<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1998
REGISTRATION NO. 333-41257
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AUTOBOND ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
TEXAS 6141 75-2487218
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ADRIAN KATZ, VICE CHAIRMAN
AUTOBOND ACCEPTANCE CORPORATION
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
<TABLE>
<S> <C>
GLENN S. ARDEN, ESQ. NORMAN R. MILLER, ESQ.
JONES, DAY, REAVIS & POGUE WOLIN, RIDLEY & MILLER LLP
599 LEXINGTON AVE. 3100 BANK ONE CENTER
NEW YORK, NEW YORK 10022 1717 MAIN STREET
(212) 326-3939 DALLAS, TEXAS 75201-4681
(214) 939-4900
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
<CAPTION>
<S> <C> <C> <C> <C>
Preferred Stock, no par value ($10 liquidation preference)... 1,150,000 $ 10 $11,500,000 $ 3,485
</TABLE>
(1) The Company is also registering such number of shares of Common Stock as may
become issuable upon redemption of the preferred stock.
(2) Computed in accordance with Rule 457 under the Securities Act of 1933 solely
for purposes of calculating the registration fee.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY , 1998
PROSPECTUS
1,000,000 SHARES
AUTOBOND ACCEPTANCE CORPORATION
% SERIES A CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $10 PER SHARE)
------------------------
AutoBond Acceptance Corporation, a Texas Corporation ('AutoBond' or the
'Company') is offering (the 'Offering') 1,000,000 shares of $10 liquidation
preference % Series A Cumulative Preferred Stock, no par value (the 'Preferred
Stock') at $10 per share through Tejas Securities Group, Inc. as the sole
managing underwriter and the representative ('Representative') of the
underwriters ('Underwriters') herein named.
Dividends on the Preferred Stock are cumulative from the date of issuance
and will be payable quarterly on the last day of March, June, September, and
December of each year commencing on March 31, 1998 at a rate of % per annum.
The Company, at its option, may redeem one-sixth of the Preferred Stock each
year, after three years from the date of issuance upon 30 days' written notice
(the 'redemption date') in cash at the liquidation preference per share (plus
accrued and unpaid dividends) or, if in Common Stock, that number of shares
equal to $10 per share of Preferred Stock to be redeemed, divided by 85% of the
average closing sale price per share for the Common Stock for the 5 trading days
prior to the redemption date. See 'Description of the Capital Stock.' The
Preferred Stock is not redeemable at the option of the holder and has no stated
maturity.
The Company will apply to have the Preferred Stock listed on the American
Stock Exchange under the symbol 'ABP.'
SEE 'RISK FACTORS' ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE PREFERRED STOCK OFFERED
HEREBY. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED
BY INVESTORS REQUIRING CURRENT INCOME.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS(1)(3) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share.................................................................... $10 $0.80 $9.20
Total........................................................................ $10,000,000 $800,000 $9,200,000
</TABLE>
(1) Excludes a nonaccountable expense allowance payable by the Company to the
Representative of 2% of the aggregate initial public offering price of the
Preferred Stock. The Company has agreed to issue a Common Stock Purchase
Warrant (the 'Representative's Warrant') to the Representative exercisable
for four years commencing one year after the date of this Prospectus to
purchase 300,000 shares of Common Stock for $ per share and to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $250,000,
together with the Representative's nonaccountable expense allowance of
$200,000.
(3) Assumes no exercise of the Representative's option, exercisable within 45
days from the date of this Prospectus, to purchase up to 15% of the
aggregate number of shares of Preferred Stock offered in connection with the
Offering on the same terms, solely to cover overallotments (the
'Overallotment Option'). If the Overallotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $11,500,000, $920,000 and $10,580,000, respectively. See
'Underwriting.'
------------------------
The Preferred Stock is offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
their right to reject orders, in whole or in part. It is expected that delivery
of the Preferred Stock will be made in Austin, Texas on or about January ,
1998.
TEJAS SECURITIES GROUP, INC.
------------------------
The date of this Prospectus is January , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
PREFERRED STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act of 1933, as
amended (the 'Securities Act'), with respect to the securities offered pursuant
to this Prospectus. For further information, reference is made to such
Registration Statement, the amendments thereof and the exhibits thereto, which
are available for inspection without charge at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
as well as the Regional Offices of the Commission at Citicorp Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained by
mail from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates. The Commission also maintains
a website, located at http://www.sec.gov, that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission, including the Company. The Company also files with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended (the 'Exchange Act') and the rules and regulations of
the Commission thereunder.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information presented in this Prospectus assumes no exercise of
the Underwriter's Overallotment Option or the Representative's Warrant.
AutoBond Acceptance Corporation (the 'Company') is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ('finance contracts') originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ('subprime consumers'). Subprime consumers generally are borrowers unable
to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit,
employment or residence histories or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts directly from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company also acquires finance contracts from
third parties other than dealers, for which the Company reunderwrites and
collects such finance contracts in accordance with the Company's standard
guidelines. The Company securitizes portfolios of these retail automobile
installment contracts to efficiently utilize limited capital to allow continued
growth and to achieve sufficient finance contract volume to allow profitability.
