in writing the Company of the commencement thereof, and failure so to
notify the Company will relieve the Company from any liability under this
Section as to the particular item for which indemnification is then being sought
but not from any other liability which it may have to any indemnified party. In
case any such action is brought against any indemnified party, and it notifies
the Company of the commencement thereof, the Company will be entitled to assume
the defense thereof, with counsel who shall be to the reasonable satisfaction of
such indemnified party. The Company shall not be liable to any such indemnified
party on account of any settlement of any claim of action effected without the
consent of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of law rules of such jurisdiction. Any action brought to enforce, or
otherwise arising out of, this Agreement, shall be heard and determined in
either a federal or state court sitting in the State of New York.
TRANSFER AGENT AGREEMENT-Page 6
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, constitutes the full
and entire understanding of the parties with respect to the subject matter
hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by facsimile signature.
[Signature page follows]
TRANSFER AGENT AGREEMENT-Page 7
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first above written.
AUTOBOND ACCEPTANCE CORPORATION
By:_______________________________
Title:____________________________
INFINITY EMERGING
OPPORTUNITIES LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management,
L.L.C., its general partner
By:_______________________________
Name:_____________________________
Title:____________________________
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:_______________________________
Herbert J. Lemmer
Vice President
TRANSFER AGENT AGREEMENT-Page 8
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
SCHEDULE 1
SECURITIES
================================================================================
Name of Holder Aggregate Principal Warrant Shares
Amount of Notes
================================================================================
Lion Capital Partners, L.P. $1,000,000 100,000
- --------------------------------------------------------------------------------
Infinity Emerging Opportunities $1,000,000 100,000
Limited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL $2,000,000 200,000
========== =======
================================================================================
<PAGE>
<PAGE>
EXHIBIT I TO SECURITIES PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"); OR UNDER ANY APPLICABLE LAW OR
REGULATION OF ANY STATE. THIS COMMON STOCK WARRANT MAY NOT BE SOLD, OFFERED,
ASSIGNED OR TRANSFERRED UNLESS THE WARRANT IS REGISTERED UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES, ASSIGNMENTS AND
TRANSFERS ARE MADE PURSUANT TO THE AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. FURTHERMORE, THESE SECURITIES ARE SUBJECT TO CERTAIN
LIMITATIONS ON CONVERSION AS DESCRIBED IN THAT CERTAIN SECURITIES PURCHASE
AGREEMENT DATED THE DATE HEREOF (THE "PURCHASE AGREEMENT") BETWEEN, AMONG
OTHERS, THE COMPANY AND THE INITIAL HOLDER HEREOF. THIS COMMON STOCK PURCHASE
WARRANT CERTIFICATE REFERS TO AND IS SPECIFICALLY GOVERNED BY CERTAIN PROVISIONS
CONTAINED IN THE PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH AND MAY BE
OBTAINED FROM THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
AUTOBOND ACCEPTANCE CORPORATION
COMMON STOCK PURCHASE WARRANT
DATED: June 30, 1997
- --------------------------------------------------------------------------------
No. 1
Number of Common Shares: -------------- Holder:
--------------
- ---------
Purchase Price: -------------- --------------
Expiration Date: June 30, 2002 --------------
For identification only. The governing terms of this Warrant are set
forth below.
- --------------------------------------------------------------------------------
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation (the "Company"),
hereby certifies that, for value received, _____________________ or assigns
(each a "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time after the date hereof
and prior to the fifth anniversary hereof (the "Exercise Period"), at the
Purchase Price hereinafter set forth, ____________________________
(_____________) fully paid and nonassessable shares of Common Stock (as
hereinafter defined) of the Company. The number and character of such shares of
Common Stock and the Purchase Price are subject to adjustment as provided
herein.
This Warrant (this "Warrant"; such term to include any warrants issued
in substitution therefor) is one of a series of Common Stock Purchase Warrants
issued in connection with that certain Securities Purchase Agreement (the
"Purchase Agreement") dated of even date herewith between, among others, the
initial Holder hereof and the Company.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 1
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall initially be $________________;
provided, however, that the Purchase Price shall be adjusted from time to time
as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include AutoBond Acceptance
Corporation and any entity that shall succeed or assume the obligations
of such corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any class
or classes (however designated) of the Company, authorized on or after
such date, the holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such
a contingency) and (c) any other securities into which or for which any
of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise of
this Warrant, in lieu of or in addition to Common Stock, or that at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.
