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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended December 31, 1996
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (512) 435-7000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
COMMON STOCK, NO PAR VALUE PER SHARE NASDAQ NATIONAL MARKET
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 27, 1997 (based on the closing price on such date as
reported on the Nasdaq National Market) was $5,240,625.(1)
As of March 31, 1997, 6,512,500 shares of Common Stock, no par value per
share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- --------
1 Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers, directors and five percent, shareholders of the
Registrant, without conceding that all such persons are "affiliates" of the
Registrant for purposes of the Federal securities laws.
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Part III -Portions of the Registrant's definitive Proxy Statement
with respect to the Registrant's 1996 Annual Meeting of
Shareholders, to be filed not later than 120 days after the
close of the Registrant's fiscal year.
EXHIBIT INDEX IS LOCATED AT PAGE 43
PAGE 1 OF 45
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AUTOBOND ACCEPTANCE CORPORATION
1996 FORM 10-K ANNUAL REPORT
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TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1. BUSINESS........................................................................1
Item 2. PROPERTIES......................................................................20
Item 3. LEGAL PROCEEDINGS...............................................................20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................20
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................................................21
Item 6. SELECTED FINANCIAL DATA.........................................................22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................40
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................................40
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............................40
Item 11. EXECUTIVE COMPENSATION..........................................................41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................41
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................41
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.....................................................................42
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PART I
ITEM 1. BUSINESS
GENERAL
AutoBond Acceptance Corporation (the "Company") is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ("finance contracts") originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ("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. This
has enabled the Company to securitize those contracts into investment grade
securities with similar terms from one issue to another providing consistency to
investors. For the period of inception through December 31, 1996, the Company
acquired 10,073 finance contracts with an aggregate initial principal balance of
$117,699,878, and which had an initial average principal balance, at
acquisition, of $11,685, a weighted average annual percentage rate ("APR") of
19.54%, a weighted average finance contract acquisition discount of 8.3% and a
weighted average maturity of 52 months. During the year ended December 31, 1996,
the Company completed four securitizations pursuant to which it privately placed
$81.7 million in finance contract backed securities.
RECENT DEVELOPMENTS
On February 14, 1997 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into a $50,000,000 warehouse credit
facility with Daiwa Finance Corporation (the "Diawa Facility"), which expires in
March 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.
Interest is payable monthly at the 30-day LIBOR plus 1.15% per annum rate. The
Daiwa Facility also requires the Company to pay a monthly fee on the average
unused balance at a per annum rate of 0.25%. Borrowings under the Daiwa Facility
are rated investment-grade by a nationally recognized statistical rating
organization. The Daiwa Facility contains certain conditions and imposes certain
requirements similar to those in the agreements relating to the Company's
existing securitizations including, among
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other things, delinquency and repossession triggers.
On March 31, 1997, the Company completed its 1997-A securitization of
$28.0 million in finance contracts. The senior securitization bonds received an
A/A2 rating from Fitch Investors Service and Moody's Investors Services
respectively. Included in the $28.0 million 1997-A securitization were $8.3
million in finance contracts which the Company acquired as part of a $12.9
million pool from Credit Suisse First Boston.
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, roughly 40%, or $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 completed securitization
structure for 1997-A 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 the finance contracts than in the past.
GROWTH AND BUSINESS STRATEGY
The Company's growth strategy anticipates the acquisition of an
increasing number of finance contracts. The key elements of this strategy
include: (i) increasing the number of finance contracts acquired per automobile
dealer; (ii) expanding the Company's presence within existing markets; (iii)
penetrating new markets that meet the Company's economic, demographic and
business criteria and (iv) securitizing portfolios of acquired finance
contracts.
To foster its growth and increase profitability, the Company will
continue to pursue a business strategy based on the following principles:
o TARGETED MARKET AND PRODUCT FOCUS--The Company targets the sub-prime
auto finance market because it believes that sub-prime finance
presents greater opportunities than does prime lending. This greater
opportunity stems from a number of factors, including the relative
newness of sub-prime auto finance, the range of finance contracts
that various sub-prime auto finance companies provide, the relative
lack of competition compared to traditional automotive financing and
the potential returns sustainable from large interest rate spreads.
The Company focuses on late model used rather than new vehicles, as
management believes the risk of loss is lower on used vehicles due to
lower depreciation rates, while interest rates are typically higher
than on new vehicles. For the period from inception through December
31, 1996, new vehicles and used vehicles represented 9.2% and 90.8%,
respectively, of the finance contract portfolio measured by dollar
value of amounts financed and 6.8% and 93.2%, respectively, as a
percentage of units acquired. In addition, the Company concentrates
on acquiring finance contracts from dealerships franchised by major
automobile manufacturers because they typically offer higher quality
vehicles, are better capitalized, and have better service
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facilities than used car dealers.
o EFFICIENT FUNDING STRATEGIES--Through an investment-grade warehouse
facility and a quarterly securitization program, the Company
increases its liquidity, redeploys its capital and reduces its
exposure to interest rate fluctuations. The Company has also
developed the ability to borrow funds on a non-recourse basis,
collateralized by excess spread cash flows from its securitization
trusts. The net effect of the Company's funding and securitization
program is to provide more proceeds than the Company's acquisition
costs, resulting in positive revenue cash flow, lower overall costs
of funding, and permitting loan volume to increase with limited
additional equity capital.
o UNIFORM UNDERWRITING CRITERIA--To manage the risk of delinquency or
defaults associated with sub-prime consumers, the Company has
utilized since inception a single set of underwriting criteria which
are consistently applied in evaluating credit applications. This
evaluation process is conducted on a centralized basis utilizing
experienced personnel. These uniform underwriting criteria create
consistency in the securitized portfolios of finance contracts that
make them more easily analyzed by the rating agencies and more
marketable and permit static pool analysis of loan defaults to
optimally structure securitizations. See "Management's Discussion and
Analysis--Repossession Experience--Static Pool Analysis."
o CENTRALIZED OPERATING STRUCTURE--While the Company establishes and
maintains relationships with dealers through sales representatives
located in the geographic markets served by the Company, all of the
Company's day-to-day operations are centralized at the Company's
offices in Austin, Texas. This centralized structure allows the
Company to closely monitor its marketing, funding, underwriting and
collections operations and eliminates the expenses associated with
full-service branch or regional offices.
o EXPERIENCED MANAGEMENT TEAM--The Company actively recruits and
retains experienced personnel at the executive, supervisory and
managerial levels. The senior operating management of the Company
consists of seasoned automobile finance professionals with
substantial experience in underwriting, collecting and financing
automobile finance contracts.
o INTENSIVE COLLECTION MANAGEMENT--The Company believes that intensive
collection efforts are essential to ensure the performance of
sub-prime finance contracts and to mitigate losses. The Company's
collections managers contact delinquent accounts frequently, working
cooperatively with customers to get full or partial payments, but
will initiate repossession of financed vehicles no later than the
90th day of delinquency. As of December 31, 1996, a total of
$1,826,800 or 1.74%, of the Company's finance contract portfolio were
between 60 and 90 days past due and $1,328,300, or approximately
1.27%, of the Company's finance contracts outstanding were greater
than 90 days past due. From inception through December 31, 1996, the
Company repossessed approximately 6.2% of its financed vehicles. The
Company had completed the disposal of 344 vehicles, resulting in an
average loss per repossession of approximately $1,270 per vehicle.
See
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"Management's Discussion and Analysis - Net Loss per Repossession."
o LIMITED LOSS EXPOSURE--To reduce its potential losses on defaulted
finance contracts, the Company historically has insured each finance
contract it funds against damage to the financed vehicle through a
vender's comprehensive single interest physical damage insurance
policy (a "VSI Policy"). In addition in connection with the Company's
warehouse financing and securitizations through December 31, 1996,
the Company purchased credit default insurance through a deficiency
balance endorsement (the "Credit Endorsement") to the VSI Policy. The
Credit Endorsement reimburses the Company for the difference between
the unpaid finance contract balance and the net proceeds received in
connection with the sale of the repossessed vehicle. Moreover, the
Company limits loan-to-value ratios and applies a purchase price
discount to the finance contracts it acquires. The Company's
combination of underwriting criteria, intensive collection efforts
and the VSI Policy and Credit Endorsement has resulted in net
charge-offs (after receipt of liquidation and insurance proceeds) of
8.57% (excluding repossession costs) of the principal balance
outstanding on disposed repossessed vehicles for which the
liquidation process has been completed as of December 31, 1996.
Effective April 1997, the insurance company providing the Credit
Endorsement will no longer provide such coverage to the auto finance
industry, including the Company, for finance contracts originated
after, and has asserted rights to increase premiums through, such
date. Although the Company has obtained new VSI Policies, these
policies do not have coverage similar to the Credit Endorsement.
However, management believes that the increased levels of
overcollateralization in its warehouse financing and securitizations
will compensate for the lack of the Credit Endorsement. See
"-Insurance" below and "Management's Discussion and Analysis--Net
Loss per Repossession."
BORROWER CHARACTERISTICS
Borrowers under finance contracts in the Company's finance contract
portfolio are generally sub-prime consumers. Sub-prime consumers are purchasers
of financed vehicles with limited access to traditional sources of credit and
are generally individuals with weak or no credit histories. Based on a sample of
1,533 finance contracts in the finance contract portfolio which the Company
believes are representative of the portfolio as a whole, the Company has
determined the following characteristics with respect to its finance contract
borrowers. The average borrower's monthly income is $2,400, with an average
payment-to-income ratio of 15.7% and an average debt-to-income ratio of 19.2%.
The Company's guidelines permit a maximum payment-to-income ratio and
debt-to-income ratio of 20% and 50%, respectively. The Company's guidelines
require a cash down payment of 10% of the vehicle selling price. Based upon a
sample of its borrowers which the Company believes to be representative, the
average borrower's time spent at current residence is 65.6 months, while the
average time of service at current employer is 46.6 months. The age of the
average borrower is 34.3 years.
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CONTRACT PROFILE
From inception to December 31, 1996, the Company acquired 10,073 finance
contracts with an aggregate initial principal balance of $117.7 million. Of the
finance contracts acquired, approximately 6.8% have related to the sale of new
automobiles and approximately 93.2% have related to the sale of used
automobiles. The average age of used financed vehicles was approximately two
years at the time of sale. The finance contracts had, upon acquisition, an
average initial principal balance of $11,685; a weighted average APR of 19.54%;
a weighted average finance contract acquisition discount of 8.3%; and a weighted
average contractual maturity of 52 months. As of December 31, 1996, the finance
contracts in the finance contract portfolio had a weighted average remaining
maturity of 45.7 months. Since inception, the Company's cumulative repossessions
have totaled 625 or 6.2% of the total portfolio.
DEALER NETWORK
General. The Company acquires finance contracts originated by automobile
dealers in connection with the sale of late-model used and, to a lesser extent,
new cars to sub-prime borrowers. Accordingly, the Company's business development
strategy depends on enrolling and promoting active participation by automobile
dealers in the Company's financing program. Dealers are selected on the basis of
geographic location, financial strength, experience and integrity of management,
stability of ownership quality of used car inventory, participation in sub-prime
financing programs, and the anticipated quality and quantity of finance
contracts which they originate. The Company principally targets dealers
operating under franchises from major automobile manufacturers, rather than
independent used car dealers. The Company believes that franchised dealers are
generally more stable and offer higher quality vehicles than independent
dealers. This is due, in part, to careful initial screening and ongoing
monitoring by the automobile manufacturers and to the level of financial
commitment necessary to secure and maintain a franchise. As of December 31,
1996, the Company was licensed or qualified to do business in 34 states. Over
the near term, the Company intends to focus its proposed geographic expansion on
states in the midwest and mid-Atlantic regions.
Location of Dealers. Approximately 44.9% of the Company's dealer network
consists of dealers located in Texas, where the Company has operated since 1994.
During the fiscal year ended December 31, 1996, the Company acquired finance
contracts from dealers in 36 states.
A group of six dealerships (including Charlie Thomas Ford) under
substantial common ownership accounted for approximately 26.51% and 17.56% for
the fiscal year ended 1995 and 1996 respectively, of finance contracts acquired
during the same period. One dealership, Charlie Thomas Ford, Inc. of Houston,
Texas, accounted for 8.79% of the finance contracts acquired by the Company for
the period from inception through December 31, 1996 (8.77% and 8.94% for the
fiscal year ended 1995 and 1996 respectively).
DEALER SOLICITATION
Marketing Representatives. As of December 31, 1996, the Company utilized
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marketing representatives, twelve of which were individuals employed by the
Company and twelve of which were marketing organizations serving as independent
representatives. These representatives have an average of ten years experience
in the automobile financing industry. Each marketing representative reports to,
and is supervised by, the Company's Senior Vice President--Marketing. The
Company is currently evaluating candidates for additional marketing
representative positions. The marketing representatives reside in the region for
which they are responsible. Marketing representatives are compensated on the
basis of a salary plus commissions based on the number of finance contracts
purchased by the Company in their respective areas. The Company maintains an
exclusive relationship with the independent marketing representatives and
compensates such representatives on a commission basis. All marketing
representatives undergo training and orientation at the Company's Austin
headquarters.
The Company's marketing representatives establish financing
relationships with new dealerships, and maintain existing dealer relationships.
Each marketing representative endeavors to meet with the managers of the finance
and insurance ("F&I") departments at each targeted dealership in his or her
territory to introduce and enroll dealers in the Company's financing program,
educating the F&I managers about the Company's underwriting philosophy, its
practice of using experienced underwriters (rather than computerized credit
scoring) to review applications, and the Company's commitment to a single
lending program that is easy for dealers to master and administer. The marketing
representatives offer training to dealership personnel regarding the Company's
program guidelines, procedures and philosophy.
After each dealer relationship is established, a marketing
representative continues to actively monitor the relationship with the objective
of maximizing the volume of applications received from the dealer that meet the
Company's underwriting standards. Due to the non-exclusive nature of the
Company's relationships with dealers, the dealers retain discretion to determine
whether to seek financing from the Company or another financing source. Each
representative submits a weekly call report describing contacts with prospective
and existing dealers during the preceding week and monthly competitive survey
relating to the competitive situation and possible opportunities in the region.
The Company provides each representative a weekly report detailing applications
received and finance contracts purchased from all dealers in the region. The
marketing representatives regularly telephone and visit F&I managers to remind
them of the Company's objectives and to answer questions. To increase the
effectiveness of these contacts, the marketing representatives can obtain
real-time information from the Company's newly installed management information
systems, listing by dealership the number of applications submitted, the
Company's response to such applications and the reasons why a particular
application was rejected. The Company believes that the personal relationships
its marketing representatives establish with the F&I managers are an important
factor in creating and maintaining productive relationships with its dealership
customer base.
The role of the marketing representatives is generally limited to
marketing the Company's financing program and maintaining relationships with the
Company's dealer network. The marketing representatives do not negotiate, enter
into or modify dealer agreements on behalf of the Company, do not participate in
credit evaluation or loan funding
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decisions and do not handle funds belonging to the Company or its dealers. The
Company intends to develop notable finance contract volume in each state in
which it initiates coverage. The Company has elected not to establish full
service branch offices, believing that the expenses and administrative burden of
such offices are generally unjustified. The Company has concluded that the
ability to closely monitor the critical functions finance contract approval and
contract administration and collection are best performed and controlled on a
centralized basis from its Austin facility.
Dealer Agreements. Each dealer with which the Company establishes a
financing relationship enters into a non-exclusive written dealer agreement (a
"Dealer Agreement") with the Company, governing the Company's acquisition of
finance contracts from such dealer. A Dealer Agreement generally provides that
the dealer shall indemnify the Company against any damages or liabilities,
including reasonable attorney's fees, arising out of (i) any breach of a
representation or warranty of the dealer set forth in the Dealer Agreement or
(ii) any claim or defense that a borrower may have against a dealer relating to
financing contract. Representations and warranties in a Dealer Agreement
generally relate to matters such as whether (a) the financed automobile is free
of all liens, claims and encumbrances except the Company's lien, (b) the down
payment specified in the finance contract has been paid in full and whether any
part of the down payment was loaned to the borrower by the dealer and (c) the
dealer has complied with applicable law. If the dealer violates the terms of the
Dealer Agreement with respect to any finance contract, the dealer must
repurchase such contract on demand for an amount equal to the unpaid balance and
all other indebtedness due to the Company from the borrower.
FINANCING PROGRAM
Unlike certain competitors who offer numerous marketing programs that
the Company believes serve to confuse dealers and borrowers, the Company markets
a single financing contract acquisition program to its dealers. The Company
believes that by focusing on a single program, it realizes consistency in
achieving its contract acquisition criteria, which aids the funding and
securitization process. The finance contracts purchased by the Company must meet
several criteria, including that each contract: (i) meets the Company's
underwriting guidelines; (ii) is secured by a new or late-model used vehicle of
a type on the Company's approved list; (iii) was originated in a jurisdiction in
the United States in which the Company was licensed or qualified to do business,
as appropriate; (iv) provides for level monthly payments (collectively, the
"Scheduled Payments") that fully amortize the amount financed over the finance
contract's original contractual term; (v) has an original contractual term from
24 to 60 months; (vi) provides for finance charges at an APR of at least 14%;
(vii) provides a verifiable down payment of 10% or more of the cash selling
price; and (viii) is not past due or does not finance a vehicle which is in
repossession at the time the finance contract is presented to Company for
acquisition. Although the Company has in the past acquired a substantial number
of finance contracts for which principal and interest are calculated according
to the Rule of 78s the Company's present policy is to acquire primarily finance
contracts calculated using the simple interest method.
The amount financed with respect to a finance contract will generally
equal the aggregate amount advanced toward the purchase price of the financed
vehicle, which equals the net selling price of the vehicle (cash selling price
less down payment and trade-in), plus
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the cost of permitted automotive accessories (e.g., air conditioning, standard
transmission, etc.), taxes, title and license fees, credit life, accident and
health insurance policies, service and warranty contracts and other items
customarily included in retail automobile installment contracts and related
costs. Thus, the amount financed may be greater than the Manufacturers Suggested
Retail Price ("MSRP") for new vehicles or the market value quoted for used
vehicles. Down payments must be in cash or real value of traded-in vehicles.
Dealer-assisted or deferred down payments are not permitted.
The Company's current purchase criteria limit acceptable finance
contracts to a maximum (a) net selling price of the lesser of (i) 112% of
wholesale book value (or dealer invoice for new vehicles) or (ii) 95% of retail
book value (or MSRP for new vehicles) and (b) amount financed of 120% of retail
book value in the case of a used vehicle, or 120% of MSRP in the case of a new
vehicle. In assessing the value of a trade-in for purposes of determining the
vehicle's net selling price, the Company uses the published wholesale book value
without regard to the value assigned by the dealer.
The credit characteristics of an application approved by the Company for
acquisition generally consist of the following: (i) stability of applicant's
employment, (ii) stability of applicant's residence history, (iii) sufficient
borrower income, (iv) credit history, and (v) payment of down payment.
The Company applies a loan-to-value ratio in selecting finance contracts
for acquisitions calculated as equaling the quotient of: (a) The cash selling
price less the down payment on the vehicle, divided by (b) the wholesale value
of the vehicle (net of additions or subtractions for mileage and equipment
additions listed in the applicable guide book). For new vehicles, wholesale
value is based on the invoice amount, including destination charges. For used
vehicles, wholesale value is computed using the applicable guide book (Kelley or
NADA) in use within the market in which the vehicle is located.
All of the Company's finance contracts are prepayable at any time.
Finance contracts acquired by the Company must prohibit the sale or transfer of
the financed vehicle without the Company's prior consent and provide for
acceleration of the maturity of the finance contract in the absence of such
consent. For an approved finance contract, the Company will agree to acquire
such finance contract from the originating dealer at a non-refundable contract
acquisition discount of approximately 8.5% to 12% of the amount financed.
CONTRACT ACQUISITION PROCESS
General. Having selected an automobile for purchase, the sub-prime
consumer typically meets with the dealership's F&I manager to discuss options
for financing the purchase of the vehicle. If the sub-prime consumer elects to
finance the vehicle's purchase through the dealer, the dealer will typically
submit the borrower's credit application to a number of potential financing
sources to find the most favorable terms. In general, an F&I department's
potential sources of financing will include banks, thrifts, captive finance
companies and independent finance companies.
For the year ended December 31, 1996, 71,132 credit applications were
submitted to
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the Company. Of these 71,132 applications, approximately 32.8% were approved and
10.1%, or 7,215 contracts, were acquired by the Company. The difference between
the number of applications approved and the number of finance contracts acquired
is attributable to a common industry practice in which dealers often submit
credit applications to more than one finance company and select on the basis of
the most favorable terms offered. The prospective customer may also decide not
to purchase the vehicle notwithstanding approval of the credit application.
Contract Processing. Dealers send credit applications along with other
information to the Company's Credit Department in Austin via facsimile. Upon
receipt, the credit application and other relevant information is entered into
the Company's computerized contract administration system by the Company's
credit verification personnel and a paper-based file where the original
documents are created. Once logged into the system, the applicant's credit
bureau reports are automatically accessed and retrieved directly into the
system. At this stage, the computer assigns the credit application to the
specific credit manager assigned to the submitting dealer for credit evaluation.
Credit Evaluation. The Company applies uniform underwriting standards.
In evaluating the applicant's creditworthiness and the collateral value of the
vehicle, the credit underwriter reviews each application in accordance with the
Company's guidelines and procedures, which take into account, among other
things, the individual's stability of residence, employment history, credit
history, ability to pay, income, discretionary income and debt ratio. In
addition, the credit underwriter evaluates the applicant's credit bureau report
in order to determine if the applicant's (i) credit quality is deteriorating,
(ii) credit history suggests a high probability of default or (iii) credit
experience is too limited for the Company to assess the probability of
performance. The Company also assesses the value and useful life of the
automobile that will serve as collateral under the finance contract. Moreover,
the credit underwriters consider the suitability of a proposed loan under its
financing program in light of the (a) proposed contract term and (b) conformity
of the proposed collateral coverage to the Company's underwriting guidelines.
Verification of certain applicant-provided information (e.g., employment
and residence history) is required before the Company makes its credit decision.
Such verification typically requires submission of supporting documentation,
such as a paycheck stub or other substantiation of income, or a telephone bill
evidencing a current address. In addition, the Company does not normally approve
any applications from persons who have been the subject of two or more
bankruptcy proceedings or two or more repossessions.
The Company's underwriting standards are applied by experienced credit
underwriters with a personal analysis of each application, utilizing experienced
judgment. These standards have been developed and refined by the Company's
senior credit and collections management who, on average, possess more than 24
years in the automobile finance industry. The Company believes that having its
credit underwriters personally review and communicate to the submitting
dealership the decision with respect to each application, including the reasons
why a particular application may have been declined, enhances the Company's
relationship with such dealers. This practice encourages F&I managers to submit
contracts meeting the Company's underwriting standards, thereby increasing the
Company's operating efficiency by eliminating the need to process applications
unlikely to be approved.
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The Company's Credit Department personnel undergo ongoing internal
training programs that are scheduled on a weekly basis and are attended by such
personnel depending on their responsibilities. All of these personnel are
located in the Company's offices in Austin where they are under the supervision
of the Vice President--Credit and the credit manager. The credit manager and the
Vice President-- Credit have an aggregate of more than 30 years of experience in
the automobile finance business. In addition, the Company reviews all
repossessions to identify factors that might require refinements in the
Company's credit evaluation procedures.
Approval Process. The time from receipt of application to final credit
approval is a significant competitive factor, and the Company seeks to complete
its funding approval decision in an average of two to three hours. When the
Company approves the purchase of a finance contract, the credit manager notifies
the dealer by facsimile or telephone. Such notice specifies all pertinent
information relating to the terms of approval, including the interest rate, the
term, information about the automobile to be sold and the amount of discount
that the Company will deduct from the amount financed prior to remitting the
funds to the dealer. The discount is not refundable to the dealer.
Contract Purchase and Funding. Upon final confirmation of the terms by
the borrower, the dealer completes the sale of the automobile to the borrower.
After the dealer delivers all required documentation (including an application
for title or a dealer guaranty of title, naming the Company as lienholder) to
the Company, the Company remits funds to the dealer via overnight delivery
service, generally within 48 hours of having received the complete loan funding
package. As a matter of policy, the Company takes such measures as it deems
necessary to obtain a perfected security interest in the related financed
vehicles under the laws of the states in which such vehicles are originated.
This generally involves taking the necessary steps to obtain a certificate of
title which names the Company as lienholder. Each finance contract requires that
the automobile be adequately insured and that the Company be named as loss
payee, and compliance with these requirements is verified prior to the
remittance of funds to the dealer. Upon funding of the finance contract and
payment of the required premium, the financed vehicle is insured under the
Company's VSI Policy, which includes coverage of property damages in the event
that the borrower does not maintain insurance.
From time to time, the Company also acquires bulk portfolios from other
originators. In this event, the Company reunderwrites such contracts to ensure
appropriate credit standards are maintained. The Company acquired approximately
$14 million in finance contracts in 1996 from Greenwich Capital Financial
Products which were originated by First Fidelity Acceptance Corp.
CONTRACT SERVICING AND COLLECTION
Contract servicing includes contract administration and collection.
Because the Company believes that an active collection program is essential to
success in the sub-prime automobile financing market, the Company retains
responsibility for finance contract collection. The Company currently contracts
with CSC Logic/MSA L.L.P. (a Texas limited liability partnership doing business
as "Loan Servicing Enterprises") ("LSE") to provide contract administration. The
Company may in the future assume certain of the servicing functions
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performed by LSE, but there can be no assurance that this will occur.
Contract Administration. LSE provides certain finance contract
administration functions in connection with warehouse facilities and in
connection with finance contracts sold to securitization trusts, including
payment processing, statement rendering, insurance tracking, data reporting and
customer service for finance contracts. LSE inputs newly originated finance
contracts on the contract system daily. Finance contract documentation is sent
by the Company to LSE as soon as dealer funding occurs. LSE then mails a welcome
letter to the borrower and subsequently mails monthly billing statements to each
borrower approximately ten days prior to each payment due date. Any borrower
remittances are directed to a lock box. Remittances received are then posted to
the proper account on the system. All borrower remittances are reviewed under
LSE's quality control process to assure its proper application to the correct
account in the proper amount. LSE also handles account inquiries from borrowers
and performs insurance tracking services. LSE also sends out notices to
borrowers for instances where proper collateral insurance is not documented.
Contract Collection. As collection agent, the Company is responsible for
pursuing collections from delinquent borrowers. The Company utilizes proactive
collection procedures, which include making early and frequent contact with
delinquent borrowers, educating borrowers as to the importance of maintaining
good credit, and employing a consultative and customer service approach to
assist the borrower in meeting his or her obligations. The Company's ability to
monitor performance and collect payments owed by contract obligors is a function
of its collection approach and support systems. The Company's approach to the
collection of delinquent contracts is to minimize repossessions and charge-offs.
The Company maintains a computerized collection system specifically designed to
service sub-prime automobile finance contracts. The Company believes that if
problems are identified early, it is possible to correct many delinquencies
before they deteriorate further.
The Company currently employs 33 people full-time, including 23
collections specialists and other support personnel, in the Collections
Department. Each employee is devoted exclusively to collection functions. The
Company attempts to maintain a ratio of between 500 and 600 finance contracts
per collections specialist. As of December 31, 1996, there were 400 finance
contracts in the Company's finance contract portfolio for every collections
specialist. The Collections Department is managed by the Vice
President--Collections, who possesses 30 years experience in the automotive and
finance industry. The Company hires additional collections specialists in
advance of need to ensure adequate staffing and training.
The Company's collectors have real-time computer access to LSE's
database. Accounts reaching five days past due are assigned to collectors who
have specific responsibility for those accounts. These collectors contact the
customer frequently, both by phone and in writing. Accounts that reach 60 days
past due are assigned to two senior collectors who handle those accounts until
resolved. To facilitate collections from borrowers, the Company has increased
its utilization of Western Union's "Quick Collect," which allows borrowers to
pay from remote locations, with a check printed at the Company's office.
Consistent with the Company's internal policies and securitization documents,
finance contract provisions, such as term, interest rate, amount, maturity date
or payment schedule will not be amended, modified or otherwise changed, except
when required by applicable law or court order or where permitted under the
applicable insurance Policy.
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Payment extensions may be granted if, in the opinion of management, such
extension provides a permanent solution to resolve a temporary problem. An
extension fee must be paid by the customer prior to the extension. Normally,
there can be only one extension during the first 18 months of a finance
contract. Additional extensions may be granted if allowed under the applicable
VSI Policy, although the Company's securitization documents restrict permitted
extensions to no longer than one month and not more than once per year. Payment
due dates can be modified once during the term of the contract to facilitate
current payment by the customer.
Repossessions and Recoveries. If a delinquency exists and a default is
deemed inevitable or the collateral is in jeopardy, and in no event later than
the 90th day of delinquency (as required by the applicable VSI Policy), the
Company's Collections Department will initiate the repossession of the financed
vehicle. Bonded, insured outside repossession agencies are used to secure
involuntary repossessions. In most jurisdictions, the Company is required to
give notice to the borrower of the Company's intention to sell the repossessed
vehicle, whereupon the borrower may exercise certain rights to cure his or her
default or redeem the automobile. Following the expiration of the legally
required notice period, the repossessed vehicle is sold at a wholesale auto
auction (or in limited circumstances, through dealers), usually within 60 days
of the repossession. The Company closely monitors the condition of vehicles set
for auction, and procures an appraisal under the applicable 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,
if applicable, Credit Endorsement, are then filed. See "--Insurance."
INSURANCE
Each finance contract requires the borrower to obtain comprehensive and
collision insurance with respect to the related financed vehicle with the
Company named as a loss payee. The Company relies on a written representation
from the selling dealer and independently verifies that a borrower in fact has
such insurance in effect when it purchases contracts. Each finance contract
acquired by the Company prior to December 31, 1996 is covered from the moment of
its purchase by the Interstate VSI Policy, including the Credit Endorsement. The
Interstate VSI Policy has been issued to the Company by Interstate Fire &
Casualty Company ("Interstate"). Interstate is an indirect wholly-owned
subsidiary of Fireman's Fund Insurance Company. Each finance contract acquired
by the Company after December 31, 1996 will be covered from the moment of its
purchase by either the Interstate VSI Policy, including the Credit Endorsement
or another VSI Policy.
Physical Damage and Loss Coverage. The Company initially relies on the
requirement, set forth in its underwriting criteria, that each borrower maintain
adequate levels of physical damage loss coverage on the respective financed
vehicles. LSE tracks the physical damage insurance of borrowers, and contacts
borrowers in the event of a lapse in coverage or inadequate documentation.
Moreover, LSE is obligated, as servicer, subject to certain conditions and
exclusions, to assist the processing of claims under the VSI Policies. The VSI
policies insure against: (i) all risk of physical loss or damage from any
external cause to financed vehicles which the Company holds as collateral; (ii)
any direct loss which the Company may sustain by unintentionally failing to
record or file the instrument evidencing
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each contract with the proper public officer or public office, or by failing to
cause the proper public officer or public office to show the Company's
encumbrance thereon, if such instrument is a certificate of title; (iii) any
direct loss sustained during the term of the VSI Policy, by reason of the
inability of the Company to locate the borrower, the related financed vehicle,
or by reason of confiscation of the financed vehicle by a public officer or
public office; and (iv) all risk of physical loss or damage from any external
cause to a repossessed financed vehicle for a period of 60 days while such
financed vehicle is (subject to certain exceptions) held by or being repossessed
by the Company.
The physical damage provisions of a VSI Policy generally provided
coverage for losses sustained on the value of the financed vehicle securing a
contract, but in no event is the coverage to exceed: (i) the cost to repair or
replace the financed vehicle with material of like kind and quality; (ii) the
actual cash value of the financed vehicle at the date of loss, less its salvage
value; (iii) the unpaid balance of the contract; (iv) $40,000 per financed
vehicle (or, in the case of losses or damage sustained on repossessed financed
vehicles, $25,000 per occurrence); or (v) the lesser of the amounts due the
Company under clauses (i) through (iv) above, less any amounts due under all
other valid insurance on the damaged financed vehicle less its salvage value. No
assurance can be given that the insurance will cover the amount financed with
respect to a financed vehicle.
All claim settlements for physical damage and loss coverage under the
Interstate Policy are subject to a $500 deductible per loss. There is no
aggregate limitation or other form of cap on the number of claims under the VSI
Policy. Coverage on a financed vehicle is for the term of the related contract
and is noncancellable. Each VSI Policy requires that, prior to filing a claim, a
reasonable attempt be made to repossess the financed vehicle and, in the case of
claims on skip losses, every professional effort be made to locate the financed
vehicle and the related borrower.
Credit Deficiency Endorsement. In addition to physical damage and loss
coverage, the Interstate VSI Policy contains a Credit Endorsement which provides
that Interstate shall indemnify the Company for certain losses incurred due to a
deficiency balance following the repossession and resale of financed vehicles
securing defaulted finance contracts eligible for coverage. Coverage under the
Credit Endorsement is strictly conditioned upon the Company's maintaining and
adhering to the credit underwriting criteria set forth in the Credit
Endorsement. Losses on each eligible contract are covered in an amount equal to
the deficiency balance resulting from the Net Payoff Balance less the sum of (i)
the Actual Cash Value of the financed vehicle plus (ii) the total amount
recoverable from all other applicable insurance, including refunds from
cancelable add-on products. The maximum coverage under the Credit Endorsement is
$15,000 per contract.
During the first quarter of 1997, the Company elected not to obtain a
credit deficiency endorsement on approximately 60% of the finance contracts
which it acquired, based upon the total principal amount of finance contracts
acquired. However, every contract which the Company acquires is covered by a
Vendors Single Interest policy to insure against damage to the vehicle. The
Company believes that its decision not to insure certain contracts with credit
deficiency coverage will not adversely affect its future results. This is
largely due to the fact that by not obtaining credit deficiency insurance, the
Company can reduce its cost basis in a finance contract by 5 to 6%.
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"Actual Cash Value" for the purposes of the Credit Endorsement only,
means the greater of (i) the price for which the subject financed vehicle is
sold or (ii) the wholesale market value at the time of the loss as determined by
an automobile guide approved by Interstate applicable to the region in which the
financed vehicle is sold.
"Net Payoff Balance" for the purposes of the Credit Endorsement, means
the outstanding principal balance as of the default date plus late fees and
corresponding interest no more than 90 days after the date of default. In no
event shall Net Payoff Balance include non-approved fees, taxes, penalties or
assessments included in the original instrument, or repossession, disposition,
collection, remarketing expenses and fees or taxes incurred.
MANAGEMENT INFORMATION SYSTEMS
Management believes that a high level of real-time information flow and
analysis is essential to manage the Company's informational and reporting needs
and to maintain the Company's competitive position. As stated above, the Company
has contracted with a third party servicer, LSE, to provide data processing for
the Company's portfolio of finance contracts. LSE provides on-line information
processing services with terminals located in the Company's offices that are
connected to LSE's main computer center in Dallas.
In addition, management uses customized reports, with a download of
information to personal computers, to issue investor reports and to analyze the
Company's finance contract portfolio on a monthly basis. The system's
flexibility allows the Company to achieve productivity improvements with
enhanced data access. Management believes that it has sufficient systems in
place to permit significant growth in the Company's finance contract portfolio
without the need for material additional investment in management information
systems.
FUNDING/SECURITIZATION OF FINANCE CONTRACTS
Warehouse Credit Facilities. The Company obtains a substantial portion
of its working capital for the acquisition of finance contracts through
warehouse credit facilities. Under a warehouse facility, generally the lender
advances amounts requested by the borrower on a periodic basis, up to an
aggregate maximum credit limit for the facility, for the acquisition and
servicing of finance contracts or other similar assets. Until proceeds from a
securitization transaction are used to pay down outstanding advances, as
principal payments are received on the finance contracts, the principal amount
of the advances may be paid down incrementally or reinvested in additional
finance contracts on a revolving basis.
At December 31, 1996, the Company had no balances outstanding under the
$10.0 million Sentry Facility, which expires on December 31, 2000. The proceeds
from borrowings under the Sentry Facility are used to acquire finance contracts,
to pay credit default insurance premiums and to make deposits to a reserve
account with Sentry. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance under the Sentry Facility. The Sentry
Facility also requires the Company to pay up to 0.62% per quarter on the average
unused balance. Interest is payable monthly and accrues at a per annum rate of
prime plus 1.75% (which was approximately 10.0% at December 31, 1996).
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The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve account. Under the Sentry Facility, the
Company paid interest of $220,674 for the year ended December 31, 1996. During
1996, the Company also paid $700,000 in commitment fees pursuant to its
agreement with Sentry.
On May 22, 1996 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into the Providian Facility, which
expired December 15, 1996. The proceeds from the borrowings under the Providian
Facility were used to acquire finance contracts, to pay credit default insurance
premiums and to make deposits to a reserve account. Interest was payable monthly
with a delay of 15 days and accrued at a per annum rate of LIBOR plus 2.60%
(which was 8.0375% when initially determined on May 17, 1996). The Providian
Facility also required the Company to pay a monthly fee on the average unused
balance at a per annum rate of 0.25%. Borrowings under the Providian Facility
were rated investment-grade by a nationally recognized statistical rating
organization. As of December 31, 1996, no advances were outstanding with respect
to the Providian Facility.
The Company's wholly-owned subsidiary, AutoBond Funding Corporation I,
entered into the Nomura Facility, pursuant to a credit agreement dated as of
June 16, 1995, with a final maturity date of June 16, 2005. This facility was
terminated at the lender's option, and no new advances were made after February
6, 1996. The Nomura Facility provided for advances to AutoBond Funding up to a
maximum aggregate principal amount of $25 million, for the acquisition of
finance contracts. As of December 31, 1996 no advances were outstanding with
respect to the Nomura Facility.
On February 14, 1997 the Company, though its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into the $50,000,000 Daiwa Facility,
which expires March of 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. Interest is payable monthly at the 30-day LIBOR plus 1.15% per
annum rate. The Daiwa Facility also requires the Company to pay a monthly fee on
the average unused balance at a per annum rate of 0.25%. Borrowings under the
Daiwa Facility are rated investment-grade by a nationally recognized statistical
rating organization. The Daiwa Facility contains certain conditions and imposes
certain requirements similar to those in the agreements relating to the
Company's existing securitizations including, among other things, delinquency
and repossession triggers.
Securitization Program. The periodic securitization of finance contracts
is an integral part of the Company's business. Securitizations enable the
Company to monetize its assets and redeploy its capital resources and warehouse
credit facilities for the purchase of additional finance contracts. To date, the
Company has completed five securitizations involving approximately $108 million
in aggregate principal amount of finance contracts (excluding $3.6 million in
finance contracts sold in securitizations during the revolving period).