The Company markets a single finance contract acquisition program to automobile
dealers which adheres to consistent underwriting guidelines involving the
purchase of primarily late-model used vehicles. This enables the Company to
securitize those contracts into investment grade securities with similar terms
from one issue to another providing consistency to investors.
THE OFFERING
<TABLE>
<S> <C>
Preferred Stock Offerred..................... 1,000,000 shares of % Cumulative Series A Preferred Stock
(150,000 additional shares if the Overallotment Option is
exercised in full).
Use of Proceeds.............................. Acquisition of finance contracts; repayment of convertible notes;
working capital and general corporate purposes. See 'Use of
Proceeds.'
Proposed AMEX Symbol......................... 'ABP.'
RISK FACTORS................................. Investment in the securities involves a high degree of risk and
should only be purchased by investors capable of suffering a
loss of their entire investment. See 'Risk Factors.'
</TABLE>
3
<PAGE>
<PAGE>
DESCRIPTION OF PREFERRED STOCK
<TABLE>
<S> <C>
Dividends.................................... Payable quarterly each March 31, June 30, September 30 and
December 31, commencing March 31, 1998, at the rate of % per
annum. Dividends are cumulative from the date of issue.
Redemption................................... The Preferred Stock is not redeemable or convertible at the option
of the holder. One-sixth of the outstanding Preferred Stock is
redeemable each year at the Company's option at any time on or
after three years from the date of issuance upon 30 days'
written notice in cash (at the liquidation preference per share
plus accrued and unpaid dividends) or, if in Common Stock, that
number of shares equal to $10 per share of Preferred Stock to be
redeemed, divided by 85% of the average closing sale price per
share for the Preferred Stock for the 5 trading days prior to
the redemption date.
Voting Rights................................ If dividends on the Preferred Stock are in arrears for two
quarterly dividend periods, holders of the Preferred Stock will
have the right to elect three additional directors to serve on
the Board until such dividend arrearage is eliminated. In
addition, certain changes that would be materially adverse to
the rights of holders of the Preferred Stock cannot be made
without the affirmative vote of the holders of two-thirds of the
shares of Preferred Stock, voting as a single class. See
'Description of Capital Stock.'
Ranking...................................... The Preferred Stock will rank senior to the Common Stock (the only
capital stock of the Company outstanding as of the date of this
Prospectus) with respect to the payment of dividends and amounts
upon liquidation, dissolution or winding up.
Liquidation Preference....................... $10 per share, plus accrued and unpaid dividends.
</TABLE>
RECENT DEVELOPMENTS
The Company acquired $44 million in finance contracts during the fourth
quarter of 1997, the highest quarterly amount ever. This represented an increase
of approximately 75% over the comparable fourth quarter of 1996 and
approximately 30% over the third quarter of 1997. During the fourth quarter of
1997, the Company also completed the transfer of all remaining servicing
functions (primarily associated with information software and mailing
technology) from its third party contractor to in-house equipment and personnel.
As of December 31, 1997, the Company's servicing portfolio exceeded 20,000
finance contracts. By assuming the remaining servicing functions, the Company's
gross monthly servicing compensation for these contracts has increased from $7
per contract to $15 per contract (a total of approximately $1 million per
quarter).
The following table provides information on the delinquency performance of
the Company's servicing portfolio at year end 1996 and 1997. The portfolio at
the end of 1997 is more seasoned than it was at the end of 1996 and as such the
Company believes increased delinquencies are consistent with the effects of
seasoning. For further insight into the effects of seasoning see 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Credit Loss Experience.'
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Number of contracts outstanding.......................... 9,214 21,187
Delinquent finance contracts(1):
60-89 days past due................................. 186 2.02% 711 3.35%
90 days past due and over........................... 108 1.17% 602 2.84%
------ ------- ------ -------
Total.......................................... 294 3.19% 1,313 6.19%
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
- ------------
(1) Percentages based upon number of contracts outstanding. Excludes finance
contracts in which the underlying vehicle is repossessed (but subject to
redemption), the borrower is in bankruptcy, there is a dealer
buy-back obligation, or there are insurance claims filed and pending.
As part of its year-end reporting analysis, the Company will evaluate its
asset quality, including appropriate allowance levels and provisions. The
Company cannot predict at this time whether the result of such review will
result in material impairment of any of its assets.
In November 1997, the Company was informed by Moody's, and then by Fitch,
that the rated notes issued in the 1997-B and 1997-C securitization transactions
had been placed under review for possible downgrade, due to certain recent
statements made by representatives of Progressive Northern Insurance Company
('Progressive') about the coverage afforded under the VSI and Deficiency Balance
insurance policies issued in connection with such transactions. Specifically
Moody's and Fitch, after discussions with representatives of Progressive, cited
concerns with Progressive's interpretation of its right to cancel the policies,
as well as its aggregate limit of liability on claims paid under the Deficiency
Balance policy. The Company disagrees with the actions taken by Moody's and
Fitch and reaffirms its understanding that (a) coverages under the Progressive
policies are not cancelable with respect to Auto Loans for which premiums have
been paid in full, and (b) Progressive's aggregate limitation of liability per
month is 88% of premiums paid to date. The Company is in active discussions
with the rating agencies and other parties with regard to this matter.