(d) The term "Vested Shares" means as of any date during the
Exercise Period, that number of shares of Common Stock which shall be
exercisable by the Holder hereof pursuant to the terms of this Warrant;
specifically, this Warrant shall vest as to the greater of (i) 25,000
shares of Common Stock on each of September 30, 1997, December 31, 1997,
March 31, 1998 and June 30, 1998, cumulatively; and (ii) immediately as
to that number of shares of Common Stock equal to the product of (A) the
total number of shares covered by this Warrant, as adjusted pursuant
hereto, and (B) a fraction, the numerator of which is the amount of
fundings completed under that Trust Securities Purchase Agreement
contemplated between the parties hereto on the date hereof which such
agreement shall be on terms substantially in conformity with the
Commitment Letter dated June 25, 1997 between H.W. Partners, L.P. (as
representative of certain funds (each a "Fund"), including the Holder)
and the Company (the "Trust Agreement") and the denominator of which is
the total initial funding commitment under the Trust Agreement;
provided, however, it is expressly agreed that no party shall be under
any obligation to enter into the Trust Agreement unless it approves of
the terms and conditions ultimately
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 2
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
agreed upon therein in its sole discretion; and provided, further, that
this Warrant and the shares of Common Stock to become vested hereunder
shall be deemed to have been vested as of the last day of the calendar
quarter immediately preceding the occurrence of the event giving rise to
such vesting or the vesting date specified herein, whichever is earlier.
This Warrant shall terminate, and no shares shall be deemed exercisable
hereunder, if the Trust Agreement shall not be executed on or before
July 31, 1997.
1. Exercise of Warrant.
1.1. Method of Exercise. This Warrant may be exercised in whole
or in part (but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period for up to, but not
more than, the number of Vested Shares at such time, by the Holder
hereof by delivery of a notice of exercise (a "Notice of Exercise")
substantially in the form attached hereto as Exhibit A via facsimile to
the Company. Promptly thereafter the Holder shall surrender this Warrant
to the Company at its principal office, accompanied by payment of the
Purchase Price multiplied by the number of shares of Common Stock for
which this Warrant is being exercised (the "Exercise Price"). Payment of
the Exercise Price shall be made by check or bank draft payable to the
order of the Company or by wire transfer to the account of the Company.
If the amount of the payment received by the Company is less than the
Exercise Price, the Holder will be notified of the deficiency and shall
make payment in that amount within five (5) business days. In the event
the payment exceeds the Exercise Price, the Company will promptly refund
the excess to the Holder. Upon exercise, the Holder shall be entitled to
receive, promptly after payment in full, one or more certificates,
issued in the Holder's name or in such name or names as the Holder may
direct, subject to the limitations on transfer contained herein, for the
number of shares of Common Stock so purchased. The shares so purchased
shall be deemed to be issued as of the close of business on the date on
which the Company shall have received from the Holder payment in full of
the Exercise Price (the "Exercise Date").
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon exercise
of the Warrant solely for its own account for investment purposes and
not with a view to or for distributing such securities unless such
distribution has been registered with the Securities and Exchange
Commission or an applicable exemption is available therefor. At the time
this Warrant is exercised, the Company may require the Holder to state
in the Notice of Exercise such representations concerning the Holder as
are necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Company Acknowledgment. The Company will, at the time of
the exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to the Holder
any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 3
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Warrant. If the Holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to
the Holder any such rights.