In its securitization transactions through December 31, 1996, the
Company sold pools of finance contracts
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to a special purpose subsidiary, which then assigned the finance contracts to a
trust in exchange for cash and certain retained beneficial interests in the
trust. 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 (representing a senior
interest in excess spread cash flows from the finance contracts) which were
retained by the Company's securitization subsidiary and which collateralize
borrowings on a non-recourse basis. The Company would also fund a cash reserve
account that provides credit support to the Class A Certificates. The Company's
securitization subsidiaries also retained an interest in the trust that is
subordinate to the interest of the investor certificateholders. The retained
interests entitle the Company to receive the future excess spread cash flows
from the trust after payment to investors, absorption of losses, if any, that
arise from defaults on the transferred finance contracts and payment of the
other expenses and obligations of the trust. In its securitization transactions
planned for 1997, the Company intends to utilize the provisions of the recently
effective SFAS 125. In these securitizations the Company will sell pools of
finance contracts to a special purpose subsidiary, which will then issue notes
under a trust indenture secured by such finance contracts. The special purpose
corporations may issue multiple classes of secured notes, including subordinated
excess spread notes. The Company will also fund a cash reserve account that
provides credit support to the senior notes. The Company's securitization
subsidiaries also will retain an interest in the finance contracts that is
subordinate to the interest of the noteholders. The retained interests entitle
the Company to receive the future excess spread cash flows from the trust estate
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 estate.
Securitization transactions impact the Company's liquidity primarily in
two ways. First, the application of proceeds toward payment of the outstanding
advances on warehouse credit facilities makes additional borrowing available, to
the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. Second, additional working capital is obtained
through the Company's practice of borrowing, through the issuance of
non-recourse debt, against the value of the senior interest in the retained
excess spread. If the structure of the securitizations was changed, it could
impact the Company's ability to generate liquidity. See "Recent Events".
Upon each securitization, the Company recognizes the sale of finance
contracts and records a gain or loss in an amount which takes into account the
amounts expected to be received as a result of its retained interests. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Revenues--Gain on Sale of Finance Contracts." At December 31, 1996,
the Company held excess servicing receivables and Class B Certificates totalling
$14.7 million, a portion of which had been pledged to secure notes payable of
$10.2 million.
If the Company were unable to securitize contracts in a financial
reporting period, the Company would incur a significant decline in total
revenues and net income or report a loss for such period. If the Company were
unable to securitize its contracts and did not have sufficient credit available,
either under its warehouse credit facilities or from other sources, the Company
would have to sell portions of its portfolio directly to investors or curtail
its finance contract acquisition activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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When the Company securitizes finance contracts, it repays a portion of
its outstanding warehouse indebtedness, making such portion available for future
borrowing. As finance contract volume increases, the Company expects to
securitize its assets at least quarterly, although there can be no assurance
that the Company will be able to do so.
The securitization trust agreements and the servicing agreement contain
certain events of administrator termination, the occurrence of which entitle the
trustee to terminate the Company's right to act as collection agent and
administrator. Events of administrator termination typically include: (i)
defaults in payment obligations under the trust agreements; (ii) unremedied
defaults in the performance of certain terms or covenants under the trust
agreements, the servicing agreements or related documents; (iii) the institution
of certain bankruptcy or liquidation proceedings against the Company; (iv)
material breaches by the Company of representations and warranties made by it
under the servicing agreements and the sale agreements pursuant to which it has
sold the securitized finance contracts; (v) the occurrence of a trigger event
whereby the ratio of delinquent finance contracts to total securitized finance
contracts for each transaction exceeds the percentage set forth in the servicing
agreements; (vi) a material adverse change in the consolidated financial
condition or operations of the Company, or the occurrence of any event which
materially adversely affects the collectibility of a material amount of the
securitized finance contracts or which materially adversely affects the ability
of the Company to collect a material amount of the finance contracts or to
perform in all material respects its obligations under the servicing agreements,
trust agreements and related documents; or (vii) any of the rating agencies
rating the securitization transactions determines that the Company's serving as
collection agent under the servicing agreement would prevent such agency from
maintaining the required ratings on such transactions, or would result in such
transactions' being placed on negative review suspension or downgrade.
The trust agreements contain amortization events, the occurrence of any
of which may affect the Company's rights to receive payments in respect of the
future excess spread cash flows otherwise payable to it until principal and
interest payments due the holders of all investor certificates are paid in full.
Such amortization events include: (i) defaults in certain payments or repurchase
obligations under the trust agreements; (ii) unremedied defaults in the
performance of any covenants or terms of the trust agreements by a
securitization subsidiary; (iii) the occurrence of certain bankruptcy or
insolvency events of a securitization subsidiary; (iv) unremedied material
breaches of representations or warranties of a securitization subsidiary; (v)
occurrence of an event of administrator termination; (vi) failure of a
securitization subsidiary to transfer certain required amounts of unpaid
principal balance of finance contracts to each securitization trust or to retain
the resulting shortfall in the collection accounts; (vii) failure of any
transfer under the trust agreements to create, or failure of any investor
certificates to evidence, a valid and perfected first priority undivided
ownership or security interest in the pool of securitized finance contracts and
related collateral; (viii) failure of the Company to own, directly or
indirectly, 100% of the outstanding shares of common stock of any securitization
subsidiary; (ix) entry of unpaid and unstayed judgments aggregating in excess of
$25,000 are entered against any securitization subsidiary; or (x) occurrence of
a "change in control" with respect to the Company.
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COMPETITION
The sub-prime credit market is highly fragmented, consisting of many
national, regional and local competitors, and is characterized by relative ease
of entry and the recent arrival of a number of well capitalized publicly-held
competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these financial organizations do
not consistently solicit business in the sub-prime credit market. The Company
believes that captive finance companies generally focus their marketing efforts
on this market only when inventory control and/or production scheduling
requirements of their parent organizations dictate a need to enhance sales
volumes and exit the market once such sales volumes are satisfied. The Company
also believes that increased regulatory oversight and capital requirements
imposed by market conditions and governmental agencies have limited the
activities of many banks and savings and loans in the sub-prime credit market.
In many cases, those organizations electing to remain in the automobile finance
business have migrated toward higher credit quality customers to allow
reductions in their overhead cost structures.
As a result, the sub-prime credit market is primarily serviced by
smaller finance organizations that solicit business when and to the extent their
capital resources permit. The Company believes no one of its competitors or
group of competitors has a dominant presence in the market. The Company's
strategy is designed to capitalize on the market's relative lack of major
national financing sources. Nonetheless, several of these competitors have
greater financial resources than the Company and may have a significantly lower
cost of funds. Many of these competitors also have long-standing relationships
with automobile dealerships and may offer dealerships or their customers other
forms of financing or services not provided by the Company. Furthermore, during
the past two years, a number of automobile finance companies have completed
public offerings of common stock, the proceeds of which are being used, at least
in part, to fund expansion and finance increased purchases of finance contracts.
The Company's ability to compete successfully depends largely upon its
relationships with dealerships and the willingness of dealerships to offer
finance contracts to the Company that meet the Company's underwriting criteria.
There can be no assurance that the Company will be able to continue successfully
in the markets it serves.
Additionally, during the first quarter of 1997 several of the Company's
competitors have experienced serious problems ranging from allegedly fraudulent
misstatements of earnings to increasing losses and inadequate reserves. Although
the Company believes it has made adequate reserves to cover losses, the ability
of the Company to obtain funding in the future and the rates at which such
financings may be obtained could be impaired as the result of the turmoil in the
subprime auto finance industry. Although the Company was able to obtain
financing under the Daiwa Facility and continues to have financing available
under the Sentry Facility there can be no assurance that the turmoil in the
subprime auto finance industry will not have an affect on the Company's ability
to raise funds and may result in an increased cost of funding to the Company.
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REGULATION
The Company's business is subject to regulation and licensing under
various federal, state and local statutes and regulations. As of December 31,
1996, the Company's business operations were conducted with dealers located in
26 states, and, accordingly, the laws and regulations of such states govern the
Company's operations. Most states where the Company operates (i) limit the
interest rates, fees and other charges that may be imposed by, or prescribe
certain other terms of, the finance contracts that the Company purchases and
(ii) define the Company's rights to repossess and sell collateral. In addition,
the Company is required to be licensed or registered to conduct its finance
operations in certain states in which the Company purchases finance contracts.
As the Company expands its operations into other states, it will be required to
comply with the laws of such states.
Numerous federal and state consumer protection laws and related
regulations impose substantive disclosure requirements upon lenders and
servicers involved in automobile financing. Some of the federal laws and
regulations include the Truth-in-Lending Act, the Equal Credit Opportunity Act,
the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Credit
Billing Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty
Act, the Federal Reserve Board's Regulations B and Z and the Soldiers' and
Sailors' Civil Relief Act.
In addition, the Federal Trade Commission ("FTC") has adopted a
holder-in-due-course rule which has the effect of subjecting persons that
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a Buyer's Guide which explains
the warranty coverage for such automobiles. The Credit Practices Rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. In
addition, due to the consumer-oriented nature of the industry in which the
Company operates and the unclear application of various truth-in-lending laws
and regulations to certain products offered by companies in the industry,
industry participants are sometimes named as defendants in litigation involving
alleged violations of federal and state consumer lending or other similar laws
and regulation. A significant judgment against the Company or within the
industry in connection with any litigation could have a material adverse effect
on the Company's financial condition and results of operations.
In the event of default by a borrower under a finance contract, the
Company is entitled to exercise the remedies of a secured party under the
Uniform Commercial Code ("UCC"). The UCC remedies of a secured party include the
right to repossession by self-help means, unless such means would constitute a
breach of the peace. Unless the borrower voluntarily surrenders a vehicle,
self-help repossession by an independent repossession agent engaged by the
Company is usually employed by the Company when a borrower defaults. Self-help
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repossession is accomplished by retaking possession of the vehicle. If a breach
of the peace is likely to occur, or if applicable state law so requires, the
Company must obtain a court order from the appropriate state court and repossess
the vehicle in accordance with that order. None of the states in which the
Company presently does business has any law that would require the Company, in
the absence of a probable breach of the peace, to obtain a court order before it
attempts to repossess a vehicle.
In most jurisdictions, the UCC and other state laws require a secured
party to provide an obligor with reasonable notice of the date, time and place
of any public sale or the date after which any private sale of collateral may be
held. Unless the obligor waives his rights after default, the obligor in most
circumstances has a right to redeem the collateral prior to actual sale (i) by
paying the secured party all unpaid installments on the obligation, plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus in some jurisdictions, reasonable
attorneys' fees or (ii) in some states, by paying the secured party past-due
installments. Repossessed vehicles are generally resold by the Company through
wholesale auctions which are attended principally by dealers.
EMPLOYEES
As of December 31, 1996, the Company employed 116 persons, none of which
was covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
ITEM 2. PROPERTIES
PROPERTIES AND FACILITIES
The Company's headquarters are located in approximately 18,900 square
feet of leased space at 301 Congress Avenue, Austin, Texas, for a monthly rent
of $18,338. The lease for such facility expires in June 1998. The Company's
headquarters contain the Company's executive offices as well as those related to
automobile finance contract acquisition. In addition, the Company leased
approximately 520 square feet of office space at 1010 Woodman Drive, Suite 240,
Dayton, Ohio, for its midwest regional marketing office at a rent of $550 per
month. The lease for the Ohio facility expired on February 28, 1997. The Company
no longer maintains any regional office facilities
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
20
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
On November 8, 1996, the Company's Common Stock was listed for quotation
and began trading on Nasdaq National Market under the symbol "ABND." Prior to
such date, the Company's stock was closely held and not traded on any regional
or national exchange. The high and low sale prices for the Common Stock during
the period beginning November 8, 1996, when the Common Stock began trading
publicly, through the end of 1996, as reported by Nasdaq, were $11 and $9 1/4,
respectively.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company. As of December 31, 1996, the Company had approximately
41 stockholders of record, exclusive of holders who own their shares in "street"
or nominee names.
The Company has not paid and does not presently intend to pay cash
dividends on its Common Stock. The Company anticipates that its earnings for the
foreseeable future will be retained for use in operation and expansion of
business. Payment of cash dividends, if any, in the future will be at the sole
discretion of the Company's Board of Directors and will depend upon the
Company's financial condition, earnings, current and anticipated capital
requirements, terms of indebtedness and other factors deemed relevant by the
Company's Board of Directors.
21
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the years in
the three-year period ended December 31, 1996 are derived from the financial
statements of the Company. The selected financial data should be read in
conjunction with the Financial Statements, including the Notes thereto, and
other financial data included elsewhere herein and the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994(1) 1995 1996
------- ---- ----
(DOLLARS IN THOUSANDS EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income .......................... $ 19 $ 781 $ 137
Servicing fee income ......................... 0 0 658
Gain on sale of finance contracts ............ 0 4,086 12,821
Unrealized gain on Class B Certificates ...... 0 0 388
------ ------- -------
Total revenues .............................. 19 4,867 14,004
------ ------- -------
Provision for credit losses .................. 45 49 412
Salaries and benefits ........................ 226 1,320 4,529
General and administrative ................... 245 1,463 2,331
Other operating expenses ..................... 48 963 1,120
------ ------- -------
Total expenses .............................. 564 3,795 8,392
------ ------- -------
Net income (loss) before taxes and ........... (545) 1,072 5,611
extraordinary item
Provision for income taxes ................... 0 199 1,927
Extraordinary loss net of tax effect ......... -- -- (100)
------ ------- -------
Net income (loss) ............................ (545) 873 3,585
====== ======= =======
Net income (loss) before extraordinary item ... $(0.11) $0.17 $0.64
Net income (loss) per share ................... $(0.11) $0.17 $0.62
Weighted average shares outstanding ........... 5,118,753 5,190,159 5,811,377
PORTFOLIO DATA:
Number of finance contracts acquired ........... 202 2,656 7,215
Principal balance of finance contacts .......... $2,465 $31,863 $83,372
acquired
Principal balance of finance contracts ......... 0 26,261 85,036
securitized
Average initial finance contract principal ..... $ 12.2 $ 12.0 $ 11.6
balance
Weighted average initial contractual term ...... 54.3 53.3 51.5
(months)
Weighted average APR of finance contracts(2) ... 19.1% 19.3% 19.6%
Weighted average finance contract .............. 8.6% 8.8% 8.2%
acquisition discount(2)
Number of finance contacts outstanding (end .... 197 2,774 9,030
of period)(2)
Principal balance of finance contracts (end ...... $2,450 $31,311 $94,352
of period)(2)
OPERATING DATA:
Number of enrolled dealers (end of period) ..... 50 280 715
Number of active states (end of period) ........ 2 7 26
Total expenses as a percentage of total ........ 23.0% 12.0% 10.07%
principal balance of finance contracts
acquired in period
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a ............. 0.30% 2.30% 3.34%
percentage of principal balance of finance
contract portfolio (end of period)(2)
</TABLE>
22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 0 $ 93 4,121
Cash held in escrow............................ 0 1,323 2,663
Finance contracts held for sale, net........... 2,361 3,355 228
Excess servicing receivable.................... 0 847 4,247
Total assets................................ 2,500 11,065 27,277
Notes payable.................................. 0 2,675 10,175
Repurchase agreement........................... 0 1,061 0
Revolving credit agreement..................... 2,055 1,150 0
Subordinated debt.............................. 0 0 0
------ ------- ------
Total debt.................................. 2,055 4,886 10,175
Shareholders' equity........................... (109) 3,026 12,286
</TABLE>
- ---------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Includes the Company's entire finance contract portfolio of contracts
held and contracts securitized.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding "Selected
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto and the other financial data included herein. The financial information
set forth below has been rounded in order to simplify its presentation. However,
the ratios and percentages set forth below are calculated using the detailed
financial information contained in the Financial Statements and the Notes
thereto, and the financial data included elsewhere in this Form 10-K.
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by automobile dealers in
connection with the sale of used and new vehicles to subprime consumers. The
Company has experienced significant growth in its finance contract portfolio
since it commenced operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components: net
interest income, gain on sale of finance contracts and servicing and collection
fees.
Net Interest Income. Net interest income consists of the sum of two
components: (i)
23
<PAGE>
<PAGE>
the difference between interest income earned on finance contracts held for sale
and interest expense incurred by the Company pursuant to borrowings under its
warehouse and other credit facilities; and (ii) the accretion of finance
contract acquisition discounts. Other factors influencing net interest income
during a given fiscal period include (a) the annual percentage rate of the
finance contracts acquired, (b) the aggregate principal balance of finance
contracts acquired and funded through the Company's warehouse and other credit
facilities prior to securitization, (c) the length of time such contracts are
funded by the warehouse and other credit facilities. Finance contract
acquisition growth has had a significant impact on the amount of net interest
income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization, the
Company recognizes a gain on sale of finance contracts equal to the present
value of future excess spread cash flows from the securitization trust, and the
difference between the net proceeds from the securitization and the net carrying
cost (including the cost of VSI Policy premiums) to the Company of the finance
contracts sold. The Class B Certificates and the excess servicing receivable are
determined based on the estimated present value of excess spread cash flows from
a securitization trust. Excess spread cash flows represent the difference
between the weighted average contract rate earned and the rate paid on Class A
Certificates issued to third party investors in the securitization, less
servicing fees and other costs, over the life of the securitization. Excess
spread cash flows are computed by taking into account certain assumptions
regarding prepayments, defaults, proceeds from disposal of repossessed assets,
and servicing and other costs. The Class B Certificates and excess servicing
receivable are determined by discounting the excess spread cash flows at a rate
based on assumptions that market participants would use for similar financial
instruments subject to prepayment, default, collateral value and interest rate
risks. The Class B Certificates are then formed by carving out 65% to 80% of the
discounted excess spread cash flows. The remaining 20% to 35% of the discounted
excess spread cash flows represent excess servicing receivable. All of the
excess spread cash flows are paid by the securitization Trustee to the Class B
Certificateholders until such time as all accrued interest at 15% together with
principal have been paid in full. Subsequently, all remaining excess spread cash
flows are paid to the Company and are referred to as the "Transferor's
Interest." The discounted Transferor's Interest is reported in the balance
sheets as "Excess Servicing Receivable". In each securitization, all of the
Class B Certificate and Transferor's Interest are retained by the Company. The
Class B Certificates are used by the Company as collateral on its non-recourse
term loans entered into with investors. The Company performs an impairment
review of the excess servicing receivable by calculating the net present value
of the expected future excess spread cash flows to the Company from the
securitization trust utilizing the same discount rate used to record the initial
excess servicing receivable. To the extent that market and economic changes
occur which adversely impact the assumptions utilized in determining the excess
servicing receivable, the Company would record a charge against servicing fee
income and write down the asset accordingly. Impairment is determined on a
disaggregated basis consistent with the risk characteristics of the underlying
finance contracts, consisting principally of origination date and originating
dealership, as well as the performance of the pool to date. There were no
adjustments required as a result of impairment reviews during any of the periods
presented in the
24
<PAGE>
<PAGE>
financial statements. Should the Company be unable to securitize finance
contracts in the form of a sale in a financial reporting period, the Company
would likely incur a significant decline in total revenues and net income or
report a loss for such period To date, the Company's securitizations have been
characterized as debt for tax purposes. Since the Company records a provision
for income taxes on securitization, alternatively characterizing securitizations
as sales for tax purposes would have no effect on net income, although the
timing of tax payments by the Company would be accelerated.
Gain on sale of finance contracts was $3,951,706, $2,749,612, $2,972,804,
$3,554,745, and $3,543,539 for each of the securitizations occurring in December
1995, March 1996, June 1996, September 1996, and December 1996 respectively.
This represents approximately 15.05%, 16.60%, 16.67%, 15.94% and 14.17% of the
outstanding balances of the finance contracts at each of the respective
securitization dates. Gain on sale can be broken into three major components:
the amount by which the proceeds from the sale of Class A Certificates exceeds
the Company's cost basis in the contracts; costs of sale (primarily placement,
rating agent, and legal and accounting fees); and discounted excess spread cash
flows (the Class B Certificates and Transferor's Interests).
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 103% of the value of the Class A Certificates. This
portion of recognized gain on sale will vary based on the Company's cost on
insurance covering the finance contracts and discount obtained upon acquisition
of the finance contracts.
Additionally, costs of sale reduce the total gain recognized. As the
Company's securitization program matures, placement fees and other costs
associated with the sale should shrink as a percentage of the size of the
securitization. For example, costs of sale for the March 1996 transaction were
$280,000 (or 1.7%), while costs for the December 1996 transaction were about
$240,000 (or 1.0%).
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the Class A
Certificates and the age of the finance contracts in the pool, as the excess
spread cashflow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts 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 spread for
each of the Company's securitizations:
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
REMAINING WEIGHTED
BALANCE AT AVERAGE
ORIGINAL DECEMBER 31, CONTRACT CERTIFICATE GROSS
SECURITIZATION BALANCE(1) 1996 RATE RATE RATINGS(2) SPREAD(3)
-------------- ---------- ---- ---- ---- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A............. $26,261 $21,826 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A............. 16,563 14,289 19.7 7.15 A/A3 12.5
AutoBond Receivables
Trust 1996-B............. 17,833 17,833(4) 19.7 7.73 A/A3 12.0
AutoBond Receivables
Trust 1996-C............. 22,297 22,297(4) 19.7 7.45 A/A3 12.3
AutoBond Receivables
Trust 1996-D............. 25,000 25,000(4) 19.5 7.37 A/A3 12.1
-------- --------
Total................ $107,954 $101,245
======== ========
</TABLE>
- ------------------
(1) Refers only to balances on Class A investor certificates.
(2) Indicates ratings by Fitch Investors Service, L.P. and Moody's Investors
Service, Inc., respectively.
(3) Difference between weighted average contract rate and senior Class A
Certificate rate.
(4) Before expiration of the revolving period for each trust.
Servicing Fee Income. The Company earns substantially all of its servicing
fee income on the contracts it services on behalf of securitization trusts.
Servicing fee income consists of: (i) contractual servicing fees received
through securitizations, equal to $7.00 per month per contract included in each
trust (excluding amounts paid to third-party servicers by the trust); (ii)
Transferor's Interest, reduced by the amortization of the excess servicing
receivable; and (iii) fee income earned as servicer for such items as late
charges and documentation fees, which are earned whether or not a securitization
has occurred.
Servicing fee income, excess spread cash flows and the value of the excess
servicing receivable may be affected by changes in the levels of prepayments,
defaults, delinquencies, recoveries and interest rates from those assumed by the
Company at the time of securitization. To the extent the assumptions used
materially differ from actual results, the amount of cash received by the
Company over the remaining life of the securitization could be significantly
affected, and the Company would be required to take a charge against earnings,
which could have a material adverse effect on the Company's financial condition
and operating results. To date, no such charge has been required.
EXPENSE ALLOCATIONS
The Company has shared certain general and administrative expenses with
ABI. Historically, each entity's expenses have been allocated based on the
estimated utilization of resources, including employees, office space, equipment
rentals and other miscellaneous expenses. The office, equipment and furniture
leases at the Company's headquarters are in ABI's name, and accordingly,
approximately 75% of ABI's lease expense for the year ended December 31, 1995
was allocated to the Company. As of July 1996, such leases were assigned to the
Company. As of January 1, 1996, the Company has been and will be
26
<PAGE>
<PAGE>
compensated for services rendered and reimbursed for expenses incurred on behalf
of ABI, pursuant to a management agreement. See "Certain Transactions" and Note
[12] to Notes to Consolidated Financial Statements. ABI has no material current
operations other than to manage its investment in, and its shareholder's
investments in, securitizations unrelated to the Company. It is anticipated that
ABI will wind down as the outstanding principal of such investments is retired.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of finance contracts acquired 202 2,656 7,215
Principal balance of finance contracts 2,464 $31,863 $83,372
Number of active dealerships(1)..... 50 222 654
Number of enrolled dealerships...... 50 280 715
</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. Because results of operations for 1994 are based on a five-month period
from the inception of the Company's operations through December 31, 1994, a
comparison of those results to results of operations for fiscal 1995 may not be
meaningful. The following discussion and analysis should be read in conjunction
with "Selected Consolidated Financial and Operating Data" and the Company's
Consolidated Financial Statements and the Notes thereto.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total Revenues
Total revenues increased $9.1 million to $14.0 million for the year
ended December 31, 1996 from $4.9 million for the year ended December 31, 1995
due to growth in finance contract acquisition and securitization activity.
Net Interest Income. Net interest income decreased $644,300 to $136,794
for the year ended December 31, 1996 from $781,094 for the year ended December
31, 1995. The decrease in net interest income was primarily due to a reduction
in the average daily balance of finance contracts held for sale. This was due to
the fact that the Company securitized its production quarterly in 1996 versus a
single securitization in 1995. Interest income also declined due to an increase
in overall net borrowing costs and fees associated with non-recourse term loans
and Revolving Credit Facilities. Finally, there is no spread between the
interest rate earned on the Class B certificates and the related non recourse
27
<PAGE>
<PAGE>
loans collateralized by such certificates. The increase in the outstanding
balance of the Class B certificates and the related debt causes net interest
income to narrow. The average APR of outstanding finance contracts was 19.45% at
December 31, 1996, compared with 19.3% at December 31, 1995.
Gain on Sale of Finance Contracts. For the year ended December 31, 1996,
gain on sale of finance contracts amounted to $12.8 million. For the year ended
December 31, 1996, the Company completed four securitizations aggregating
approximately $81.7 million in principal amount of finance contracts and the
gain on sale of finance contracts accounted for 91.6% of total revenues. For the
year ended December 31, 1995, there was one securitization transaction in the
principal amount of $26.3 million. The gain on sale of finance contracts for
this sale transaction accounted for 84.0% of total revenues in 1995.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the year ended December
31, 1996, servicing fee income was $657,950, of which $402,016 was collection
agent fees, $154,029 resulted from discount accretion on the excess servicing
receivable, $50,000 was management fees from an affiliated company, and $51,904
arose from other sources. The Company had completed only one securitization in
1995, which was completed at December 31, 1995, and had no servicing fee income
for such period.
Total Expenses
Total expenses of the Company increased $4.6 million to $8.4 million for
the year ended December 31, 1996 from $3.8 million for the year ended December
31, 1995. Although operating expenses increased during the year ended December
31, 1996, 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
slightly to 10.1% during the year ended December 31, 1996 from 12.0% for the
year ended December 31, 1995, reflecting improved efficiency in the Company's
operations.
Salaries and Benefits. Salaries and benefits increased $3.2 million to
$4.5 million for the year ended December 31, 1996 from $1.3 million for the year
ended December 31, 1995. 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
loans, and due to compensation of the Company's Chief Executive Officer, which
the Company began paying in May 1996. See Note 13 to Notes to Consolidated
Financial Statements.
General and Administrative Expenses. General and administrative expenses
increased $868,506 to $2.3 million for the year ended December 31, 1996 from
$1.5 million for the year ended December 31, 1995. This increase was due
primarily to growth in the Company's operations. General and administrative
expenses consist principally of office, furniture and equipment leases,
professional fees, communications and office
28
<PAGE>
<PAGE>
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 servicing fees, credit bureau reports and insurance) increased
$156,628 to $1.1 million for the year ended December 31, 1996 from $963,017 for
the year ended December 31, 1995. This increase was due to increased finance
contract acquisition volume.
Net Income
In the year ended December 31, 1996, net income increased to $3.6
million from $873,487 for the year ended December 31, 1995. Net income for the
year ended December 31, 1996 includes an extraordinary charge of $100,000, net
of income tax benefits of $50,000, which represents the prepayment penalty
associated with the early redemption of the Class B Certificate Notes from the
1995A securitization. The increase in net income was primarily attributable to
an increase in the number of finance contracts securitized during 1996: $81.7
million, compared to $26.3 million in 1995.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO PERIOD FROM AUGUST 1, 1994
(INCEPTION) THROUGH DECEMBER 31, 1994
Total Revenues
Total revenues increased to $4.9 million for the fiscal year ended
December 31, 1995 from $19,001 for the period from inception through December
31, 1994. Although the Company was incorporated in June 1993, it did not
commence operations until August 1994; thus the period from inception through
December 31, 1994 reflects only five months of start-up operations.
Net Interest Income. Net interest income increased $762,093 to $781,094
for the fiscal year ended December 31, 1995 from $19,001 for the period from
inception through December 31, 1994. The increase in net interest income was
primarily due to an increase in average balance of finance contracts held for
sale. The average daily balance of outstanding finance contracts increased $13.8
million to $14.7 million for the fiscal year ended December 31, 1995 from
$855,640 for the period from inception through December 31, 1994. The average
APR of finance contracts outstanding was 19.3% at December 31, 1995 as compared
to 19.1% at December 31, 1994.
Gain on Sale of Finance Contracts. In the fiscal year ended December 31,
1995, the gain on sale of finance contracts was $4.1 million, or 83.9% of total
revenues, from the securitization of approximately $26.3 million in finance
contracts and the sale of finance contracts to a third party. For the period
from inception through December 31, 1994, there were no securitizations.
Servicing Fee Income. The Company completed its first securitization
transaction
29
<PAGE>
<PAGE>
on December 29, 1995; therefore prior to 1996 there was no servicing fee income
collected by the Company.
Total Expenses
Total expenses of the Company increased $3.2 million to $3.8 million for
the fiscal year ended December 31, 1995 from $563,606 for the five-month period
ended December 31, 1994. Although operating expenses increased during the year
ended December 31, 1995, the Company's finance contract portfolio grew at a
faster rate than the rate of increase in operating expenses. As a result, total
expenses as a percentage of total principal balance of finance contracts
acquired in period decreased to 12.0% in the year ended December 31, 1995 from
23.0% in the five months ended December 31, 1994.
Provision for Credit Losses. Provision for credit losses increased
$3,702 to $48,702 for the fiscal year ended December 31, 1995, from $45,000 for
the period from inception through December 31, 1994. This increase was due
primarily to increased acquisition volume and does not reflect any change in
expected defaults as a percentage of finance contracts purchased.
Salaries and Benefits. Salaries and benefits increased $1.1 million to
$1.3 million for the fiscal year ended December 31, 1995 from $225,351 for the
five-month period ended December 31, 1994. This increase was due primarily to an
increase in the number of the Company's employees.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million to $1.5 million for the fiscal year ended December 31,
1995 from $244,974 for the five-month period ended December 31, 1994. This
increase was due primarily to growth in the Company's operations.
Other Operating Expenses. Other operating expenses increased $914,736 to
$963,017 for the fiscal year ended December 31, 1995, from $48,281 for the
five-month period ended December 31, 1994, due to the increase in finance
contracts acquired.
Net Income
Net income increased to $873,487 for the fiscal year ended December 31,
1995 from a net loss of $544,605 for the period from inception through December
31, 1994. This increase was primarily attributable to the Company's initial
securitization transaction having been completed in December 1995, as well as
growth in finance contract acquisitions.
FINANCIAL CONDITION
Finance Contracts Held for Sale, Net. Finance contracts held for sale,
net of allowance for credit losses, decreased $3.1 million to $228,429 at
December 31, 1996, from $3.4 million at December 31, 1995. The number and
principal balance of contracts held for sale are largely dependent upon the
timing and size of the Company's securitizations. The Company plans to
securitize finance contracts on a regular quarterly
30
<PAGE>
<PAGE>
basis. See Note 1 to the Notes to Consolidated Financial Statements for a
discussion of finance contracts held for sale and allowance for credit losses.
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior trust certificates.
Additionally, depending on the structure of the securitization, a portion of the
future excess spread cash flows from the trust is required to be deposited in
the cash reserve account to increase the initial deposit to a specified level.
Amounts on deposit in cash reserve accounts are also reflected as advances to
the relevant trust under the item "Cash flows from investing activities" in the
Company's consolidated statements of cash flows. The initial cash reserve
deposits for the December 1995, March 1996, June 1996, September 1996 and
December 1996 securitizations were $525,220, $331,267, $356,658, $445,934, and
$500,000 respectively, equivalent to 2% of the initial principal amount of the
senior trust certificates. A portion of excess spread cash flows will increase
such reserves until they reach 6%.
Excess Servicing Receivable. The following table provides historical
data regarding the excess servicing receivable:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.............. $0 $0 $847
Additions...................... 0 847 3,246
Accretion...................... 0 0 154
--- ---- ------
Ending balance................. $0 $847 $4,247
== ==== ======
</TABLE>
Delinquency Experience
The following table reflects the delinquency experience of the Company's
finance contract portfolio at December 31, 1995 and at December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996
---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Principal balance of finance
contracts outstanding ......... $31,311 $ 104,889
Delinquent finance contracts(1):
60-89 days past due ............. 474 1.51 1,827 1.74%
90 days past due and over ....... 246 0.79 1,328 1.27
--- ---- ------- ----
Total ...................... 720 2.30% $ 3,155 3.01%
</TABLE>
- ----------
(1) Percentage based on outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the, borrower is in bankruptcy, Or there
are insurance claims filed.
31
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<PAGE>
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for all contracts held for
sale. See Notes 1 and 3 to Notes to Consolidated Financial Statements. The
Company reports a provision for credit losses on finance contracts held for
sale. Management evaluates the reasonableness of the assumptions employed by
reviewing credit loss experience, delinquencies, repossession trends, the size
of the finance contract portfolio and general economic conditions and trends. If
necessary, assumptions will be changed in the future to reflect historical
experience to the extent it deviates materially from that which was assumed.
Since inception, the Company's assumptions have been consistent and are adequate
based upon actual experience. Accordingly, no additional charges to earnings to
date have been necessary to accommodate more adverse experience than
anticipated.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency (as required by the VSI Policy), the Company's Collections
Department will initiate the repossession of the financed vehicle. Bonded,
insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, notice to the borrower of the Company's
intention to sell the repossessed vehicle is required, whereupon the borrower
may exercise certain rights to cure his or her default or redeem the automobile.
Following the expiration of the legally required notice period, the repossessed
vehicle is sold at a wholesale auto auction (or in limited circumstances.
through dealers), usually within 60 days of the repossession. The Company
closely monitors the condition of vehicles set for auction, and procures an
appraisal under the VSI Policy prior to sale. Liquidation proceeds are applied
to the borrower's outstanding obligation under the finance contract and loss
deficiency claims under the VSI Policy and Credit Endorsement are then filed.
The physical damage and loss provisions of the VSI Policy insures each financed
vehicle against losses relating to (i) physical damage to repossessed vehicles,
(ii) failure to file or record necessary instruments or documents, and (iii)
loss or confiscation of the vehicle. Generally the amount of coverage will not
exceed (i) the vehicle's replacement value, (ii) its cash value less salvage
value, (iii) the unpaid Finance Contract balance, (iv) $40,000 per vehicle
($25,000 per occurrence for repossessed vehicles), or (v) the lesser of the
amounts under clauses (i)-(iv) above less other insurance coverage on the
vehicle. The Company also has obtained credit deficiency balance coverage
through the Credit Endorsement of the VSI Policy. See "Business-Insurance."
Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned. This effect on the delinquency statistics can
be observed in the comparison of year end 1995 versus 1996 delinquency
percentages. The portfolio is tangibly more seasoned as of December 31, 1996
versus December 31, 1995. 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
32
<PAGE>
<PAGE>
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
December 31, 1996. In this table, all finance contracts have been segregated by
quarter of acquisition. All repossessions have been segregated by the quarter in
which the repossessed contract was originally acquired by the Company.
Cumulative repossessions equals the ratio of repossessions as a percentage of
finance contracts acquired for each segregated quarter. Annualized repossessions
equals an annual equivalent of the cumulative repossession ratio for each
segregated quarter. This table provides information regarding the Company's
repossession experience over time. For example, recently acquired finance
contracts demonstrate very few repossessions because properly underwritten
finance contracts to subprime consumers generally do not default during the
initial term of the contract. 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.
33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
REPOSSESSION FREQUENCY
-------------------------
PRINCIPAL BALANCE OF PRINCIPAL BALANCE
YEAR AND QUARTER OF REPOSSESSIONS BY OF CONTRACTS
ACQUISITION QUARTER ACQUIRED CUMULATIVE(1) ANNUALIZED(2) ACQUIRED
----------- ---------------- ------------ ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1994
Q3............................. $ 15.74 16.89% 6.76%$ 93.17
Q4............................. 514.39 21.69 9.64 2,371.60
1995
Q1............................. $1,200.89 19.03% 9.52% $ 6,310.42
Q2............................. 1,015.89 16.50 9.43 6,157.44
Q3............................. 984.66 13.66 9.11 7,205.90
Q4............................. 1,589.46 13.04 10.43 12,188.86
1996
Q1............................. $1,462.62 9.46% 9.46% $15,459.93
Q2............................. 1,183.59 6.41 8.55 18,458.82
Q3............................. 508.57 2.14 4.29 23,735.10
Q4............................. 10.98 0.04 0.17 25,802.89
</TABLE>
(footnotes on next page)
(footnotes from previous page)
(1) For each quarter, cumulative repossession frequency equals the principal
balance of repossessions divided by the principal amount. of contracts
acquired.
(2) Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, principal balance of $514.39
thousand in repossessions divided by principal balance of $2.371 million in
contracts acquired, divided by 9 quarters outstanding times four equals an
annualized repossession frequency of 9.64%).
34
<PAGE>
<PAGE>
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent
to complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
FROM
AUGUST 1, 1994
(INCEPTION) TO
DECEMBER 31, 1996
-----------------
<S> <C>
Number of finance contracts acquired............................. 10,073
Number of finance vehicles repossessed........................... 625
Repossessed units disposed of.................................... 344
Repossessed units awaiting disposition (2)....................... 281
Cumulative gross charge-offs(l).................................. $3,898,719
Costs of repossession(l)......................................... 102,728
Proceeds from auction, physical damage insurance and refunds(l).. (2,672,875)
-----------
Net loss......................................................... 1,328,572
Deficiency insurance settlement received(l) ..................... 891,684
------------
Net charge-offs(l)............................................... $ 436,888
============
Net charge-off per unit disposed................................. $ 1,270
Recoveries as a percentage of cumulative gross charge-offs(3).... 91.43%
</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 December 31, 1996.
(2) The vehicles may have been sold at auction; however AutoBond might not have
received all insurance proceeds as of December 31, 1996.
(3) Not including the costs of repossession which are reimbursed by the
securitization trusts.
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; and (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 year ended December 31, 1995 and the year ended December 31, 1996, $31.2
million and $83.7 million, respectively, was
35
<PAGE>
<PAGE>
used by the Company to purchase finance contracts, $2.7 million and $1.6,
respectively, was received as payments on finance contracts, and $27.4 million
and $85.0 million, respectively, was received from sales of finance contracts,
primarily through securitizations. The Company used $525,220 and $1,633,859 to
fund cash reserve accounts for the securitizations completed in the year ended
December 31, 1995 and the year ended December 31, 1996, respectively.
Significant activities comprising cash flows from financing activities
include net repayments under revolving warehouse credit facilities ($904,355 for
the year ended December 31, 1995 and $1,150,421 for the year ended December 31,
1996) and net proceeds from borrowings against excess spread cash flows ($2.7
million for the year ended December 31, 1995 and $2.7 million for the year ended
December 31, 1996).
Warehouse Credit Facilities. The Company obtains a substantial portion
of its working capital for the acquisition of finance contracts through
warehouse credit facilities. Under a warehouse facility, the lender generally
advances amounts requested by the borrower on a periodic basis, up to an
aggregate maximum credit limit for the facility, for the acquisition and
servicing of finance contracts or other similar assets. Until proceeds from a
securitization transaction are used to pay down outstanding advances, as
principal payments are received on the finance contracts, the principal amount
of the advances may be paid down incrementally or reinvested in additional
finance contracts on a revolving basis.
At December 31, 1996, the Company had no balance outstanding 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 credit default insurance premiums and to make deposits to a reserve account
with Sentry. The Company pays a utilization fee of up to 0.21% per month on the
average outstanding balance under the Sentry Facility. The Sentry Facility also
requires the Company to pay up to 0.62% per quarter on the average unused
balance. Interest is payable monthly and accrues at a per annum rate of prime
plus 1.75% (which was approximately 10.0% at December 31, 1996).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company paid interest of $412,000 for the year ended December 31, 1996. In April
1996, the Company agreed to pay a one-time commitment fee of $700,000 to Sentry.