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
AUGUST 1, 1994 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO ---------------------- ----------------------
DECEMBER 31, 1994(2) 1995 1996 1996 1997
-------------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income................... $ 19 $ 781 $ 137 $ 263 $ 177
Servicing fee income.................. 0 0 658 475 660
Gain on sale of finance contracts..... 0 4,086 12,820 9,423 13,533
Other income (loss)................... 0 0 388 -- (530)
------- --------- --------- --------- ---------
Total revenues................... 19 4,867 14,003 10,161 13,840
------- --------- --------- --------- ---------
Provision for credit losses........... 45 49 412 113 125
Salaries and benefits................. 226 1,320 4,529 3,082 5,413
General and administrative............ 245 1,463 2,331 1,318 4,482
Other operating expenses.............. 48 963 1,120 842 1,266
------- --------- --------- --------- ---------
Total expenses................... 564 3,795 8,392 5,355 11,286
------- --------- --------- --------- ---------
Income before taxes and extraordinary
item................................ (545) 1,072 5,611 4,806 2,554
Provision for income taxes............ 0 199 1,926 1,634 896
Extraordinary loss net of tax
effect.............................. -- -- (100) (100) --
------- --------- --------- --------- ---------
Net income............................ $ (545) $ 873 $ 3,585 $ 3,072 $ 1,658
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Earnings per share before
extraordinary item.................. $(0.11) $ 0.17 $ 0.64 $ 0.56 $ 0.25
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Earnings per share.................... $(0.11) $ 0.17 $ 0.62 $ 0.54 $ 0.25
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Weighted average shares outstanding... 5,118,753 5,190,159 5,811,377 5,701,086 6,537,129
CASH FLOW DATA:
Cash used in operating activities..... (2,514) (5,458) (4,169) (2,171) (6,301)
Cash used in investing activities..... (16) (442) (1,140) (1,425) (2,136)
Cash provided by financing activities. 2,530 5,992 9,337 3,839 4,490
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a
percentage of principal balance of
finance contract portfolio serviced
(end of period)(1)................. 0.30% 2.30% 3.01% 2.73% 4.75%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 0 $ 93 $ 4,121 $ 173
Restricted funds.............................................. 0 1,683 2,982 6,165
Finance contracts held for sale, net.......................... 2,361 3,355 228 1,000
Interest-only strip receivable................................ 0 847 4,247 9,979
Total assets............................................. 2,500 11,065 26,277 37,386
Notes payable................................................. 0 2,675 10,175 10,280
Repurchase agreement.......................................... 0 1,061 0 0
Revolving credit agreement.................................... 2,055 1,150 0 4,240
Subordinated debt............................................. 0 0 0 0
Total debt............................................... 2,055 4,886 10,175 14,520
Shareholders' equity.......................................... (109) 3,026 12,286 15,535
</TABLE>
- ------------
(1) Includes the Company's entire finance contract portfolio of contracts held
and contracts securitized. Excludes finance contracts where underlying
vehicle is repossessed (but subject to redemption), the borrower is in
bankruptcy, the dealer is to buy back the loan, or insurance claims
have been filed or are pending.
(2) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
6
<PAGE>
<PAGE>
RISK FACTORS
An investment in the shares of Preferred Stock offered hereby involves a
high degree of risk. In addition to the information contained elsewhere in this
Prospectus, prospective purchasers should carefully consider the following risk
factors concerning the Company and its business in evaluating an investment in
the Preferred Stock offered hereby.
LIMITED OPERATING HISTORY
The Company was incorporated in June 1993 and commenced operations in
August 1994 and, accordingly, has only a limited operating history. Although the
Company has experienced substantial growth in dealer relationships, finance
contract acquisitions and revenues, there can be no assurance that this growth
is sustainable or that historical results are indicative of future results. In
addition, the Company's results of operations, financial condition and liquidity
depend, to a material extent, on the performance of its finance contracts.
Because of the Company's limited operating history, its finance contract
portfolio is relatively unseasoned. Thus, the Company's portfolio performance,
including historical delinquency and loss experience, is not necessarily
indicative of future results. Furthermore, the Company's ability to achieve and
maintain profitability on both a quarterly and an annual basis will depend, in
part, upon its ability to implement its business strategy and to securitize
quarterly on a profitable basis. See 'Selected Consolidated Financial and
Operating Data.'
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY
The Company's business strategy is principally dependent upon its ability
to increase the number of finance contracts it acquires while maintaining
favorable interest rate spreads and effective underwriting and collection
efforts. Implementation of this strategy will depend in large part on the
Company's ability to: (i) expand the number of dealerships involved in its
financing program and maintain favorable relationships with these dealerships;
(ii) increase the volume of finance contracts purchased from its dealer network;
(iii) obtain adequate financing on favorable terms to fund its acquisition of
finance contracts; (iv) profitably securitize its finance contracts on a regular
basis; (v) maintain appropriate procedures, policies and systems to ensure that
the Company acquires finance contracts with an acceptable level of credit risk
and loss; (vi) hire, train and retain skilled employees; (vii) continue to
expand in the face of increasing competition from other automobile finance
companies; and (viii) increase the rate of revenue growth more rapidly than the
increase of expenses, which would involve a reversal of an adverse trend
experienced through much of 1997. The Company's failure to obtain or maintain
any or all of these factors could impair its ability to implement its business
strategy successfully, which could have a material adverse effect on the
Company's results of operations and financial condition. See 'Business -- Growth
and Business Strategy.'