1.4. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described herein,
such exercise rights shall be limited solely in the manner set forth in
the Purchase Agreement as if such provisions were specifically set forth
herein.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within the time
periods specified in the Purchase Agreement, the Company at its expense
(including the payment by it of any applicable issue, stamp or transfer taxes
upon issuance to the Holder) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible hereunder, to
such other person as the Holder may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable Purchase Price,
together with any other stock or other securities and property (including cash,
where applicable) to which the Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock Property, etc.,
Reclassification, etc. In case at any time or from time to time the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor, other or
additional stock or other securities or property by way of dividend or any cash
(excluding cash dividends payable solely out of earnings or earned surplus of
the Company), or other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement other
than additional shares of Common Stock (or Other Securities) issued as a stock
dividend or in a stock split (adjustments in respect of which are provided for
in Section 5), then and in each such event, the Holder of this Warrant, on the
exercise hereof as provided in Section 1 shall be entitled to receive the amount
of stock and other securities and property that the Holder would have been
entitled to receive on the effective date of such event if the Holder had so
exercised this Warrant immediately prior thereto, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person or (c) transfer all or substantially
all of its properties or assets to any other person under any plan or
arrangement contemplating the dissolution of the Company, then, in each
such case, the Holder of this Warrant, on the exercise hereof as
provided in Section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 4
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which the Holder would have been entitled
upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately
prior thereto, all subject to further adjustment thereafter as provided
herein.
4.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the Holder of
this Warrant after the effective date of such dissolution pursuant to
this Section 4 to a bank or trust company, as trustee for the Holder or
Holders of this Warrant.
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 4, this Warrant shall continue in
full force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following
any such transfer, as the case may be, and shall be binding upon the
issuer of any such stock or other securities, including, in the case of
any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall
have expressly assumed the terms of this Warrant as provided in
Section 8.
5. Adjustment for Extraordinary Events. The Purchase Price to be paid by
the Holder upon exercise of this Warrant shall be adjusted in case at any time
or from time to time the Company should (i) subdivide the outstanding shares of
Common Stock into a greater number of shares, (ii) consolidate the outstanding
shares of Common Stock into a smaller number of shares, (iii) issue shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a dividend to all or substantially all holders of shares of Common
Stock or (iv) issue by reclassification of shares of Common Stock, any shares of
capital stock of the Company, in each event pursuant to Article X of the
Purchase Agreement as if such provisions were specifically set forth herein.
6. Adjustment Upon Breach of Trust Agreement. If and to the extent any
Fund defaults under the terms of the Trust Agreement to provide certain
subordinated debt funding to the Company and/or a special purpose corporation
or trust formed by the Company for the specific purpose of facilitating the
securitization of automobile finance contracts, under the terms and upon the
conditions therein specified, then, in each such event, the future vesting of
this Warrant shall be deemed modified (without in any way affecting the number
of then existing Vested Shares) such that the aggregate number of shares of
Common Stock which could become Vested Shares after such event shall be reduced
by a number of shares equal to the product of (i) the number of shares of Common
Stock initially purchasable upon exercise of this Warrant (as shown on the face
hereof) and (ii) a fraction, the numerator of which shall be that amount which
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 5
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
has gone unfunded by the Funds in violation of the Trust Agreement and
the denominator of which shall be the aggregate initial funding
commitment of the Funds under the Trust Agreement.
7. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant and (c) will not
transfer all or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
(if the Company is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of this Warrant.
8. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
or the Purchase Price issuable on the exercise of this Warrant, the Company at
its expense will cause independent certified public accountants of national
standing selected by the Company (which may be the Company's auditors) to
compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding
and (c) the Purchase Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
issue or sale and as adjusted and readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the Holder of
this Warrant, and will, on the written request at any time of the Holder of this
Warrant, furnish to the Holder a like certificate setting forth the Purchase
Price at the time in effect and showing how it was calculated.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 6
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
9. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders
of any class or securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to, or consolidation or merger of the Company with or
into, any other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any action is to be taken.
10. Reservation of Stock, etc. Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
11. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
12. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation,
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 7
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
on surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by
endorsement (by the Holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as
in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof
for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona
fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as
the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be
sold, transferred or assigned except pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (the "Act"), or, pursuant to an applicable exemption
therefrom (including in accordance with Regulation D promulgated
under the Act).
15. Registration Rights. The Company is obligated to register the shares
of Common Stock issuable upon exercise of this Warrant in accordance with the
terms of a Registration Rights Agreement between the Company and the Holder
dated the date hereof.
16. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by the Holder or, until any the Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 8
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
17. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of New York, except where the Texas
Business Corporation Act or other law applies. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
[SIGNATURE PAGE FOLLOWS]
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 9
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
DATED as of June 30, 1997.
AUTOBOND ACCEPTANCE CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 10
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To AutoBond Acceptance Corporation
The undersigned registered holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
____________(1) shares of Common Stock (as defined in such Warrant) and herewith
makes payment therefor of $__________ as of the date written below. The
undersigned requests that the certificates for such shares of Common Stock be
issued in the name of, and delivered to, _________________________________ whose
address is ________________________________________________________________.
Upon exercise pursuant to this Notice of Exercise, the holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated: ____________________
_________________________________________
(Name must conform to name of holder as
specified on the face of the Warrant)
By:______________________________________
Name:_________________________________
Title:________________________________
Address of holder:
_________________________________________
_________________________________________
_________________________________________
Date of exercise:_____________
_______________________________
(1) Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant
or warrants will be issued and delivered, representing the unexercised portion
of the accompanying Warrant, to the holder surrendering the same.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 11
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"); OR UNDER ANY
APPLICABLE LAW OR REGULATION OF ANY STATE. THIS COMMON STOCK WARRANT MAY NOT BE
SOLD, OFFERED, ASSIGNED OR TRANSFERRED UNLESS THE WARRANT IS REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES,
ASSIGNMENTS AND TRANSFERS ARE MADE PURSUANT TO THE AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS. FURTHERMORE, THESE SECURITIES ARE
SUBJECT TO CERTAIN LIMITATIONS ON CONVERSION AS DESCRIBED IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT DATED THE DATE HEREOF (THE "PURCHASE AGREEMENT")
BETWEEN, AMONG OTHERS, THE COMPANY AND THE INITIAL HOLDER HEREOF. THIS COMMON
STOCK PURCHASE WARRANT CERTIFICATE REFERS TO AND IS SPECIFICALLY GOVERNED BY
CERTAIN PROVISIONS CONTAINED IN THE PURCHASE AGREEMENT, A COPY OF WHICH IS ON
FILE WITH AND MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS.
AUTOBOND ACCEPTANCE CORPORATION
COMMON STOCK PURCHASE WARRANT
DATED: June 30, 1997
- --------------------------------------------------------------------------------
No. 1
Number of Common Shares: ______________ Holder: ______________
___________
Purchase Price: ______________ ______________
Expiration Date: June 30, 2002 ______________
For identification only. The governing terms of this Warrant are set
forth below.
- --------------------------------------------------------------------------------
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation (the "Company"),
hereby certifies that, for value received, _____________________ or assigns
(each a "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time after the date hereof
and prior to the fifth anniversary hereof (the "Exercise Period"), at the
Purchase Price hereinafter set forth, _________________ (____________) fully
paid and nonassessable shares of Common Stock (as hereinafter defined) of the
Company. The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any warrants issued
in substitution therefor) is one of a series of Common Stock Purchase Warrants
issued in connection with that certain Securities Purchase Agreement (the
"Purchase Agreement") dated of even date herewith between, among others, the
initial Holder hereof and the Company.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 12
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall initially be $_______________;
provided, however, that the Purchase Price shall be adjusted from time to time
as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include AutoBond Acceptance
Corporation and any entity that shall succeed or assume the obligations
of such corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any class
or classes (however designated) of the Company, authorized on or after
such date, the holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such
a contingency) and (c) any other securities into which or for which any
of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise of
this Warrant, in lieu of or in addition to Common Stock, or that at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.
1. Exercise of Warrant.
1.1. Method of Exercise. This Warrant may be exercised in whole
or in part (but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period, by the Holder
hereof by delivery of a notice of exercise (a "Notice of Exercise")
substantially in the form attached hereto as Exhibit A via facsimile to
the Company. Promptly thereafter the Holder shall surrender this Warrant
to the Company at its principal office, accompanied by payment of the
Purchase Price multiplied by the number of shares of Common Stock for
which this Warrant is being exercised (the "Exercise Price"). Payment of
the Exercise Price shall be made by check or bank draft payable to the
order of the Company or by wire transfer to the account of the Company.