On May 22, 1996, the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into a $20.0 million warehouse facility
(the "Providian Facility") with Peoples Security Life Insurance Company (an
affiliate of Providian Capital Management), which expires December 15, 1996. The
proceeds from the borrowings under the Providian Facility are to be used to
acquire finance contracts, to pay credit default insurance premiums and to make
deposits to a reserve account. Interest is payable monthly
36
<PAGE>
<PAGE>
at a per annum rate of LIBOR plus 2.60% with a maximum rate of 11.0% and a
minimum rate of 7.60%. The Providian Facility also requires the Company to pay a
monthly fee on the average unused balance at a per annum rate of 0.25%.
Borrowings under the Providian Facility are rated investment-grade by a
nationally recognized statistical rating organization. The Providian Facility
contains certain covenants and representations similar to those in the
agreements governing the Company's existing securitizations.
The Company's wholly-owned subsidiary, AutoBond Funding Corporation I
("AutoBond Funding"), entered into a warehouse credit facility (the "Nomura
Facility") with Nomura Asset Capital Corporation, pursuant to a credit agreement
dated as of June 16, 1995, with a final maturity date of June 16, 2005. This
facility was terminated at the lender's option, and no new advances were made
after February 6, 1996. The Nomura Facility provided advances to AutoBond
Funding up to a maximum aggregate principal amount of $25.0 million for the
acquisition of finance contracts. On March 29, 1996, the remaining total
outstanding balance of advances of $9 million, and interest of $89,000, were
paid by AutoBond Funding. As of December 31, 1996 no advances were outstanding
with respect to the Nomura Facility.
On February 14, 1997 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into the $50,000,000 Daiwa Facility,
which expires March of 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. Interest is payable monthly at the 30-day LIBOR plus 1.15% per
annum rate. The Daiwa Facility also requires the Company to pay a monthly fee on
the average unused balance at a per annum rate of 0.25%. Borrowings under the
Daiwa Facility are rated investment-grade by a nationally recognized statistical
rating organization. The Daiwa Facility contains certain conditions and imposes
certain requirements similar to those in the agreements relating to the
Company's existing securitizations including, among other things, delinquency
and repossession triggers.
Securitization Program. In its securitization transactions, the Company
sells pools of finance contracts to a special purpose subsidiary, which then
sells or assigns the finance contracts to a trust in exchange for cash and
certain retained beneficial interests in future excess spread cash flows. The
trust issues two classes of fixed income investor certificates: "Class A
Certificates" which are sold to investors, generally at par with a fixed coupon,
and subordinated excess spread certificates ("Class B Certificates"),
representing a senior interest in excess spread cash flows from the finance
contracts, which are typically retained by the Company's securitization
subsidiary and which collateralize borrowings on a nonrecourse basis. The
Company also funds a cash reserve account that provides credit support to the
Class A Certificates. The company's securitization subsidiaries also retain a
"Transferor's Interest" in the contracts that is subordinate to the interest of
the investor certificateholders. The retained interests entitle the Company to
receive the future cash flows from the trust after payment to investors,
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.
37
<PAGE>
<PAGE>
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 and December 1996 the Company securitized approximately $26.2 million,
$16.6 million, $17.8 million, $22.3 million and $25.0 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 nonrecourse basis, collateralized by its
interest in future excess spread cash flows from its securitization trusts. At
December 31, 1996, the Company held excess servicing receivables and Class B
Certificates totaling $14.3 million, substantially all of which had been pledged
to secure notes payable of $10.1 million.
Subordinated Debt. The Company issued subordinated debt in the principal
amount of $300,000 to an individual investor pursuant to a subordinated note
dated as of March 12, 1996. The subordinated note has a final maturity date of
March 12, 1997 and provides for payment of interest at a per annum rate of 10.0%
and includes a warrant to purchase 18,811 shares of Common Stock at a price of
$0.53 per share. This Subordinated Note was repaid in full in November 1996 with
proceeds from the Company's initial public offering.
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 overallotment 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 being utilized for working
capital, repayment of subordinated debt of $300,000 and investment in finance
contracts.
Loans to shareholders. Loans to shareholders totaled $235,071 at
December 31, 1996. All shareholder loans were paid in full as of March 20, 1997.
Continued availability of funding from the Company's securitization
program cannot be guaranteed. However, borrowings under the Company's Daiwa
warehouse facility are rated investment grade by a nationally recognized
statistical rating organization. Although the Company currently has only two
long-term warehouse facilities, management believes that the investment grade
rating should allow the Company successfully to obtain additional warehouse
financing if necessary.
The warehouse facilities provide the short-term cash needed to
accumulate loan pools for securitizations. Under the Company's practice of
borrowing funds, on a non-recourse basis, collateralized by its interest in
future excess-spread cash flows, working capital is thereby provided for the
cashflow needs of the Company. The structure of the
38
<PAGE>
<PAGE>
excess spread cashflow and related note payable provides for self-amortization
of such debt. The Company's excess spread cashflow projections indicate that the
excess spread cashflows will be sufficient to retire the related debt within
approximately 30 months of its incurrence. Cash from the excess spread retained
by the Company is received monthly, commencing immediately upon completion of
the securitization transaction. interest and principal payments are made first
to the Class A Certificateholders, then Trust operating expenses are paid.
Excess cashflow, comprised of interest and fees from the loans reduced by
interest on Class A Certificates and trust operating expenses, is then
distributed in two manners. If the cash reserve account is less than the
required amount, 35% of the excess cash flow is retained in the trust to build
the cash reserves until required levels are met. The remaining 65% of excess
spread cashflow is utilized to first pay down any non-recourse borrowing in
full, and then distributed to the Company for operating purposes. The final cash
flows for each transaction should be released at the expected maturity of 72
months.
The Company has entered into a commitment with a private investment
management company for financing collateralized by the senior excess spread
interests to be created in the Company's next five proposed securitization
transactions. Timing and amount of payments of interest and principal on the
loans will correspond to distributions from the securitization trusts on the
Class B Certificates. The interest rate on such loans will be 15% per annum.
payable monthly. The commitment also provides that the Class B Certificates
evidencing the interests in such senior excess spread cash flows be rated "BB"
by Fitch.
The proceeds of the initial public Offering of the Company's common
stock, proceeds from finance contracts, securitization proceeds and borrowings
under its warehouse facilities will be sufficient to fund expansion of the
Company's business through the end of 1997. The Company has no specific plans or
arrangements for additional equity financings, due to the liquidity provided by
securitizations and financings of excess spread cash flows. The Company believes
it will be able to obtain additional funding through an increase in the maximum
amount available for borrowings under its warehouse facilities and through
securitizations. There can be no assurance, however, that the Company will be
able to obtain such additional funding. See "Risk Factors--Liquidity and Capital
Resources."
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
39
<PAGE>
<PAGE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 establishes fair,
value-based financial accounting and reporting standards for all transactions in
which a company acquires goods or services by issuing its equity instruments or
by incurring a liability to suppliers in the amounts based on the price of its
common stock or other equity instruments.
During 1996, the Company adopted the disclosure-only alternative under SFAS No.
123, and will continue to account for stock-based compensation as prescribed by
Accounting Principals Board Opinion No. 25, `Accounting for Stock Issued to
Employees.'
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The statement is effective for the transfers of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. SFAS 125 is not expected to have a significant impact on
the Company's securitization activity, although it should allow a simpler
structure.
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 an effect on earnings per share
calculation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[Financial statements are set forth in this report beginning at page F-1.]
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is
40
<PAGE>
<PAGE>
hereby incorporated above reference thereto.
No person who, at any time during the fiscal year ended December 31, 1996,
was a director, officer, beneficial owner of more than ten percent of any class
of equity securities of the Company registered pursuant to Section 12 of the
Exchange Act, or any other person subject to Section 16 of the Exchange Act with
respect to the Company because of the requirements of Section 30 of the
Investment Company Act ("reporting person") has failed to file or is delinquent
in filing the forms and reports required by Section 16(a) of the Exchange Act
during the fiscal year ended December 31, 1996 or prior fiscal years.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
41
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a)The following documents are filed as part of this Form 10-K:
1. Financial Statements.
Independent Auditors' Report - Coopers & Lybrand L.L.P.
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule.
Schedule II; Valuation and Qualifying Accounts
42
<PAGE>
<PAGE>
3. 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
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 dated February 15, 1996 between Charles A.
Pond and the Company
10.10* -- Employment Agreement effective as of May 1, 1996 between William
O. Winsauer and the Company
10.11* -- Vender's Comprehensive Single Interest Insurance Policy and
Endorsements, issued by Interstate Fire & Casualty Company
43
<PAGE>
<PAGE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
10.12* -- Warrant to Purchase Common Stock of the Company dated March 12,
1996
10.13* -- Employee Stock Option Plan
10.14* -- Dealer Agreement dated November 9, 1994, between the Company and
Charlie Thomas Ford, Inc.
10.15* -- Automobile Loan Sale Agreement, dated as of September 30, 1996,
among the Company, First Fidelity Acceptance Corp., and
Greenwich Capital Financial Products, Inc.
10.16'D' -- Servicing Agreement, dated as of January 29, 1997, between CSC
LOGIC/MSA L.P.P., doing business as "Loan Servicing Enterprise"
and the Company
10.17'D' -- Credit Agreement, dated as of February 1, 1997, among
AutoBond Funding Corporation II, the Company and Daiwa
Finance Corporation
10.18'D' -- Security Agreement, dated as of February 1, 1997, by and among
AutoBond Funding Corporation II, the Company and Norwest Bank
Minnesota, National Association
10.19'D' -- Automobile Loan Sale Agreement, dated as of March 19, 1997, by
and between Credit Suisse First Boston Mortgage Capital L.L.C.,
a Delaware limited liability company, and the Company
21'D' -- Subsidiaries of the Company
27.1'D' -- Financial Data Schedule
</TABLE>
- ---------------------------------
* Incorporated by reference from the Company's Registration Statement
on Form S-1 (Registration No. 333-05359).
'D' Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
44
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ William O. Winsauer
----------------------------------
William O. Winsauer, Chairman
of the Board and Chief Executive
Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
/s/ William O. Winsauer Chairman of the Board and March 31, 1997
- -------------------------- Chief Executive
William O. Winsauer Officer
/s/ Adrian Katz Vice Chairman of the Board March 31, 1997
- -------------------------- and Chief Operating Officer
Adrian Katz
/s/ William J. Stahl Vice President and March 31, 1997
- -------------------------- Chief Financial Officer
William J. Stahl
/s/ John S. Winsauer Secretary and March 31, 1997
- -------------------------- and Director
John S. Winsauer
/s/ Robert S. Kapito Director March 31, 1997
- --------------------------
Robert S. Kapito
45
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets, December 31, 1995 and 1996 F-3
Consolidated Statements of Operations for the Period From August 1, 1994
(Inception) through December 31, 1994,
and the Years Ended December 31, 1995 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the
Period From August 1, 1994 (Inception) to December 31, 1994,
and the Years Ended December 31, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the Period From
August 1, 1994 (Inception) to December 31, 1994, and the
Years Ended December 31, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules are omitted as the required information is not applicable or
the information is presented in the consolidated financial statements, related
notes, or other schedules.
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
AutoBond Acceptance Corporation
We have audited the consolidated financial statements and the financial
statement schedule of AutoBond Acceptance Corporation and Subsidiaries listed in
the index on page F-1 of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1995 and 1996, and
the consolidated results of their operations and their cash flows for the period
from August 1, 1994 (inception) through December 31, 1994 and for the years
ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 26, 1997
F-2
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1995 1996
------ ----------- -------
<S> <C> <C>
Cash and cash equivalents $ 92,660 $ 4,121,342
Restricted cash 360,266 318,515
Cash held in escrow 1,322,571 2,662,934
Finance contracts held for sale, net 3,354,821 228,429
Repossessed assets held for sale, net 673,746 152,580
Class B Certificates 2,834,502 10,465,294
Excess servicing receivable 846,526 4,247,274
Debt issuance cost 700,000 997,338
Trust receivable 525,220 2,230,003
Due from affiliate 168,847
Prepaid expenses and other assets 354,208 383,573
Software development costs 300,382
----------- -----------
Total assets $11,064,520 $26,276,511
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit agreements $ 1,150,421
Notes payable 2,674,597 $10,174,633
Repurchase agreement 1,061,392
Accounts payable and accrued liabilities 1,836,082 1,474,586
Bank overdraft 861,063
Payable to affiliate 255,597 265,998
Deferred income taxes 199,000 2,075,553
----------- -----------
Total liabilities 8,038,152 13,990,770
----------- -----------
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; 5,118,753 and
6,512,500 shares issued and outstanding 1,000 1,000
Additional paid-in capital 2,912,603 8,617,466
Deferred compensation (62,758) (11,422)
Loans to shareholders (153,359) (235,071)
Retained earnings 328,882 3,913,768
----------- -----------
Total shareholders' equity 3,026,368 12,285,741
----------- -----------
Total liabilities and shareholders'
equity $11,064,520 $26,276,511
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
August 1, 1994
(Inception)
Through Year Ended
December 31, December 31,
1994 1995 1996
-------------- ------------ -------
<S> <C> <C> <C>
Revenues:
Interest income $ 38,197 $ 2,880,961 $ 2,519,612
Interest expense (19,196) (2,099,867) (2,382,818)
---------- ----------- -----------
Net interest income 19,001 781,094 136,794
Gain on sale of finance contracts 4,085,952 12,820,700
Servicing fee income 657,950
Unrealized gain on Class B
Certificates 388,278
--------- ----------- -----------
Total revenues 19,001 4,867,046 14,003,722
--------- ----------- -----------
Expenses:
Provision for credit losses 45,000 48,702 412,387
Salaries and benefits 225,351 1,320,100 4,529,006
General and administrative 244,974 1,462,740 2,331,246
Other operating expenses 48,281 963,017 1,119,644
--------- ----------- -----------
Total expenses 563,606 3,794,559 8,392,283
--------- ----------- -----------
Income (loss) before income taxes
and extraordinary item (544,605) 1,072,487 5,611,439
Provision for income taxes 199,000 1,926,553
--------- ----------- -----------
Income (loss) before extraordinary
item (544,605) 873,487 3,684,886
Extraordinary loss, net of tax
benefit of $50,000 (100,000)
--------- ----------- -----------
Net income (loss) $(544,605) $ 873,487 $ 3,584,886
========= =========== ===========
Income (loss) per common share:
Income (loss) before extraordinary
item $ (0.11) $ 0.17 $ 0.64
Extraordinary loss (0.02)
----------- ----------- -----------
Net income (loss) $ (0.11) $ 0.17 $ 0.62
=========== =========== ===========
Weighted average shares outstanding 5,118,753 5,190,159 5,811,377
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Deferred Loans To Retained
Shares Amount Capital Compensation Shareholders Earnings Total
---------- ------- ----------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contributions at
inception 5,118,753 $ 1,000 $ 451,000 $ 452,000
Loans to shareholders $ (16,000) (16,000)
Net loss $ (544,605) (544,605)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 5,118,753 1,000 451,000 (16,000) (544,605) (108,605)
Capital contributions 2,323,103 2,323,103
Loans to shareholders (137,359) (137,359)
Deferred compensation pursuant
to employee contract 138,500 $ (138,500)
Amortization of deferred
compensation 75,742 75,742
Net income 873,487 873,487
----------- ----------- ----------- ----------- ----------- ----------- ----------
Balance, December 31, 1995 5,118,753 1,000 2,912,603 (62,758) (153,359) 328,882 3,026,368
Stock issued pursuant to
employee contract 568,747
Loans to shareholders (81,712) (81,712)
Amortization of deferred
compensation 51,336 51,336
Issuance of common stock in
public offering 825,000 5,704,863 5,704,863
Net income 3,584,886 3,584,886
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 6,512,500 $ 1,000 $ 8,617,466 $ (11,422) $ (235,071) $ 3,913,768 $12,285,741
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
August 1, 1994
(Inception)
Through Year Ended
December 31, December 31,
1994 1995 1996
--------------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (544,605) $ 873,487 $ 3,584,886
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of finance contract acquisition
discount and insurance (4,513) (795,579) (358,949)
Amortization of deferred compensation 75,742 51,336
Amortization of debt issuance costs 497,496
Provision for credit losses 45,000 48,702 412,387
Deferred income taxes 199,000 1,876,553
Accretion of excess servicing receivable (154,029)
Unrealized gain on Class B Certificates (388,278)
Changes in operating assets and liabilities:
Restricted cash (138,176) (222,090) 41,751
Cash held in escrow (1,322,571) (1,340,363)
Prepaid expenses and other assets (354,208) (329,747)
Class B Certificates (2,834,502) (7,242,514)
Excess servicing receivable (846,526) (3,246,719)
Accounts payable and accrued liabilities 25,636 1,110,446 (361,496)
Due to/due from affiliate 504,534 (248,937) (158,446)
Purchases of finance contracts (2,453,604) (31,200,131) (83,672,335)
Sales of finance contracts 27,399,543 85,014,394
Repayments of finance contracts 51,638 2,660,018 1,605,461
------------ ------------ ------------
Net cash used in operating activities (2,514,090) (5,457,606) (4,168,612)
------------ ------------ ------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts (525,220) (1,704,783)
Loans to shareholders (16,000) (137,359) (81,712)
Disposal proceeds from repossessions 220,359 646,600
------------ ------------ ------------
Net cash used in investing activities (16,000) (442,220) (1,139,895)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
agreements 2,054,776 (904,355) (1,150,421)
Debt issuance costs (794,834)
Proceeds (repayments) from borrowings under repurchase
agreement 1,061,392 (1,061,392)
Proceeds from notes payable 2,674,597 12,575,248
Payments on notes payable (5,075,212)
Shareholder contributions 452,000 2,323,103
Increase (decrease) in bank overdraft 23,314 837,749 (861,063)
Proceeds from public offering of common stock, net 5,704,863
------------ ------------ ------------
Net cash provided by financing activities 2,530,090 5,992,486 9,337,189
------------ ------------ ------------
Net increase in cash and cash equivalents -0- 92,660 4,028,682
Cash and cash equivalents at beginning of period -0- -0- 92,660
------------ ------------ ------------
Cash and cash equivalents at end of period $ -0- $ 92,660 $ 4,121,342
============ ============ ============
Non-cash investing and financing activities:
Accrual of debt issuance cost $ $ 700,000 $
=========== ============ ============
Repossession of automobiles $ $ 849,756 $ 291,086
=========== ============ ============
Deferred compensation $ $ 138,500 $
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
AutoBond Acceptance Corporation (AAC) was incorporated in June 1993 and
commenced operations August 1, 1994. AAC and its wholly-owned
subsidiaries, AutoBond Funding Corp I (ABF I), AutoBond Funding Corp II
(ABF II), and AutoBond Funding Corp III (ABF III) (collectively, the
Company), engage primarily in the business of acquiring, securitizing
and servicing automobile installment sale contracts originated by
franchised automobile dealers (the Contracts). The Company specializes
in Contracts to consumers who generally have limited access to
traditional financing, such as that provided by commercial banks or
captive finance companies of automobile manufacturers. The Company
purchases Contracts directly from automobile dealers or from other
originators, with the intent to resell them to institution investors in
securitization structures.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AAC and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior years' financial statements to
conform with the current year's presentation.
PERVASIVENESS OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities
of three months or less to be cash equivalents.
RESTRICTED CASH
In accordance with the Company's revolving credit facilities, the
Company is required to maintain a cash reserve with its lenders of 1% to
6% of the proceeds received from the lender for the origination of the
Finance Contracts. Access to these funds is restricted by the lender;
however, such funds may be released in part upon the occurrence of
certain events including payoffs of Finance Contracts.
CASH HELD IN ESCROW
Upon closing of a securitization transaction, certain funds due to the
various parties, including the Company and its warehouse lenders,
frequently remain in escrow pending disbursement by the Trustee one to
eleven days subsequent to closing.
F-7
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued:
TRUST RECEIVABLE
At the time a securitization closes, the Company is required to
establish a cash reserve within the trust for future credit losses.
Additionally, depending on each securitization structure, a portion of
the Company's future servicing cash flow is required to be deposited as
additional reserves for credit losses. The December 1995, March 1996,
June 1996, September 1996 and December 1996 securitization transactions
resulted in initial cash reserves of approximately $525,000, $331,000,
$357,000, $446,000, and $500,000, respectively, which approximates 2% of
the Finance Contracts sold to the respective trusts. The trust reserves
are increased monthly from excess cash flows until such time as they
attain a level of 6% of the outstanding principal balance.
FINANCE CONTRACTS HELD FOR SALE
Finance Contracts held for sale are stated at the lower of aggregated
amortized cost, or market value. Market value is determined based on the
estimated value of the Finance Contracts if securitized and sold.
The Company generally acquires Finance Contracts at a discount, and has
purchased loss default and vender single interest physical damage
insurance on the Finance Contracts. The purchase discount and insurance
are amortized as an adjustment to the related Finance Contract's yield
and operating expense, respectively, utilizing the same basis as that
used to record income on the Finance Contracts, over the contractual
life of the related loans. At the time of sale, any remaining
unamortized amounts are netted against the Finance Contract's principal
amounts outstanding to determine the resultant gain or loss on sale.
Allowance for credit losses on the Finance Contracts is based on the
Company's historical default rate, the liquidation value of the
underlying collateral in the existing portfolio, estimates of
repossession costs and probable recoveries from insurance proceeds. The
allowance is increased by provisions for estimated future credit losses
which are charged against income. The allowance account is reduced for
direct charge-offs using the specific identification method, and for
estimated losses upon repossession of automobiles which is netted
against the related Finance Contracts and transferred to Repossessed
assets held for sale.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of
long-lived assets other than financial instruments, excess servicing
receivables and deferred tax assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation of impairment is
required, the estimated future undiscounted cash flows associated with
the asset would be compared to the asset's carrying amount to determine
if a write-down to market value or discounted cash flow value is
required. No such write-downs were recorded in 1995 or 1996.
REPOSSESSED ASSETS HELD FOR SALE
Automobiles repossessed and held for sale are initially recorded at the
recorded investment in the Finance Contracts on the date of repossession
less an allowance. This value approximates the expected cash proceeds
from the sale of the assets and applicable insurance payments, net of
all disposition costs. Due to the relatively short time period between
acquisition and disposal of the assets, discounting of the expected net
cash proceeds to determine fair value is not utilized.
F-8
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued:
REPOSSESSED ASSETS HELD FOR SALE, Continued
Subsequent impairment reviews are performed quarterly on a disaggregated
basis. A valuation allowance is established if the carrying amount is
greater than the fair value of the assets. Subsequent increases and
decreases in fair value result in adjustment of the valuation allowance
which is recorded in earnings during the period of adjustment.
Adjustments for subsequent increases in fair value are limited to the
existing valuation allowance amount, if any. During each of the periods
presented, no valuation allowance was established. An adjustment of
approximately $300,000 was made in the fourth quarter of 1996 to adjust
for the differences between actual proceeds from sale to the carrying
amounts recorded for repossessed assets, some portion of which may
relate to prior quarters.
CLASS B CERTIFICATES
Pursuant to the securitization transactions, the related Trusts have
issued Class B Certificates to the Company which are subordinate to the
Class A Certificates and senior to the excess servicing receivable with
respect to cash distributions from the Trust. The Company accounts for
the Class B Certificates as trading securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires fair value accounting for these certificates with the
resultant unrealized gain or loss recorded in the statements of
operations in the period of the change in fair value. The company
determines fair value on a disaggregated basis utilizing quotes from
outside dealers who utilize discounted cash flow analyses similar to
that described below for determining market value of the excess
servicing receivable, as well as other unique characteristics such as
the remaining principal balance in relation to estimated future cash
flows and the expected remaining terms of the certificates. Estimated
transaction costs associated with a sale of the Class B Certificates are
not deducted from the fair value determination. During 1996, an
unrealized gain of $388,278 was recognized on the Class B Certificates.
During 1996, the Company's Class B Certificate from their 1995
securitization was upgraded by Fitch Investors Service from BB to BB+.
The Class B Certificates accrue interest at 15%.
EXCESS SERVICING RECEIVABLE
Excess servicing receivable includes the estimated present value of
future net cash flows from securitized receivables over the amounts due
to the Class A and Class B Certificate holders in the securitization and
certain expenses paid by the entity established in connection with the
securitization transaction. The Finance Contracts sold in conjunction
with the securitization transactions are treated as sale transactions in
accordance with SFAS No. 77, 'Reporting by Transferors for Transfers of
Receivables with Recourse.' Gain or loss is recognized on the date the
Company surrenders its control of the future economic benefits relating
to the receivables and the investor has placed its cash in the
securitization trust. Accordingly, all outstanding debt related to the
Finance Contracts sold to the securitization trust is deemed to be
simultaneously extinguished. The Company sells 100% of the Finance
Contracts and retains a participation in the future cash flows released
by the securitization Trustee. The Company also retains the servicing
rights, and contracts with third parties to perform certain aspects of
the servicing function.
F-9
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
EXCESS SERVICING RECEIVABLE, Continued
The discount rate utilized to determine the excess servicing receivable
is based on assumptions that market participants would use for similar
financial instruments subject to prepayment, default, collateral value
and interest rate risks. The future net cash flows are estimated based
on many factors including contractual principal and interest to be
received, as adjusted for expected prepayments, defaults, collateral
sales proceeds, insurance proceeds, payments to investors on the
pass-through securities, servicing fees and other costs associated with
the securitization transaction and related loans. The gain from
securitization transactions include the excess servicing receivable and
Class B Certificates plus the difference between net proceeds received
on the transaction date and the net carrying value of Finance Contracts
held for sale.
The carrying value of the excess servicing receivable is amortized in
proportion to and over the period of estimated net future excess
servicing fee income, for which the amortization is recorded as a charge
against servicing fee income. The excess servicing receivable is
reviewed to determine if the present value of the estimated remaining
future excess servicing fee income is less than the carrying amount
using the discount factor applied in the original determination of the
excess servicing receivable. The Company does not increase the carrying
value of the excess servicing receivable for favorable variances from
original estimates, but to the extent that actual results exceed the
Company's prepayment or loss estimates, any required decrease adjustment
is reflected as a write down of the receivable and a related charge
against current period earnings. Write downs of excess servicing
receivables due to modification of future estimates as a result of the
impairment review are determined on a disaggregated basis consistent
with the risk characteristics of the underlying loans consisting
principally of origination date and originating dealership. There were
no adjustments for impairment to the carrying value of the excess
servicing receivable during 1995 or 1996.
The receipt of the servicing fee income related to the excess servicing
asset is subordinate to the Class A and Class B Certificates. As a
result, the Company recognizes income for the accretion of the discount
associated with the present value effect on the carrying value of the
excess servicing asset. Such accretion amounted to approximately
$154,000 in 1996.
The value of the excess servicing reflects management's estimate of the
net future servicing income on the finance contracts held in each
securitization trust. Such estimate is affected by assumptions such as
repossession rates, uninsured loss amounts, delinquencies, prepayment
rates and timing of cash receipts. If actual results are significantly
different than those assumptions presumed by management in such a manner
as to reduce the amount of excess spread cash flows available than
originally estimated, the excess servicing asset will be impaired. Given
the valuation of the excess servicing asset is affected by a significant
number of assumptions and that changes in such assumptions affect the
amount of cash flows available to the Company, it is at least reasonably
possible that decreases to the value of the excess servicing receivable
will occur in the near term and that the decreases could materially
affect the amounts reported in the income statement.
F-10
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
SOFTWARE DEVELOPMENT COSTS
Software development costs recorded include external costs incurred to
modify the related software from a state of technical feasibility to its
operational form and will be amortized over 5 years, which is its
estimated useful life. No amortization was recorded in 1996, as the
software was not available for use during 1996.
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized
in interest expense over the lives of the related debt.
Debt issuance costs related to the issuance of notes payable
collateralized by Class B Certificates, are amortized on a
dissaggregated basis over the term of the related note using the
interest method. Debt issuance costs related to warehouse credit
facilities are amortized using the straight-line method.
INCOME TAXES
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes represents the tax payable for
the period and the change during the year in deferred tax assets and
liabilities. The Company files a consolidated federal income tax return.
EXTRAORDINARY ITEM
The extraordinary loss recorded in 1996 relates to a $150,000 prepayment
fee on a $2,684,000 term loan that was repaid during 1996. The term loan
carried a stated interest rate of 20% (see Note 6).
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year.
Common share equivalents of 71,406 and 19,489 were used in the
calculation of earnings per share in 1995 and 1996, respectively. Fully
diluted earnings per share are not presented because the relevant stock
options and warrants are not significant. There were no common share
equivalents in 1994. 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.
F-11
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
INTEREST INCOME
Generally, interest income on Finance Contracts acquired prior to
December 31, 1995 is determined on a monthly basis using the Rule of 78s
method which approximates the simple interest method. Subsequent to
December 31, 1995, the Company generally uses the simple interest method
to determine interest income on Finance Contracts acquired. The Company
discontinues accrual of interest on loans past due for more than 90
days. The Company accrues interest income on the Class B Certificates
monthly at 15% using the interest method.
CONCENTRATION OF CREDIT RISK
The Company generally acquires Finance Contracts from a network of
automobile dealers located in thirty-six states, including among others
Texas, Arizona, Oklahoma, New Mexico, Connecticut, Georgia and Utah. For
the years ended December 31, 1995 and 1996, the Company had a
significant concentration of Finance Contracts with borrowers in Texas,
which approximated 91% and 63.7% of total Finance Contracts,
respectively. For the years ended December 31, 1995 and 1996, one dealer
accounted for 8.8% and 8.9%, respectively, of the Finance Contracts
purchased by the Company. No other dealer accounted for more than 10% of
the Finance Contracts purchased.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The statement is
effective for transfers of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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 an effect on earnings per
share calculation.
3. FINANCE CONTRACTS HELD FOR SALE:
The following amounts are included in Finance Contracts held for sale as
of:
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
Principal balance of Finance Contracts
held for sale $3,539,195 $ 266,450
Prepaid insurance 260,155 18,733
Contract acquisition discounts (350,827) (31,554)
Allowance for credit losses (93,702) (25,200)
---------- ----------
$3,354,821 $ 228,429
========== ==========
</TABLE>
F-12
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. EXCESS SERVICING RECEIVABLE AND SECURITIZATIONS:
The Company has completed the following securitization transactions
(rounded to thousands):
<TABLE>
<CAPTION>
December March June September December
1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Principal of loans sold $26,200,000 $16,500,000 $17,800,000 $22,300,000 $25,000,000
A Certificate 26,200,000 16,500,000 17,800,000 22,300,000 25,000,000
A Certificate rate 7.23% 7.15% 7.73% 7.45% 7.37%
B Certificate $ 2,800,000 $ 2,000,000 $ 2,000,000 $ 2,400,000 $ 2,800,000
B Certificate rate 15% 15% 15% 15% 15%
Excess servicing asset $ 846,000 $ 597,000 $ 650,000 $ 1,000,000 $ 1,000,000
Gain on sale 4,100,000 2,800,000 2,900,000 3,320,000 3,800,000
The changes in the excess servicing asset are as follows:
Balance, January 1, 1996 $ 846,526
Additions from securitization transactions 3,246,719
Accretion of discount 154,029
-----------
Balance, December 31, 1996 $ 4,247,274
===========
</TABLE>
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 has not recorded any liability and
has not been obligated to purchase Finance Contracts under the recourse
provisions during any of the reporting periods, however, the Company
repurchased loans with principal balances of $420,000 in total from a
Trust in February 1997. The Company expects that it will recover, under
dealer representations and warranty provisions, the amounts due on the
repurchased loans from the dealership who sold the Company the loans.
F-13
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REVOLVING CREDIT AGREEMENTS:
Effective August 1, 1994, the Company entered into a Secured Revolving
Credit Agreement with Sentry Financial Corporation ('Sentry') which was
amended and restated on July 31, 1995. The amended agreement ('Revolving
Credit Agreement') provides for a $10,000,000 warehouse line of credit
which terminates December 31, 2000, unless terminated earlier by the
Company or Sentry upon meeting certain defined conditions. The proceeds
of the Revolving Credit Agreement are to be used to originate and
acquire Finance Contracts, to pay for loss default insurance premiums,
to make deposits to a reserve account with Sentry, and to pay for fees
associated with the origination of Finance Contracts. The Revolving
Credit Agreement is collateralized by the Finance Contracts acquired
with the outstanding borrowings. Interest is payable monthly and accrues
at a rate of prime plus 1.75% (10.25% and 10% at December 31, 1995 and
1996, respectively). The Revolving Credit Agreement contains certain
restrictive covenants, including requirements to maintain a certain
minimum net worth, and cash and cash equivalent balances. Under the
Revolving Credit Agreement, the Company paid interest of $411,915 and
$220,674 for the years ended December 31, 1995 and 1996, respectively.
Pursuant to the Revolving Credit Agreement, the Company is required to
pay a $700,000 warehouse facility fee payable upon the successful
securitization of Finance Contracts. The $700,000 was payable in varying
amounts after each of the first three securitizations. The Company
accrued the $700,000 debt issuance cost upon the first securitization in
December 1995, the date the Company determined the liability to be
probable in accordance with SFAS No. 5. The $700,000 debt issuance cost
is being amortized as interest expense on a straight line basis through
December 31, 2000, the termination date of the Revolving Credit
Agreement. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance of the Revolving Credit Agreement.
The Revolving Credit Agreement also requires the Company to pay up to
0.62% per quarter on the average unused balance. At December 31, 1996,
$10,000,000 was available for borrowings under the credit line as there
were no amounts outstanding at that date.
Effective June 16, 1995, the Company entered into a $25,000,000 Credit
Agreement with Nomura Asset Capital Corporation ('Nomura') which allowed
for advances to the Company through June 2000 with all outstanding
amounts to mature June 2005. Advances outstanding under the facility
accrued interest at the three month LIBOR rate plus 6.75% which
approximated 12.59% at December 31, 1995. The warehouse facility allowed
Nomura to terminate the agreement upon 120 days notice. On October 6,
1995, the Company received notice of Nomura's intent to terminate, and
all outstanding advance amounts together with accrued interest were paid
by the Company prior to March 31, 1996. No advances under the Nomura
credit facility were outstanding at December 31, 1996.
F-14
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REVOLVING CREDIT AGREEMENTS, Continued:
Effective May 21, 1996 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into a $20 million revolving
warehouse facility (the 'Revolving Warehouse Facility'), with Peoples
Security Life Insurance Company (an affiliate of Providian Capital
Management), which expired December 15, 1996. The proceeds from the
borrowings under the Revolving Warehouse Facility were used to acquire
Finance Contracts, to pay credit default insurance premiums and to make
deposits to a reserve account. Interest was payable monthly at a per
annum rate of LIBOR plus 2.60%. The Revolving Warehouse Facility also
required the Company to pay a monthly fee on the average unused balance
of 0.25% per annum. The Revolving Warehouse Facility was collateralized
by the Finance Contracts acquired with the outstanding borrowings. The
Revolving Warehouse Facility contains certain covenants and
representations similar to those in the agreements governing the
Company's existing securitizations. No advances under the Revolving
Warehouse Facility were outstanding at December 31, 1996.
The interest rate on borrowings under revolving credit agreements ranged
from 8% to 10% for the year ended December 31, 1996.
6. NOTES PAYABLE:
Pursuant to the securitization completed in December 1995, the Company
entered into a term loan agreement with a finance company to borrow
approximately $2,684,000. The loan was collateralized by the Company's
Class B Certificates from its 1995 securitization as well as the excess
servicing receivable from the cash flows of the related Trust (see Note
4). The loan accrued interest at 20% per annum payable monthly and
principal payments were made based on principal payments received on the
Class B Certificates.
Effective April 8, 1996, the outstanding balance of $2,585,757 was
refinanced through a non-recourse term loan entered into with a new
finance company. The term loan is collateralized by the Company's Class
B Certificates, and matures April 8, 2002. The term loan bears interest
at 15% per annum payable monthly. Principal and interest payments on the
term loan are paid directly by the Trustee to the finance company and
are based on payments required to be made to the Class B Certificate
holders pursuant to the Trust. The Company can prepay the term loan in
whole or part at any time if the holder seeks to transfer such loan to a
third party.
Effective March 28, 1996, the Company obtained another non-recourse term
loan in the amount of $2,059,214 from an institutional investor under
similar terms as described in the preceding paragraph. The loan is
collateralized by the Class B Certificates issued to the Company
pursuant to the March 29, 1996 securitization transaction. The Company
may prepay the loan in whole or in part at any time subsequent to March
28, 1997, or any time after receiving notice by the investor of its
intent to transfer the loan to a third party. The maturity date of the
loan is the earlier of March 28, 2002 or the date that all outstanding
principal and accrued interest has been paid by the Trustee or the
Company.
F-15
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. NOTES PAYABLE, Continued:
Effective June 27, 1996, the Company obtained a third non-recourse term
loan in the amount of $2,066,410 from an institutional investor under
similar terms as described in the preceding two paragraphs. The loan is
collateralized by the Class B Certificates issued to the Company
pursuant to the June 27, 1996 securitization transaction. The Company
may prepay the loan in whole or in part at any time subsequent to June
27, 1997, or any time after receiving notice by the investor of its
intent to transfer the loan to a third party. The maturity date of the
loan is the earlier of June 26, 2002 or the date that all outstanding
principal and accrued interest has been paid by the Trustee or the
Company.
Effective September 30, 1996 and December 27, 1996, the Company obtained
non-recourse term loans for $2,403,027 and $2,802,891, respectively,
from institutional investors under similar terms as described above. The
loans are collateralized by the Class B Certificates issued to the
Company pursuant to the September 30, 1996 and December 27, 1996
securitization transactions. The Company may prepay the loans in whole
or in part at any time subsequent to September 30, 1997, or any time
after receiving notice by the investor of its intent to transfer the
loan to a third party. The maturity date for the loans is September 30,
2002 and December 31, 2002, respectively.
During July 1996, a private investment management company entered into a
commitment agreement to provide the Company financing collateralized by
the senior excess spread interests to be created in the Company's next
five proposed securitization transactions. Timing and amount of payments
of interest and principal on the loans will correspond to distributions
from the securitization trusts on the Class B Certificates. The interest
rate on such loans will be 15% per annum, payable monthly and the
borrowings will include a 3% origination fee. The commitment is subject
to the Company's ability to continue meeting several provisions,
including: (1) similarly structured securitization transactions; (2) the
absence of rating downgrades and defaults from previous securitization;
and (3) satisfactory performance reports.
7. REPURCHASE AGREEMENT:
On December 20, 1995, the Company entered into an agreement to sell
certain Finance Contracts totaling $1,061,392 to a finance company, and
repurchase such Finance Contracts in January 1996 for an amount equal to
the remaining unpaid principal balance plus interest accruing at an
annual rate of 19%.
The Company repurchased such Finance Contracts during January 1996 in
accordance with the terms of the agreement.