LIQUIDITY DEMANDS AND CONTINUED ACCESS TO CAPITAL RESOURCES
LIQUIDITY. The Company requires access to significant sources and amounts
of cash to fund its operations and to acquire and securitize finance contracts.
As a result of the initial period required to accumulate finance contracts prior
to securitization of such contracts, the Company's cash requirements exceed cash
generated from operations. The Company's primary operating cash requirements
include the funding of (i) the acquisition of finance contracts prior to
securitization, (ii) the initial cash deposits to reserve accounts in
connection with the warehousing and securitization of contracts in order to
obtain such sources of financing, (iii) fees and expenses incurred in connection
with the warehousing and securitization of contracts and (iv) ongoing
administrative and other operating expenses. The Company has traditionally
obtained these funds in three ways: (a) loans and warehouse financing
arrangements, pursuant to which acquisition of finance contracts are funded
on a temporary basis; (b) securitizations or sales of finance contracts,
pursuant to which finance contracts are funded on a permanent
basis; and (c) general working capital obtained through the issuance of debt
or equity. Failure to procure funding from all or any one of these sources
could have a material adverse effect on the Company. See 'Use of Proceeds'
and 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources.'
7
<PAGE>
<PAGE>
CASH FLOWS ASSOCIATED WITH FINANCINGS. Under the financial structures the
Company has used to date in its warehousing and securitizations, certain excess
cash flows generated by the finance contracts are retained in a cash reserve or
'spread' account to provide liquidity and credit enhancement. While the specific
terms and mechanics of the cash reserve account can vary depending on each
transaction, the relevant agreement generally provides that the Company is not
entitled to receive certain excess cash flows unless certain reserve account
balances have been attained and the delinquency or losses related to the
contracts in the pool are below certain predetermined levels. In the event
delinquencies and losses on the contracts exceed such levels, the terms of the
warehouse facility or securitization may require increased cash reserve account
balances to be accumulated for the particular pool or, in certain circumstances,
may require the transfer of the Company's collection function to another
servicer. The imposition of any of the above-reference conditions could
materially adversely affect the Company's liquidity and financial condition.
DEPENDENCE ON WAREHOUSE CREDIT FACILITIES. The Company's two primary
sources of financing for the acquisition of finance contracts are its (i) $50.0
million warehouse revolving line of credit with Daiwa Finance Corporation and
(ii) $10.0 million warehouse revolving line of credit with Sentry Financial
Corporation (together, the 'Revolving Credit Facilities') which expire in March
1998 and December 31, 2000, respectively. As of December 31, 1997, $21 million
and $10 million in funding was available under these respective Revolving Credit
Facilities. As of the date of this Prospectus, the expiration of the Daiwa
Facility has not been extended but the Company is currently in active
discussions with several potential warehouse providers. To the extent that the
Company is unable to maintain the Revolving Credit Facilities or is unable to
arrange new warehouse lines of credit, the Company would have to curtail its
finance contract acquisition activities, which would have a material adverse
effect on operations and cash position. These warehouse lines are typically
repaid with the proceeds received by the Company when its finance contracts are
securitized. The Company's ability to continue to borrow under the Revolving
Credit Facilities is dependent upon its compliance with the terms thereof,
including the maintenance by the Company of certain minimum capital levels.
There can be no assurance that such facilities will be extended or that
substitute facilities will be available on terms acceptable to the Company.
The Company's ability to obtain a successor facility or similar financing will
depend on, among other things, the willingness of financial organizations to
participate in funding subprime finance contracts and the Company's financial
condition and results of operations. The Company's growth is dependent upon its
ability to obtain sufficient financing under its Revolving Credit Facilities,
and any additional or successor facilities, at rates and upon terms acceptable
to the Company. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources' and
'Business -- Funding/Securitization of Finance Contracts.'
DEPENDENCE ON SECURITIZATION TRANSACTIONS. The Company relies significantly
on a strategy of periodically selling finance contracts through asset-backed
securitizations. Proceeds from securitizations are typically used to repay
borrowings under the warehouse credit facilities, thereby making such facilities
available to acquire additional finance contracts. The Company's ability to
access the asset-backed securities market is affected by a number of factors,
some of which are beyond the Company's control and any of which could cause
substantial delays in securitization including, among other things, conditions
in the securities markets in general, conditions in the asset-backed securities
market and investor demand for subprime auto paper. Moreover, because of the
similarity of the Company's name with those of certain securitization issuers
sponsored by William Winsauer, the Company could be adversely affected if such
securitizations suffered losses. Additionally, gain on sale of finance contracts
represents a significant portion of the Company's total revenues and,
accordingly, net income. If the Company were unable to securitize finance
contracts or account for any securitization as a sale transaction in a financial
reporting period, the Company would likely incur a significant decline in total
revenues and net income or report a loss for such period. Moreover, the
Company's ability to monetize excess spread cash flows, has been an important
factor in providing the Company with substantial liquidity, but such ability
appears to be diminishing due to the difficulty in obtaining acceptable
insurance and ratings. If the Company were unable to securitize its finance
contracts and did not have sufficient credit available, either under warehouse
credit facilities or from other sources, the Company would have to sell portions
of its portfolio directly to whole loan buyers or curtail its finance contract
acquisition activities. See 'Business -- Funding/Securitization of Finance
Contracts.'