If the amount of the payment received by the Company is less than the
Exercise Price, the Holder will be notified of the deficiency and shall
make payment in that amount within five (5) business days. In the event
the payment exceeds the Exercise Price, the Company will promptly refund
the excess to the Holder. Upon exercise, the Holder shall be entitled to
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 13
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
receive, promptly after payment in full, one or more certificates,
issued in the Holder's name or in such name or names as the Holder may
direct, subject to the limitations on transfer contained herein, for the
number of shares of Common Stock so purchased. The shares so purchased
shall be deemed to be issued as of the close of business on the date on
which the Company shall have received from the Holder payment in full of
the Exercise Price (the "Exercise Date").
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon exercise
of the Warrant solely for its own account for investment purposes and
not with a view to or for distributing such securities unless such
distribution has been registered with the Securities and Exchange
Commission or an applicable exemption is available therefor. At the time
this Warrant is exercised, the Company may require the Holder to state
in the Notice of Exercise such representations concerning the Holder as
are necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Company Acknowledgment. The Company will, at the time of
the exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to the Holder
any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the
Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to the Holder
any such rights.
1.4. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described herein,
such exercise rights shall be limited solely in the manner set forth in
the Purchase Agreement as if such provisions were specifically set forth
herein.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within the time
periods specified in the Purchase Agreement, the Company at its expense
(including the payment by it of any applicable issue, stamp or transfer taxes
upon issuance to the Holder) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible hereunder, to
such other person as the Holder may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable Purchase Price,
together with any other stock or other securities and property (including cash,
where applicable) to which the Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock Property, etc.,
Reclassification, etc. In case at any time or from time to time the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 14
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
to receive) shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property by way of dividend or
any cash (excluding cash dividends payable solely out of earnings or earned
surplus of the Company), or other or additional stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement other
than additional shares of Common Stock (or Other Securities) issued as a stock
dividend or in a stock split (adjustments in respect of which are provided for
in Section 5), then and in each such event, the Holder of this Warrant, on the
exercise hereof as provided in Section 1 shall be entitled to receive the amount
of stock and other securities and property that the Holder would have been
entitled to receive on the effective date of such event if the Holder had so
exercised this Warrant immediately prior thereto, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person or (c) transfer all or substantially
all of its properties or assets to any other person under any plan or
arrangement contemplating the dissolution of the Company, then, in each
such case, the Holder of this Warrant, on the exercise hereof as
provided in Section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which the Holder would have been entitled
upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately
prior thereto, all subject to further adjustment thereafter as provided
herein.
4.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the Holder of
this Warrant after the effective date of such dissolution pursuant to
this Section 4 to a bank or trust company, as trustee for the Holder or
Holders of this Warrant.
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 4, this Warrant shall continue in
full force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following
any such transfer, as the case may be, and shall be binding upon the
issuer of any such stock or other securities, including, in the case of
any such transfer, the person acquiring all or substantially all of the
properties or assets of the
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 15
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Company, whether or not such person shall have expressly assumed the
terms of this Warrant as provided in Section 8.
5. Adjustment for Extraordinary Events. The Purchase Price to be paid by
the Holder upon exercise of this Warrant shall be adjusted in case at any time
or from time to time the Company should (i) subdivide the outstanding shares of
Common Stock into a greater number of shares, (ii) consolidate the outstanding
shares of Common Stock into a smaller number of shares, (iii) issue shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a dividend to all or substantially all holders of shares of Common
Stock or (iv) issue by reclassification of shares of Common Stock, any shares of
capital stock of the Company, in each event pursuant to Article X of the
Purchase Agreement as if such provisions were specifically set forth herein.
6. Adjustment Upon Breach of Trust Securities Purchase Agreement. If and
to the extent the Purchasers (as defined in the Purchase Agreement) default
under the terms of that Trust Securities Purchase Agreement dated the date
hereof between, among others, the initial Holder hereof and the Company (the
"Trust Agreement") to provide certain subordinated debt funding to the Company
and/or a special purpose corporation or trust formed by the Company for the
specific purpose of facilitating the securitization of automobile finance
contracts, under the terms and upon the conditions therein specified, then, in
each such event, this Warrant shall be deemed modified such that the aggregate
number of shares of Common Stock acquirable upon exercise hereof shall be
reduced by a fraction, the numerator of which shall be that amount which has
gone unfunded by the Purchasers in violation of the Trust Agreement and the
denominator of which shall be $10,000,000.
7. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant and (c) will not
transfer all or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
(if the Company is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of this Warrant.
8. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
or the Purchase Price issuable on the exercise of this Warrant, the Company at
its expense will cause independent
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 16
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
certified public accountants of national standing selected by the Company (which
may be the Company's auditors) to compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the Holder of this Warrant, and will, on the written request at
any time of the Holder of this Warrant, furnish to the Holder a like certificate
setting forth the Purchase Price at the time in effect and showing how it was
calculated.
9. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders
of any class or securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to, or consolidation or merger of the Company with or
into, any other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any action is to be taken.
10. Reservation of Stock, etc. Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 17
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
Warrant, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of this Warrant.
11. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
12. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by
endorsement (by the Holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as
in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof
for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona
fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as
the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be
sold, transferred or assigned except pursuant to an effective
registration statement under
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 18
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
the Securities Act of 1933, as amended (the "Act"), or, pursuant
to an applicable exemption therefrom (including in accordance
with Regulation D promulgated under the Act).
15. Registration Rights. The Company is obligated to register the shares
of Common Stock issuable upon exercise of this Warrant in accordance with the
terms of a Registration Rights Agreement between the Company and the Holder
dated the date hereof.
16. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by the Holder or, until any the Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
17. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of New York, except where the Texas
Business Corporation Act or other law applies. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
[SIGNATURE PAGE FOLLOWS]
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 19
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
DATED as of June 30, 1997.
AUTOBOND ACCEPTANCE CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 20
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To AutoBond Acceptance Corporation
The undersigned registered holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
____________(2) shares of Common Stock (as defined in such Warrant) and herewith
makes payment therefor of $__________ as of the date written below. The
undersigned requests that the certificates for such shares of Common Stock be
issued in the name of, and delivered to, _________________________________ whose
address is ___________________________________________________________________.
Upon exercise pursuant to this Notice of Exercise, the holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated: ____________________
______________________________________
(Name must conform to name of holder as
specified on the face of the Warrant)
By:___________________________________
Name:_______________________________
Title:______________________________
Address of holder:
_____________________________________
_____________________________________
_____________________________________
Date of exercise:_____________
____________
(2) Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the accompanying Warrant, to the holder surrendering the same.
COMMON STOCK PURCHASE WARRANT NO. 1 - Page 21
(AutoBond Acceptance Corporation)
<PAGE>
<PAGE>
EXHIBIT 21
AUTOBOND ACCEPTANCE CORPORATION
Subsidiaries of the Registrant
Jurisdiction of
Subsidiary Incorporation
- ---------- ---------------
AutoBond Funding Corporation I Nevada
AutoBond Funding Corporation II Nevada
AutoBond Funding Corporation III Nevada
AutoBond Funding Corporation 1995 Nevada
AutoBond Funding Corporation 1996A Nevada
AutoBond Funding Corporation 1996B Nevada
AutoBond Funding Corporation 1996C Nevada
AutoBond Funding Corporation 1996D Nevada
AutoBond Funding Corporation 1997A Nevada
AutoBond Master Funding Corporation Nevada
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 6-MOS
<CASH> 10,659,565
<SECURITIES> 19,841,205
<RECEIVABLES> 354,511
<ALLOWANCES> 25,199
<INVENTORY> 534,263
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,428,856
<CURRENT-LIABILITIES> 0
<BONDS> 10,653,293
<COMMON> 1,000
0
0
<OTHER-SE> 14,629,869
<TOTAL-LIABILITY-AND-EQUITY> 40,428,856
<SALES> 0
<TOTAL-REVENUES> 10,399,490
<CGS> 0
<TOTAL-COSTS> 6,814,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,828,397
<INCOME-PRETAX> 1,756,622
<INCOME-TAX> 610,725
<INCOME-CONTINUING> 1,145,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145,897
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