8. INITIAL PUBLIC OFFERING:
On November 14, 1996, the Company and Selling Shareholders sold 750,000
and 250,000, respectively, of shares of common stock in an initial
public offering at a price of $10 per share. The net proceeds from the
issuance and sale of common stock amounted to approximately $5,000,000
after deducting underwriter discounts and issuer expenses. Portions of
the net proceeds were used (i) to prepay outstanding subordinated debt
of approximately $300,000 plus accrued interest, (ii) to repay advances
under Revolving Credit Facilities, and (iii) for general corporate and
working capital purposes.
F-16
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. INITIAL PUBLIC OFFERING, Continued:
The underwriters of the Company's initial public offering purchased an
additional 75,000 shares of the Company's common stock at $10 per share
by exercising half of their over-allotment option. The net proceeds from
the issuance and sale of these shares amounted to approximately $700,000
after deducting underwriter's discounts.
9. INCOME TAXES:
The provision for income taxes for 1996 consists of a deferred tax
provision of $1,926,553 and no current liability. The provision for
income taxes for 1995 consists of a deferred tax provision of $199,000
and no current liability. Due to net losses incurred from inception
through December 31, 1994, the Company has no provision in 1994. The
reconciliation between the provision for income taxes and the amounts
that would result from applying the Federal statutory rate is as
follows:
<TABLE>
<CAPTION>
Period From
August 1, 1994
(Inception) Year Ended
December 31, December 31,
1994 1995 1996
-------------- ------------ --------
<S> <C> <C> <C>
Federal tax at statutory rate
of 34% $ (185,166) $ 364,646 $ 1,907,889
Nondeductible expenses 2,166 17,354 18,664
Change in valuation allowance 183,000 (183,000) --
----------- ----------- -----------
Provision for income taxes $ -- $ 199,000 $ 1,926,553
=========== =========== ===========
</TABLE>
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and income tax purposes
Significant components of the Company's net deferred tax liability are
as follows:
<TABLE>
<CAPTION>
December 31,
1995 1996
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for credit losses $ 31,859 $ 16,728
Costs related to securitizations 19,664 491,935
Other 106,424 3,883
Net operating loss carryforwards 1,032,396 2,792,067
----------- -----------
Gross deferred tax assets 1,190,343 3,304,613
----------- -----------
Deferred Tax Liabilities:
Gain on securitization 1,389,343 5,242,372
Other -- 137,794
----------- -----------
Gross deferred tax liabilities 1,389,343 5,380,166
----------- -----------
Net deferred tax liabilities $ 199,000 $ 2,075,553
=========== ===========
</TABLE>
At December 31, 1996, the Company had tax net operating loss
carryforwards of approximately $8,212,000 which will expire in fiscal
years 2009 through 2011.
F-17
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. STOCKHOLDERS' EQUITY:
Effective May 30, 1996, the Board of Directors adopted Restated Articles
of Incorporation which authorized 25,000,000 shares of no par value
common stock and 5,000,000 shares of no par value preferred stock.
STOCK BASED COMPENSATION PLAN
The Company grants stock options under a stock-based incentive
compensation plan (the "Plan"). The Company applies Accounting
Principles Board Opinion 25 and related Interpretations in accounting
for the Plan. In 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued, which, if fully adopted by the
Company, would change the methods the Company applies in recognizing the
cost of the Plan. Adoption of the cost recognition provisions of SFAS
123 is optional and the Company has decided not to elect these
provisions of SFAS 123. However, pro forma disclosures as if the Company
adopted the expense recognition provisions of SFAS 123 for 1996 are
required by SFAS 123 and are presented below.
Under the Plan, the Company is authorized to issue shares of Common
Stock pursuant to "Awards" granted in various forms, including incentive
stock options (intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended), non-qualified stock options, and
other similar stock- based Awards. The Company granted stock options in
1996 under the Plan in the form of non-qualified stock options.
STOCK OPTIONS
The Company granted stock options in 1996 to employees and directors.
The stock options granted in 1996 have contractual terms of 10 years.
All options granted to the employees and directors have an exercise
price no less than the fair market value of the stock at grant date. The
options granted in 1996 vest, 33.33% per year, beginning on the first
anniversary of the date of grant. The Company granted 274,500 options in
1996 and 1 warrant for 100,000 shares of stock (collectively, "stock
options"). The warrant is fully exercisable after 1 year.
In accordance with APB 25, the Company has not recognized any
compensation cost for these stock options granted in 1996.
A summary of the status of the Company's stock options as of December
31, 1996 and the changes during the year ended is presented below:
STOCK OPTIONS
<TABLE>
<CAPTION>
1996
-------------------------
Weighted
# Shares of Average
Underlying Exercise
Options Prices
----------- ---------
<S> <C> <C>
Outstanding at beginning of the year 0 n/a
Granted at-the-money 274,500 $10.06
Granted at a premium 100,000 $12.00
-------
Total granted 374,500 $10.58
======= ======
Outstanding at end of year 374,500 $10.58
======= ======
Exercisable at end of year 0 n/a
Weighted-average FV of options granted at-the-money $ 4.88
Weighted-average FV of warrants granted at a premium $ 4.65
Weighted-average FV of options granted during the year $ 4.82
</TABLE>
F-18
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. STOCKHOLDERS' EQUITY, Continued:
STOCK OPTIONS, Continued
The fair value of each stock option and warrant granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 1996: dividend
yield of 0.00% for both years; risk-free interest rates are different
for each grant and range from 5.89% to 6.06%; the expected lives of
options are estimated to be 5 years; and a volatility of 46.46% for all
grants.
As of December 31, 1996, 374,500 options are outstanding with none
bearing exercisable and a weighted-average contractual life of all stock
options being 9.93 years.
PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE
Had the compensation cost for the Company's stock-based compensation
plan been determined consistent with SFAS 123, the Company's net income
and net income per common share for 1996 would approximate the pro forma
amounts below:
<TABLE>
<CAPTION>
As Reported Pro Forma
December 31, December 31,
1996 1996
------------ --------
<S> <C> <C>
SFAS 123 Charge, pre-tax - $1,804,560
APB 25 Charge - -
Net income $3,584,886 $2,393,876
Net income per common share $ .62 $ .41
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
1995.
WARRANTS
The Company issued to its underwriters of their initial public offering
a warrant to purchase up to 100,000 common shares of the Company's
common stock at a price per share equal to $12.00. The warrant is
exercisable after one year from November 14, 1996, or earlier if the
Company effects certain registrations of its common stock.
In addition to subordinated debt issued March 12, 1996, which was not
outstanding at December 31, 1996, a detachable warrant was issued to an
individual for the purchase of 18,811 shares of common stock at an
exercise price equal to the fair market value as of March 12, 1996, the
date of grant. The warrant is exercisable in full or in part during the
period commencing six months after the effective date of the Company's
initial public offering and ending 1.5 years thereafter. Management has
determined that the fair value of the warrant at its issuance date was
de minimus.
F-19
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. STOCKHOLDERS' EQUITY, Continued:
PREFERRED STOCK
Pursuant to the Company's Amended Articles of Incorporation, the Company
is authorized to issue from time to time up to 5,000,000 shares of
Preferred Stock, in one or more series. The Board of Directors is
authorized to fix the dividend rights, dividend rates, any conversion
rights or right of exchange, any voting right, any rights and terms of
redemption (including sinking fund provisions), the redemption rights or
prices, the liquidation preferences and any other rights, preferences,
privileges and restrictions of any series of Preferred Stock and the
number of shares constituting such series and the designation thereof.
There were no shares of Preferred Stock issued or outstanding during
1995 or 1996.
11. RELATED PARTY TRANSACTIONS:
Prior to January 1, 1996 the Company shared certain general and
administrative expenses with AutoBond, Inc. ('ABI'), which was founded
and is 100% owned by the Chief Executive Officer ('CEO') of the Company.
The CEO owns 56.59% of the Company. Each entity was allocated expenses
based on a proportional cost method, whereby payroll costs were
allocated based on management's review of each individual's
responsibilities, and costs related to office space and equipment
rentals were based on management's best estimate of usage during the
year. Miscellaneous expenses were allocated based on the specific
purposes for which each expense related. Management believes the methods
used to allocate the general and administrative expenses shared with ABI
were reasonable, and that the expenses reported in the financial
statements after the ABI allocations approximate the expenses that would
have been incurred on a stand-alone entity basis. Total expenses
allocated to the Company from ABI amounted to approximately $441,000 for
the period from August 1, 1994 (inception) to December 31, 1994 and
$2,163,000 for the year ended December 31, 1995. Additionally, neither
the Company nor any of its affiliates had paid any compensation to its
CEO during 1994 or 1995; however, management of the Company commenced
compensation payments to the CEO during the latter half of 1996 (see
Note 12). The Company estimated that a reasonable amount of compensation
to pay the CEO on a stand-alone entity basis would approximate $40,000
and $100,000 for the five months ended December 31, 1994 and the year
ended December 31, 1995.
The Company advanced approximately $132,000 and $201,000 as of December
31, 1995 and December 31, 1996, respectively, to William Winsauer, CEO
and majority shareholder of the Company, and approximately $21,000 and
$34,000 as of December 31, 1995 and December 31, 1996, respectively, to
John Winsauer, a significant shareholder of the Company. The advances
are non-interest bearing amounts that have no repayment terms and are
shown as a reduction of shareholders' equity. As of March 20, 1997,
these loans were repaid in full.
F-20
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS, Continued:
The Company and ABI entered into a management agreement dated as of
January 1, 1996 (the 'ABI Management Agreement') which requires ABI to
pay an annual fee of $50,000 to the Company for services rendered by it
or the Company's employees on behalf of ABI as follows: (i) monitoring
the performance of certain partnership interests owned by ABI and its
sole shareholder, (ii) certain cash management services, including the
advancing of funds to pay ABI's ordinary business expenses and (iii)
providing advice as to regulatory compliance. The ABI Management
Agreement also provides that the Company will perform certain accounting
functions on behalf of ABI including (i) maintenance of financial books
and records, (ii) monitoring of cash management functions, (iii)
preparation of financial statements and tax returns and (iv) providing
advice in connection with retention of independent accountants. The ABI
Management Agreement further provides for the reimbursement of advances
made by the Company for out-of-pocket costs and expenses incurred on
behalf of ABI. Amounts due to the Company under the ABI Management
Agreement amounted to $143,547 at December 31, 1996.
12. EMPLOYMENT AGREEMENTS:
During 1995 and 1996, the Company entered into three-year employment
agreements with two officers of the Company. One employment agreement is
dated November 15, 1995 and is effective from such date through November
15, 1998. This agreement is automatically extended unless the Company
gives six months notice of its intent not to extend the terms of the
agreement. This agreement provides for a minimum monthly salary of
$12,500, together with shares of the Company's common stock, issued
January 1, 1996, equal to 10% of the outstanding shares after giving
effect to the shares issued to the employee. Half of such issued shares
are not subject to forfeiture whereas the remaining 50% are subject to
forfeiture. Equal amounts of the forfeitable shares bear no risk of
forfeiture upon the officer remaining employed as of November 15, 1996
and November 15, 1997, respectively.
The Company valued the shares issued January 1, 1996 based on an
independent appraisal of the Company as of November 15, 1995, the
measurement date, and recorded an increase to additional paid-in capital
and deferred compensation of $138,500. Deferred compensation is
amortized on a straight-line basis over the two forfeiture periods
ending November 15, 1997 resulting in compensation expense of $75,742
and $51,336 for the years ended December 31, 1995 and 1996,
respectively.
The second employment agreement is dated May 31, 1996, and is effective
from such date for five years. The agreement provides for compensation
at a base salary of $240,000 per annum, which may be increased and may
be decreased to an amount of not less than $240,000, at the discretion
of the Board of Directors. The agreement entitles the chief executive
officer to receive the benefits of any cash incentive compensation as
may be granted by the Board to employees, and to participate in any
executive bonus or incentive plan established by the Board of Directors.
The agreement also provides the officer with certain additional
benefits.
F-21
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. EMPLOYMENT AGREEMENTS, Continued:
The agreement automatically terminates upon (i) the death of the
officer, (ii) disability of the officer for six continuous months
together with the likelihood that the officer will be unable to perform
his duties for the following continuous six months, as determined by the
Board of Directors, (iii) termination of the officer 'for cause' (which
termination requires the vote of a majority of the Board) or (iv) the
occurrence of the five-year expiration date provided, however, the
agreement may be extended for successive one-year intervals unless
either party elects to terminate the agreement in a prior written
notice. The officer may terminate his employment for 'good reason' as
defined in the agreement. In the event of the officer's termination for
cause, the agreement provides that the Company shall pay the officer his
base salary through the date of termination and the vested portion of
any incentive compensation plan to which the officer may be entitled.
Other than following a change in control, if the Company terminates the
officer in breach of the agreement, or if the officer terminates his
employment for good reason, the Company must pay the officer: (i) his
base salary through the date of termination; (ii) a severance payment
equal to the base salary multiplied by the number of years remaining
under the agreement; and (iii) in the case of breach by the Company of
the agreement, all other damages to which the officer may be entitled as
a result of such breach, including lost benefits under retirement and
incentive plans.
In the event of the officer's termination following a change in control,
the Company is required to pay the officer an amount equal to three
times the sum of (i) his base salary, (ii) his annual management
incentive compensation and (iii) his planned level of annual
perquisites. The agreement also provides for indemnification of the
officer for any costs or liabilities incurred by the officer in
connection with his employment.
13. COMMITMENTS AND CONTINGENCIES:
An affiliate of the Company leases office space, furniture, fixtures and
equipment under operating leases and during 1995 allocated a significant
portion of such costs to the Company based on estimated usage (see Note
11).
Future minimum lease payments (which reflect leases having noncancelable
lease terms in excess of one year) are as follows for the year ended
December 31:
<TABLE>
<CAPTION>
Operating
Leases
--------
<S> <C>
1997 $542,580
1998 305,697
1999 91,847
2000 16,567
2001 --
Thereafter --
--------
956,691
========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 were approximately $524,000, $351,000, and $61,000,
respectively.
F-22
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. COMMITMENTS AND CONTINGENCIES, Continued:
The Company guaranteed a working capital line entered into by the
Company's majority shareholder. Total borrowings of $2,250,000 under
such line of credit were contributed to the Company as additional
paid-in capital during the year ended December 31, 1995. The
indebtedness of the majority shareholder is repaid from and
collateralized by a portion of cash flows from Finance Contracts
underlying certain securitization transactions completed by the majority
shareholder and affiliates owned by the majority shareholder. The
outstanding balance guaranteed by the Company at December 31, 1995 was
approximately $2,000,000. All amounts outstanding under the working
capital line, if any, are expected to be repaid from the sale of a
portion of the majority shareholder's common stock upon successful
completion by the Company of an initial public offering. In April 1996,
the Company made a payment of $89,000 as a principal reduction in the
working capital line to bring the outstanding balance to the maximum
permitted outstanding amount as of March 31, 1996. Effective September
26, 1996 the Company was released from its guarantee of the
shareholder's debt for a release fee of $125,000.
The Company is the plaintiff or the defendant in several legal
proceedings that its management considers to be the normal kinds of
actions to which an enterprise of its size and nature might be subject,
and not to be material to the Company's overall business or financial
condition, results of operations or cash flows.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value amounts have been determined by the Company,
using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company would realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value.
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those investments.
NOTE PAYABLE, REVOLVING CREDIT BORROWINGS AND REPURCHASE AGREEMENT
The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities and
characteristics. The revolving credit lines are variable rate loans,
resulting in a fair value that approximates carrying cost at December
31, 1996. Additionally, due to the December borrowing date, the note
payable and repurchase agreement fair values approximated cost at
December 31, 1995.
FINANCE CONTRACTS HELD FOR SALE
The fair value of Finance Contracts held for sale is based on the
estimated proceeds expected on securitization of the Finance Contracts
held for sale.
F-23
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued:
EXCESS SERVICING RECEIVABLE
The fair value is determined based on discounted future net cash flows
utilizing a discount rate that market participants would use for
financial instruments with similar risks. Due to the nature of this
financial instrument and the relative recency of the securitization
transaction date, the carrying amount approximates fair value.
The estimated fair values of the Company's financial instruments at
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 92,660 $ 92,660 $ 4,121,342 $ 4,121,342
Finance Contracts held for sale, net 3,354,821 3,854,821 228,428 228,428
Class B Certificates 2,834,502 2,834,502 10,465,294 10,465,294
Excess servicing receivable 846,526 846,526 4,247,274 4,247,274
Note payable 2,674,597 2,674,597 10,174,633 10,174,633
Revolving credit borrowings 1,150,421 1,150,421 -- --
Repurchase agreement 1,061,392 1,061,392 -- --
</TABLE>
15. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Supplemental cash flow information with respect to payments of interest
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Interest paid $ 19,196 $2,099,867 $1,885,322
</TABLE>
No income taxes were paid during fiscal 1994, 1995 or 1996.
16. SUBSEQUENT EVENTS:
Effective February 5, 1997, the Company through its wholly owned
subsidiary AutoBond Funding II, obtained a warehouse line of credit of
$50,000,000 with Daiwa Finance Corporation for a fourteen month period.
This line of credit does not require that the loans funded be covered by
default deficiency insurance. The interest rate applied to this line of
credit is the lesser of (x) 30 day LIBOR plus 1.15% or (y) 11% per
annum. The agreement requires the Company pay a non-utilization fee of
.25% per annum on the amount of the line unused. Pursuant to this line
of credit, the Company paid a $243,750 commitment fee. The Debt issuance
costs will be amortized as interest expense through April 1998,
utilizing the effective interest method.
In January 1997, the Company granted 40,000 options to officers and
employees.
F-24
<PAGE>
<PAGE>
SCHEDULE II
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance Charged Balance
at Beginning Cost and at End
Description of Period Expenses Deductions (A) of Period
----------- ------------ --------- -------------- ----------
<S> <C> <C> <C> <C>
Allowance for Credit Losses:
Period from August 1, 1994
(Inception) to December 31, 1994 $ -- $ 45,000 $ -- $ 45,000
Year ended December 31, 1995 $ 45,000 $ 48,702 $ -- $ 93,702
Year ended December 31, 1996 $ 93,702 $412,387 $(480,889) $ 25,200
</TABLE>
(A) Deductions in 1996 were write-offs of uncollectible finance contracts.
S-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
---------- ---------------------- --------
<S> <C> <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
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 dated February 15, 1996 between
Charles A. Pond and the Company
10.10* -- Employment Agreement effective as of May 1, 1996 between
William O. Winsauer and the Company
10.11* -- Vender's Comprehensive Single Interest Insurance Policy and
Endorsements, issued by Interstate Fire & Casualty Company
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
10.12* -- Warrant to Purchase Common Stock of the Company dated
March 12, 1996
10.13* -- Employee Stock Option Plan
10.14* -- Dealer Agreement dated November 9, 1994, between the
Company and Charlie Thomas Ford, Inc.
10.15* -- Automobile Loan Sale Agreement, dated as of September 30,
1996, among the Company, First Fidelity Acceptance Corp.,
and Greenwich Capital Financial Products, Inc.
10.16 -- Servicing Agreement, dated as of January 29, 1997,
between CSC LOGIC/MSA L.P.P., doing business as "Loan
Servicing Enterprise" and the Company
10.17 -- Credit Agreement, dated as of February 1, 1997, among
AutoBond Funding Corporation II, the Company and Daiwa
Finance Corporation
10.18 -- Security Agreement, dated as of February 1, 1997, by and
among AutoBond Funding Corporation II, the Company and
Norwest Bank Minnesota, National Association
10.19 -- Automobile Loan Sale Agreement, dated as of March 19,
1997, by and between Credit Suisse First Boston
Mortgage Capital L.L.C., a Delaware limited liability
company, and the Company
16.1* -- Change in certifying accountant's letter
21'D' -- Subsidiaries of the Company
27.1'D' -- Financial Data Schedule
</TABLE>
ii
<PAGE>
<PAGE>
* Incorporated by reference from the Company's Registration Statement on
Form S-1
(Registration No. 333-05359).
'D' Filed herewith.
iii
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as .................'D'
<PAGE>
<PAGE>
[CONFORMED COPY]
================================================================================
SERVICING AGREEMENT
between
CSC LOGIC/MSA L.L.P.,
doing business as "Loan Servicing Enterprise",
as Servicer
and
AUTOBOND ACCEPTANCE CORPORATION,
Individually and as Collection Agent
Dated as of January 29, 1997
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION..................... 1
SECTION 1.01. Defined Terms...................................................... 1
SECTION 1.02. Rules of Interpretation............................................ 8
ARTICLE II
SERVICING OF TRUST ASSETS................................ 9
SECTION 2.01. Appointment of Servicer............................................ 9
SECTION 2.02. Subservicing Agreements Between
Servicer and Subservicer........................................... 9
SECTION 2.03. Representations and Warranties of
the Servicer....................................................... 11
SECTION 2.04. Duties and Responsibilities of the
Servicer........................................................... 13
SECTION 2.05. Fidelity Bond, Errors and Omissions
Insurance; Contingent Disaster
Relief Protection.................................................. 15
SECTION 2.06. Inspection......................................................... 16
SECTION 2.07. Possession and Payment of
Receivables........................................................ 17
SECTION 2.08. Monthly Servicing Fee; Servicing
Expenses........................................................... 17
SECTION 2.09. Collection Agent To Maintain
Computer Link...................................................... 18
SECTION 2.10. Resignation or Termination of
Servicer........................................................... 18
SECTION 2.11. [Reserved]......................................................... 19
SECTION 2.12. Events of Termination.............................................. 19
SECTION 2.13. Appointment of the Successor
Servicer........................................................... 21
SECTION 2.14. Effect of Service Transfer......................................... 22
SECTION 2.15. Annual Reports; Statements as to
Compliance......................................................... 22
SECTION 2.16. [Reserved.......................................................... 22
SECTION 2.17. Servicer Reports................................................... 22
SECTION 2.18. Confidentiality.................................................... 23
SECTION 2.19. [Reserved.......................................................... 24
SECTION 2.20. Standard of Care................................................... 24
ARTICLE III
COLLECTION AGENT......................................... 24
SECTION 3.01. AutoBond as Collection Agent....................................... 24
SECTION 3.02. Representations and Warranties of
AutoBond........................................................... 25
</TABLE>
- i -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.03. Duties and Responsibilities of the
Collection Agent................................................... 27
SECTION 3.04. [Reserved]......................................................... 27
SECTION 3.05. [Reserved]......................................................... 28
SECTION 3.06. [Reserved]......................................................... 28
SECTION 3.07. [Reserved]......................................................... 28
SECTION 3.08. Repossession and Disposal.......................................... 28
SECTION 3.09. Standard of Care................................................... 29
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES.................... 29
SECTION 4.01. Liabilities of Obligors............................................ 29
SECTION 4.02. Limitation on Liability of the
Servicer........................................................... 29
SECTION 4.03. Indemnities of the Servicer and the
Collection Agent................................................... 30
ARTICLE V
MISCELLANEOUS.......................................... 31
SECTION 5.01. Beneficiaries...................................................... 31
SECTION 5.02. Amendment.......................................................... 31
SECTION 5.03. Notices............................................................ 31
SECTION 5.04. Severability of Provisions......................................... 32
SECTION 5.05. GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY TRIAL................................. 32
SECTION 5.06. Counterparts....................................................... 33
SECTION 5.07. [Reserved]......................................................... 33
SCHEDULE - DESIGNATED AUTO LOANS
EXHIBITS
EXHIBIT A - FORM OF TRUST RECEIPT
EXHIBIT B - FORM OF MONTHLY SERVICER REPORT
EXHIBIT C - AUTOBOND PROGRAM MANUAL
</TABLE>
- ii -
<PAGE>
<PAGE>
SERVICING AGREEMENT, dated as of January 29, 1997 (this "Agreement"),
between CSC LOGIC/MSA L.L.P., a Texas limited liability partnership doing
business as "Loan Servicing Enterprise," in its capacity as servicer (the
"Servicer") and AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation,
individually ("AutoBond") and as collection agent (the "Collection Agent).
W I T N E S S E T H:
WHEREAS, AutoBond and its Affiliates have from time to time acquired
and will acquire, or will act as Collection Agent in respect of, certain Auto
Loans (as defined herein);
WHEREAS, AutoBond desires that a servicer be appointed to perform
certain servicing and insurance tracking functions in respect of the Auto Loans;
WHEREAS, CSC Logic/MSA L.L.P. has been requested and is
willing to act as the Servicer hereunder;
WHEREAS, AutoBond and the Servicer desire that AutoBond act as
Collection Agent hereunder and AutoBond has agreed to so act; and
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms. As used herein, the following terms
shall have the following meanings:
"Adverse Claim" means 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.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such
Person, directly or
<PAGE>
<PAGE>
indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"Agreement" means this Servicing Agreement, as amended or supplemented
from time to time in accordance with the terms hereof, including all
exhibits and schedules hereto.
"AutoBond" means AutoBond Acceptance Corporation, a Texas corporation.
"AutoBond Program Manual" means the AutoBond Program Manual (including
the Credit and Collection Policies) attached hereto as Exhibit C, as
modified from time to time.
"Auto Loan" means a fixed-rate, closed-end consumer installment
automobile loan which finances the purchase of a new or used
automobile, light-duty truck or van, which loan is secured by a lien
and security interest in such financed vehicle in favor of the loan
holder, and listed on Schedule I hereto, as supplemented from time to
time by AutoBond.
"Business Day" means any day other than a Saturday or a Sunday, or
another day on which banks in Texas (or such other cities or states in
which the principal administrative offices of AutoBond or the principal
offices of the Servicer or AutoBond are subsequently located, as
specified in writing by AutoBond to the other parties hereto) are
required, or authorized by law, to close.
"Closing Date" means January 29, 1997.
"Collection Account" means each of the accounts in the name of, and
controlled by, AutoBond or its designee and designated by AutoBond to
the Servicer.
"Collection Agent" means AutoBond, in its capacity as
Collection Agent hereunder.
"Credit Endorsement" means the deficiency balance endorsement issued
under the VSI Policy.
"Cut-Off Date" means January 29, 1997, with respect to the Auto Loans
designated on the Closing Date, and with respect to subsequent Auto
Loans designated hereunder, the later to occur of (a) last Business Day
of the calendar month preceding such Transfer Date and (b) the
origination date of such Auto Loans.
- 2 -
<PAGE>
<PAGE>
"Dealer" means each automobile dealer with whom AutoBond or an
Originator has entered into a Dealer Agreement.
"Dealer Agreement" means each agreement between a Dealer and either
AutoBond or an Originator which provides for, among other things,
acquisition of the Auto Loans.
"Debt" means 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.
"Determination Date" means the 10th day of each month (or the preceding
Business Day, if such day is not a Business Day).
"Due Period" means each calendar month.
"Electronic Ledger" means the electronic master record of the
Receivables maintained by the Servicer.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
- 3 -
<PAGE>
<PAGE>
"Event of Termination" has the meaning specified in Section 2.12
hereunder.
"Financed Vehicle" means a new or used automobile, van or light-duty
truck, the purchase of which the Obligor financed with an Auto Loan.
"Governmental Authority" means 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.
"Independent Public Accountant" means any of (a) Arthur Andersen & Co.,
(b) Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young, (e)
KPMG Peat Marwick and (f) Price Waterhouse (and any successors
thereof); provided, that such firm is independent with respect to
AutoBond, the Servicer or any Subservicer, as the case may be, within
the meaning of the Securities Act of 1933, as amended.
"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, or a
binder in respect thereof or a copy of the original confirmation of
payment of premiums required under the VSI Policy.
"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 AutoBond Credit and Collection
Policies.
"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, 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 Lockbox Bank.
"Lockbox Bank" means Banc One, Texas, N.A.
- 4 -
<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 added under this Agreement during the
previous Due Period, and (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 this Agreement at any time during such Due
Period.
"Net Payoff Balance" means, in respect of any Precomputed Receivables,
the net payoff less any accrued but unpaid late charges.
"Net Principal Balance" means, 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" means, (a) with respect to any Liquidated
Receivables, 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.
"Obligor" means, with respect to any Receivable, the Person primarily
obligated to make payments in respect thereto.
"Officer's Certificate" means, 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.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to AutoBond or the Servicer), which opinion is acceptable to
AutoBond.
"Original Principal Balance" means 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.
"Originator" means any Person, other than AutoBond, that acquires Auto
Loans directly from a Dealer.
- 5 -
<PAGE>
<PAGE>
"Payment Date" means, initially, February 15, 1997 and thereafter the
15th day (or if such day is not a Business Day, the next succeeding
Business Day) of each month.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
association, joint venture, Governmental Authority or any other entity
of whatever nature.
"Post-Sale Adjustment" has the meaning specified in
Section 3.08(c).
"Precomputed Receivable" means 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".
"Receivable" means 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 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, (b) all guarantees, indemnities and warranties, proceeds of
insurance policies (including the VSI Policy), 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, (c) all collections and all related Loan Documents,
Loan Files and records with respect to the foregoing, and (d) all
proceeds of any of the foregoing.
"Records" means 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 AutoBond with respect to Receivables and the related
Obligors.
"Responsible Officer" means, with respect to any Person, the Person,
any Vice President, any Assistant Vice President, any Assistant
Secretary, any Assistant Treasurer or any other officer of such Person
- 6 -
<PAGE>
<PAGE>
customarily performing functions similar to those performed by any of
the above-designated officers and also, with respect to a particular
matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular
subject.
"Scheduled Payment" means a payment due on an Auto Loan in accordance
with its terms.
"Service Transfer" has the meaning specified in Section 2.12.
"Servicer" means CSC Logic/MSA L.L.P., a Texas limited liability
partnership doing business as "Loan Servicing Enterprises," in its
capacity as servicer under the Servicing Agreement and any successor
thereto in accordance hereunder.
"Servicer Duties" has the meaning specified in Section 2.04(a).
"Servicer Report" has the meaning specified in Section 2.17.
"Servicing Officer" means any officer or employee of the Servicer
involved in, or responsible for, the administration and servicing of
Receivables whose name appears on a list of servicing officers attached
to Officer's Certificates furnished to AutoBond by the Servicer, as
such list may be amended from time to time by the party furnishing any
such Officer's Certificate.
"Subservicer" means any Person with whom the Servicer enters into a
Subservicing Agreement.
"Subservicing Agreement" means any written contract between the
Servicer and any Subservicer, relating to servicing and collection of
Receivables, in such form as has been approved by AutoBond hereunder.
"Successor Servicer" has the meaning specified in Section 2.13(a)
hereunder.
"Transfer Date" means the Closing Date and any Business Day upon which
AutoBond designates an Auto Loan as subject to this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the relevant
state.
"Unpaid Principal Balance" means, 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
- 7 -
<PAGE>
<PAGE>
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.
"VSI Policy" means the Vendor's Single Interest Insurance Policy,
including the Credit Endorsement, issued by Interstate, insuring
against risk of physical damage or other losses on the Financed
Vehicles, or any successor or replacement policies thereto.
SECTION 1.02. Rules of Interpretation. The following rules apply to
this Agreement:
(a) the singular includes the plural and the
plural includes the singular;
(b) "or" is not exclusive and "include" and
"including" are not limiting;
(c) a reference to any agreement or other
contract includes permitted supplements and amendments;
(d) a reference to a law includes any amendment
or modification to such law and any rules or regulations issued
thereunder or any law enacted in substitution or replacement therefor;
(e) a reference to a person includes its
permitted successors and assigns;
(f) a reference to an Article, a Section, an
Exhibit or a Schedule without further reference is to the relevant
Article, Section, Exhibit or Schedule of this Agreement;
(g) any right may be exercised at any time and
from time to time;
(h) the headings of the Articles and the
Sections are for convenience and shall not affect the meaning of this
Agreement; and
(i) words such as "hereunder", "hereto", "hereof" and
"herein" and other words of like import shall, unless the context
clearly indicates to the contrary, refer to the whole of this Agreement
and not to any particular Article, Section, subsection or clause
hereof.
- 8 -
<PAGE>
<PAGE>
ARTICLE II
SERVICING OF TRUST ASSETS
SECTION 2.01. Appointment of Servicer. AutoBond hereby appoints the
Servicer, and the Servicer accepts such appointment, to perform its obligations
pursuant to this Agreement on behalf of and for the benefit of AutoBond and any
applicable Affiliates in accordance with the terms of this Agreement, the
respective Receivables, the VSI Policy and applicable law and, to the extent
consistent with such terms, in the same manner in which, and with the same care,
skill, prudence and diligence with which, it services and administers
Receivables of similar credit quality for other portfolios, if any, giving due
consideration to customary and usual standards of practice of prudent
institutional automobile loan servicers and, in each case, taking into account
its other obligations hereunder, but without regard to:
(i) any relationship that the Servicer, any
Subservicer or any Affiliate of the Servicer or any
Subservicer may have with the related Obligor; or
(ii) the ownership, or servicing for others, by
the Servicer or any Subservicer, of any other automobile loans or
property.
In the event that the Servicer believes that it is unable to comply with the
requirements of this Section 2.01 with respect to any particular Receivable as a
result of one or more of the factors described in clauses (i) and (ii) of this
Section 2.01, it may enter into a Subservicing Agreement pursuant to Section
2.02 pursuant to which a Subservicer shall perform its duties with respect to
any such Receivable. In such event, so long as such Subservicer performs such
duties on behalf of the Servicer in accordance with the requirements of this
Agreement, including this Section 2.01, then the Servicer shall be deemed to be
in compliance therewith. Notwithstanding the above, the Servicer must obtain the
written consent of AutoBond which consent shall not be unreasonably withheld
prior to any such Subservicing Agreement. In the event that AutoBond does not
consent to such a Subservicing Agreement proposed by the Servicer, AutoBond
shall have the right to remove the Servicer as the servicer hereunder with
respect to such Auto Loans and to appoint a Successor Servicer with respect to
such Auto Loans pursuant to Section 2.13.
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer.
(a) Upon the prior written consent of AutoBond (which consent shall not
be unreasonably withheld), the Servicer may enter into Subservicing Agreements
with a Subservicer
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for the performance of all or a part of the Servicer Duties with respect to any
Receivable. References in this Agreement to actions taken or to be taken by the
Servicer in performance of the Servicer Duties include actions taken or to be
taken by a Subservicer on behalf of the Servicer. Each Subservicing Agreement
will be upon such terms and conditions as are not inconsistent with this
Agreement. The Servicer shall provide written notice to AutoBond promptly upon
the appointment of any Subservicer. For purposes of this Agreement, the receipt
by a Subservicer of any amount with respect to a Receivable (other than amounts
representing servicing compensation) shall be treated as the receipt by the
Servicer of such amount.
(b) Upon the prior written consent of AutoBond (which consent shall not
be unreasonably withheld), the Servicer shall be entitled to terminate any
Subservicing Agreement that may exist in accordance with the terms and
conditions of such Subservicing Agreement and without any limitation by virtue
of this Agreement.
(c) Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer or
a Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain directly obligated and directly liable to AutoBond for
the servicing and administering of the Receivables in accordance with the
provisions of this Agreement without diminution of such obligation or liability
(including its indemnity obligations under Section 4.03) by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from the
Subservicer or the Servicer and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the
Receivables. The Servicer shall be entitled to enter into any agreement with a
Subservicer for indemnification of the Servicer and nothing contained in this
Agreement shall be deemed to limit or modify such indemnification.
(d) Any Subservicing Agreement that may be entered into pursuant to
this Agreement and any other transaction or services relating to the Receivables
involving a Subservicer in its capacity as such that is consented to by AutoBond
shall be deemed to be between the Subservicer and the Servicer alone and
AutoBond shall not be deemed party thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Subservicer.
(e) If the Servicer shall for any reason no longer be the Servicer
hereunder (including by reason of any Event of Termination), the Servicer, upon
prior written consent of AutoBond, shall thereupon terminate each Subservicing
Agreement that may have been entered into, and neither AutoBond nor the
Successor Servicer shall be deemed to have
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assumed any liability or obligation thereunder, the Servicer's interest therein
or to have replaced the Servicer as a party to any such Subservicing Agreement.
SECTION 2.03. Representations and Warranties of the Servicer. The
Servicer represents and warrants to AutoBond as follows, as of the date hereof
(which representations and warranties shall be deemed repeated on each Transfer
Date and on each date on which a Servicer Report is due to be delivered
hereunder as though made on and as of such date):
(a) It is a limited liability partnership duly
organized, validly existing and in good standing under the laws of the
State of Texas and is duly qualified to do business, and is in good
standing in every jurisdiction in which the nature of its business
requires it to be so qualified; it or a Subservicer is or will be in
compliance with the laws of each state to the extent necessary to
perform its obligations under this Agreement; and it or a Subservicer
has obtained all necessary licenses with respect to it or such
Subservicer required by law to enable it to perform its duties herein;
(b) It has the power and authority to execute, deliver
and perform this Agreement and the transactions contemplated hereby;
(c) The execution and delivery by it and the
performance by it or a Subservicer of this Agreement, and the execution
and delivery by it and the performance by it or a Subservicer of all
other agreements, instruments and documents which may be delivered by
it pursuant hereto, and the transactions contemplated hereby, (i) have
been duly authorized by all necessary partnership or other action, on
the part of it, (ii) do not contravene or cause it to be in default
under (A) its organizational documents, (B) any contractual restriction
with respect to any Debt of it or contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or
other material agreement or instrument binding it or its property or
(C) any law, rule, regulation, order, writ, judgment, award, injunction
or decree applicable to or binding it or its property, and (iii) do not
result in or require the creation of any Adverse Claim upon or with
respect to any of its properties;
(d) This Agreement has been duly executed and
delivered on behalf of it;
(e) 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 it (either
directly or
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through a Subservicer) of this Agreement or any other agreement,
document or instrument to be delivered by it hereunder;
(f) This Agreement is its legal, valid and binding
obligation enforceable against it in accordance with its terms;
(g) There is no pending or threatened action, suit or
proceeding, nor any injunction, writ, restraining order or other order
of a material nature against or affecting it, its officers or
directors, or its property, 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 document to be
delivered by it hereunder or (ii) seeking any determination or ruling
that would reasonably be expected to materially and adversely affect
(A) the performance by it of its obligations under this Agreement, or
(B) the validity or enforceability of this Agreement or any document to
be delivered by it hereunder or (iii) which is inconsistent with the
due consummation by it of the transactions contemplated by this
Agreement;
(h) Its facilities, plant, personnel, records and
products are adequate for the performance of its duties hereunder;
(i) The Servicer is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, which would
reasonably be expected to have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations
of the Servicer or its properties or would reasonably be expected to
have consequences that would materially and adversely affect its
performance hereunder;
(j) No certificate of an officer, statement furnished
in writing, report or electronic medium delivered pursuant to the terms
hereof by the Servicer contains any untrue statement of a material fact
or omits to state any material fact to make the certificate, statement
or report not misleading;
(k) The transactions contemplated by this Agreement
are in the ordinary course of business of the Servicer; and
(l) The Financed Vehicle securing each Receivable shall
not be released by the Servicer or a Subservicer in whole or in part
from the security
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interest granted by the Obligor, except as contemplated
herein.
It is understood and agreed that the representations and warranties set forth in
this Section 2.03 shall survive the execution of this Agreement. Upon discovery
by either AutoBond or the Servicer of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
proper written notice to the other parties hereto.
SECTION 2.04. Duties and Responsibilities of the
Servicer.