8
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DEPENDENCE ON INSURANCE POLICIES. In order to limit potential losses on
finance contracts, the Company has purchased insurance under vendor's single
interest ('VSI') insurance policies, including loss deficiency coverages for
certain contracts at the time of its acquisition or upon securitization. VSI
Policies generally include physical damage and loss coverage with respect to the
financed vehicles and may include loss coverage with respect to unpaid amounts
under the related finance contract, subject in each case to certain conditions
and limitations. The protections afforded by the VSI Policies are not complete
and depend on the Company's compliance with the terms and conditions of the
policy. There can be no assurance that such insurance will be available in the
future at reasonable rates. The Company is currently involved with a
disagreement with one of its VSI carriers as to the scope of the policy's
coverage, and the ratings of two securitizations supported in part by such
policy have been put under review. The unavailability of such insurance, coupled
with the absence of alternative forms of credit enhancement, could adversely
affect the Company's ability to profitably acquire and securitize finance
contracts. See 'Business -- Insurance' and ' -- Recent Developments.'
NEED FOR ADDITIONAL CAPITAL. The Company's ability to implement its
business strategy will depend upon its ability to continue to effect
securitizations or to establish alternative long-term financing arrangements and
to obtain sufficient financing under warehousing facilities on acceptable terms.
There can be no assurance that such financing will be available to the Company
on favorable terms. If such financing were not available or the Company's
capital requirements exceeded anticipated levels, then the Company would be
required to obtain additional debt financing, which could impair the ability to
pay dividends, or additional equity financing, which would dilute the interests
of shareholders. Although the Company has no specific plans for additional
equity financings other than this offering of Preferred Stock, the Company may
at some point require additional equity financing. The Company cannot estimate
the amount and timing of additional equity financing requirements because such
requirements are tied to, among other things, the growth of the Company's
finance contract acquisitions, which cannot be definitively forecast for future
periods. If the Company were unable to raise such additional capital, its
results of operations and financial condition could be adversely affected. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Business -- Financing
Program.'
POTENTIAL VOLATILITY OF GAIN FROM SECURITIZATION TRANSACTIONS
The gain from securitization transactions recognized by the Company in each
securitization and the value of the future excess spread cash flows in each
transaction reflect, among other things, management's estimate of future
delinquencies, credit losses and prepayments for the finance contracts included
in that securitization. If actual rates of credit loss, delinquencies or
prepayments for the finance contracts exceeded those estimated, the value of the
interest-only strip receivables would be impaired. The Company periodically
reviews its credit loss, delinquencies and prepayment assumptions relative to
the performance of the securitized contracts and to market conditions. If
necessary, the Company would adjust the carrying value of the future excess
spread cash flows by writing down the asset and recording a charge to servicing
fee income. The Company's results of operations and liquidity could be adversely
affected if credit loss or prepayment levels on securitized finance contracts
substantially exceeded anticipated levels. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Revenues/Credit
Loss Experience' and Note 1 to Notes to Consolidated Financial Statements.
RISK OF ECONOMIC DOWNTURNS
The Company's business is directly related to sales of new and used
automobiles, which are affected by employment rates, prevailing interest rates
and other domestic economic conditions. Delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on subprime borrowers, the actual rates of delinquencies,
repossessions and losses on such contracts under adverse conditions could be
higher than those currently experienced. Any sustained period of economic
slowdown or recession could adversely affect the Company's ability to sell or
securitize pools of finance contracts. The timing of any economic changes is
uncertain. Decreased sales of automobiles and weakness in the economy could have
an adverse effect on the Company's business and that of the dealers from which
it purchases finance contracts.
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DEFAULTS ON CONTRACTS; PREPAYMENTS
The Company is engaged in acquiring automobile finance contracts entered
into by dealers with subprime borrowers who have limited access to traditional
sources of consumer credit. The inability of a borrower to finance an automobile
purchase by means of traditional credit sources generally is due to various
factors, including the borrower's past credit experience and the absence or
limited extent of the borrower's credit history. Consequently, the contracts
acquired by the Company generally bear a higher rate of interest than finance
contracts of borrowers with favorable credit profiles, but also involve a higher
probability of default, may involve higher delinquency rates and involve greater
servicing costs. The majority of the Company's borrowers are classified as
subprime consumers due to negative credit history, including history of
charge-offs, bankruptcies, repossessions or unpaid judgments. Generally,
subprime consumers are those that do not qualify for financing from traditional
lending sources. The Company's continued profitability depends upon, among other
things, its ability to evaluate the creditworthiness of customers to prevent
defaults through proactive collection efforts and to minimize losses following
defaults with proceeds from the sale of repossessed collateral and with
insurance proceeds. Over time, the Company's finance contract portfolio becomes
more seasoned. This effect on the delinquency statistics can be observed in the
comparison of 1997 versus 1996 delinquency percentages, with 6.19% of the
finance contracts 60 or more days past due at year end 1997, versus 3.01% at
year end 1996. The portfolio is more seasoned as of December 31, 1997 versus
December 31, 1996. Accordingly, delinquency and charge-off rates in the
portfolio may not fully reflect the rates that may apply when the average
holding period for finance contracts in the portfolio is longer. Increases in
the delinquency and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its receivables. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business -- Borrower Characteristics,' ' -- Contract
Acquisition Process,' ' -- Funding/Securitization of Finance Contracts' and
' -- Contract Servicing and Collection.'
The Company's servicing income also can be adversely affected by
prepayments or defaults on contracts in the servicing portfolio. The Company's
servicing revenue is based on the number of outstanding contracts. If contracts
are prepaid or charged-off, the Company's servicing revenue will decline to the
extent of such prepaid or charged-off contracts. There can be no assurance as to
what level of prepayment, if any, will occur on the finance contracts.
Prepayments may be influenced by a variety of economic, geographic, social and
other factors. Factors affecting prepayment of motor vehicle finance contracts
include borrowers' job transfers, unemployment, casualty, trade-ins, changes in
available interest rates, net equity in the motor vehicles and servicing
decisions.
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE RETAINED CASH FLOWS
The Company is entitled to receive servicing fee income only while it acts
as collection agent for securitized contracts. Any loss of these collection fees
could have an adverse effect on the Company's results of operations and
financial condition. The Company's right to act as collection agent under the
servicing agreements and as administrator under the trust agreements, and
accordingly to receive collection fees, can be terminated by the trustee upon
the occurrence of certain events of administrator termination (as defined in the
servicing agreements and the trust agreements). See 'Business --
Funding/Securitization of Finance Contracts.'
Under the terms of each of the trust agreements, upon the occurrence of
certain amortization events, the Company's rights to receive payments of its
collection fees and payments in respect of its retained interest in the
securitization excess spread cash flows would be suspended unless and until all
payments of principal and interest due on the investor certificates are made.
Such amortization events include (i) the occurrence of any event of
administrator termination referred to in the immediately preceding paragraph or
(ii) the institution of certain bankruptcy or liquidation proceedings against
any of the securitization subsidiaries of the Company.
Upon the occurrence of certain trigger events under the trust agreements,
the amount required to be retained in the cash reserve accounts is increased
such that future residual cash flows would be retained in such accounts rather
than paid to the Company. Such cash reserve trigger events include: (i)
increases in the net loss ratio and delinquency ratios above certain levels for
each pool of securitized
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finance contracts; or (ii) the occurrence of an event of administrator
termination resulting from a bankruptcy event of the Company.
In addition to the foregoing, the trust agreements provide that, upon the
occurrence of any amortization event, a greater portion of the excess spread
cash flows available for funding the cash reserve account be directed to such
account than would be required in the absence of an amortization event, and that
payment to the Company of its retained interest in such excess spread cash flows
be withheld until payments of principal and interest then due the holders of the
investor certificates are paid in full. See 'Business -- Funding/Securitization
of Finance Contracts.'
The Company's loss of rights to servicing fees under the trust agreements
or the occurrence of a trigger event that limited release of future residual
cash flows from the pooled contracts and cash reserve accounts could have an
adverse effect on the Company's results of operations and financial condition.
To date, no suspension of residual cash flows to the Company and no termination
of servicing rights have occurred under any securitization transactions.
VARIABLE QUARTERLY EARNINGS
The Company's revenues and income have fluctuated in the past and may
fluctuate in the future. Several factors affecting the Company's business can
cause significant variations in its quarterly results of operations. In
particular, variations in the volume of the Company's contract acquisitions, the
interest rate spreads between the Company's cost of funds and the average
interest rate of purchased contracts, the certificate rate for securitizations
and the timing and size of securitizations can result in significant increases
or decreases in the Company's revenues from quarter to quarter. Any significant
decrease in the Company's quarterly revenues could have a material adverse
effect on the Company's results of operations and its financial condition. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
In addition, income in any quarterly period may be affected by the
revaluation of interest-only strip receivables, which are valued at the present
value of the expected future excess spread cash flows using the same discount
rate as was appropriate at the time of securitization. If actual prepayment or
default rates on securitized finance contracts exceed those assumed in the
Company's calculations of the gain from securitization transactions, the Company
could be required to record a charge to earnings. As a result of these factors,
the Company's operating results may vary from quarter to quarter, and the
results of operations for any particular quarter are not necessarily indicative
of results that may be expected for any subsequent quarter or related fiscal
year. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and Note 1 to Notes to Consolidated Financial Statements.
COMPETITION AND INDUSTRY CONDITIONS
The market in which the Company operates is highly competitive and
fragmented, consisting of many national, regional and local competitors, and is
characterized by relative ease of entry and the recent arrival of a number of
new competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these competitors are substantially
larger and better capitalized than the Company and may have other competitive
advantages over the Company. Competition by existing and future competitors
would result in competitive pressures, including reductions in the Company's
finance contract acquisitions or reduced interest spreads, that would materially
adversely affect the Company's profitability. Further, as the Company seeks to
increase its market penetration, its success will depend, in part, on its
ability to gain market share from established competitors. Additionally, during
the first half 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 a result of the turmoil in the sub-prime auto finance
industry. There can be no assurance that the turmoil in the sub-prime auto
finance industry will not continue to have an effect on the Company's.