(a) The Servicer shall manage, administer, monitor and service the Auto
Loans, including providing data management, payment processing and customer
service; provided that the Servicer will not act as Collection Agent. In
performing its duties hereunder, the Servicer shall have full power and
authority to do or cause to be done any and all things in connection with such
servicing and administration which it may deem necessary or desirable, within
the terms of this Agreement (the "Servicer Duties"). The Servicer will provide
the following services (together with other activities not inconsistent with the
description below and implicitly necessary to accomplish the usual and customary
activities, other than collections, of an automobile loan servicer):
(i) Boarding Functions:
(1) Review for receipt of copies of Loan Documents;
(2) Input of new Receivable information into loan
accounting system; and
(3) Preparation and mailing of welcome letters.
(ii) File Maintenance/Document Control Functions:
(1) Retention of copies of the Loan Documents;
(2) Tracking of customer collision insurance on
Financed Vehicles and reporting to Collection
Agent exposed Financed Vehicles; and
(3) Determination of Receivables being satisfied
in full.
(iii) Customer Service Functions:
(1) Preparation and transmittal of monthly billing
statements to Obligors;
(2) Response to Obligor inquiries;
(3) Research regarding billing statements and Obligor
inquiries;
(4) Maintenance of Obligor information; and
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(5) Preparation and mailing of delinquency notices.
(iv) Payment Processing Functions:
(1) Coordination of lockbox procedures;
(2) Recording of loan payment information; and
(3) Referral to Collection Agent of instances of
non-sufficient funds.
(v) Reporting Functions:
(1) Preparation and delivery of Servicer's Report.
(vi) Data Processing Functions:
(1) Entry of data;
(2) Operation of data center;
(3) Operation of telecommunications; and
(4) Operation and maintenance of collection system.
Notwithstanding the foregoing, to the extent that any of the duties set
forth above are assigned to the Collection Agent pursuant to Article III hereof,
the Servicer shall have no liability for such duty so long as the Collection
Agent continues to act in such capacity hereunder.
(b) The Servicer may not sue to enforce or collect upon a Receivable in
its own name, or as agent for AutoBond or its Affiliates without the prior
written consent of Autobond.
(c) In accordance with the standard of care in Section 2.01 the
Servicer may agree to grant to the Obligor on any Receivable any rebate, refund
or adjustment that the Servicer in good faith believes is required under the
Receivable or applicable law in connection with a prepayment in full of the
Receivable, and, the Servicer, AutoBond may remit the amount of any such rebate,
refund or adjustment to the applicable Obligors. The Servicer may not permit any
rescission or cancellation of any Receivable nor may it take any action with
respect to any Receivable which would invalidate the coverage afforded by the
VSI Policy to such Receivable or the related Financed Vehicle, or would impair
the rights of AutoBond therein or in the proceeds thereof. The Servicer shall
not extend or otherwise amend the terms of any Receivable, except in accordance
herewith.
(d) The Servicer shall hold in trust for the benefit of AutoBond and
shall forward to the Collection Account, or the Lockbox Account, as applicable,
no later than the next Business Day following receipt thereof any payment or
deposit with respect to any Receivable received by the
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Servicer. The Servicer shall not assert any right of setoff or any lien with
respect to such payment or deposit.
(e) The Servicer agrees to monitor and track each Financed Vehicle for
maintenance of required physical damage insurance in the manner required by the
VSI Policy and to notify the Collection Agent and AutoBond, as soon as
practicable but not later than 30 days after becoming initially aware, of
circumstances that would lead a reasonable person to believe that the insurance
on any Financed Vehicle is not being or will not be maintained in accordance
with applicable law and the terms of the applicable retail installment sales
contract; provided that if the VSI Policy is amended in writing, Servicer is not
obligated to comply with any different provision until such time as the Servicer
has been notified of such change, and has expressly agreed in writing to the
extent such modification would materially alter the obligations of the Servicer.
(f) Except as expressly provided herein, the Servicer shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Receivable (or any right to income in
respect thereof), or any account in which any payments with respect to any
Receivable are deposited, or assign any right to receive income in respect of
any Receivable.
(g) The Servicer shall each instruct each Obligor by written notice
that all payments on Receivables shall be mailed to the Lockbox, and, that such
payments shall be made payable to the order of "AutoBond Acceptance
Corporation".
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Contingent
Disaster Relief Protection.
(a) The Servicer shall maintain, at its own expense, a blanket fidelity
bond and an errors and omissions insurance policy, with broad coverage with
responsible companies on all officers, employees or other Persons acting on
behalf of the Servicer in any capacity with regard to the Receivables to handle
funds, money, documents and papers relating to the Receivables. Any such
fidelity bond and errors and omissions insurance shall protect and insure the
Servicer against losses, including forgery, theft, embezzlement, fraud, errors
and omissions and negligent acts of such Persons and shall be maintained in a
form that would meet the requirements of prudent institutional auto loan
servicers and, in the case of the fidelity coverage in the amount of $100,000
and in the amount of $1,000,000 in the case of errors and omissions coverage. No
provision of this Section 2.05(a) requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to have
complied
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with this provision with respect to itself if one of its respective Affiliates
has such fidelity bond and errors and omissions policy coverage and, by the
terms of such fidelity bond and errors and omissions policy, the coverage
afforded thereunder extends to the Servicer. The Servicer shall cause each and
every Subservicer for it to maintain a policy of insurance covering errors and
omissions and a fidelity bond which would meet such requirements. Upon request
of AutoBond, the Servicer shall cause to be delivered to AutoBond a
certification evidencing coverage under such fidelity bond and insurance policy.
Any such fidelity bond or insurance policy shall (i) not be cancelled without
the Servicer giving prior written notice to AutoBond immediately following the
giving or receipt of such notice as is required or allowed under the terms of
such fidelity bond or insurance policy, as the case may be and (ii) not be
modified in a materially adverse manner without ten days' prior written notice
by the Servicer to AutoBond.
(b) The Servicer currently maintains, at its own expense, a computer
disaster recovery plan and computer disaster recovery procedures in forms
consistent with industry standards of prudent institutional receivables
servicers and shall continue to maintain, at its own expense, such a plan and
such procedures as are consistent with such standards and shall not modify amend
or revoke such procedures without giving prior written notice thereof to
AutoBond. No provision of this Section 2.05(b) requiring such a plan and such
procedures shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to have
complied with this provision if one of its respective Affiliates has such a plan
and such procedures which also affords protection to the Servicer. Upon request
of AutoBond, the Servicer shall cause to be delivered to AutoBond a
certification as to the existence of such a plan and such procedures.
SECTION 2.06. Inspection.
(a) At all times during the term hereof, the Servicer shall afford
AutoBond, together with each of their authorized agents (including auditors),
upon reasonable notice, reasonable access (subject to the security rules and
regulations of the Servicer) during normal business hours to its records
relating to the Receivables and will cause its personnel to assist in any
examination of such records by any of such Persons; provided, that the foregoing
shall not require any of such Persons to conduct any inspection. The examination
referred to in this Section 2.06(a) will be conducted in a manner which does not
unreasonably interfere with the Servicer's normal operations or customer or
employee relations or require the Servicer to disclose or expose confidential
information related to its services hereunder or to its other clients. Without
otherwise
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limiting the scope of the examination, AutoBond may, using generally accepted
auditing standards, verify the status of each Receivable and review the copies
of the Loan Documents, Electronic Ledger and records relating thereto for
conformity to reports prepared pursuant to Section 2.17 and compliance with the
standards represented or required to exist as to each Receivable in this
Agreement. Nothing in this section shall affect the obligation of the Servicer
to observe any applicable law prohibiting disclosure of information regarding
the obligors, and failure of the Servicer to provide access to information a
result of such obligation shall not constitute a breach of this Section 2.06.
(b) All information obtained by AutoBond or its respective agents
regarding the Obligors and the Receivables, whether upon exercise of their
respective rights under this Section 2.06 or otherwise, shall be maintained by
AutoBond and its respective agents in confidence and shall not be disclosed to
any other Person, except as otherwise required by applicable law or regulation.
SECTION 2.07. Possession and Payment of Receivables. The Servicer shall
determine when a Receivable has been paid in full. The Servicer shall notify
AutoBond in writing within five (5) Business Days as to each Receivable in
connection with which such a determination has been made. If the Servicer
requires possession of any Loan File or any documents related thereto in order
to perform its duties or obligations hereunder, prior to taking possession of
any such Receivable or documents, the Servicer shall deliver to AutoBond a trust
receipt substantially in the form attached hereto as Exhibit A. The Servicer
agrees to promptly return any such Receivable and documents, possession of which
the Servicer takes in accordance with this Section 2.07, after its need for
possession thereof ceases.
SECTION 2.08. Monthly Servicing Fee; Servicing Expenses.
(a) On each Payment Date the Servicer shall be entitled to receive by
wire transfer of immediately available funds to an account designated in writing
by the Servicer to AutoBond an amount equal to the Monthly Servicing Fee as of
such Payment Date.
(b) The Servicer shall be required to pay for all expenses incurred by
it in connection with its activities hereunder (including any payments to
accountants, counsel, Subservicers, or any other Person) out of the compensation
retained by or paid to it pursuant to Section 2.08(a) above, and shall not be
entitled to any extra payment or reimbursement therefor; provided, however, that
the Servicer
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shall be entitled to reimbursement by wire transfer of immediately available
funds to an account designated in writing by the Servicer to AutoBond for the
amount of any (i) applicable lockbox charges, freight, communication charges and
refunds for overpayments, and (ii) other expenses incurred with the prior
written consent of AutoBond. No later than five Business Days prior to each
Payment Date, the Servicer shall provide AutoBond and the Collection Agent with
a list of items eligible for reimbursement pursuant to the immediately preceding
sentence, which items may include, with respect to the Servicer, expenses for
special forms and materials, freight, tapes, communications, lock-box charges
and other expenses approved by AutoBond, in such reasonable detail as AutoBond
may request, together with its certification by a Servicing Officer that all
such items are eligible for reimbursement hereunder.
SECTION 2.09. Collection Agent To Maintain Computer Link. Without
limitation of its obligations in respect of the other provisions of this
Agreement, and in addition to the duties of the Servicer, the Collection Agent
has supported and will continue to support non-dedicated dial-up capability with
the Servicer. Notwithstanding any provision of the Agreement to the contrary,
the Collection Agent shall have no duty or obligation with respect to the
information provided via the computer link described in the preceding sentence.
SECTION 2.10. Resignation or Termination of Servicer.
(a) The Servicer may resign immediately from the obligations and duties
hereby imposed on it upon its determination that (i) the performance of its
duties hereunder has become impermissible under applicable law and (ii) there is
no reasonable action which the Servicer could take to make the performance of
its duties hereunder permissible under applicable law. Any such determination
permitting the resignation of the Servicer shall be evidenced as to clause (i)
above by an Opinion of Counsel to such effect delivered to AutoBond before any
such resignation and as to clause (ii) by an Officer's Certificate to such
effect delivered to AutoBond before any such resignation. The action referred to
in clause (ii) of this Section 2.10(a) will not be considered reasonable if it
requires the payment of extraordinary fees or costs for which the Servicer is
not eligible for reimbursement under Section 2.08.
(b) AutoBond may, upon 30 days' prior written notice to the Servicer,
terminate CSC LOGIC/MSA, L.L.P. as Servicer hereunder provided, that if such
termination is without cause, CSC LOGIC/MSA L.L.P. shall receive the termination
fee payable pursuant to Section 2.13(c).
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(c) In addition to its rights under Section 2.10(a), so long as the
Servicer is CSC LOGIC/MSA, L.L.P., the Servicer may resign as Servicer
hereunder, effective upon 30 days' notice to AutoBond; provided, however that
such resignation may be effective earlier if a Successor Servicer is appointed
in accordance with Section 2.13 prior to the expiration of such 30 day period.
SECTION 2.11. [Reserved]
SECTION 2.12. Events of Termination. If any of the following events
(each, an "Event of Termination") shall occur and be continuing:
(a) Any failure by the Servicer to forward to the Collection
Account or the Lockbox Account, as applicable, any payment or partial
payment or deposit identified with respect to any Receivable received
by the Servicer and the continuance of such failure for a period of two
Business Days after the date upon which such payment or deposit is
received by the Servicer; or
(b) Failure on the part of either party to observe or perform
any term, covenant or agreement in this Agreement, (other than the
agreement to deliver the Servicer Report pursuant to Section 2.17),
which failure continues unremedied for 10 Business Days after discovery
by the or the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to such party by the
other party; or
(c) Any proceeding shall be instituted against the Servicer or
AutoBond (or, if the Servicer or AutoBond is actively contesting the
merits thereof, such proceeding is not dismissed within 60 days)
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or any of its Debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property, or any of the actions sought
in such proceeding (including, without limitation, the entry of an
order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part
of its property) shall occur; or
(d) The commencement by the Servicer or AutoBond 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
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insolvent, or the consent by it to the entry of a decree or order for
relief in respect of the Servicer or AutoBond 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 Servicer or AutoBond or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its Debts generally as they become due, or the taking
of corporate action by the Servicer in furtherance of any such action;
or
(e) The Servicer shall fail to deliver a report at the time,
in the form and containing the information expressly required by this
Agreement, and the continuance of such failure for a period of 5
Business Days after the date upon which written notice of such failure
shall have been given to the Servicer by AutoBond; or
(f) There is a breach of any of the representations and
warranties of a party set forth herein which breach shall be in the
opinion of the other party reasonably expected to have a material
adverse effect on such party or the Auto Loans and such breach shall
not have been cured within 10 Business Days;
then, and in any such event, the aggrieved party may, by delivery to the other
party of a written notice specifying the occurrence of any of the foregoing
events, terminate this Agreement without demand, protest or further notice of
any kind, all of which are hereby waived (such termination of the Servicer
pursuant to this Section or Section 2.10 is hereby called a "Service Transfer");
provided, that in the event any of the events described in subsections (c) or
(d) of this Section 2.12 shall have occurred, termination of the duties and
responsibilities of the affected party shall automatically occur, without,
demand, protest, or further notice of any kind, all of which are expressly
waived by such party.
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SECTION 2.13. Appointment of the Successor Servicer.
(a) Upon the effectiveness of termination of the Servicer's
responsibilities under this Agreement pursuant to Section 2.10 or Section 2.12,
AutoBond shall immediately succeed to the duties of the Servicer as a successor
Servicer (the "Successor Servicer"), unless and until another Successor Servicer
has been appointed by AutoBond. Such Successor Servicer shall succeed to all
rights and assume all of the responsibilities, duties and liabilities of the
Servicer under this Agreement; provided, that such Successor Servicer shall have
no responsibility for any actions of the Servicer prior to the date of the
appointment of such Successor Servicer as Servicer. Such Successor Servicer
shall be authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do any and all acts or things necessary or appropriate to
effect the purposes of such notice of termination and to perform the duties of
the Servicer hereunder.
(b) Any Successor Servicer appointed by AutoBond hereunder shall be
entitled to the compensation (including the estimated termination costs of such
servicing and a reasonable profit) agreed to with AutoBond.
(c) The outgoing Servicer, AutoBond and the Successor Servicer shall
take such action, consistent with this Agreement, that shall be reasonably
necessary to effectuate any such succession, including, without limitation, (i)
the express assumption by such Successor Servicer of the duties and obligations
of the outgoing Servicer hereunder, (ii) notifying Obligors in writing of the
existence of the Successor Servicer, and (iii) providing such Successor Servicer
with all Records maintained or held by the outgoing servicer as Servicer
hereunder, including all paper files and all electronic files, and the Servicer
shall be reimbursed for related expenses in accordance with Section 2.08(b). In
the event that CSC Logic/MSA L.L.P. is terminated as Servicer without cause
pursuant to Section 2.10(b), it shall be entitled to receive an additional
one-time termination fee of $6.50/loan.
(d) Upon appointment, any Successor Servicer shall be successor in all
respects to the outgoing Servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all responsibilities,
duties and liabilities relating thereto placed upon the Servicer by the terms
and provisions hereof.
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SECTION 2.14. Effect of Service Transfer.
(a) Prior to any Service Transfer, the outgoing Servicer shall notify
(or, to the extent that the Servicer provided such notice pursuant to Section
2.13(c), confirm the notice to) Obligors of the existence of the Successor
Servicer. The Servicer shall be entitled to receive from AutoBond, as extra
compensation for such Services, a fee equal to $.60 for each such notice given.
(b) After any Service Transfer, the outgoing Servicer shall have no
further obligations with respect to the management, servicing, custody or
monitoring of the collection of the Receivables and the Successor Servicer shall
have all of such obligations.
(c) A Service Transfer shall not affect the rights and duties of the
parties hereunder (including, but not limited to, the obligations and
indemnities of the outgoing Servicer pursuant to Article IV) other than those
relating to the management, servicing, custody or monitoring of the collection
of the Receivables by the Successor Servicer.
SECTION 2.15. Annual Reports; Statements as to Compliance.
(a) On or before ninety (90) days after the end of each fiscal
year of the Servicer, the Servicer shall deliver to AutoBond a copy of the
financial statements of Computer Sciences Corporation and Mitchell Sweet &
Associates, Inc. (or the Successor Servicer) containing a report of a firm of
Independent Public Accountants to the effect that such firm has examined certain
books and records of Computer Sciences Corporation and Mitchell Sweet &
Associates, Inc. (or the Successor Servicer) and that, on the basis of such
examination conducted substantially in compliance with generally accepted audit
standards such financial statements accurately reflect the financial condition
of Computer Sciences Corporation and Mitchell Sweet & Associates, Inc. (or the
Successor Servicer).
(b) The Servicer shall promptly (but in any event within five Business
Days) notify AutoBond upon receiving actual knowledge of any event 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.
SECTION 2.16. [Reserved].
SECTION 2.17. Servicer Reports.
(a) The Servicer shall furnish by close of business on each
Determination Date (or the next succeeding Business Day if such day is not a
Business Day), to AutoBond, an
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<PAGE>
Officer's Certificate, substantially in the form attached hereto as Exhibit B
(the "Servicer Report"), or in such other form as is mutually acceptable to the
Servicer and AutoBond. To the extent such information is not currently provided
in the form of Servicer Report, then the Servicer shall develop and provide such
information at its customary hourly rate and cost, which shall be paid to
Servicer as part of its compensation hereunder.
(b) The Servicer Report shall include a certification (i) that the
information contained in such certificate is accurate, (ii) that no Event of
Termination, or event that with notice or lapse of time or both would become an
Event of Termination, has occurred, or if an Event of Termination or such event
has occurred and is continuing, specifying the Event of Termination or such
event and its status and (iii) that the representations and warranties of the
Servicer contained in Section 2.03 of this Agreement are true and correct as
though made on and as of the date of such certificate.
SECTION 2.18. Confidentiality. AutoBond acknowledges the proprietary
nature of certain of the software, software procedures, software development
tools, know-how, methodologies, processes and technologies of the Servicer
("Confidential Material") and agrees (i) that it shall use the same means as it
uses to protect its own confidential information, but in no event less than
reasonable means, to avoid disclosure, by it or its agents or employees, to any
third party of any confidential or proprietary information of the Servicer
identified as such by the Servicer to it, except to the extent that any such
person may be required to disclose any such information (x) by law or any legal
process or proceeding, including, without limitation, in connection with an
examination or audit by any governmental regulatory agency, in which case such
person shall give notice of such event to the Servicer or (y) in connection with
its duties and obligations hereunder and under the other transaction documents,
and (ii) that all such confidential or proprietary software, software
procedures, software development tools, know-how, methodologies, process and
technologies that are based upon trade secrets or proprietary information of the
Servicer identified as such by the Servicer to it shall be and remain the
property of the Servicer and that AutoBond will have no ownership interest
therein or ownership claim thereto. AutoBond shall confine the knowledge and use
of the Confidential Material only to its employees who require such knowledge
and use in the ordinary course and scope of their employment.
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<PAGE>
SECTION 2.19. [Reserved].
SECTION 2.20. Standard of Care. In performing its duties and
obligations hereunder and in administering, tracking and enforcing the insurance
policies maintained by obligors relating to the Receivables pursuant to this
Servicing Agreement, the Servicer will comply with all applicable state and
federal laws and will exercise that degree of skill and care consistent with the
degree of skill and care that the Servicer exercises with respect to similar
motor vehicle retail installment sales contracts or loans owned and/or serviced
by the Servicer, and will apply in performing such duties and obligations, those
standards, policies and procedures consistent with the customary standards,
policies and procedures the Servicer applies with respect to similar motor
vehicle retail installment contracts or loans owned or serviced by it; provided,
however, that notwithstanding the foregoing, the Servicer shall not, except
pursuant to a judicial order from a court of competent jurisdiction, or as
otherwise required by applicable law or regulation, release or waive the
right to collect the unpaid balance on any Receivable. In performing its duties
and obligations hereunder, the Servicer shall comply with the VSI Policy (solely
with respect to insurance tracking as specified in the Servicer's duties as set
forth in Section 2.04(a)) and all applicable federal and state laws and
regulations, shall maintain all state and federal licenses and franchises
necessary for it to perform its servicing responsibilities hereunder, and shall
not impair the rights of AutoBond in the Receivables.
ARTICLE III
COLLECTION AGENT
SECTION 3.01. AutoBond as Collection Agent. (a) AutoBond agrees to act
as the Collection Agent under this Agreement so long as the Servicer is acting
as Servicer hereunder.
(b) The Collection Agent shall perform its obligations pursuant to this
Agreement on behalf of and for the benefit of AutoBond in accordance with the
terms of this Agreement, the respective Receivables, the VSI Policy and
applicable law and, to the extent consistent with such terms, in the same manner
in which, and at least with the same care, skill, prudence and diligence with
which, it services and administers Receivables of similar credit quality for
other portfolios, if any, giving due consideration to customary and usual
standards of practice of prudent institutional automobile loan collection agents
and, in each case, taking into account its other obligations hereunder, but
without regard to:
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<PAGE>
(i) any relationship that the Collection Agent or any
Affiliate of the Collection Agent may have with the related Obligor;
(ii) the Collection Agent's right to receive
compensation for its services hereunder or with respect to any
particular transaction; or
(iii) the ownership, or servicing for others, by the
Collection Agent, of any other automobile loans or property.
In furtherance of the servicing standard set forth above in this Section
3.01(b), and in accordance with the provisions of the AutoBond Program Manual
and subject to any express limitations set forth in this Agreement (and the
subrogation rights of any insurance company issuing the VSI Policy), the
Collection Agent shall also seek to maximize the timely and complete recovery of
principal and interest on Receivables; provided, however, that nothing herein
contained shall be construed as an express or implied guarantee by the
Collection Agent of the collectibility of the Receivables.
SECTION 3.02. Representations and Warranties of AutoBond. AutoBond
represents and warrants to the Servicer as follows, as of the date hereof (which
representations and warranties shall be deemed repeated on each Transfer Date
and on each date during the term hereof as though made on and as of such date):
(a) It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and
is duly qualified to do business, and is in good standing in every
jurisdiction in which the nature of its business requires it to be so
qualified; it will be in compliance with the laws of each state to the
extent necessary to perform its obligations under this Agreement; and
it has obtained all necessary licenses with respect to it required by
law to enable it to perform its duties herein;
(b) It has the corporate power and authority to
execute, deliver and perform this Agreement and the transactions
contemplated hereby;
(c) The execution and delivery by it and the
performance by it of this Agreement, and the execution and delivery by
it and the performance by it of all other agreements, instruments and
documents which may be delivered by it pursuant hereto and thereto, and
the transactions contemplated hereby and thereby, (i) have been duly
authorized by all necessary corporate or other action, on the part of
it, (ii) do not contravene or cause it to be in default under (A) its
articles of incorporation, (B) any contractual restriction with
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<PAGE>
respect to any Debt of it or contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other
material agreement or instrument binding it or its property or (C) any
law, rule, regulation, order, writ, judgment, award, injunction or
decree applicable to or binding it or its property, and (iii) do not
result in or require the creation of any Adverse Claim upon or with
respect to any of its properties;
(d) This Agreement has been duly executed and
delivered on behalf of it;
(e) 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 it of this
Agreement or any other agreement, document or instrument to be
delivered by it hereunder;
(f) This Agreement is its legal, valid and binding
obligation, enforceable against it in accordance with its terms;
(g) There is no pending or threatened action, suit or
proceeding, nor any injunction, writ, restraining order or other order
of a material nature against or affecting it, its officers or
directors, or its property, in any court or tribunal, or before any
arbitrator of any kind or before or by any Governmental Authority (A)
asserting the invalidity of this Agreement, or any document to be
delivered by it hereunder or (B) seeking any determination or ruling
that would reasonably be expected to materially and adversely affect
(I) the performance by it of its obligations under this Agreement, or
(II) the validity or enforceability of this Agreement, or any document
to be delivered by it hereunder or thereunder (C) which is inconsistent
with the due consummation by it of the transactions contemplated by
this Agreement;
(h) Its facilities, plant, personnel, records and
products are adequate for the performance of its duties hereunder;
(i) AutoBond is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, and there exists no
other event or circumstance, which default, event or circumstance would
reasonably be expected to have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations
of AutoBond or its properties or would reasonably be expected to have
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<PAGE>
<PAGE>
consequences that would materially and adversely affect its performance
hereunder;
(j) Each certificate and each statement furnished in
writing, report or electronic medium delivered pursuant to the terms
hereof by AutoBond is accurate and complete with respect to the
information purported to be set forth therein; and
(k) The practices used by the AutoBond to monitor
collections with respect to the Receivables and repossess and dispose
of the Financed Vehicles related to the Receivables have been, and will
be, in all material respects, legal, proper and in conformity with the
requirements of the VSI Policy procedures (if applicable) and as set
forth with respect to the Collection Agent in the AutoBond Program
Manual.
It is understood and agreed that the representations and warranties set forth in
this Section 3.02 shall survive the execution of this Agreement.
SECTION 3.03. Duties and Responsibilities of the Collection Agent.
(a) AutoBond, as Collection Agent, shall remain the prior lienholder of
record with respect to each Financed Vehicle relating to the Auto Loans.
(b) The duties and responsibilities of the Collection Agent shall
consist of (i) receiving and 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 and (iv) filing of
insurance claims and performing the duties of the named insured under the VSI
Policy (if applicable) with respect to each Receivable affected by a
repossession or otherwise. The Collection Agent, on behalf of AutoBond (and any
named insured under the VSI Policy), shall take such reasonable action as shall
be necessary to permit recovery on each Receivable under the VSI Policy, if
applicable.
(c) The Collection Agent shall forward to the Lockbox or the Lockbox
Account within two (2) Business Days following receipt thereof any payment or
partial payment or deposit with respect to any Receivable received by the
Collection Agent.
SECTION 3.04. [Reserved]
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<PAGE>
SECTION 3.05. [Reserved]
SECTION 3.06. [Reserved]
SECTION 3.07. [Reserved]
SECTION 3.08. Repossession and Disposal.
(a) The Collection Agent is empowered to execute and deliver any and
all instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to the Financed
Vehicles related to the Receivables, all in accordance with the standard of care
set forth in Section 3.09. Without limiting the generality of the foregoing, the
Servicer shall upon the receipt of a written request of the Collection Agent,
execute and deliver to the Collection Agent any limited powers of attorney and
other documents prepared by the Collection Agent and reasonably necessary or
appropriate (as certified in such written request) to enable the Collection
Agent to carry out its duties hereunder (including, without limitation, matters
relating to the certificates of title with respect to the Financed Vehicles),
and the Servicer shall not be held responsible for any negligence by the
Collection Agent in its use of such limited powers of attorney.
(b) The Collection Agent shall forward the proceeds of any disposition
of a Financed Vehicle related to a Receivable upon receipt thereof to the
Lockbox or the Lockbox Account. If subsequent to the disposal of a Financed
Vehicle related to a Receivable in accordance herewith and, as required by this
Agreement, with the AutoBond Program Manual, the transaction disposing of such
Financed Vehicle is rescinded or adjusted, through arbitration or otherwise, due
to any condition affecting such Financed Vehicle, then any amount which the
Collection Agent pays in connection with such rescission or adjustment shall be
the "Post-Sale Adjustment". The Collection Agent shall notify the Servicer of
the amount of any Post-Sale Adjustment.
(c) The Collection Agent represents and warrants to the Servicer and
shall be deemed to continuously represent and warrant to the Servicer with
respect to each Financed Vehicle assigned to the Collection Agent pursuant
hereto and, as required by this Agreement, to the AutoBond Program Manual, that
the Collection Agent will comply in all material respects with the VSI Policy
(if applicable), and all applicable federal, state and local regulations
pertaining to its services hereunder, including disclosure requirements,
required to be complied with in conjunction with such services. The Collection
Agent shall defend, indemnify and hold the Servicer harmless from and against
any claim, suit, loss, cost or liability, direct or
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<PAGE>
indirect, including reasonable attorney's fees, arising out of any breach of any
representation or warranty made by the Collection Agent in the immediately
preceding sentence.
SECTION 3.09. Standard of Care. In performing its duties and
obligations hereunder and in administering and enforcing the VSI Policy relating
to the Receivables pursuant to this Servicing Agreement, the Collection Agent
(if other than AutoBond) will comply with all applicable state and federal laws
and will exercise that degree of skill and care consistent with the degree of
skill and care that the Collection Agent exercises with respect to similar motor
vehicle retail installment sales contracts or loans owned and/or serviced by the
Collection Agent and will apply in performing such duties and obligations, those
standards, policies and procedures consistent with the customary standards,
policies and procedures the Collection Agent applies with respect to similar
motor vehicle retail installment contracts or loans owned or serviced by it. In
performing its duties and obligations hereunder, the Collection Agent shall
comply with the VSI Policy (if applicable) all applicable federal and state laws
and regulations and shall maintain all state and federal licenses and franchises
necessary for it to perform its servicing responsibilities hereunder.
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES
SECTION 4.01. Liabilities of Obligors. No obligation or liability of
any Obligor under any of the Receivables is intended to be assumed by the
Servicer or AutoBond under or as a result of this Agreement and the transactions
contemplated hereby and, to the maximum extent permitted and valid under
mandatory provisions of law, the Servicer, the Collection Agent and AutoBond
expressly disclaim such assumption.
SECTION 4.02. Limitation on Liability of the Servicer.
(a) The Servicer shall have no liability in connection with this
Agreement except to the extent of the obligations specifically imposed by this
Agreement, it being understood that no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or shall otherwise exist against the Servicer.
(b) Neither the Servicer nor any of the directors, officers, employees
or agents thereof shall be under any liability to AutoBond or to any other
Person for any action taken, or for refraining from the taking of any action, in
good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not
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<PAGE>
protect the Servicer or any such Person against any breach of warranties or
representations made herein or against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations or
duties hereunder. The Servicer and any director, officer, employee or agent
thereof may rely in good faith on any document of any kind which, prima facie,
is properly executed and submitted by any appropriate Person respecting any
matters arising hereunder.
(c) Except to the extent resulting from the Servicer's willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligation or duties hereunder, the Servicer
shall not be liable to any party indemnified under this Agreement, for any
liability, cost, expenses or financial loss which may arise as a result of the
economic performance of the Receivables.
SECTION 4.03. Indemnities of the Servicer and the Collection Agent.
(a) The Servicer agrees to indemnify AutoBond and any of its directors,
officers, employees or agents from, and hold each of them harmless against, any
and all losses, liabilities, damages (other than incidental or indirect
damages), claims or expenses (including reasonable attorneys' fees and expenses)
proximately caused by the Servicer's acts or omissions in violation of this
Agreement, except to the extent AutoBond's, the Collection Agent's or the
directors, officers, employees or agents thereof, as the case may be, own bad
faith, willful misconduct or negligence contributes to the loss, liability,
damage, claim or expense. Except to the extent, otherwise constituting bad
faith, willful misconduct or negligence the Servicer shall not be liable to any
person for any action taken or for refraining from the taking of any action in
good faith pursuant to this Servicing Agreement or for errors in judgment.
(b) The Servicer agrees to indemnify AutoBond and any of its respective
directors, officers, employees or agents from, and hold each of them harmless
against, any and all losses, liabilities, damages, claims or expenses (including
reasonable attorneys' fees and expenses) arising as a result of the use,
ownership or operation by the Servicer or any agent thereof of any Financed
Vehicle.
(c) The Collection Agent agrees to indemnify the Servicer, and any of
its respective directors, officers, employees or agents from, and hold each of
them harmless against, any and all losses, liabilities, damages, claims or
expenses (including reasonable attorneys' fees and expenses) arising as a result
of the Collection Agent's acts or
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<PAGE>
omissions in violation of this Agreement, or arising as a result of or incurred
in connection with, the acceptance or performance by such parties of the duties
contained in this Agreement, except to the extent the Servicer's or the
directors, officers, employees or agents thereof, as the case may be, own bad
faith, willful misconduct or negligence contributes to the loss, liability,
damage, claim or expense.
(d) Each of the Servicer and AutoBond agrees to promptly notify the
indemnifying party hereunder in writing of the commencement of any action with
respect to which indemnification may be owed to it pursuant to this Section 4.03
promptly after receipt by such party of notice of commencement thereof, but the
omission so to notify such indemnifying party hereunder will not relieve the
indemnifying party from any liability which it may have hereunder except to the
extent the indemnifying party is prejudiced thereby.
(e) This Section 4.03 shall survive the termination of this Agreement
and the resignation or removal of the Servicer.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. No other Person will have any right or obligation hereunder.
Neither the Servicer nor AutoBond may assign any of its respective rights and
obligations hereunder or any interest herein.
SECTION 5.02. Amendment. This Agreement may be amended from time to
time by the parties hereto only by a written instrument executed by all such
parties.
SECTION 5.03. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, notices and other communications required or
permitted to be given or made under the terms hereof shall be in writing. Any
such communication or notice shall be deemed to have been duly made or given (i)
when delivered personally, (ii) in the case of mail delivery, upon receipt,
refusal of delivery or return for failure of the intended recipient to retrieve
such communication or (iii) in the case of transmission by facsimile, upon
telephone and return facsimile confirmation and, in each case, if addressed to
the intended recipient as follows (subject to the next sentence of this Section
5.03):
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<PAGE>
If to the Servicer:
Loan Servicing Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75243-3429
Attention: Managing Partner
Telephone Number: (800) 527-2323
Facsimile Number: (972) 783-3532
If to AutoBond:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
Each party hereto may from time to time designate by notice in writing to the
other parties hereto a different address for communications and notices.
SECTION 5.04. Severability of Provisions. If any one or more of the
covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions or terms of this
Agreement, and shall in no way affect the validity or enforceability of the
other provisions of this Agreement.
SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF TEXAS.
(b) THE SERVICER AND AUTOBOND HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE CENTRAL DISTRICT OF TEXAS. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEN TO BRING ANY ACTION
OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE SERVICER AND AUTOBOND EACH HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS
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Agreement. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
SECTION 5.06. Counterparts. This Agreement may be executed in
counterparts each of which shall be an original, but all of which together shall
constitute one and the same instrument.
SECTION 5.07. [Reserved].
IN WITNESS WHEREOF, the parties hereto have caused this Servicing
Agreement to be executed by their respective officers thereunto duly authorized.
CSC LOGIC/MSA L.L.P., as Servicer
By:/s/ John F. Kilgore
------------------------------------------
Name: John F. Kilgore
Title: Managing Partner
AUTOBOND ACCEPTANCE CORPORATION,
individually and as Collection Agent
By:/s/ John S. Winsauer
------------------------------------------
Name: John S. Winsauer
Title: Secretary
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SCHEDULE I
Designated Auto Loans
[List]
AUTOBOND ACCEPTANCE
CORPORATION
By_______________________________________
Dated:______________, 199__
<PAGE>
<PAGE>
EXHIBIT A
TRUST RECEIPT
[DATE]
AutoBond Acceptance Corporation
Re: Servicing Agreement, dated as of January ___,
1997 (the "Servicing Agreement"), between
AutoBond Acceptance Corporation and CSC
Logic/MSA L.L.P.
Ladies and Gentlemen:
In accordance with Section 2.07 of the Servicing Agreement,
the undersigned hereby certifies that it has taken possession of the items set
forth on Annex I hereto with respect to the Receivables identified below. The
undersigned (i) confirms that it holds such items in trust for the benefit of
AutoBond Acceptance Corporation and (ii) agrees to promptly return such items to
you after its need for possession of them ceases, except for title and security
instruments which the undersigned is required under applicable law to otherwise
deal with in furtherance of its duties under the Servicing Agreement.
Receivables:
CSC LOGIC/MSA L.L.P.
By:
---------------------------------
Name:
Title:
-1-
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<PAGE>
EXHIBIT B
FORM OF MONTHLY STATEMENT
PAYMENT DATE: ________________,1997
DUE PERIOD: __________ - ___________, 1997
Under the Servicing Agreement dated as of January ____, 1997 between
AutoBond Acceptance Corporation and CSC Logic/MSA L.L.P., as Servicer ("LSE"),
the Servicer is required to prepare certain information each month regarding the
Auto Loans during the previous month. The information which is required to be
prepared with respect to the Payment Date and Due Period listed above is set
forth below.
[to be provided]
Dated: __________ __, 199_ CSC LOGIC/MSA, LLP
By:____________________________
Name:
Title:
B-1
<PAGE>
<PAGE>
[CONFORMED COPY]
================================================================================
AUTOBOND FUNDING CORPORATION II
(as Borrower),
AUTOBOND ACCEPTANCE CORPORATION
and
DAIWA FINANCE CORPORATION
(as Initial Lender)
--------------------------------------------
CREDIT AGREEMENT
--------------------------------------------
Dated as of February 1, 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.................................................. 6
Section 1.8 Definitions............................................ 9
Section 1.9 Term................................................... 9
Section 1.10 Payment Instructions.................................. 9
SECTION 2. REPRESENTATIONS AND WARRANTIES
Section 2.1 General Representations and Warranties of the Borrower. 9
Section 2.2 General Representations and Warranties of AutoBond..... 13
Section 2.3 Representations and Warranties with Respect to the
Specified Auto Loans............................. 17
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL
ADVANCE ON INITIAL CLOSING DATE
Section 3.1 Other Agreements....................................... 25
Section 3.2 Opinion of Special Counsel............................. 25
Section 3.3 Opinions of Local Counsel.............................. 25
Section 3.4 Fitch Rating Letter.................................... 25
Section 3.5 Officer's Certificates................................. 25
Section 3.6 Organizational and Other Documents..................... 25
Section 3.7 Financing Statements................................... 26
Section 3.8 Necessary Consents..................................... 26
Section 3.9 Payment of Commitment Fee.............................. 26
i
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Page
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SECTION 4. CONDITIONS OF OBLIGATION TO MAKE
ADVANCES ON ANY CLOSING DATE
Section 4.1 Performance of Obligations; No Old Advances............ 26
Section 4.2 Representations True; No Event of Default.............. 26
Section 4.3 Taxes.................................................. 27
Section 4.4 No Merger or Change in Control......................... 27
Section 4.5 Searches............................................... 27
Section 4.6 Consents and Approvals................................. 27
Section 4.7 Proceedings, Instruments, etc.......................... 27
Section 4.8 Loan Acquisition Agreement; Use of Proceeds............ 27
Section 4.9 Other Documents........................................ 28
Section 4.10 Continuance of a Funding Termination Event or an Event
of Default.......................................... 28
SECTION 5. COVENANTS OF AUTOBOND AND THE BORROWER
WITH RESPECT TO THE SPECIFIED AUTO LOANS
Section 5.1 Additional Covenants.................................. 28
SECTION 6. [Reserved]
SECTION 7. CERTAIN SPECIAL RIGHTS.