11
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<PAGE>
ability to raise funds and may result in an increased cost of funding to the
Company. The Company's management decided in 1997 to take advantage of the
industry turmoil through the more rapid hiring of professional talent that
became available from the Company's competitors. By pursuing this aggressive
hiring strategy, the Company increased expenses in 1997 more rapidly than
revenue growth. See 'Business -- Competition,' ' -- Selected Financial Data'
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
INABILITY TO MAINTAIN RELATIONSHIPS WITH DEALERS
The Company's business depends in large part upon its ability to maintain
and service its relationships with automobile dealers. There can be no assurance
the Company will be successful in maintaining such relationships or increasing
the number of dealers with which it does business or that its existing dealer
base will continue to generate a volume of finance contracts comparable to the
volume historically generated by such dealers.
INTEREST RATE RISK
The Company's profitability is dependent upon the difference, or 'spread,'
between the effective rate of interest received by the Company on the finance
contracts it acquires and the interest rates payable either under its warehouse
credit facilities or on securities issued in securitizations. Several factors
affect the Company's ability to manage interest rate risk. First, finance
contracts are purchased at fixed rates, while amounts borrowed under certain of
the Company's credit facilities bear interest at variable rates that are subject
to frequent adjustment to reflect prevailing rates for short-term borrowings.
Second, the interest rate demanded by investors in securitizations is a function
of prevailing market rates for comparable transactions and of the general
interest rate environment. Because the finance contracts purchased by the
Company have fixed rates, the Company bears the risk of spreads narrowing
because of interest rate increases during the period from the date the finance
contracts are purchased until the closing of its securitization of such finance
contracts. Narrowing spreads would adversely affect the net interest income
earned by the Company while finance contracts are held for sale. In addition,
increases in interest rates prior to the securitization or sale of finance
contracts may reduce the gain realized by the Company. The Company does not
currently hedge its interest rate exposure. While the Company may consider
hedging strategies to attempt to limit such exposure in the future, there can be
no assurance that any such strategy, if adopted, will be successful. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
GEOGRAPHIC CONCENTRATION AND EXPANSION RISKS
For the period from inception in August 1994 through September 1997,
approximately 58% of the Company's finance contracts, as a percentage of the
aggregate nominal principal balance of such finance contracts, had been
originated in the State of Texas. Such geographic concentration could have an
adverse effect on the Company should negative economic and other factors occur
in Texas that would cause the finance contracts to experience delinquencies and
losses in excess of those experienced historically. It is the Company's current
intention to expand the number and proportion of finance contracts acquired from
dealers in states other than Texas. Geographic expansion resulted in added
expense, which during 1997 grew more rapidly than revenue. Such geographic
expansion may entail greater risks as the Company does business in areas and
with dealers with which it is less familiar than in Texas. Such expansion also
entails risks associated with the adequate retention and training of sufficient
personnel and the need for sufficient financing sources. See 'Business -- Growth
and Business Strategy.'
REGULATION
The Company's business is subject to numerous federal and state consumer
laws and regulations, which, among other things: (i) require the Company to
obtain and maintain certain licenses and qualifications; (ii) limit the interest
rates, fees and other charges the Company is allowed to charge; (iii) limit or
prescribe certain other terms of the Company's contracts, (iv) require the
Company to provide specified disclosure; and (v) define the Company's rights to
collect on finance contracts and to repossess and sell collateral. A change in
existing laws or regulations, or in the creation or enforcement
12
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<PAGE>
thereof, or the promulgation of any additional laws or regulations could have a
material adverse effect on the Company's business. See 'Business -- Regulation.'
DEPENDENCE ON KEY EXECUTIVES
The success of the Company's operations is dependent upon the experience
and ability of William O. Winsauer, the Chairman of the Board and Chief
Executive Officer, and Adrian Katz, the Vice Chairman of the Board and Chief
Operating Officer. The loss of the services of Messrs. Winsauer or Katz could
have an adverse effect on the Company's business. In addition, if the loss of
either Mr. Winsauer or Mr. Katz constituted a 'change in control,' it could
result in an amortization event under the trust agreements relating to the
Company's securitizations, reducing future cash flows from securitizations or an
event of funding termination. The Company does not maintain key man life
insurance on any of its officers, directors or employees at the present time.
See 'Business -- Funding/Securitization of Finance Contracts' and
'Management -- Employment Agreements.'
CONTROL BY MAJORITY SHAREHOLDER
William O. Winsauer beneficially owns an aggregate of approximately 56.6%
of the outstanding shares of Common Stock. Accordingly, Mr. Winsauer has
majority control of the Company, with the ability to elect the Board of
Directors and to approve or prevent certain fundamental corporate transactions
(including mergers, consolidations and sales of all or substantially all of the
Company's assets). See 'Certain Transactions,' 'Beneficial Ownership of Common
Shares' and 'Description of Capital Stock.'