Section 7.1 Home Office Payment.................................... 29
Section 7.2 Certain Taxes.......................................... 29
Section 7.3 Substitution of Initial Lender......................... 29
SECTION 8. ADVANCE MATURITY; ADVANCE
PREPAYMENTS.
Section 8.1 Advance Maturity....................................... 30
Section 8.2 Mandatory Prepayments.................................. 30
Section 8.3 Voluntary Prepayments.................................. 31
Section 8.4 Prepayment Notice...................................... 31
SECTION 9. ASSIGNMENTS AND PARTICIPATIONS
Section 9.1 Assignments............................................ 31
ii
<PAGE>
<PAGE>
Page
----
Section 9.2 Participations......................................... 32
SECTION 10. CERTAIN COVENANTS OF THE BORROWER
Section 10.1 Maintenance of Office................................. 33
Section 10.2 Existence............................................. 33
Section 10.3 General Maintenance of Business, Etc.................. 33
Section 10.4 Inspection............................................ 33
Section 10.5 Compliance with Law, etc.............................. 34
Section 10.6 Payment of Taxes and Claims........................... 34
Section 10.7 Limitations on Indebtedness........................... 34
Section 10.8 Restricted Investments................................ 34
Section 10.9 Nature of Business.................................... 34
Section 10.10 Independence......................................... 35
Section 10.11 Other Agreements and Parties......................... 36
Section 10.12 Investment Company Act............................... 36
Section 10.13 Purchases of Auto Loans.............................. 36
Section 10.14 Liens................................................ 37
SECTION 11. CERTAIN COVENANTS OF AUTOBOND
Section 11.1 Existence............................................. 37
Section 11.2 Compliance with Law, etc.............................. 37
Section 11.3 Payment of Taxes and Claims........................... 38
Section 11.4 Inspection............................................ 38
Section 11.5 Consolidation and Merger.............................. 38
Section 11.6 Further Assurances.................................... 38
Section 11.7 Independence.......................................... 38
Section 11.8 Other Agreements and Parties.......................... 40
Section 11.9 Servicing Arrangements................................ 40
Section 11.10 Preservation of Quality of Auto Loans................ 40
SECTION 12. INFORMATION TO BE FURNISHED TO LENDER.
Section 12.1 Information to be Furnished by the Borrower........... 41
Section 12.2 Information to be Furnished by AutoBond............... 41
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SECTION 13. DEFAULTS, REMEDIES AND TERMINATION
Section 13.1 Events of Default; Acceleration of Advances........... 42
Section 13.2 Default Remedies...................................... 45
Section 13.3 Notice of Default..................................... 46
Section 13.4 Annulment of Acceleration of Advances................. 46
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES
Section 14.1 Definitions........................................... 47
Section 14.2 Accounting Terms...................................... 61
Section 14.3 Governing Law......................................... 61
Section 14.4 Headings.............................................. 61
Section 14.5 Independence of Covenants, etc........................ 61
SECTION 15. INDEMNIFICATION AND FUNDING LOSSES
Section 15.1 Indemnification....................................... 62
Section 15.2 Indemnification with respect to the Specified Auto
Loans............................................... 64
Section 15.3 Funding Losses........................................ 66
SECTION 16. MISCELLANEOUS
Section 16.1 Notices............................................... 66
Section 16.2 Survival.............................................. 67
Section 16.3 Successors and Assigns................................ 67
Section 16.4 Amendment and Waiver.................................. 67
Section 16.5 Counterparts.......................................... 68
Section 16.6 Reproduction of Documents............................. 68
Section 16.7 Consent to Jurisdiction and Venue..................... 68
Section 16.8 No Petition........................................... 69
Section 16.9 Acts of Lender........................................ 69
Section 16.10 Confidentiality...................................... 70
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EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Borrowing Notice
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Repurchase Assignment
EXHIBIT E Form of Dewey Ballantine Opinion
EXHIBIT F Form of Texas Counsel Opinion
EXHIBIT G Form of Nevada Counsel Opinion
EXHIBIT H Form of Collection Agent Statement
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CREDIT AGREEMENT dated as of February 1, 1997 among AutoBond Funding
Corporation II, 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. 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 during the period from and including the date hereof to but not
including March 31, 1998 in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of the Commitment as then in
effect. Subject to the terms of this Agreement, during such period the Borrower
may borrow, repay and re-borrow the amount of the Commitment. 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 6.04 of the Security Agreement. 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
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thereof described in the immediately preceding clause (i) 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 a date determined to be mutually acceptable to the
Borrower and the Initial Lender, 10:00 A.M., New York City time (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 a single promissory note (the
"Note") of the Borrower in substantially the form of Exhibit A hereto, dated the
date of the delivery of such Note to the Initial Lender under this Agreement,
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.
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SECTION 1.3 NOTICES OF ADVANCES. The Borrower will give notice
substantially in the form of Exhibit B hereto of each Advance (a "Borrowing
Notice") to the Initial Lender and the Collateral Agent, which notice shall be
irrevocable and effective only upon receipt by the Initial Lender and the
Collateral Agent, 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 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 a Security Agreement, dated as of the date hereof (the"Security
Agreement"), among the Borrower, AutoBond and Norwest Bank (Minnesota), N.A., as
Collateral Agent (together with any successors thereto, the "Collateral Agent"),
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
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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 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 Collateral Agent of a written request therefor, the
Collateral Agent 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 Collateral Agent
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of a written request therefor, the Collateral Agent 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.
(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 Collateral Agent a certificate setting forth the basis and amount of each
request by the Lender for any such Increased Cost. If the Borrower, within 30
days after receiving a notice of the basis and amount of such Increased Cost,
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 accounting firm selected by the Borrower and
reasonably acceptable to the Lender (the "Independent Accountant") all
information reasonably necessary to permit the confirmation of the accuracy of
the Lender's computation of the Increased Cost 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 Increased Costs, whereupon the
Lender shall recompute the Increased Costs 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 Increased Costs 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 1.6 (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
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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. Notwithstanding the foregoing, the Lender shall not be obligated to
disclose to any Person (other than the Independent Accountant, subject to
agreement by the Independent Accountant to keep all information therein
confidential), or permit any Person (other than the Independent Accountant,
subject to 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.
(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 Collateral Agent 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
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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 Collateral Agent 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 Collateral Agent 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 Collateral
Agent of a written request therefor, the amounts so payable to the Lender shall
be increased by the Collateral Agent, 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
Collateral Agent 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 Collateral Agent 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 Collateral Agent
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 Collateral Agent
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
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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 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.
(e) The Borrower shall have the right, and the Lender shall
cooperate fully, to replace any Lender which makes a claim pursuant to this
Section 1.7 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
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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 amounts for Taxes.
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
Collateral Agent. 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.
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;
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(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 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.
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(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 Security Agreement. 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.
(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
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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 Security
Agreement (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 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.
(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.
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(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.
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.
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(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, 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
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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 "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.
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(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.
(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
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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;
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(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 Collateral Agent, the Borrower had full right to assign
such Auto Loan to the Collateral Agent;
(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;
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(xi) such Auto Loan is denominated and payable in United
States dollars;
(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 Collateral
Agent, nor is such Auto Loan subject to the laws of any such
jurisdiction;
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(xvii) the Security Agreement and each related
Collateral Assignment constitutes a valid sale, transfer, assignment
set-over and conveyance to the Collateral Agent 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
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 Collateral Agent) and such
Auto Loan shall be freely transferable by the Borrower without the
required consent of any party (other than the Collateral Agent);
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 Collateral
Agent 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;
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(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 Collateral Agent in such Auto Loan or the rights of the Borrower
or the Collateral Agent 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 Collateral Agent'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;
(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
Collateral Agent pursuant to the Security Agreement and there are no
custodial agreements in effect that would adversely affect the
ability of the Collateral Agent to maintain possession thereof
pursuant to the Security Agreement;
(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,
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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%;
(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
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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 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 Collateral Agent pursuant to the Security
Agreement 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 Section 2.3(c). AutoBond acknowledges that it has been advised that
the Borrower may assign all or part of its right, title and interest in and to
each Specified Auto Loan and its right to
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exercise the remedies created by this Section 2.3 to the Collateral Agent.
AutoBond agrees that, upon any such assignment, the Collateral Agent may enforce
directly, without joinder of the Borrower (but subject to any defense that
AutoBond may have under this Agreement), the purchase obligations of AutoBond
set forth in Section 2.3(c) with respect to breaches of the representations and
warranties set forth in Section 2.2 and Section 2.3(a).
(c) Upon the occurrence of a breach of any of the representations
and warranties in Section 2.2 or Section 2.3(a) which may, or does, materially
and adversely affect a Specified Auto Loan or the interests of the Borrower or
the Collateral Agent on behalf of the Secured Parties therein, the party
discovering such breach or failure to deliver shall give prompt written notice
to the other parties. In addition, with respect to any Auto Loan in respect of
which the title document was being applied for on the applicable Closing Date,
if such title document has not been delivered to the Collateral Agent within 135
days after such Closing Date, AutoBond shall give the Borrower, the Lender and
the Collateral Agent notice of such fact. If AutoBond does not correct or cure
such breach or failure within 30 days of such notice, occurrence or discovery,
then AutoBond shall immediately repurchase the affected Auto Loan at a purchase
price equal to the Repurchase Price. Any such repurchase shall be made without
recourse against, or warranty, express or implied, of the Borrower or the
Collateral Agent. The Repurchase Price shall be paid to the Collateral Agent for
deposit in the Loan Revenue Account, and upon receipt thereof, the Borrower and
the Collateral Agent shall execute and deliver an assignment substantially in
the form of Exhibit D attached hereto and made a part hereof to vest ownership
of such Specified Auto Loan in AutoBond or as directed by AutoBond. If, at the
time of the discovery of such breach or failure to deliver, a loss has occurred
with respect to the liquidation of such Specified Auto Loan, then AutoBond shall
pay to the Borrower or the Collateral Agent an amount equal to the amount, if
any, by which the Repurchase Price exceeds the net proceeds from such Specified
Auto Loan. It is understood and agreed that the obligation of AutoBond to
repurchase any Specified Auto Loan pursuant to this Section 2.3(c) or to make
the payment described in the immediately preceding sentence (the "Repurchase
Requirement") shall constitute the sole remedy for the breach of any
representation or warranty set forth in Section 2.3(a) or the failure by
AutoBond to deliver an original certificate of title in accordance with this
Section 2.3(c); provided, that the foregoing limitation shall not be construed
to limit in any manner the Borrower's rights to (a) declare the Termination Date
to have occurred to the extent that such breaches or failures to deliver also
constitute, or contribute to the determination of, an Event of Purchase
Termination under the Loan Acquisition Agreement, (b) indemnification to the
extent provided in Section 15.2, or (c) offset the amount of the Repurchase
Price from the Loan Acquisition Price in connection with any other Specified
Auto Loans. It is also understood and agreed that upon the repurchase by
AutoBond of a Specified Auto
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Loan in accordance with this Section 2.3(c) and the payment by AutoBond of all
monies required to be paid by it under this Section 2.3(c), it is the intention
of the parties hereto and the Borrower warrants that, if the seller of such
Specified Auto Loan is the Borrower, AutoBond shall own all right, title and
interest of the Borrower in and to such Specified Auto Loan.
(d) It is understood and agreed that the Repurchase Requirement
shall survive any assignment of a Specified Auto Loan by the Borrower to the
Collateral Agent and shall continue so long as any such Specified Auto Loan
shall remain outstanding notwithstanding any termination of this Agreement.
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 Woodburne & Wedge, who are acting as special
Texas counsel for AutoBond and special Nevada counsel for the Borrower,
respectively, in 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.
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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 Collateral Agent on behalf of the Lender as secured
party (each, a "Financing Statement") shall have been executed and delivered to
the Collateral Agent 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 Security Agreement.
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 3.10 POWER OF ATTORNEY. The Lender shall have received a
power of attorney, executed by AutoBond, authorizing the Lender to rerecord
certificates of title in respect of the Financed Vehicles to specify the Lender
or its designee as lienholder, upon an Event of Termination with respect to
AutoBond as Collection Agent.
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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 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
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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.
SECTION 4.8 LOAN ACQUISITION AGREEMENT; USE OF PROCEEDS. The
Borrower shall have entered into the Loan Acquisition Agreement and the proceeds
of the Advances shall not exceed the amount the Collateral Agent, 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 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 Acquisition Agreement shall have been duly authorized, executed
and delivered by the parties thereto. Copies of the duly executed Loan
Acquisition 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 Collateral Agent.
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.
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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.
The remedy for any breach of the covenants set forth in this Section 5 shall be
as provided in Section 13.1(c).
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 Collateral Agent, 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 Collateral Agent 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
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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
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.
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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 or such later date agreed to by
the Borrower and the Lender 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 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
6.04 of the Security Agreement and (b) upon the occurrence of a Disposition. 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 6.04 of the
Security Agreement.
SECTION 8.3 VOLUNTARY PREPAYMENTS. (a) The Borrower may, upon thirty
(30) days written notice, voluntarily prepay Advances at any time in accordance
with this Section 8.3; provided that the Borrower may only prepay Advances
pursuant to this Section 8.3 if it prepays all Advances outstanding at such
time.
(b) Any prepayment of Advances pursuant to this Section 8.3 shall be
at a price equal to one hundred percent (100%) of the aggregate outstanding
principal amount of Advances prepaid, together with accrued and unpaid interest
as of the date set for prepayment, all unpaid fees, and any amounts due in
accordance with Section 15.3 hereof.
SECTION 8.4 PREPAYMENT NOTICE. AutoBond shall provide written notice
to the Lender of any mandatory prepayment as early as practicable prior to the
date for such prepayment, but in no event later than 12:00 (noon) New York City
time on the fifth Business Day prior to the date for such prepayment.
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).
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(b) Subject to Section 7.3, the Initial Lender may not assign all or
any portion of the Commitment without the prior written consent of the Borrower
(which consent shall not be unreasonably withheld). The Lender may, however, (i)
without the consent of the Borrower, assign to any commercial lending
institution familiar with the asset-backed securities market or (ii) with the
prior written consent of the Borrower, assign to any other entity (each, an
"Assignee"), all or any portion of the Advances or the Notes; provided that any
assignment of a portion of the Advances or 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 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
Collateral Agent, AutoBond and the Servicer; 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
(i) without the consent of the Borrower, to any commercial lending institution
familiar with the asset-backed securities market or (ii) with the prior written
consent of the Borrower, to any other entity, 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 Advance as if (and the
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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.
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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 Collateral Agent,
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:
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(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
(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
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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 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 Security Agreement, 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
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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.
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.
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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 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
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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".
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;
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(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;
(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 Security Agreement,
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
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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.
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 Collateral
Agent and 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 Collateral Agent and the Lender the
following:
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(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;
(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; and
(c) on or prior to the Closing Date, a copy of its quarterly report
on Form 10-Q for the period ending September 30, 1996, and thereafter each
publicly filed report with respect to AutoBond; and
(d) in its capacity as Collection Agent, on each Payment Date, a
report as to the collection and payment activities with respect to the
Specified Auto Loans during the preceding Collection Period, in the form
of Exhibit H hereto.
SECTION 13. DEFAULTS, REMEDIES AND TERMINATION.
SECTION 13.1 EVENTS OF DEFAULT; ACCELERATION OF ADVANCES. If any of
the following conditions or events ("Events of Default") shall occur and be
continuing:
(a) (i) any payment or prepayment of principal of any Advance shall
not be made as and when the same becomes due and payable, whether at
maturity, at a date fixed for prepayment, upon acceleration or otherwise;
or (ii) any payment of interest on any Advance (or any other amount due
hereunder or under any Note) shall not be made as and when the same
becomes due and payable; or (iii) failure to make any deposit when due
under the Security Agreement or under the Servicing Agreement, or (iv) a
Borrowing Base Deficiency is determined to exist on a Determination Date
and continues unremedied after giving effect to the transactions on the
related Payment Date or (v) failure of AutoBond to repurchase any Auto
Loans pursuant to Section 2.3(c) hereof, in each case, within five (5)
Business Days after notice from the Lender; or
(b) the Borrower or AutoBond shall default in the due and punctual
performance of or compliance with any covenant, condition or agreement to
be
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performed or observed by it under Sections 10 or 11, respectively, hereof
and any such default shall continue unremedied for a period of twenty (20)
Business Days after an Authorized Officer of the Borrower or AutoBond
obtains knowledge thereof; or
(c) the Borrower or AutoBond shall default in the due and punctual
performance of or compliance with any other material covenant, condition
or agreement to be performed or observed by it under any provision hereof
or any other Program Document which failure would have a material adverse
effect upon the Lender and which failure shall continue unremedied for
thirty (30) Business Days after an Authorized Officer of the Borrower or
AutoBond obtains knowledge thereof; or
(d) the Lien created or intended to be created by the Security
Agreement shall cease to be a valid, fully perfected and enforceable Lien
prior to the rights of all Persons other than the Lender whether or not
such Persons have notice of any such Lien and, if curable, such failure
shall continue unremedied for thirty (30) days after an Authorized Officer
of the Borrower or AutoBond obtains knowledge thereof; or
(e) any representation, warranty, certification or statement of the
Borrower or AutoBond made or contained in any Program Document 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 Borrower or AutoBond obtains knowledge thereof;
or
(f) a final judgment or judgments entered by a court or courts of
competent jurisdiction for the payment of money (other than such judgments
or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $25,000 in the aggregate shall be rendered
against the Borrower and shall remain in force unpaid, unbonded,
undismissed, undischarged and unstayed on appeal for a period of more than
thirty (30) days; or
(g) the Borrower shall institute proceedings for liquidation,
readjustment, arrangement or composition (or for any related or similar
purpose) under any law relating to financially distressed debtors, their
creditors or property, or shall consent to (or fail to object to in a
timely manner) the institution of any such proceedings against the
Borrower; or
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(h) the Borrower shall be insolvent (within the meaning of any
applicable law), or shall be unable, or shall admit in writing its
inability, to pay its debts as they become due, or shall make an
assignment for the benefit of creditors or enter into any arrangement for
the adjustment or composition of debts or claims; or
(i) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order (i) for the
appointment of a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of the Borrower or of any part of
its property, or for the winding-up or liquidation of its affairs; and
such decree or order shall remain in force undischarged and unstayed for a
period of more than sixty (60) days, or (ii) for the sequestration or
attachment of any material part of the property of the Borrower without
its unconditional return to the possession of the Borrower, or its
unconditional release from such sequestration or attachment, within sixty
(60) days thereafter; or
(j) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order approving or
acknowledging as properly filed, or any party commences against the
Borrower, a petition or proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose) under
any law relating to financially distressed debtors, their creditors or
property, and any such decree or order shall remain in force undischarged
and unstayed for a period of more than sixty (60) days; or
(k) the Borrower shall take action for the purpose or with the
effect of authorizing or confirming the taking or existence of any action
or condition specified in clause (i) or (j) above; or
(l) a default by the Collateral Agent in the performance of its
duties under the Security Agreement shall have occurred and be continuing
and such event shall not have been cured or such party replaced within
twenty (20) Business Days thereafter;
then
(I) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (g) through (k), inclusive, of this
Section 13.1, the unpaid principal amount of the Advances shall
automatically become due and payable, together with interest accrued
thereon, without presentment, demand, protest or any notice, all of
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which are expressly hereby waived and the Initial Lender may remove
AutoBond as Collection Agent and appoint a successor Collection
Agent under the Servicing Agreement;
(II) upon the occurrence and continuance of any Event of
Default set forth in clause (a) of this Section 13.1, any Lender
may, by written notice to the Borrower (with a copy to the
Collateral Agent), declare the Advances held by it to be due and
payable, whereupon the same shall mature and become due and payable,
together with interest accrued thereon and fees in respect thereof,
without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived;
(III) upon the occurrence and continuance of any Event of
Default, the Lender (or, if multiple Lenders, Lenders with respect
to a majority of the aggregate unpaid principal amount of the
Advances) may by written notice or notices to the Borrower (with a
copy to the Collateral Agent) declare all of the Advances to be due
and payable, whereupon the same shall mature and become due and
payable, together with interest and fees accrued thereon, without
presentment, demand, protest or any other notice, all of which are
hereby waived;
(IV) upon the occurrence and continuance of any Event of
Default, the Initial Lender shall no longer be obligated to make
additional Advances hereunder; and
(V) upon the occurrence and continuance of any Event of
Default set forth in clauses (a)(iii) (b) or (c) of this Section
13.1 by AutoBond with respect to its obligations under the Servicing
Agreement, the Initial Lender may remove AutoBond as Collection
Agent thereunder and appoint a successor Collection Agent.
SECTION 13.2 DEFAULT REMEDIES. If an Event of Default shall occur
and be continuing, the Lender may, or the Lenders in respect of a majority in
aggregate principal amount of the Advances outstanding may instruct the
Collateral Agent to, exercise any right, power or remedy permitted to it by law,
either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or agreement contained in the Program Documents or
in the Note or for an injunction against a violation of any of the terms of the
Program Documents or such Advance or in aid of any exercise of any power granted
to such Lender or to the Collateral Agent in the Program Documents or in such
Advance, or may proceed to enforce payment of such Advance or to enforce any
other legal or equitable right of the Lender. No
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remedy herein or in the Security Agreement conferred upon the Lender or the
Collateral Agent is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law, in equity, by statute or
otherwise. No course of dealing on the part of the Lender or the Collateral
Agent, or any delay or failure on the part of the Lender or the Collateral Agent
to exercise any right or power, shall operate as a waiver of such right or power
or otherwise prejudice the rights, powers and remedies of the Lender or the
Collateral Agent or of any other Lender or the Collateral Agent. No failure to
insist upon strict compliance with any covenant, term, condition or other
provision of the Program Documents or the Note shall constitute a waiver by the
Lender or the Collateral Agent of any such covenant, term, condition or other
provision or of any Default or Event of Default in connection therewith. To the
extent effective under applicable law, the Borrower hereby agrees to waive, and
does hereby absolutely and irrevocably waive and relinquish, the benefit and
advantage of any valuation, stay, appraisement, extension or redemption laws now
existing or that may hereafter exist that, but for this provision, might be
applicable to any sale made under any judgment, order or decree of any court, or
otherwise, based on the Advances or on any claim for interest and fees in
respect of the Advances. If an Event of Default shall occur, and be continuing,
the Borrower will pay to the Lender or the Collateral Agent, to the extent not
prohibited by applicable law and not paid in accordance with the Security
Agreement, such further amount as shall be sufficient to cover the reasonable
costs and expenses of collection and of the taking of remedial actions and the
maintenance of enforcement proceedings, including, without limitation,
reasonable and necessary attorneys' fees and disbursements.
SECTION 13.3 NOTICE OF DEFAULT. If the Lender or the Collateral
Agent shall give any notice or take any other action with respect to a claimed
default, the Borrower shall forthwith give written notice thereof to the
Collateral Agent, the Lender and all Assignees describing the notice or action
and the nature of the claimed default.
SECTION 13.4 ANNULMENT OF ACCELERATION OF ADVANCES. If notice is
delivered pursuant to clause (III) of Section 13.1 hereof, then the Lender (or,
if multiple Lenders, the Lenders with respect to at least sixty-six and
two-thirds percent (66-2/3%) of the aggregate unpaid principal amount of the
Advances) may, in respect of all of the Advances, by written instrument filed
with the Borrower (with a copy to the Collateral Agent), rescind and annul the
declaration delivered pursuant to clause (III) of Section 13.1 and the
consequences thereof or of such Event of Default pursuant to this Agreement;
provided, however, that at the time of any such annulment and rescission:
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(a) no judgment or decree shall have been entered for payment of any
monies due pursuant to the Advances or this Agreement and no action shall
have been taken pursuant to the Security Agreement which may not then be
waived, rescinded or annulled;
(b) all arrears of principal and interest upon all the Advances and
all other sums payable in respect of the Advances and to the Lender under
the Program Documents (including reasonable costs and expenses of the
Lender incurred in connection with such notice under Section 13.1 hereof
or annulment under this Section 13.4, but excluding any principal or
interest on the Advances or any fees in respect thereof that shall have
become due and payable by reason of such notice under Section 13.1 hereof
or happening of such Event of Default) shall have been duly paid; and
(c) each and every other default hereunder and Event of Default
shall have been duly waived or cured; and
provided, further, that there shall not be waived, without the consent of the
Lender, an Event of Default resulting from a violation or failure to comply with
any provision of the Security Agreement the amendment of which, under the
provisions thereof, would require the consent of the Lender to be affected
thereby; and, provided, further, that no such rescission and annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right or power consequent thereon.
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES.
SECTION 14.1 DEFINITIONS. 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 "Account Receivable" shall mean, with respect to any
Person, any right of such Person to the payment of money arising out of
the sale, lease or other disposition of goods or merchandise or the
rendering of services by such Person, determined in accordance with
generally accepted accounting principles.
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
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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 Collateral Agent 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 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.
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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.
The term "Collateral" shall have the meaning set forth in the
Security Agreement.
The term "Collateral Account" shall have the meaning set forth in
the Security Agreement.
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The term "Collateral Agent" shall have the meaning set forth in
Section 1.5 hereof.
The term "Collection Period" shall mean each calendar month;
provided, however, the initial Collection Period shall be the period from
the Closing Date to January 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) $30,000,000 until May 15, 1997, (b)
$40,000,000 from May 15, 1997 until August 15, 1997 and (c) $50,000,000
from August 15, 1997 until March 31, 1998.
The term "Commitment Fee" shall mean the fee payable to the Lender
pursuant to Section 3.9 hereof in the amount agreed to by the Borrower and
the Lender.
The term "Credit and Collection Policies" means written credit
procedures and policies consistent with the requirements of this Agreement
and the Servicing Agreement, in effect from time to time formulated by
AutoBond as to the requirements of certain servicing matters and
comprising part of AutoBond Program Manual.
The term "Dealer" shall mean each automobile dealer with whom
AutoBond has entered into a Dealer Agreement.
The term "Dealer Agreement" shall mean each agreement between
AutoBond and a Dealer, which provides for acquisition of the Auto Loans.
The term "Default" shall mean any event or condition that would
become an Event of Default after notice or passage of time or both.
The term "Defaulted Auto Loan" shall mean an Auto Loan which by its
terms has more than 10% of any installment of principal or interest which
is 60 or more days contractually past due.
The term "Determination Date" shall mean the 10th day of each month
(or the immediately preceding Business Days if such day is not a Business
Day).
The term "Disposition" shall mean any pooling or disposition of
Specified Auto Loans by the Borrower, either (a) in structured-finance
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securitization transactions, (b) pursuant to whole-loan sales or (c) in
some other form of disposition.
The term "Dollars" or "$" 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 Section 13.1 hereof.
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 term "Financing Statement" shall have the meaning set forth in
Section 3.8 hereof.
The term "Fitch" shall mean Fitch Investors Service, L.P.
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
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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.
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
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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 "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.
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%.
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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 Collateral Agent 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
Collateral Agent , 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
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11interest or other encumbrance arising from a mortgage, deed of trust,
hypothecation, cession, transfer, assignment, pledge, adverse claim or
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 Agreement" shall mean the Amended and
Restated Loan Acquisition, Sale and Contribution Agreement dated as of
February 1, 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 "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 Security Agreement.
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.
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The term "Minimum Assignment Denomination" shall mean $500,000.
The term "Monthly Servicer Fee" shall have the meaning specified in
the Security Agreement.
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 "Non-recourse Indebtedness" means Indebtedness as to which
the Borrower is obligated only to the extent of the cash flow from a
designated asset pool pledged to secure such Indebtedness.
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.
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The term "Officer's Certificate" (i) with respect to the Collateral
Agent, 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 Collateral Agent customarily
performing functions similar to those performed by any of the
above-designated officers and (ii) with respect to AutoBond, the
Collateral Agent, 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.
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 Investments" shall mean Eligible Auto Loans and
any of the following Investments to be held in an account of the Borrower
at the Collateral Agent:
(a) certificates of deposit with final maturities of one (1) year
or less issued by banks or trust companies organized under the
laws of the United States of America or any state thereof and
having unsecured long-term debt rated "A" or better by S&P or
"A-2" or better by Moody's provided, however, that any such
certificates of deposit that are rated by both such rating
agencies shall be rated "A" or better by S&P and "A-2" or
better by Moody's;
(b) commercial paper of corporations organized under the laws of a
jurisdiction within the United States of America maturing not
more than two hundred seventy (270) days from the date of
issuance thereof and rated "A-1" or better by S&P or "P-1" or
better by Moody's without regard to maturity; provided,
however, that any such commercial paper that is rated by both
such rating agencies shall be rated "A-1" or better by S&P and
"P-1" or better by Moody's;
(c) direct obligations issued or unconditionally guaranteed by the
United States of America or any agency thereof and maturing
within one (1) year from the date of acquisition thereof;
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(d) debt securities of corporations organized under the laws of a
jurisdiction within the United States of America (i) with a
maturity of one (1) year or less and rated "A" or better by
S&P or "A-2" or better by Moody's; provided, however, that any
such debt security that is rated by both such rating agencies
shall be rated "A" or better by S&P and "A-2" or better by
Moody's; and
(e) money market funds having ratings in the highest or second
highest available rating category of S&P and Moody's at the
time of such investment which invest only in other Permitted
Investments; any such money market funds which provide for
demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Permitted Investments set forth in
this Agreement.
Any Permitted Investments may be purchased by or through the Collateral
Agent or any of its Affiliates.
The term "Permitted Liens" shall mean:
(a) Liens created under the Security Agreement;
(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;
(c) any Lien which is a mechanics lien assessed against an
Automobile securing a Specified Auto Loan; and
(d) Liens securing Non-recourse Indebtedness.
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".
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The term "Program Documents" shall mean this Agreement, the Security
Agreement, the Servicing Agreement, the Sale Assignments, the Note and the
Loan Acquisition Agreement.
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 Collateral Agent.
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 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 "Repurchase Requirement" shall have the meaning specified
in Section 2.3 hereof.
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.
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The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
The term "Security Agreement" shall have the meaning set forth in
Section 1.5 hereof.
The term "Security Interest" shall mean the security interest and
rights created under the Security Agreement in the Collateral in favor of
the Lender.
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:
(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 "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
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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 "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 Collateral Agent under the Security Agreement as
security for its obligations hereunder and under the Security Agreement.
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 "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 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.
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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 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
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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 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
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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 Collateral Agent or the
Secured Parties (each an "Indemnified Party") may have hereunder or under
applicable law,
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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 Collateral
Agent 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
Collateral
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Agent'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 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 Collateral Agent. 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
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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.
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
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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 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 Collateral Agent, 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
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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 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
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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 confidential. The
provisions of this Section 16.10 shall survive the termination of this
Agreement.
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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 FUNDING CORPORATION II
By:/s/ Adrian Katz
---------------------------------
Name: Adrian Katz
Title: Vice President
AUTOBOND ACCEPTANCE CORPORATION
By:/s/ John S. Winsauer
---------------------------------
Name: John S. Winsauer
Title: Secretary
DAIWA FINANCE CORPORATION
By:/s/ Mark Finston
---------------------------------
Name: Mark Finston
Title: Executive VP/ CFO
<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.
<PAGE>
<PAGE>
This Note is secured in accordance with and entitled to the benefits
of the Security Agreement. Copies of the Security Agreement may be examined at
the office of the Borrower maintained pursuant to Section 16 of the Credit
Agreement.
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 Security Agreement 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.
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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:
3
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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
- --------------------------------------------------------------------------------
4
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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>
[CONFORMED COPY]
================================================================================
SECURITY AGREEMENT
among
AUTOBOND FUNDING CORPORATION II
(as Borrower)
AUTOBOND ACCEPTANCE CORPORATION
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(as Collateral Agent)
Dated as of February 1, 1997
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINED TERMS.................................................................. 1
SECTION 2. SECURITY INTERESTS............................................................. 6
SECTION 3. CERTAIN RIGHTS OF SECURED PARTIES WITH
RESPECT TO COLLATERAL.......................................................... 8
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT............................................................... 8
SECTION 5. REPRESENTATIONS, WARRANTIES AND
COVENANTS...................................................................... 10
SECTION 6. COLLATERAL ACCOUNT............................................................. 12
6.01. Establishment and Maintenance of Lockbox and
Collateral Account............................................................. 12
6.02. Required Deposits to the Accounts.............................................. 12
6.03. Right of Withdrawal from the Collateral Account................................ 14
6.04. Application of Funds in the Collateral Account;
Application of Proceeds of Realization on Collateral........................... 14
6.05. Investment of Funds Deposited in Collateral Account............................ 17
SECTION 7. DISPOSITIONS OF AUTO LOANS..................................................... 17
SECTION 8. THE COLLATERAL AGENT........................................................... 18
8.01. Appointment.................................................................... 18
8.02. Exculpatory Provisions......................................................... 18
8.03. Reliance by Collateral Agent................................................... 19
8.04. Notice of Default.............................................................. 19
8.05. Non-Reliance on Collateral Agent............................................... 20
8.06. Successor Collateral Agent..................................................... 20
8.07. Delivery of Collateral and Permitted Investments............................... 21
8.08. Duties and Covenants of Collateral Agent....................................... 21
8.09. Annual Report and Quarterly Certificate........................................ 23
SECTION 9. AMENDMENTS AND WAIVERS......................................................... 24
</TABLE>
i
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 10. NOTICES........................................................................ 25
SECTION 11. LIMITATION ON COLLATERAL AGENT'S DUTY
IN RESPECT OF COLLATERAL....................................................... 26
SECTION 12. SEVERABILITY................................................................... 27
SECTION 13. NO WAIVER; CUMULATIVE REMEDIES................................................. 27
SECTION 14. PAYMENT OF EXPENSES AND TAXES.................................................. 27
SECTION 15. SUCCESSORS AND ASSIGNS; GOVERNING LAW.......................................... 29
SECTION 16. ENFORCEMENT RIGHTS OF LENDERS.................................................. 30
SECTION 17. BANKRUPTCY PETITION AGAINST THE
BORROWER....................................................................... 30
SECTION 18. MISAPPLICATION OF FUNDS........................................................ 30
SECTION 19. COUNTERPART SIGNATURES......................................................... 30
SECTION 20. THIRD PARTY BENEFICIARY........................................................ 30
SECTION 21. STATUS OF COLLATERAL AGENT..................................................... 31
SECTION 22. ACTS OF LENDERS................................................................ 31
</TABLE>
EXHIBITS
EXHIBIT A - FORM OF COLLATERAL ASSIGNMENT
EXHIBIT B - FORM OF TRUST RECEIPT
EXHIBIT C - FORM OF COLLATERAL AGENT REPORT
ii
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of February 1, 1997 made by and
among AUTOBOND FUNDING CORPORATION II, a Nevada corporation (the "Borrower"),
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation ("AutoBond") and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, as collateral agent (in such capacity, the
"Collateral Agent").
W I T N E S S E T H
WHEREAS, the Borrower has entered into a Credit Agreement
dated as of February 1, 1997 (as may from time to time, be amended,
supplemented, or modified, the "Credit Agreement") with Daiwa Finance
Corporation, as lender (the "Initial Lender") and AutoBond, pursuant to which
advances will be made to the Borrower (the "Advances") from time to time; and
WHEREAS, it is a condition to the obligations of the Lenders
to make the Advances under the Credit Agreement that the Borrower and the
Collateral Agent shall have executed and delivered to the Initial Lender this
Security Agreement.
NOW, THEREFORE, to induce the Lenders to make the Advances,
the Borrower and AutoBond hereby agrees with the Collateral Agent, for the
benefit of the Secured Parties, as follows:
SECTION 1. DEFINED TERMS.
(a) The terms "inventory", "goods", "accounts", "contract
rights", "chattel paper", "general intangibles", "checks", "instruments",
"securities" and "documents" have the respective meanings ascribed in the UCC.
(b) Capitalized terms used herein undefined shall, unless
otherwise defined herein, have the respective meanings ascribed in the Credit
Agreement; and the following terms shall have the following meanings:
"Accounts" shall mean the Lockbox Account, the Collateral
Account, the Reserve Account, the Loan Purchase Account and the Collection
Account.
"Automobile" shall mean a new or used automobile, light-duty
truck or van.
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"Collateral" shall have the meaning set forth in Section 2(a).
"Collateral Agent Fee" shall mean, as of any Payment Date, the
sum of (a) the product of (i) 1/12th, (ii) 0.20% and (iii) the daily average
aggregate principal balance of all Specified Auto Loans that are not Defaulted
Auto Loans during such Collection Period immediately preceding such Payment Date
and (b) any expenses reimbursable in accordance with the Collateral Agent's
activities under this Agreement and the Servicing Agreement, including, without
limitation, the costs and expenses incurred by the Collateral Agent in
connection with the assumption of the duties and obligations of the Servicer
pursuant to the Servicing Agreement.
"Collateral Assignment" shall mean a certificate of assignment
by the Borrower to the Collateral Agent, substantially in the form of Exhibit A
giving notice of, and evidencing the pledge of Specified Auto Loans and related
collateral to the Collateral Agent for the benefit of the Lenders.
"Collection Account" shall have the meaning assigned to such
term in Section 6.01 hereof.
"Collection Agent" shall mean AutoBond, as collection agent
under the Servicing Agreement.
"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.
"Collection Period" shall mean, (a) with respect to the
initial Collection Period, the period commencing on the Initial Closing Date and
ending on February 28, 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 Collection
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 Collection Period and (B) Auto Loans for which the related
Financed Vehicles are subject to repossession as of the end of the most recently
ended Collection Period and which are not included in (A), and (B) the
denominator of which equals the aggregate
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Unpaid Principal Balance of Auto Loans outstanding as of the end of the most
recently ended Collection Period minus the amount determined pursuant to clause
(ii) above.
"Event of Purchase Termination" shall have the meaning
assigned to such term in the Loan Acquisition Agreement.
"Excess Reserve Account Amount" shall mean, as of each Payment
Date, the amount, if any, held in the Reserve Account in excess of the Reserve
Account Required Balance after giving effect to any withdrawals from the Reserve
Account pursuant to Section 6.04(d)(i), (ii) and (iii) on such Payment Date.
"Financed Vehicle" shall mean a new or used automobile, van or
light-duty truck, the purchase of which the Obligor financed with an Auto Loan.
"Interest Payment Date" shall mean the first Business Day of
each calendar month.
"Loan Documents" means, with respect to a Specified Auto Loan,
(a) the fully executed original retail installment loan contract and security
agreement evidencing such Specified 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, (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 and (e) a copy of the funding check made to the order of
the Dealer or the Originator.
"Loan Files" 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.
"Loan Purchase Account" shall have the meaning assigned to
such term in Section 6.01 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, established in respect of the Auto Loans at
the Lockbox Bank and maintained pursuant to the Lockbox Agreement.
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"Lockbox Agreement" means the Lockbox Operations Agreement,
dated as of September 30, 1996 between the Servicer, as custodian for AutoBond,
and the Lockbox Bank.
"Lockbox Bank" means Banc One, Texas, N.A.
"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 Collection 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 Collection Period.
"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, and each other date on which Advances are paid or payable.
"Proceeds" shall have the meaning assigned such term under the
UCC of the State of New York, and of each other jurisdiction whose law governs
the grant or perfection of the Collateral Agent's interest in the particular
proceeds of the Collateral and shall also include (to the extent not already
included): (a) any and all proceeds of any insurance, indemnity, warranty,
guaranty or letter of credit payable to the Borrower from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or rights to amounts payable to the Borrower from time to time
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any person acting under color of governmental
authority), (c) any and all other amounts, products, offspring, rents or profits
from time to time paid or payable under or in connection with the Collateral and
(d) all additions to or substitutions or replacements for any of the Collateral.
"Program Manual" shall mean the AutoBond Program Manual in
effect as of the date hereof, as modified from time to time.
"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 Collection
Period immediately preceding such Payment Date, but not including expenses paid
net of recoveries.
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"Reserve Account" shall have the meaning assigned to such term
in Section 6.01 hereof.
"Reserve Account Balance" shall mean the amount of funds on
deposit in the 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 and (ii) the aggregate Unpaid Principal Balance of the
Specified Auto Loans as of the end of the preceding Collection Period.
"Responsible Officer" shall mean, when used with respect to
the Collateral Agent, any officer within the corporate trust department (or any
successor thereof) including any vice president, assistant vice president, or
any officer or assistant officer of the Collateral Agent customarily performing
functions similar to those performed by any of the above-designated officers.
"Repossession Ratio" shall mean, on any Determination Date on
or after May 10, 1997, the product of (a) the average of the Monthly
Repossession Ratios for the three immediately preceding calendar months and (b)
12.
"Secured Parties" shall mean the Lenders from time to time in
respect of the Advances.
"Servicer Fee" shall mean, as of any Payment Date, the sum of
(a) an initial booking fee equal to the product of (i) $10 and (ii) the number
of additional Specified Auto Loans purchased by the Borrower during the
immediately preceding Interest Period, (b) a servicing fee equal to the product
of (i) $8.00 and (ii) the total number of Specified Auto Loans which were
outstanding at any time during the preceding Interest Period and (c) any
expenses reimbursable in accordance with the Servicing Agreement.
"Specified Auto Loan" shall mean each Auto Loan pledged by the
Borrower to the Collateral Agent hereunder as security for its obligations
hereunder and under the Credit Agreement.
"Target Reserve Percentage" shall mean 6%; provided, that if,
as of a Determination Date,
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(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.
"Uniform Commercial Code" or "UCC" shall mean, with respect to
any jurisdiction, the Uniform Commercial Code, or any successor statute, or any
comparable law, as the same may from time to time be amended, supplemented or
otherwise modified and in effect.
"Unpaid Principal Balance" shall mean, 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 Collection 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 Net Unrealized Amounts.
"Unused Facility Fee" shall mean, with respect to any Payment
Date, the product of (i) a fraction (A) the numerator of which is the number of
days elapsed during the immediately preceding Interest Period and (B) the
denominator of which is 360, (ii) the average outstanding balance of the
Available Facility Amount during such Interest Period and (iii) the Unused
Facility Fee Rate.
"Unused Facility Fee Rate" shall mean the per annum rate
agreed to by the Borrower and the Initial Lender.
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SECTION 2. SECURITY INTERESTS.
(a) As security for the prompt, complete and unconditional
payment and performance of all obligations of the Borrower in respect of the
Advances, the Borrower hereby pledges, assigns, transfers and delivers to the
Collateral Agent for the benefit of the Secured Parties, and grants to the
Collateral Agent for the benefit of the Secured Parties, a continuing first lien
on, and first and prior security interest in, all of the Borrower's right, title
and interest in, to and under the following (the "Collateral"):
(i) each Specified Auto Loan, including without limitation,
all rights to payments thereunder, purchased by or otherwise conveyed
to or established by the Borrower pursuant to the Loan Acquisition
Agreement;
(ii) each Financed Vehicle and all other Property, now or
hereafter acquired, securing or evidenced by, each Specified Auto Loan,
including, without limitation, the certificate of title relating to
each Financed Vehicle, any insurance proceeds with respect to any such
Financed Vehicle or Specified Auto Loan, the proceeds of any
repossession and liquidation of any such Financed Vehicle, rights under
judgments with respect to defaulted obligors, rights to deficiency
judgments with respect to defaulted obligors and rights under any
service contracts with respect to any such Financed Vehicle;
(iii) the Loan Purchase Account, the Collection Account and
the Reserve Account and all moneys, checks, instruments, documents,
securities, Investments, deposits and other credits (whether or not
permitted by the Program Documents) credited to the Collateral Account,
or otherwise held by the Collateral Agent;
(iv) all securities and other Investments held at any time
on behalf of the Borrower in the Collateral Account;
(v) the Loan Files; and
(vi) all Proceeds of any of the foregoing.
(b) All rights of the Collateral Agent and the Secured Parties
and all liens and security interests granted hereunder, shall be absolute,
unconditional and irrevocable unless and until released pursuant to the Program
Documents, irrespective of any condition or circumstance whatsoever.
(c) The grant of the security interest to the Collateral Agent
pursuant to this Section 2 shall not: (i) relieve the Borrower from the
performance of any term, covenant,
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condition or agreement on the Borrower's part to be performed or observed under
or in connection with the Collateral, (ii) impose any obligation on the
Collateral Agent or the Secured Parties to perform or observe any such term,
covenant, condition or agreement on the Borrower's part to be so performed or
observed, or (iii) impose any liability on the Collateral Agent or the Secured
Parties for any act or omission on the part of the Borrower, or any Person
acting as agent for or on behalf of the Borrower, relative to or for any breach
of any representation or warranty on the part of the Borrower in connection with
the Collateral.
SECTION 3. CERTAIN RIGHTS OF SECURED PARTIES WITH RESPECT TO
COLLATERAL.
Upon the occurrence and during the continuance of an Event of
Default, the Borrower hereby irrevocably authorizes the Collateral Agent to
execute and deliver, as the attorney-in-fact of the Borrower, any consent,
waiver or amendment which, under the terms of any Program Document, is or may be
executed and delivered by the Borrower with respect to the Collateral, subject
to the provisions of the Program Documents; provided, however, that the
Collateral Agent shall have no duty or obligation to execute and deliver any
such consent, waiver or amendment unless directed in writing to take the actions
specified therein by the Lenders in respect of at least 66 2/3% in aggregate
principal amount of the Advances outstanding; and provided, further, that the
Collateral Agent shall not be required to take any action which the Collateral
Agent reasonably believes may be contrary to applicable law or which would
expose the Collateral Agent to financial liability if the Collateral Agent has
reasonable grounds to believe that repayment of such financial liability is not
reasonably assured. The Borrower hereby agrees to remit to the Collection
Account for deposit in accordance with this Agreement any and all Proceeds of
any Collateral received by the Borrower.
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.
(a) (i) If at any time an Event of Default shall have occurred
and be continuing, the Collateral Agent may, without demand of performance or
other demand, advertisement or notice of any kind (except for any notice of the
time and place of public or private sale required by law) to or upon the
Borrower or any other Person (all of which demands, advertisements and/or
notices are hereby expressly waived), and in its own name or in the name of the
Borrower, forthwith demand, collect, receive, sue for, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, assign,
grant an option or options to purchase, contract to sell or otherwise dispose of
and deliver said Collateral, or any part thereof, in one or more parcels at
public or private sale or sales, at any location or locations at the option of
the Collateral Agent acting upon any instructions received from the Lenders in
respect of a majority in aggregate principal amount of Advances outstanding, all
upon such terms and
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conditions and at such prices as such Lenders may deem advisable, for cash or on
credit or for future delivery without assumption of any credit risk, with the
right of the Collateral Agent or any Secured Party upon any such public sale or
sales to purchase the whole or any part of said Collateral so sold, free of any
right of redemption in the Borrower, which right is hereby expressly waived and
released. At the instruction of the Lenders in respect of a majority in
aggregate principal amount of Advances outstanding, the Collateral Agent may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
(ii) If at any time an Event of Default shall have occurred
and be continuing and the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding give written direction to the
Collateral Agent as to the disposition of the Collateral or as to the
exercise of remedies against the Collateral, the Collateral Agent
hereby agrees to follow such direction; provided, however, no provision
of this Agreement shall require the Collateral Agent to take any action
which it or its counsel deems to be unlawful nor shall the Collateral
Agent be obligated to expend or risk its own funds or otherwise incur
any financial liability in the performance of any rights, powers or
duties hereunder, if the Collateral Agent shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured. Until all
Advances have been repaid and satisfied in full, the Collateral Agent
shall be obligated, subject to the foregoing proviso, to take direction
only from the Lenders in respect of a majority in aggregate principal
amount of Advances outstanding as to, upon the occurrence and during
the continuance of an Event of Default, the disposition of the
Collateral, or the exercise of remedies against or in connection with
the Collateral.
(iii) Notwithstanding the above provisions of this
Section 4(a), the Collateral Agent may not sell or otherwise liquidate
the Collateral following an Event of Default, other than an Event of
Default as described in paragraphs (a) and (b) of Section 13.1 of the
Credit Agreement, unless (A) the Collateral Agent shall have received
written evidence reasonably satisfactory to the Collateral Agent that
the Lenders in respect of 100% in aggregate principal amount of the
Advances outstanding consent thereto, (B) the proceeds of such sale or
liquidation distributable to the Lenders, as determined by the Lenders,
are sufficient to discharge in full the principal of and the accrued
interest on and fees in respect of the Advances at the date of such
sale or liquidation; written evidence of such determination to be
provided by the Lenders to the Collateral Agent or (C) the Lenders
determine that the Collateral will not continue to provide sufficient
funds for the payment of principal of and interest on and fees in
respect of the Advances as and when they would have become due if the
Advances had not been declared due and payable and the Lenders provide
written notice to the Collateral Agent to such effect.
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(b) If any notification of a proposed disposition of the
Collateral is required by law, such notification shall be deemed reasonably and
properly given if made in any manner provided in Section 10 hereof at least ten
days before such disposition.
(c) In addition to the rights, powers and remedies granted to
it in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Advances, the Collateral Agent shall have all of
the rights, powers and remedies now or hereafter permitted in law or equity,
including, without limitation, those of a secured party under the UCC of the
State of New York and any other applicable jurisdiction.
(d) The Collateral Agent shall apply the net proceeds of any
collection, recovery, receipt, appropriation, realization or sale referred to
above in this Section 4 in accordance with the provisions of Section 6.04(e)
hereof. The Borrower shall remain absolutely liable for the amount, if any, by
which the amount due under the Advances exceeds the proceeds of any such
collection, recovery, receipt, appropriation, realization or sale.
(e) The Borrower 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 Collateral Agent. Failure to provide such
notice shall not affect the Borrower'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.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Borrower represents, warrants and agrees, as of the date
hereof, and as of each Closing Date, that:
(a) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement listing the Borrower as
debtor covering all or any part of the Collateral is on file or of record in any
jurisdiction, except such as may have been filed, for the benefit of the Secured
Parties recorded or made by the Borrower in favor of the Collateral Agent
pursuant to this Security Agreement or the Credit Agreement.
(b) This Security Agreement is effective to create a valid and
continuing Lien on the Collateral in favor of the Collateral Agent for the
benefit of the Secured Parties, which Lien is prior to all other Liens except
Permitted Liens, and is enforceable as such as against creditors of and
purchasers from the Borrower. All action necessary or desirable to protect and
perfect such security interest has been duly taken.
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(c) The Borrower's chief executive office is at 300 South
Fourth Street, Suite 620, Las Vegas, Nevada 89101. The Borrower will not change
its name and will not change its principal place of business or chief executive
office unless the Borrower shall have given the Collateral Agent at least thirty
(30) days prior written notice thereof and the Borrower shall have taken all
action necessary to assure continuous perfection of the security interest held
by the Collateral Agent in the Collateral as evidenced by an opinion of counsel
addressed to the Collateral Agent and the Lenders to the effect that the lien
and security interest created by this Security Agreement with respect to such
Collateral will continue to be maintained, and that the priority thereof will
not be affected, after giving effect to such action or actions.
(d) At any time and from time to time, and at the sole expense
of the Borrower, the Borrower will promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding may reasonably deem desirable in obtaining the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to the
liens and security interests granted hereby. The Borrower also hereby authorizes
the Collateral Agent to file any such financing or continuation statement
without the signature of the Borrower to the extent permitted by applicable law;
provided, however, that such authorization shall not be deemed to create a duty
in the Collateral Agent. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note or other
instrument, or any chattel paper, the Borrower shall immediately notify the
Collateral Agent and shall duly endorse such note, instrument or chattel paper
to the order of the Collateral Agent and deliver such note, instrument or
chattel paper to the Collateral Agent promptly, and shall take such other
actions and execute such other documents as may be required by law to perfect
the Collateral Agent's interest in such note, instrument or chattel paper.
(e) The Borrower will warrant and defend the Collateral
Agent's right, title and interest in and to the Collateral, for the benefit of
the Secured Parties against the claims and demands of all Persons whomsoever.
(f) All authorizations in this Security Agreement for the
Collateral Agent to endorse checks, instruments and securities and to execute,
deliver and file financing statements, continuation statements, security
agreements and other instruments with respect to the Collateral are powers
coupled with an interest and are irrevocable so long as any Advances are
outstanding; provided however, the foregoing authorizations shall not create any
duty or obligation on the part of the Collateral Agent other than those
obligations set forth in this Agreement.
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SECTION 6. COLLATERAL ACCOUNT.
6.01. Establishment and Maintenance of Lockbox and Collateral
Account. AutoBond 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 AutoBond and its designees. AutoBond agrees to
cause the Lockbox Bank to sweep funds from the Lockbox Account to the Collection
Account at least once each week. Autobond agrees to require, and to cause the
Servicer to require, that all payments by Obligors on 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
Collateral Agent has an interest hereunder will be commingled therein. In
addition, concurrently with the execution and delivery hereof, the Collateral
Agent shall establish the following segregated accounts entitled (a) the
"AutoBond Funding Corporation II Loan Purchase Account, Norwest Bank Minnesota,
National Association, as Collateral Agent" (the "Loan Purchase Account"); (b)
the "AutoBond Funding Corporation II Collection Account, Norwest Bank Minnesota,
National Association, as Collateral Agent" (the "Collection Account"); and (c)
the "AutoBond Funding Corporation II Reserve Account, Norwest Bank Minnesota,
National Association, as Collateral Agent" (the "Reserve Account"). The Loan
Purchase Account, the Collection Account and the Reserve Account are sometimes
collectively referred to herein as the "Collateral Account". The Collateral
Account shall be maintained in the State of Minnesota in either (i) segregated
trust accounts with the corporate trust department of Norwest Bank Minnesota
(National Association) or any replacement collateral agent or (ii) segregated
deposit accounts with banks or trust companies (which may include the Collateral
Agent or a replacement collateral agent) the short-term debt obligations of
which are rated "A-1" by S&P and P-1 by Moody's. The Borrower shall have no
right of withdrawal from the Collateral Account.
6.02. Required Deposits to the Accounts. (a) The Borrower
shall cause the following amounts to be paid to the Collateral Agent for deposit
to the accounts established pursuant to Section 6.01:
(i) on the initial Closing Date, an amount equal to
$150,000 shall be deposited in the Reserve Account;
(ii) all amounts payable to the Borrower by or on behalf
of Lenders 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
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AutoBond in accordance with the Loan Acquisition Agreement and all
proceeds of any Dispositions) shall be deposited in the Collection
Account;
(iv) all amounts in respect of principal of Permitted
Investments shall be allocated to the account to which the funds
applied for purchase of such Permitted Investments were deposited;
(v) all amounts representing insurance proceeds in
respect of Specified Auto Loans (including, without limitation, the
proceeds of any credit default) shall be deposited in the Collection
Account;
(vi) all amounts representing repossession proceeds in
respect of Specified Auto Loans shall be deposited in the Collection
Account; and
(vii) all other amounts paid to the Borrower under the
Program Documents, other than indemnity payments made to the Borrower,
and all investment earnings on Permitted Investments shall be deposited
in the Collection Account.
(b) The Collateral Agent is hereby irrevocably authorized and
empowered, as the Borrower's attorney-in-fact, to endorse any check or any other
instrument or security presented for deposit in the Collateral Account requiring
the endorsement of the Borrower; provided, however, the foregoing authorizations
shall not create any duty or obligation on the part of the Collateral Agent.
(c) Notwithstanding the foregoing provisions of this Section
6.02, if at any time the Borrower, AutoBond or any Person on behalf of the
Borrower or AutoBond (including the Servicer under the Servicing Agreement),
receives any proceeds or payments required to be deposited in the Collateral
Account, all such amounts shall be held by the Borrower, AutoBond or such other
person as the agent of, and in trust for, the Collateral Agent and shall,
forthwith upon receipt by the Borrower, AutoBond or such other Person, be turned
over to the Collateral Agent for deposit to the Collection Account or the Loan
Purchase Account, as the case may be, in the same form as received by the
Borrower, AutoBond or such other Person (and, if received in the form of a
check, instrument or security requiring endorsement, duly endorsed on behalf of
the Borrower, AutoBond or such other Person to the order of the Collateral
Agent).
(d) The Borrower shall cause all amounts remitted to the
Collateral Agent for deposit pursuant to Section 6.02(a) to be identified to
permit the deposit of the same into the appropriate account; any amounts
received by the Collateral Agent without sufficient identification shall be
deposited by the Collateral Agent into the Collection Account until such time as
sufficient identification is received, at which time the Collateral Agent is
authorized, if
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necessary, to withdraw such amounts from the Collection Account and deposit same
in accordance with such identification.
6.03. Right of Withdrawal from the Collateral Account. In
furtherance of the security interest provided in Section 2, the Collateral
Agent, acting on behalf of the Secured Parties, and the Borrower, agree (a) that
the Collateral Account shall be maintained in the name of the Collateral Agent,
(b) that the Collateral Account shall be subject to the exclusive dominion of
the Collateral Agent, and (c) that the Collateral Agent shall have the sole
right of withdrawal from the Collateral Account. The Borrower, the Lender, the
Servicer and AutoBond shall timely provide written remittance information to the
Collateral Agent specifying payment instructions with respect to amounts payable
pursuant to each provision of Section 6.04. The Collateral Agent shall have no
liability to the Borrower, any Lender or any other Person for failure to pay
funds to any Person in accordance with Section 6.04 in the absence of timely
receipt of such written remittance instructions or in the event of any errors in
such written remittance instructions.
6.04. Application of Funds in the Collateral Account;
Application of Proceeds of Realization on Collateral. (a) Except as otherwise
provided in Section 6.05, if no Event of Default shall have occurred and be
continuing, the Collateral Agent, in the case of clause (iii), on each Payment
Date or, in the case of clause (ii), on each Business Day, shall apply collected
funds in the Loan Purchase Account in the following order of priority pursuant
to written instructions of the Borrower 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 Closing Date other than the Initial
Closing Date, deposit to the Reserve Account, 2% of each related
Advance;
(ii) to pay to AutoBond 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 the Borrower 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 Collateral Agent has received each of the Loan
Documents with respect to such Specified Auto Loan from AutoBond; and
(iii) to pay to the Lenders, pro rata, all interest
on the Advances and any Unused Facility Fee then due to the extent
funds on deposit in the Collection Account and the 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 Collateral
hereunder, and if so instructed in writing by
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AutoBond, may be invested or withdrawn by the Collateral Agent in accordance
with Section 6.05 hereof. The Collateral Agent 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
payment on the Advances.
(c) If no Event of Default shall have occurred and be
continuing, the Collateral Agent on each Payment Date shall apply funds held in
the Collection Account in respect of the prior Collection Period in the
following order of priority (in accordance with the Servicer Report):
(i) to the Lenders, pro rata, 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 Collateral Agent and the Servicer, an amount
equal to the Collateral Agent Fee and the Servicer Fee, respectively,
payable on such Payment Date;
(iii) to the Loan Purchase Account as Advances to fund
Auto Loans, unless directed by the Initial Lender to pay to the
Lenders, pro rata, as payment of principal on the Advances, an amount
equal to any principal received in respect of Specified Auto Loans
during the immediately preceding Collection Period;
(iv) to the 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 Collection Agent, an amount equal to the sum
of (i) the Collection Agent Fee payable on such Payment Date and (ii)
any late charges received in respect of Specified Auto Loans during the
immediately preceding Collection Period;
(vi) to the discharge of all other obligations of the
Borrower which are then due under the Program Documents (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 Borrower, an amount equal to any funds
remaining in the Collection Account.
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(d) If no Event of Default shall have occurred and be
continuing, the Collateral Agent on each Payment Date shall apply funds held in
the Reserve Account in the following order of priority (in accordance with the
Servicer Report):
(i) to the Lenders, pro rata, an amount equal to the
accrued and unpaid interest and fees on the Advances (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 Lenders, pro rata, an amount equal to the
principal of the Advances due and payable on such date to the extent
that funds on deposit in the Collection Account on such date are
insufficient therefor; and
(iii) to the Collection Account, if 30 days have passed
since the cancellation of any optional credit life, accident and health
insurance policy or optional extended service contract in respect of
any Specified Auto Loan and the Borrower has not received a refund of
any unearned Dealer's commission or insurance premium, an amount equal
to such unearned Dealer's commission or insurance premium; and
(iv) to the Collection Account, an amount equal to the
Excess Reserve Account Amount.
(e) If an Event of Default shall have occurred and be
continuing, the Collateral Agent shall apply all amounts held in the Loan
Purchase Account, the Collection Account and the Reserve Account and the
proceeds of any collection, recovery, receipt, appropriation, realization or
sale of any Collateral 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 Collateral Agent with respect to the Collateral
upon an Event of Default, including reasonable attorney's fees and expenses) in
the following order of priority:
(i) to the Collateral Agent, an amount equal to all fees,
costs and expenses owing to the Collateral Agent under this Agreement;
(ii) to the Servicer, an amount equal to all fees, costs
and expenses owing to the Servicer under the Servicing Agreement;
(iii) to the Lenders, pro rata, 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 Advances (in the event any such principal is not due
and the Advances have not been accelerated, all such amounts shall be
retained in the Collateral
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Account and applied solely to pay principal of and interest on, and
other amounts due or to become due with respect to, the Advances, as
and when due until all principal and interest on, and other amounts due
or to become due with respect to, the Advances shall have been paid and
satisfied in full);
(iv) to the discharge of all other obligations of the
Borrower which are then due (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 Borrower, an amount equal to any funds
remaining in the Collateral Account.
6.05. Investment of Funds Deposited in Collateral Account. The
Collateral Agent shall, in accordance with the provisions of this Section 6.05,
invest and reinvest, at the written direction of AutoBond, in the Collateral
Agent's own name or in the name of the Collateral Agent's nominee, collected
funds in each of the Loan Purchase Account, the Collection Account and the
Reserve Account in Permitted Investments which shall mature, or be redeemed at
the option of the holder, prior to the respective dates when the money invested
in such Permitted Investments is required for application in accordance with
this Section 6. To the extent that the sum of amounts held in the Loan Purchase
Account exceeds $5,000,000, the Collateral Agent shall notify the Borrower and
the Lender. 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 6.04(a) on such date) is still greater than
$5,000,000, the Collateral Agent, unless otherwise directed by the Initial
Lender, 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 Lenders, pro rata as a prepayment of Advances in accordance with Section
8 of the Credit Agreement.
SECTION 7. DISPOSITIONS OF AUTO LOANS.
The Collateral Agent, at the written direction of the Initial
Lender, shall release from the lien of this Agreement any of the Specified Auto
Loans held as Collateral upon a Disposition, a prepayment of Advances or a
repurchase by AutoBond in accordance with the terms of the Credit Agreement;
provided, that the proceeds of any such Disposition, voluntary prepayment or
repurchase (net of expenses and costs) have been deposited into the Collection
Account for application in accordance with Section 6.04(c); provided, however,
that, upon satisfaction of the conditions set forth in this Section 7, the
Collateral Agent will release to or at the direction of AutoBond the certificate
of title with respect to a Financed Vehicle subject
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to a Disposition within one Business Day of such request by AutoBond. Any
Disposition shall in and of itself have no effect on the obligation of the
Lender under the Credit Agreement to make Advances.
SECTION 8. THE COLLATERAL AGENT.
8.01. Appointment. By accepting the benefits of the security
interest granted herein, each Secured Party hereby irrevocably designates and
appoints Norwest Bank Minnesota, National Association as the Collateral Agent of
such Secured Party under this Security Agreement, and each such Secured Party
irrevocably authorizes Norwest Bank Minnesota, National Association as the
Collateral Agent for such Secured Party, to take such action on its behalf under
the provisions of this Security Agreement and to exercise such powers and
perform such duties as are expressly delegated to the Collateral Agent by the
terms of this Security Agreement together with such other powers as are
reasonably incidental thereto but in each instance solely at the written
instruction of the Lenders in respect of at least a majority in aggregate
principal amount of Advances outstanding. Notwithstanding any provision to the
contrary elsewhere in this Security Agreement, the Collateral Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or
any fiduciary relationship with any Secured Party, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Security Agreement or otherwise exist against the Collateral Agent.
Norwest Bank Minnesota, National Association hereby accepts its appointment as
Collateral Agent, subject to, and in reliance upon, the provisions of this
Section 8.01.
8.02. Exculpatory Provisions. Neither the Collateral Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Security Agreement
(except for its or such Person's own negligence or wilful misconduct), or (b)
responsible in any manner to any of the Secured Parties for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained herein or in the Loan Acquisition Agreement, the Servicing
Agreement, the Credit Agreement or in any certificate, report, statement or
other document referred to or provided for in, or received by the Collateral
Agent under or in connection with, this Agreement, the Loan Acquisition
Agreement, the Servicing Agreement or the Credit Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency (except with
respect to enforceability of this Agreement as it relates to the Collateral
Agent) of this Agreement, the Loan Acquisition Agreement, the Servicing
Agreement, the Lockbox Agreement, the Credit Agreement, the Advances or the
Collateral or for any failure of the Borrower to perform its obligations
hereunder or under the Loan Acquisition Agreement, the Servicing Agreement, the
Lockbox, the Credit Agreement or the Advances. The Collateral Agent shall not be
under any obligation to any Secured Party to ascertain or to inquire as to the
observance or performance of any of
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the agreements contained in, or conditions of, any of the Program Documents, or
to inspect the properties, books or records of the Borrower or the Servicer.
Except for its duty to maintain possession of the Auto Loans and as set forth in
this Agreement, the Collateral Agent shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any security interest in any Automobile or any Auto Loan, or the perfection or
priority of such a security interest or the maintenance of any such perfection
or priority or for or with respect to the ability of the Auto Loans to generate
the payments to be distributed to the Lender under the Credit Agreement,
including, without limitation, the existence, condition, location and ownership
of any Financed Vehicle; the existence of any insurance thereon (including,
without limitation, any VSI Policy); the compliance by the Borrower, the
Servicer or the Collection Agent with any covenant or the breach by the
Borrower, the Servicer or the Collection Agent of any warranty or representation
made under this Agreement or the Servicing Agreement or in any related document;
the accuracy of any such warranty or representation; any investment of monies by
the Collateral Agent in accordance with the terms of this Agreement or the
Servicing Agreement or any loss resulting therefrom; the acts or omissions of
the Borrower, the Servicer, the Collection Agent or any Obligor; or any action
of the Servicer or the Collection Agent taken in the name of the Collateral
Agent.
8.03. Reliance by Collateral Agent. The Collateral Agent shall
be entitled to rely, and shall be fully protected in relying, upon any Advance,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Collateral
Agent. The Collateral Agent shall be fully justified in failing or refusing to
take any action under this Security Agreement unless it shall first receive such
written advice or concurrence as it deems appropriate or it shall first be
indemnified to its satisfaction (by one or more Secured Parties) against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Collateral Agent may from time to time
consult with legal counsel, independent accountants or other experts of its own
selection in the event of any disagreement, controversy, question or doubt as to
the construction of any provision of this Agreement or any of its duties
hereunder, and the Collateral Agent shall be fully protected in acting in good
faith in reliance upon the advice or opinion of any such counsel or other
expert.
8.04. Notice of Default. The Collateral Agent shall not be
deemed to have knowledge or notice of the occurrence of any Event of Default
under the Credit Agreement unless a Responsible Officer has received written
notice from the Lenders of a majority in aggregate principal amount of Advances
outstanding or the Borrower referring to this Security Agreement and describing
such Event of Default or unless a Responsible Officer otherwise has actual
knowledge of such Event of Default.
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8.05. Non-Reliance on Collateral Agent. Neither the Collateral
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to the Secured Parties,
and no act by the Collateral Agent hereafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Collateral Agent to any Secured Party. Each Secured Party
represents (or will be deemed to have represented at such time as such party
becomes a Secured Party hereunder) to the Collateral Agent that it has,
independently and without reliance upon the Collateral Agent, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Borrower and made its own decision
to extend credit to the Borrower. Each Secured Party will, independently and
without reliance upon the Collateral Agent, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Security Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished by the Collateral Agent
hereunder, the Collateral Agent shall have no duty or responsibility to provide
any Secured Party with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Borrower which may come into the possession of the Collateral Agent or any of
its officers, directors, employees, agencies, attorneys-in-fact or affiliates.
8.06. Successor Collateral Agent. The Collateral Agent may
resign as collateral agent hereunder and under the Servicing Agreement upon 60
days' notice to the Borrower, AutoBond and the Lenders. The Collateral Agent may
be removed at any time by the Borrower acting at the direction of, or with the
consent of, the Lenders in respect of the majority in aggregate principal amount
of the Advances outstanding if at any time the Collateral Agent shall fail to
comply with its obligations under this Security Agreement. No such resignation
or removal shall be effective unless and until a successor collateral agent has
accepted appointment as such pursuant to this Agreement and in the case of a
removal, any and all amounts then due to the Collateral Agent hereunder have
been paid in full. If the Collateral Agent shall resign or be removed as
collateral agent, then the Borrower shall appoint a commercial bank having a
combined capital and surplus of at least $250,000,000, subject to supervision or
examination by federal or state authority and having an established place of
business in the United States as successor collateral agent for the Secured
Parties upon (a) acceptance of such appointment by such successor collateral
agent, (b) the approval of such appointment by the Lenders in respect of a
majority in aggregate principal amount of the Advances outstanding, and (c) the
filing of any necessary amendments to any UCC financing statements to reflect
such appointment. Such successor collateral agent shall succeed to the rights,
powers and duties of the Collateral Agent, and the term "Collateral Agent" shall
mean such successor collateral agent effective upon its appointment, and the
former Collateral Agent's rights, powers and duties as Collateral Agent
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shall be terminated, without any other or further act or deed on the part of
such former Collateral Agent. Such successor collateral agent shall be entitled
to amend any UCC financing statements and any other filings, recordation and
declarations it deems advisable or necessary in connection with such termination
and cancellation. After any retiring Collateral Agent's resignation or removal
hereunder as Collateral Agent, the provisions of this Section 8 and Section 14
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Collateral Agent under this Security Agreement. Notwithstanding the
foregoing, if no successor collateral agent shall be appointed as aforesaid, or
if appointed, such successor shall not have accepted its appointment within
thirty (30) days after resignation of the Collateral Agent, the Collateral Agent
may petition a court of competent jurisdiction to make such appointment.
8.07. Delivery of Collateral and Permitted Investments. All
finance contracts representing or evidencing the Collateral and Permitted
Investments from time to time shall be delivered to and held by or on behalf of
the Collateral Agent pursuant hereto and shall, in the case of the Collateral,
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank. Each Secured Party
hereby appoints the Collateral Agent as its agent for the purpose of holding any
Auto Loans and Permitted Investments. The Collateral Agent shall be the agent of
the Secured Parties and of the Borrower. The Collateral Agent shall not release
possession of any Auto Loans or any documents related thereto except (a) upon
receipt of a trust receipt substantially in the form attached hereto as Exhibit
B obligating the Servicer or AutoBond, acting as Collection Agent under the
Servicing Agreement, to hold same in trust for the benefit of the Secured
Parties and obligating the Servicer or AutoBond, as the case may be, to return
same when the need therefor no longer exists, (b) upon receipt of written
notification from the Servicer pursuant to Section 2.07 of the Servicing
Agreement that the Auto Loan has been paid in full, (c) in connection with a
Disposition or other prepayment in full of Advances or (d) in connection with
any repurchase by AutoBond in accordance with the terms of the Loan Acquisition
Agreement upon the receipt by the Collateral Agent of the Repurchase Price.
8.08. Duties and Covenants of Collateral Agent.
(a) The Collateral Agent undertakes to perform the duties as
are set forth in this Agreement, including, without limitation:
(i) upon the request of AutoBond and/or the Servicer,
providing information reasonably within its possession and within
reasonable time constraints regarding payments and receipt of funds
from and to AutoBond and the Servicer;
(ii) acting as custodian of all documents delivered to it
related to the Collateral;
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(iii) depositing funds received by it, whether as
proceeds of Advances, as collections on Auto Loans, as proceeds of
repossession or otherwise in accordance with the terms of this
Agreement;
(iv) making payments from amounts held in the Collateral
Account, whether on the Advances, to the Servicer, to AutoBond or
otherwise based solely upon timely receipt of remittance information
from the Borrower, the Lenders, the Servicer and AutoBond in accordance
with the terms of this Agreement;
(v) upon the request of the Servicer, providing
information reasonably within its possession and within reasonable time
constraints regarding servicing, repossession and insurance with
respect to the Auto Loans to the Servicer;
(vi) providing the collateral agent report,
substantially in form of Exhibit C hereto, with respect to the Auto
Loans on or before the fifteenth (15th) day of each month (or if such
fifteenth day is not a Business Day, the next succeeding business day),
except in the case where the seventh (7th) Business Day of such month
falls on or after the eleventh (11th) day of the month, in which case,
the collateral agent report shall be provided on or before the
seventeenth (17th) day of such month (or if such seventeenth day is not
a Business Day, on the next succeeding Business Day); and
(vii) providing to the Borrower and the Servicer, a
monthly report summarizing each application for title with respect to
any Automobile securing a Specified Auto Loan for which the Collateral
Agent has not received a new title certificate from the appropriate
state agency;
(b) The Collateral Agent covenants and agrees that it will:
(i) not directly or indirectly create, incur, assume or
suffer to exist any Lien against the Collateral or any part thereof
other than as set forth herein;
(ii) upon receipt of written notice from the Servicer
that an Auto Loan has been paid in full (to the extent such amounts
have been deposited in the Collection Account), execute and return to
the Servicer documents prepared and furnished to the Collateral Agent
by the Servicer as shall be necessary to release the lien over the
related Automobile;
(iii) upon receipt pursuant to the Servicing Agreement of
the Servicer Report, annual financial statements or monthly compliance
statements, promptly forward a copy of such documents to the Lender;
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(iv) upon the written direction of a Lender, request
from the Servicer certification evidencing the fidelity bond and
insurance coverage required by the Servicing Agreement and upon receipt
shall forward such certification to the Lender and the Borrower;
(v) upon receipt from the Servicer of a written notice
of cancellation or modification of the fidelity bond and insurance
coverage required by the Servicing Agreement, promptly forward a copy
of such notice to the Lender and the Borrower;
(vi) upon the written direction of the Lender (or, if
multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding), consent to a change in
business, merger, consolidation or disposition of assets of the
Servicer;
(vii) upon a Responsible Officer obtaining actual
knowledge of the occurrence of a change in business, merger,
consolidation or disposition of assets by the Servicer, promptly give
notice of such event to the Lender and the Borrower and, if directed to
do so by the Lender (or, if multiple Lenders, the Lenders in respect of
a majority in aggregate principal amount of the Advances outstanding),
terminate the responsibilities of the Servicer, in accordance with the
Servicing Agreement;
(viii) upon a Responsible Officer obtaining actual
knowledge of the occurrence of an Event of Servicing Termination or an
Event of Default, promptly give notice to the Lender and the Borrower
of such occurrence;
(ix) upon the written direction of the Lender (or, if
multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding), deliver notice to the
Servicer stating that an Event of Servicing Termination has occurred
and thereby terminate the responsibilities of the Servicer under the
Servicing Agreement; and
(x) upon a Responsible Officer obtaining actual
knowledge of the occurrence of an event the occurrence of which
together with notice to the appropriate party would constitute an Event
of Servicing Termination, Event of Purchase Termination or an Event of
Default, promptly give notice of the occurrence of such event to the
Lender and the Borrower.
8.09. Annual Report and Quarterly Certificate. The Collateral
Agent shall deliver to the Lender as soon as available, but in any event within
120 days after the end of each of its fiscal years, a consolidated and
consolidating balance sheet of it or its parent and its subsidiaries, if any, as
at such last day of the fiscal year, consolidated statements of income and
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retained earnings and statements of cash flow, for each such fiscal year, each
prepared in accordance with generally accepted accounting principles, in
reasonable detail, and as to the consolidated statements, certified without
qualification by an independent public accountant, who may also render other
services to the Collateral Agent or any of its affiliates.
8.10. Delivery of Documents. On or before the Initial Closing
Date, the Collateral Agent shall have delivered to the Borrower and the Lender
the following, in form and substance satisfactory to the Borrower and the
Lender:
(a) a certificate of an assistant secretary of the Collateral
Agent certifying as to certain corporate matters in a format acceptable
to the Lender; and
(b) a certificate of an officer of the Collateral Agent as to
the establishment of the Loan Purchase Account, the Collection Account
and the Reserve Account.
8.11. Instructions of the Lender. Whenever the Collateral
Agent is required to consent to any action hereunder or under the Servicing
Agreement, the Collateral Agent shall so notify the Lenders and shall act in
accordance with the written instructions of Lenders holding 51% of Advances
outstanding.
SECTION 9. AMENDMENTS AND WAIVERS.
With the written consent of AutoBond (such consent not to be
unreasonably withheld) and the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding, the Collateral Agent and the Borrower
may, from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding any provision to this Security
Agreement or changing in any manner the rights of the Collateral Agent or the
Borrower hereunder, and, with the written consent of (a) on or prior to the
Initial Closing Date, the Lender and (b) after the Initial Closing Date, the
Lenders in respect of at least 66-2/3% in aggregate principal amount of Advances
outstanding, the Collateral Agent on behalf of the Secured Parties may execute
and deliver to the Borrower a written instrument waiving, on such terms and
conditions as may be specified in such instrument, any of the requirements of
this Security Agreement; provided, however, that no such waiver and no such
amendment, supplement or modification shall (a) amend the definition of Secured
Parties or amend, modify or waive any provision of Section 6 hereof or this
Section 9 without the written consent of each Secured Party whose rights under
this Security Agreement would be affected thereby, or (b) amend, modify or waive
any provision of Section 8 or otherwise alter the duties, rights or obligations
of the Collateral Agent without the written consent of all the Secured Parties.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each
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of the Secured Parties and shall be binding upon the Borrower, the Secured
Parties and the Collateral Agent.
In executing any supplement, amendment or modification of this
Security Agreement, the Collateral Agent shall be entitled to receive and shall
be fully protected in relying upon an opinion of counsel stating that the
execution of such supplement, amendment or modification is authorized or
permitted by this Section 9. The Collateral Agent may, but shall not be
obligated to, enter into any such supplement, amendment or modification that
affects the Collateral Agent's own rights, duties or immunities under this
Security Agreement or otherwise.
The Borrower and the Secured Parties agree not to execute any
supplement, amendment or modification to any Program Document to which the
Collateral Agent is not a party, without the prior written consent of the
Collateral Agent, if the effect of such supplement, amendment or modification
would be to affect the Collateral Agent's rights, duties, or immunities under
this Security Agreement, and they agree to promptly forward to the Collateral
Agent any such supplement, amendment or modification.
SECTION 10. NOTICES.
Unless otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or when deposited
in the mail, postage prepaid, or in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of facsimile notice, when
sent, confirmation received, addressed as follows, or to such other addresses as
may be hereafter notified by the respective parties hereto:
The Borrower:
AutoBond Funding Corporation II
300 South Fourth Street
Suite 620
Las Vegas, Nevada 89101
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AutoBond:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: Eric Alt
Telecopy: (512) 472-1548
The Collateral Agent:
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
To the Lenders at the address as the Lenders shall have furnished to the
Borrower (with a copy to the Collateral Agent) in writing;
provided, that any notice to or upon the Borrower shall be deemed to have been
duly given or made as aforesaid when so given or made to the Borrower whether or
not any other party indicated above as the recipient of a copy thereof shall
have received a copy of each notice.
SECTION 11. LIMITATION ON COLLATERAL AGENT'S DUTY IN RESPECT OF
COLLATERAL.
Except as set forth herein and beyond the safe custody
thereof, the Collateral Agent shall not have any duty as to any Collateral in
its possession or control or the possession or control of any agent or nominee
of it or any income thereof or as to the preservation of rights against prior
parties or any other rights pertaining thereto.
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SECTION 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
invalidation of 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.
SECTION 13. NO WAIVER; CUMULATIVE REMEDIES.
Neither the Collateral Agent nor the Secured Parties shall by
any act, delay, omission or otherwise be deemed to have waived any of its or
their rights or remedies hereunder and no waiver shall be valid unless in
writing, signed by the Collateral Agent on behalf of the Secured Parties, and
then only to the extent therein set forth. A waiver by the Collateral Agent of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Collateral Agent or the Secured Parties
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of the Collateral Agent or the Secured Parties
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.
SECTION 14. PAYMENT OF EXPENSES AND TAXES.
(a) The Borrower hereby agrees to pay to the Collateral Agent
a fee for its services hereunder equal to the Collateral Agent Fee. AutoBond
agrees to pay, indemnify, and to hold the Collateral Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp and other similar taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Security Agreement, and any such other
documents, and to pay, indemnify, and hold the Collateral Agent and its
officers, directors, shareholders, employees, agents and representatives
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Security Agreement and any
such other documents (including, but not limited to, those incurred by any
negligent act or negligent omission to act of the Collateral Agent) (all the
foregoing, collectively, the "indemnified liabilities"); provided, that AutoBond
shall not be liable to the
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Collateral Agent for any (i) losses incurred by the Collateral Agent as a result
of the fraudulent actions, misrepresentations, negligence or willful misconduct
of the Collateral Agent or (ii) 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 Collateral Agent with respect to its receipt of the Collateral
Agent Fee hereunder (including any liabilities, costs or expenses with respect
thereto). The obligations of AutoBond under this Section 14 shall survive the
termination of this Security Agreement and the discharge of the other
obligations of AutoBond hereunder and also shall survive the resignation or
removal of the Collateral Agent hereunder.
(b) Promptly after receipt by the Collateral Agent of notice
of the commencement of any action, such Collateral Agent shall, if a claim in
respect thereof is to be made against AutoBond under this Section 14, notify
AutoBond in writing of the commencement thereof; but the omission so to notify
AutoBond will not relieve AutoBond from any liability which it may have to the
Collateral Agent except to the extent AutoBond is prejudiced thereby. In case
any action is brought against the Collateral Agent, and it notifies AutoBond of
the commencement thereof, AutoBond will be entitled to appoint counsel
satisfactory to AutoBond (who shall not, except with the consent of the
Collateral Agent, be counsel to the Borrower or AutoBond) to represent the
Collateral Agent in such action; provided, however, that, if the defendants in
any action include both the Collateral Agent and AutoBond and the Collateral
Agent shall have reasonably concluded that there may be legal defenses available
to it which are different from or additional to those available to AutoBond, the
Collateral Agent shall have the right to select separate counsel to defend such
action on behalf of it. Upon receipt of notice from AutoBond to the Collateral
Agent of its election so to appoint counsel to defend such action and approval
by the Collateral Agent of such counsel, AutoBond will not be liable to the
Collateral Agent under this Section 14 for any legal or other expenses
subsequently incurred by the Collateral Agent in connection with the defense
thereof unless (i) the Collateral Agent shall have employed separate counsel in
accordance with the proviso to the next preceding sentence, (ii) AutoBond shall
not have employed counsel satisfactory to the Collateral Agent to represent the
Collateral Agent within a reasonable time after notice of commencement of the
action or (iii) AutoBond has authorized the employment of counsel for the
Collateral Agent at the expense of AutoBond; 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 14 is
unavailable or insufficient to hold harmless the Collateral Agent under
subsection (a) or (b) above, then AutoBond shall contribute to the amount paid
or payable by the Collateral Agent as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by AutoBond on the one
hand
28
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<PAGE>
and the Collateral Agent 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 AutoBond on the one hand and the Collateral Agent 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 Collateral Agent and AutoBond 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 AutoBond 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 Collateral Agent in connection with investigating or defending
any action or claim which is the subject of this subsection (c). No person found
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 Borrower, AutoBond and the
Collateral Agent under this Section 14 shall be in addition to any liability
which each of them may otherwise have.
(e) The agreement, indemnities and other statements of the
parties hereto in or made pursuant to this Section 14 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 14. The
provisions of this Section 14 shall survive the termination or cancellation of
this Agreement.
SECTION 15. SUCCESSORS AND ASSIGNS; GOVERNING LAW.
This Security Agreement and all obligations of the Borrower
hereunder shall be binding upon the successors and assigns of the Borrower, and
shall, together with the rights and remedies of the Collateral Agent hereunder,
inure to the benefit of the Collateral Agent, the Secured Parties and their
respective successors and assigns.
THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
29
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<PAGE>
SECTION 16. ENFORCEMENT RIGHTS OF LENDERS.
Unless the Collateral Agent shall fail to take action required
to be taken by it under the terms of this Agreement, no Lender shall have any
right directly to enforce the security interests granted by this Security
Agreement. No Lender shall have any right to require the Collateral Agent to
take or fail to take any action under this Security Agreement, except as
otherwise provided in this Security Agreement.
SECTION 17. BANKRUPTCY PETITION AGAINST THE BORROWER.
The Collateral Agent hereby covenants and agrees that, until
the expiration of the later of (a) the date which is one year and one day after
the payment in full of all outstanding Advances, and (b) 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 a Disposition, it will not
institute against, or join any other Person in instituting against, the Borrower
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other similar proceeding under the laws of the United States or
any state of the United States.
SECTION 18. MISAPPLICATION OF FUNDS.
The Collateral Agent agrees that any funds incorrectly paid to
it by the Borrower shall be promptly returned to the Borrower upon receipt of
written notice from the Borrower that such funds were incorrectly paid to the
Collateral Agent prior to the Collateral Agent's transfer of such funds in
accordance with this Agreement. The Collateral Agent shall be completely
protected against any liability for returning such funds in reliance on such
written notice that funds were incorrectly paid.
SECTION 19. COUNTERPART SIGNATURES.
This Agreement may be executed and delivered to you
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 20. THIRD PARTY BENEFICIARY.
For all purposes of this Agreement, each of the Lenders shall
be a third party beneficiary of the agreements and covenants herein contained
and the Servicer shall be a third party beneficiary of the provisions of this
Agreement which specify the amount and priority of payment of the Servicer Fee.
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<PAGE>
SECTION 21. STATUS OF COLLATERAL AGENT.
The parties hereto acknowledge and agree that upon payment in
full of all amounts owing under the Credit Agreement and the release of the
Secured Parties' security interest in the Collateral, the rights of the
Collateral Agent to indemnification and payment of its fees and expenses under
this Agreement shall continue.
SECTION 22. ACTS OF LENDERS.
(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 Collateral Agent. 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 22.
(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 Collateral Agent
deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Lender shall bind the Lender in respect
of anything done, omitted or suffered to be done by the Collateral Agent in
reliance thereon, whether or not notation of such action is made upon the Note.
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IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed by their duly authorized officers as of the
date first set forth above.
AUTOBOND FUNDING CORPORATION II
By: /s/ Adrian Katz
---------------------------------
Name: Adrian Katz
Title: Vice President
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ John S. Winsauer
---------------------------------
Name: John S. Winsauer
Title: Secretary
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By: /s/ Stephen P. Seitz
---------------------------------
Name: Stephen P. Seitz
Title: Corporate Trust Officer
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EXHIBIT A
[FORM OF COLLATERAL ASSIGNMENT]
COLLATERAL ASSIGNMENT, dated as of __________, 199_ among AutoBond
Funding Corporation II (the "Borrower"), AutoBond Acceptance Corporation
("AutoBond") and Norwest Bank Minnesota, National Association, as Collateral
Agent (the "Collateral Agent").
1. We refer to the Security Agreement (the "Security Agreement"), dated
as of February 1, 1997, by and among the Borrower, AutoBond Acceptance
Corporation and acknowledged by Daiwa Finance Corporation, as Initial Lender.
All provisions of such Security Agreement are incorporated by reference. All
capitalized terms shall have the meanings set forth in the Security Agreement.
2. As security for the prompt, complete and unconditional payment and
performance of all obligations of the Borrower in respect of the Advances, the
Borrower hereby pledges, assigns, transfers and delivers to the Collateral Agent
for the benefit of the Secured Parties, and grants to the Collateral Agent for
the benefit of the Secured Parties, a continuing first lien on, and first and
prior security interest in, all of the Borrower's title and interest in, to and
under following:
(i) each Specified Auto Loan listed on Schedule 1
hereto, including without limitation, all rights to payments
thereunder, purchased by or otherwise conveyed to or established by the
Borrower pursuant to the Loan Acquisition Agreement;
(ii) each Financed Vehicle and all other Property, now
or hereafter acquired, securing or evidenced by, each such Specified
Auto Loan, including, without limitation, the certificate of title
relating to each Automobile, any insurance proceeds with respect to any
such Financed Vehicle or such Specified Auto Loan, the proceeds of any
repossession and liquidation of any such Financed Vehicles, rights
under judgments with respect to defaulted obligors, rights to
deficiency judgments with respect to defaulted obligors and rights
under any service contracts with respect to any such Financed Vehicle;
(iii) any proceeds of any insurance policy purchased by
the Borrower in respect of each such Specified Auto Loan;
(iv) the Loan Files; and
A-1
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<PAGE>
(v) all Proceeds of any of the foregoing.
3. Each of AutoBond and the Borrower does hereby certify:
(i) the representations and warranties of the Borrower set
forth in Sections 2.1 and 2.3(a) of the Credit Agreement and
AutoBond in Sections 2.2 and 2.3(a) of the Credit Agreement,
are true and correct on and as of the date hereof, before and
after giving effect to the transfer evidenced hereby and to
the application of the proceeds therefrom, as though made on
and as of such date;
(ii) no event has occurred, or would result from such
assignment or from the application of the proceeds therefrom,
which constitutes an Event of Default or a Funding Termination
Event or would constitute an Event of Default or a Funding
Termination Event but for the requirement that notice be given
or time elapse or both;
(iii) each of AutoBond and the Borrower is in compliance
with each of its covenants set forth in the Credit Agreement
and the Security Agreement; and
(iv) the aggregate Unpaid Principal Balance of the
Specified Auto Loans listed on Schedule 1 hereto to be
transferred by the Borrower pursuant to this Collateral
Assignment is $__________.
IN WITNESS WHEREOF, the parties have caused this Collateral
Assignment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
AUTOBOND FUNDING CORPORATION II, as
Borrower
By:
----------------------------------------
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:
----------------------------------------
Name:
Title:
A-2
<PAGE>
<PAGE>
Accepted:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By:
---------------------------------
A-3
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<PAGE>
Schedule 1
to
Collateral Assignment dated _____________, 1997
A-4
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EXHIBIT B
TRUST RECEIPT
[DATE]
AutoBond Funding Corporation II Norwest Bank Minnesota, N.A.
300 South Fourth Street Sixth and Marquette Avenue
Suite 620 Minneapolis, MN 55479-0070
Las Vegas, Nevada 89101
Re: Servicing Agreement, dated as of
January 31, 1997 (the "Servicing Agreement")
among AutoBond Funding Corporation II,
AutoBond Acceptance Corporation, CSC Logic/
MSA L.L.P. and Norwest Bank Minnesota,
National Association
Ladies and Gentlemen:
In accordance with Section 2.07 of the Servicing Agreement,
the undersigned hereby certifies that it has taken possession of the items set
forth on Annex I hereto with respect to the Auto Loans identified below. The
undersigned (i) confirms that it holds such items in trust for the benefit of
the Lender and (ii) agrees to promptly return such items to the Collateral Agent
after its need for possession of them ceases, except for title and security
instruments which the undersigned is required under applicable law to otherwise
deal with in furtherance of its duties under the Servicing Agreement.
Auto Loans:
[CSC LOGIC/MSA L.L.P. or
AutoBond Acceptance Corporation]
By:
--------------------------------
Name:
Title:
B-1
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EXHIBIT C
FORM OF COLLATERAL AGENT REPORT
The undersigned, a duly authorized representative of Norwest Bank
Minnesota, National Association, as collateral agent pursuant to the Security
Agreement, dated as of February 1, 1997 (the "Security Agreement"), between
AutoBond Funding Corporation II, AutoBond Acceptance Corporation and Norwest
Bank Minnesota, National Association, does hereby certify as follows:
<TABLE>
<S> <C> <C>
1. Aggregate amount on deposit in the Loan Purchase Account
as of the end of the most recent Collection Period.................................$_______________.
2. Aggregate amount on deposit in the Collection Account
as of the end of the most recent Collection Period.................................$_______________.
3. Aggregate amount on deposit in the Reserve Account
as of the end of the most recent Collection Period.................................$_______________.
4. The Reserve Account Required Balance as reported in
the most recent Servicer's Report..................................................$_______________.
</TABLE>
Capitalized terms used in this Certificate have their meanings set
forth in the Security Agreement. This Certificate is delivered pursuant to
Section 8.08 of the Security Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
this ____ day of __________, ____.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as Collateral Agent
By:
--------------------------
Name:
Title:
C-1
<PAGE>
<PAGE>
CONFORMED COPY
AUTOMOBILE LOAN SALE AGREEMENT
THIS AUTOMOBILE LOAN SALE AGREEMENT (this "Agreement") is by and
between Credit Suisse First Boston Mortgage Capital L.L.C., a Delaware limited
liability company ("CSFB" or "Seller"), and AutoBond Acceptance Corporation, a
Texas corporation ("Buyer"), and dated as of the 19th day of March, 1997.
WITNESSETH:
WHEREAS, this Agreement governs the sale, transfer and assignment
by Seller to Buyer of automobile retail installment finance contracts and other
incidents thereof in accordance with the terms of this Agreement; and
WHEREAS, each Receivable (hereinafter defined) sold hereunder by
Seller to Buyer was purchased by Seller from Jefferson Capital Corp. (the
"Originator") and will be subject to the warranties, representations, covenants
and agreements made by Originator in the Purchase and Sale Agreement dated as of
May 1, 1996 (the "Purchase and Sale Agreement"), by and between the Originator,
as seller and CS First Boston Mortgage Capital Corp. (as predecessor to CSFB),
as purchaser and the Servicing Agreement dated as of May 1, 1996 (the "Servicing
Agreement"), by and among the Originator, as seller, CSFB, as purchaser and Omni
Financial Services of America Inc. ("Omni"), as servicer.
WHEREAS, Seller desires to sell, transfer and assign to Buyer the
Receivables, together with the security agreement, title certificate and any and
all other security documents, agreements or other instruments relating thereto.
NOW, THEREFORE, for and in consideration of the premises and of
the mutual covenants herein set forth and other good and valuable consideration,
and for reasonably equivalent value, the receipt and sufficiency of which are
hereby acknowledged, Buyer and Seller hereby agree as follows:
1. DEFINITIONS
The following terms will have the meanings set forth therefor
herein:
Affiliate means any Person owned or controlled by or under common
control with any other Person. For purposes of this definition "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
<PAGE>
<PAGE>
Agreement means this Automobile Loan Sale Agreement, and all
amendments hereof and supplements hereto.
Assignee means any special purpose entity formed by Buyer or any
of its Affiliates in connection with a securitization or warehousing of all or a
portion of the Receivables.
Business Day means any day other than a Saturday, a Sunday or a
legal holiday on which banks are not open for regular business in the state of
New York.
Closing Date means March 26, 1997.
Cutoff Date means February 28, 1997.
Dealer means the dealer who sold a Financed Vehicle and who
originated and assigned the related Receivable to Originator under an existing
agreement between such dealer and Originator.
Financed Vehicle means an automobile or light-duty truck,
together with all accessions thereto, securing an Obligor's indebtedness under
the related Receivable.
Legal Files means, with respect to each Receivable, (a) the fully
executed original of such Receivable with fully executed assignment from the
related Dealer to Originator, (b) the original certificate of title or the Title
Package, or such other documents evidencing the security interest of Originator
in the Financed Vehicle, (c) evidence of verification of physical damage
insurance coverage and (d) a copy of Obligor's credit application.
Lien means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable by operation of law as a result of any
act or omission by the related Obligor.
Norwest means Norwest Bank Minnesota, National Association, a
national banking association.
Obligor on a Receivable means the purchaser or co-purchasers of
the Financed Vehicle and any other Person who owes payments under the
Receivable.
Originator means Jefferson Capital Corp.
Person means and includes any individual, partnership,
corporation (including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture, or other entity or
government or any agency
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or political subdivision thereof, whether acting in an individual, fiduciary or
other capacity.
Purchase and Sale Agreement has the meaning specified in the
second whereas clause.
Purchase Price means the amount set forth in the separate
settlement schedule attached hereto as Schedule II. The parties agree that such
settlement schedule is intended to represent 96.25% of the aggregate principal
balance of the Receivables as of the Cut off Date plus accrued interest (on a
weighted average gross coupon basis) from the last paid to date for such
Receivable as of the Cut off Date, to but excluding the Closing Date.
Receivable means each retail installment contract identified in
the Schedule of Receivables and sold to Buyer hereunder.
Receivable Files means, all existing documents indicated as
required on the related Dealer Funding Checklist pursuant to the Servicing
Agreement and relating to a Receivable, an Obligor or a Financed Vehicle.
Schedule of Receivables means the Schedule of Receivables
prepared by Buyer and attached hereto as Schedule I, as such schedule may be
amended or supplemented from time to time up to the Closing Date.
Servicing Agreement has the meaning specified in the second
whereas clause.
Title Package means the application for title to a Financed
Vehicle and a copy of the existing title, lien entry form, letter of guaranty or
receipt of registration, or such other similar documents, as applicable, in each
case noting the lien of the Originator on the Financed Vehicle.
UCC means the Uniform Commercial Code as in effect in the
relevant jurisdiction.
VSI Policy means the vendor's single interest insurance policy
issued by U.S. Specialty Insurance Co., attached hereto as Exhibit A.
2. PURCHASE AND SALE PROVISIONS
(a) Seller agrees to sell to Buyer and Buyer agrees to purchase
from Seller all of Seller's right, title and interest in and to the Receivables
and their related Receivable Files, for the Purchase Price to be paid to Seller,
and subject to the terms and conditions set forth in this Agreement. Buyer and
Seller hereby agree that the purchase of any Receivables will be without
recourse against Seller except as provided herein.
3
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Buyer shall pay to Seller on the Closing Date the Purchase Price in the form of
immediately available funds.
The parties hereto intend that the conveyance hereunder be a
sale. In the event that the conveyance hereunder is not for any reason
considered a sale, the parties intend that Seller be deemed to have granted to
Buyer a first priority perfected security interest in, to and under the
Receivables, and other property conveyed hereunder and all proceeds and products
of any of the foregoing and that this Agreement constitute a security agreement
under applicable law.
(b) In consideration of Buyer's delivery on the Closing Date to
or upon the order of Seller of the Purchase Price with respect to the
Receivables, Seller does hereby agree to sell, transfer, assign, set over and
otherwise convey to Buyer, without recourse, all right, title and interest of
Seller in and to:
(i) the Receivables listed on the Schedule of Receivables;
(ii) the security interests in the Financed Vehicles granted
by Obligors pursuant to such Receivables and any other interest of
Seller in such Financed Vehicles;
(iii) any proceeds with respect to such Receivables from
claims on the VSI Policy with respect to the Receivables, and any other
physical damage, credit life or disability insurance policies covering
Financed Vehicles or Obligors;
(iv) all of Seller's rights and obligations under each of the
Purchase and Sale Agreement and the Servicing Agreement (as modified by
the Servicer and the Buyer) with respect to such Receivables;
(v) all of Seller's rights under each existing agreement
with a Dealer and any proceeds with respect to such Receivables from
recourse to Dealers thereon;
(vi) any Financed Vehicle that shall have secured any such
Receivable and shall have been acquired by or on behalf of Seller or
Buyer;
(vii) the Receivable Files;
(viii) all collections of principal from the Receivables
received on and after the Cutoff Date and all collections of interest
from the Receivables received on and after the date last paid thereon;
and
(ix) all proceeds and records (including computer records)
relating to any and all of the foregoing.
4
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<PAGE>
(c) On any Business Day prior to the Closing Date, Buyer shall
forward to Seller a current Schedule of Receivables that it has agreed to
purchase hereunder. Upon receipt of such list, Seller shall immediately cause
the Legal Files with regard to each Receivable included on such list to be
forwarded to Norwest for processing in contemplation of the anticipated
securitization or warehousing thereof. Seller's obligation to deliver such files
shall be contingent upon the issuance by Norwest to Seller of a trust receipt
regarding each such file it receives stating that Norwest is holding such file
in trust for the benefit of Seller until the Closing Date. In the event that
Buyer does not remit the Purchase Price for the Receivables upon failure of a
condition specified in Section 7, Buyer shall instruct Norwest to immediately
return all Legal Files to Seller.
3. ASSIGNMENT OF INSURANCE
Seller further agrees to sell, assign, transfer and set over to
Buyer in connection with the Receivables purchased hereunder all of Seller's
interest under the VSI Policy and each and every other policy or certificate of
insurance, if any, to the extent such relates to the Receivables, together with
all pending insurance claims, if any, and the proceeds thereof, if any, in
connection with any of the Receivables. Seller shall notify, or cause to be
notified, the VSI Policy carrier and request the Buyer to be named as an
additional insured under such policy with respect to the Receivables and Seller
will instruct said carriers to pay to Buyer any and all funds, unearned
premiums, and returned premium claims due or hereafter to become due to Seller
to the extent such amounts are received after the Cutoff Date and relate to the
Receivables. In the event that Seller nonetheless receives any such amounts in
respect of the Receivables under the VSI Policy, it agrees to hold such amounts
in trust for the Buyer and agrees to immediately forward such amounts to Buyer.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
(a) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and it has
all requisite corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by Buyer and no other acts or proceedings on the part of Buyer are
necessary to authorize this Agreement or the transactions contemplated hereby,
and this Agreement constitutes a valid and legally binding obligation of Buyer.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by Buyer
with the provisions hereof, will violate, conflict with or result in a breach
of, or constitute a default under, the charter or by-laws of Buyer or any
instrument or agreement to which
5
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Buyer is a party or by which it is bound, any federal or state statute, or any
judicial or administrative decree, order or ruling applicable to Buyer.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
(a) Seller represents and warrants to Buyer as follows:
(i) Seller is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
organization and it has all requisite power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by Seller and no other acts or proceedings on the
part of Seller are necessary to authorize this Agreement or the
transactions contemplated hereby, and this Agreement constitutes a valid
and legally binding obligation of Seller.
(iii) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby, nor compliance
by Seller with the provisions hereof, will violate, conflict with or
result in a breach of, or constitute a default under, the charter or
by-laws of Seller or any instrument or agreement to which Seller is a
party or by which it is bound (including the Purchase and Sale Agreement
and the Servicing Agreement), any federal or state statute, or any
judicial or administrative decree, order or ruling applicable to Seller.
(iv) Seller is the legal and beneficial owner of the
Receivables being assigned by it hereunder and such Receivables are
being transferred to Buyer free and clear of any Lien, security interest
or other adverse claim created by Seller or as to which Seller is aware
(including any claims of Originator under the Purchase and Sale
Agreement).
(v) No Receivable (A) as of March 10, 1997 has been assigned
for repossession due to default, insurance claim (including physical
damage resulting in total loss of the related Financed Vehicle), or
bankruptcy or (B) is 59 days or more delinquent as of March 10, 1997.
(b) In the event of a breach of any warranty and representation
set forth in this Section 5, Seller will, upon Buyer's demand, immediately
repurchase all affected Receivables for an amount equal to the Purchase Price
for such Receivables, determined based upon the principal balance of the
affected Receivables as of the date of repurchase.
6
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6. COVENANTS OF SELLER
Seller covenants as follows:
(a) On and after the Closing Date and upon request of Buyer,
Seller will do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such acts, assignments, releases, powers of
attorney, or other instruments and assurances as Buyer may reasonably request
and provide for the purpose of more fully effectuating the assignment, transfer
and conveyance to Buyer of the Receivables, including, at Buyer's reasonable
expense, cooperating with Buyer to cause Buyer to be listed as the sole
lienholder on each certificate of title representing a Financed Vehicle, and
arranging for the power of attorney to be executed by the Originator as
contemplated in Section 7(c) below.
(b) The Seller shall effect a servicing transfer with respect to
the Receivables, as designated by Buyer. Until such transfer is effected, the
Seller shall cause Omni to continue to act as servicer under the Servicing
Agreement, with Buyer acting as collection agent. The Seller shall cause Omni to
provide Buyer with terminal access to Omni's servicing system. The Seller agrees
to pay termination fees payable to Omni under the Servicing Agreement with
respect to any servicing terminated up to 90 days after the Closing Date.
(c) All sums received by or on behalf of Seller in payment of
obligations represented by the Receivables and conveyed to Buyer hereunder shall
be received for the account of Buyer and shall be promptly paid over to Buyer by
Seller (or by any servicing agent on behalf of Seller).
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligation of Buyer to complete the purchase of the
Receivables pursuant to this Agreement is subject to the fulfillment prior to or
on the Closing Date of each of the following conditions except as may be
specifically waived in writing by Buyer:
(a) The representations and warranties of Seller set forth in
this Agreement shall be true at and as if made on Closing Date;
(b) Seller shall have delivered to Norwest, on behalf of Buyer
the Receivables and the Title Package and delivered to Buyer an executed Bill of
Sale relating to the Receivables, substantially in the form of Exhibit B;
(c) Seller shall have executed and delivered to Buyer Limited
Powers of Attorney executed by Seller and by Originator, respectively,
substantially in the forms of Exhibit C and Exhibit D;
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(d) Buyer will have received an irrevocable instruction letter
from Seller regarding the VSI Policy applicable to the Receivables purchased by
Buyer, Buyer shall have received an endorsement listing Buyer and its assignees
as a named insured on the VSI Policy; and
(e) Buyer shall have simultaneously closed the warehousing of the
Receivables on the Closing Date on terms and conditions acceptable to Buyer and
shall have used a portion of the net proceeds from such warehousing to pay the
Purchase Price for the Receivables; and
(f) No "Event of Default" shall have occurred under the Purchase
and Sale Agreement or under the Servicing Agreement of which Seller or Buyer is
aware.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligation of Seller to complete the sale of the Receivables
pursuant to this Agreement is subject to fulfillment prior to or on the Closing
Date of each of the following conditions except as may be specifically waived in
writing by Seller:
(a) receipt of the Purchase Price; and
(b) the representations and warranties of Buyer set forth in this
Agreement being true at and as if made on the Closing Date.
9. NO BROKERS
Seller and Buyer represent and warrant to each other that all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on by each directly with the other or by their respective
employees and/or attorneys, without the intervention of any other person in such
a manner as might give rise to a claim for a brokerage commission, finder's fee,
adviser's fee or like payment.
10. COSTS AND EXPENSES
Buyer and Seller shall each bear their individual costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees and disbursements of
their respective legal counsel, accountants and other representatives, without
recourse, right of offset or other claim against the other for such costs and
expenses. Seller shall be responsible for all expenses relating to the servicing
and subservicing of the Receivables up to and including the final date of
servicing transfer to the servicer designated by Buyer, in accordance with the
provisions of the Servicing Agreement, and Buyer shall be responsible for all
expenses relating to the servicing and subservicing of the Receivables on and
after such final date.
8
<PAGE>
<PAGE>
11. CONFIDENTIALITY
In connection with the purchase and sale contemplated by this
Agreement, each party further agrees that neither it nor its respective
affiliates, employees, agents or representatives will divulge or disclose,
directly or indirectly, any information, knowledge or data concerning the
Receivables and/or any information provided to it pursuant to this Agreement,
other than information which has been previously published or otherwise made
available to the general public, or as may be required by law or regulation.
Buyer shall be entitled to make customary disclosures regarding the Receivables
in its public disclosure documents, its private placement memorandum and
otherwise in connection with the securitization of the Receivables, provided,
however, that any disclosure relating specifically to Seller must first be
approved in writing by such party.
12. NOTICES
All notices and other communications under this Agreement shall
be in writing and shall be deemed to have been duly given if delivered or mailed
first class, postage prepaid:
(i) If to Buyer, to:
AutoBond Acceptance Corporation
301 Congress Avenue, 9th floor
Austin, TX 78701
Attn: Adrian Katz
or to Buyer at such other address Buyer shall have furnished in writing to
Seller;
(ii) If to Seller, to:
Credit Suisse First Boston
Mortgage Capital L.L.C.
Eleven Madison Avenue
New York, NY 10010-3629
Attn: Michael Commaroto
or to Seller at such other address as Seller shall have furnished in writing to
Buyer; and
13. SPECIFIC PERFORMANCE
Buyer and Seller recognize that each would be irreparably damaged
in the event this Agreement is not specifically enforced and, therefore, agree
that in the event of any controversy concerning any right or obligation under
this Agreement such right or obligation shall be enforceable in a court of
equity by a decree of specific
9
<PAGE>
<PAGE>
performance, which remedy, however, shall be cumulative and not exclusive and in
addition to any other remedy at law or equity which the parties may have.
14. ENTIRE AGREEMENT
This Agreement and all documents delivered on or after the date
hereof in connection herewith constitute the entire agreement between the
parties. No modification or variation of this Agreement shall be deemed valid
unless made in writing and signed by Buyer and Seller. No discharge of any term,
condition or obligation under this Agreement shall be deemed valid unless the
result of full performance by the parties required to render such performance,
or unless such discharge or waiver is granted by a writing signed by the party
or parties entitled to the performance of such term, condition or obligation.
15. WAIVERS
A waiver of any term, condition or obligation under this
Agreement by either party shall not be construed as a waiver by such party of
any other term, condition or obligation under this Agreement nor shall a waiver
of any breach of a term, condition or obligation constitute a waiver of any
subsequent breach of the same term, condition or obligation or of any right
consequent thereof.
16. SEVERABILITY
If any term, condition or obligation under this Agreement shall
be or become for any reason wholly or partly invalid or unenforceable, such
term, condition or obligation shall be enforced to the extent to which it is
legal and valid and the remaining terms, conditions and obligations shall
continue to be valid and enforceable and shall be enforced, unless such
enforcement is in manifest violation of the present intention of the parties
reflected in this Agreement.
17. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each
of which shall be an original but all of which shall be deemed to be one and the
same instrument.
18. ASSIGNMENT; SUCCESSORS AND ASSIGNS
All of Buyer's rights, title and interest under this Agreement
may be assigned by Buyer to any Assignee and any Assignee may assign such rights
to any subsequent Assignee and any pledgee under a warehouse or securitization
agreement.
10
<PAGE>
<PAGE>
19. GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
11
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have duly executed this
Agreement as of the date first above written.
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL L.L.C.,
SELLER
By:/s/ John Shrewsberry
________________________________
Name: John Shrewsberry
Title: Vice President
AUTOBOND ACCEPTANCE CORPORATION,
Buyer
By:/s/ Adrian Katz
________________________________
Name: Adrain Katz
Title: Vice Chairman and Chief
Operating Officer
<PAGE>
<PAGE>
SCHEDULE I
SCHEDULE OF RECEIVABLES
1
<PAGE>
<PAGE>
SCHEDULE II
SETTLEMENT SCHEDULE
2
<PAGE>
<PAGE>
EXHIBIT A
VSI POLICY
A-1
<PAGE>
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT OF RECEIVABLES
IN CONSIDERATION OF good and valuable consideration, the receipt
of which is hereby acknowledged, and pursuant to and in furtherance of a certain
Automobile Loan Sale Agreement dated as of March 13, 1997, (the "Agreement") by
and between Credit Suisse First Boston Mortgage Capital L.L.C., a Delaware
limited liability company ("CSFB" or "Seller"), and AutoBond Acceptance
Corporation, a Texas corporation ("Buyer"). Seller does hereby grant, bargain,
sell, assign, convey and transfer to, and vest in Buyer, its successors and
assigns, without recourse, representation or warranty, all of Seller's right,
title and interest (legal and or equitable) in and to the following described
property and assets, all in accordance with the terms and provisions of said
Agreement:
(1) the Receivables listed on the Schedule of Receivables,
all principal payments received thereon on and after the Cutoff Date and
all interest payments received since the date last paid;
(2) the security interests in the Financed Vehicles granted
by Obligors pursuant to such Receivables and any other interest of
Seller in such Financed Vehicles;
(3) all of Seller's rights under each of the Purchase and
Sale Agreement and the Servicing Agreement with respect to such
Receivables;
(4) any proceeds with respect to such Receivables from
claims on the VSI Policy with respect to the Receivables and any other
physical damage, credit life or disability insurance policies covering
Financed Vehicles or Obligors;
(5) any proceeds with respect to such Receivables from
recourse to Dealers thereon;
(6) any Financed Vehicle that shall have secured any such
Receivable and shall have been acquired by or on behalf of Seller or
Buyer; and
(7) the Receivable Files;
(8) all proceeds and records (including computer records) of
any and all of the foregoing.
Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Agreement.
B-1
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Seller has caused this instrument to be duly
executed this ___th day of March, 1997, and the seal of the corporation to be
affixed hereto.
Credit Suisse First Boston Mortgage Capital
L.L.C., Seller
By:____________________________
Name:__________________________
Title:_________________________
Attested
By:________________________________
Name:____________________________
Its:__________________ Secretary
B-2
<PAGE>
<PAGE>
EXHIBIT C
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, pursuant to Section 7(c) of a
certain Automobile Loan Sale Agreement dated March ___, 1997, (the "Agreement")
by and between Credit Suisse First Boston Mortgage Capital L.L.C., a Delaware
limited liability company herein termed the "Principal", and AutoBond Acceptance
Corporation, a Texas corporation herein termed the "Attorney", the undersigned
Principal does hereby constitute and appoint the Attorney, its successors and
assigns, as the true and lawful attorney-in-fact of the Principal and with full
power by an instrument in writing to appoint a substitute or substitutes, to
demand, reduce to possession, collect, receive, receipt for, endorse,
compromise, settle or assign without recourse any and all indebtedness, notes,
commercial paper, promises to pay, retail installment sales contracts, chattel
paper, security agreements instruments, any chose in action and other
obligations described in the Bill of Sale and Assignment of Receivables dated
March ___, 1997 from the Principal to the Attorney, herein termed the
"Receivables", together with all monies due or to become due under said
Receivables after the Cutoff Date, proceeds from any recourse to dealers and
proceeds from claims on any insurance policies relating to such Receivables and
any and all claims, any chose in action, and rights and causes of action
relating thereto, including without limitation any and all personal property,
vehicles, security instruments and insurance policies held as security for said
Receivables; to cancel or release the Receivables and release any security, in
whole or in part and in connection therewith to execute, acknowledge or handle
proper discharges, releases, satisfactions or other instruments in writing which
may become necessary in order to carry the foregoing powers into effect, the
Principal hereby ratifying and confirming all acts and things lawfully and
reasonably done by the Attorney or its substitute or substitutes in pursuance of
the authority herein granted.
This Limited Power of Attorney shall terminate six months after
the final scheduled maturity date of the Receivables.
C-1
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Principal has executed this instrument
this _____ day of March, 1997.
Credit Suisse First Boston Mortgage Capital
L.L.C.
By:____________________________
Name:__________________________
Title:_________________________
C-2
<PAGE>
<PAGE>
EXHIBIT D
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Jefferson Capital
Corp. ("Principal") does hereby constitute and appoint AutoBond Acceptance
Corporation ("Attorney"), its successors and assigns, as the true and lawful
attorney-in-fact of the Principal and with full power by an instrument in
writing to appoint a substitute or substitutes, to demand, reduce to possession,
collect, receive, receipt for, endorse, compromise, settle or assign without
recourse any and all indebtedness, notes, commercial paper, promises to pay,
retail installment sales contracts, chattel paper, security agreements
instruments, security agreements, any chose in action and other obligations
relating to the Automobile loans described on the attached schedule, herein
termed the "Receivables", together with all monies due or to become due under
said Receivables, proceeds from any recourse to dealers and proceeds from claims
on any insurance policies relating to such Receivables and any and all claims,
any chose in action, and rights and causes of action relating thereto, including
without limitation any and all personal property, vehicles, security instruments
and insurance policies held as security for said Receivables; to cancel or
release the Receivables and release any security, in whole or in part and in
connection therewith to execute, acknowledge or handle proper discharges,
releases, satisfactions or other instruments in writing which may become
necessary in order to carry the foregoing powers into effect, the Principal
hereby ratifying and confirming all acts and things lawfully and reasonably done
by the Attorney or its substitute or substitutes in pursuance of the authority
herein granted.
This Limited Power of Attorney shall terminate six months after
the final scheduled maturity date of the Receivables.
IN WITNESS WHEREOF, the Principal has executed this instrument
this _____ day of March, 1997.
Jefferson Capital Corp.
By:____________________________
Name:__________________________
Title:_________________________
D-1
<PAGE>
<PAGE>
STATE OF )
)
COUNTY OF )
On ____________, 1997, before me, a Notary Public in and for said
County and State, personally appeared __________________ _________________ and
__________________________, known to me to be the _________________________ and
__________________ respectively, of _________________, and known to me to be the
persons who executed the within instrument on behalf of the said corporation
pursuant to its by-laws or a resolution of its Board of Directors.
WITNESS my hand and official seal.
______________________________
Notary Public
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
Subsidiaries of the Registrant
Subsidiary Jurisdiction of 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statements of operations on
pages F-3 and F-4 of the Company's Form 10-K Annual Report for the year
ending December 31, 1996, as filed with the Securities and Exchange Commission
on March 31, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<CASH> 7,103
<SECURITIES> 10,465
<RECEIVABLES> 254
<ALLOWANCES> 25
<INVENTORY> 153
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,277
<CURRENT-LIABILITIES> 10,175
<BONDS> 8,338
<COMMON> 0
0
1
<OTHER-SE> 12,285
<TOTAL-LIABILITY-AND-EQUITY> 26,277
<SALES> 0
<TOTAL-REVENUES> 14,004
<CGS> 0
<TOTAL-COSTS> 7,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 412
<INTEREST-EXPENSE> 2,383
<INCOME-PRETAX> 5,611
<INCOME-TAX> 1,927
<INCOME-CONTINUING> 3,685
<DISCONTINUED> 0
<EXTRAORDINARY> (100)
<CHANGES> 0
<NET-INCOME> 3,585
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