PREFERRED STOCK RISKS
In addition to the Preferred Stock, the Board of Directors, without further
vote or action by the Company's shareholders, is authorized to issue shares of
preferred stock in one or more series and to fix the terms and provisions of
each series, including dividend rights and preferences over dividends on the
Common Stock, conversion rights, voting rights (in addition to those provided by
law) which may be senior to the voting rights of the Common Stock, redemption
rights and the terms of any sinking fund therefor, and rights upon liquidation,
including preferences over the Common Stock. Under certain circumstances, the
issuance of a series of preferred stock could have the effect of delaying,
deferring or preventing a change of control of the Company and could adversely
affect the rights of the holders of the Common Stock. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. See 'Description of Capital Stock.'
REDEMPTION OF PREFERRED STOCK. Commencing three years from the date of this
Prospectus, the Preferred Stock may be redeemed by the Company at its option in
cash or in Common Stock. Accordingly, holders of the Preferred Stock may be
required to either exchange their Preferred Stock for Common Stock or accept a
fixed payment price for each share of Preferred Stock. See 'Description of
Capital Stock.'
NO ASSURANCE OF AN ACTIVE PUBLIC MARKET. While the Preferred Stock will be
free of restrictions on transfer, there is presently no public market for the
Preferred Stock and although the Company will apply to have the Preferred Stock
listed on AMEX, there can be no assurance that an active market will develop or
be maintained. Accordingly, there can be no assurance that the purchasers will
be able to sell the Preferred Stock in the future. See 'Description of
Securities.'
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES OF COMMON STOCK
UNDERLYING THE PREFERRED STOCK. The Preferred Stock is not redeemable unless, at
the time of redemption, the Company has a current prospectus covering the shares
of Common Stock issuable upon redemption of such Preferred Stock and such shares
of Common Stock have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the holders of such Preferred
Stock. Although the Company is registering the underlying Common Stock hereby
and will use its best efforts to maintain a current prospectus relating thereto
while the Preferred Stock is outstanding, there is no assurance that it will be
able to do so.
Purchasers may buy Preferred Stock in the aftermarket or may move to
jurisdictions in which the shares of Common Stock underlying the Preferred Stock
are not so registered or qualified during the
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period that the Preferred Stock is outstanding. In this event, the Company would
be unable to issue Common Stock to those persons desiring to convert their
shares of Preferred Stock unless and until such shares could be qualified for
sale in jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdiction. In such event, the holders of
Preferred Stock could be unable to convert their shares to Common Stock. See
'Description of Securities.'
OFFERING PRICE ARBITRARILY DETERMINED. The offering price of the Preferred
Stock will be arbitrarily determined through negotiations between the
Representative and the Company does not necessarily bear any relationship to the
Company's assets, earnings or other investment criteria. See 'Underwriting.'
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 6,531,311 shares of Common Stock outstanding. Of
such shares, 1,075,000 shares are available for immediate sale in the public
market and 5,456,311 shares of Common Stock are 'restricted securities,' as that
term is defined under Rule 144 promulgated under the Securities Act, and may
only be sold pursuant to a registration statement under the Securities Act or an
applicable exemption from the registration requirements of the Securities Act,
including Rule 144 and 144A thereunder. Approximately 64,500 shares of Common
Stock are eligible for sale pursuant to Rule 144, subject to compliance with
such Rule and the contractual provisions described below. No predictions can be
made as to the effect, if any, that market sales of shares of existing
shareholders or the availability of such shares for future sale will have on he
market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock could be adversely affected by
future sales of substantial amounts of Common Stock by existing shareholders or
the perception that such sales could occur. See 'Beneficial Ownership of Common
Shares.'
In addition up to 515,000 shares of Common Stock may be issued upon
exercise of certain stock options and up to 600,000 shares of Common Stock may
be issued upon exercise of certain warrants. See 'Management -- Option Plan' and
'Description of Capital Stock -- Warrants and Convertible Notes.'
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and may continue
to be, extremely volatile and the market price of the Preferred Stock may also
be volatile. Factors such as expanding competition in the consumer automobile
finance market, quarterly fluctuations in the operating results of the Company,
its competitors and other similar finance companies and general conditions in
the automobile manufacturer and consumer lender markets, including changing
economic conditions for obligors, used automobile resale market conditions,
servicing practices, may have a significant impact on the market price of the
Common Stock. In particular, if the Company were to report operating results
that did not meet the expectations of research analysts, the market price of the
Common Stock could be materially adversely affected. In addition, the stock
market has recently experienced substantial price and volume fluctuations, which
have particularly affected the market prices of the stock of many consumer
automobile finance companies.
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USE OF PROCEEDS
The aggregate net proceeds from the sale of the Preferred Stock being
offered by the Company in the Offering (at an assumed initial public offering
price of $10 per share and after deducting underwriting discount and estimated
offering expenses) will be approximately $8,750,000 (approximately $10,130,000
if the Underwriters' Over-allotment Option is exercised in full).
The Company intends to apply the net proceeds from the sale of the
Preferred Stock offered hereby primarily to provide for the repayment of $2
million of the Company's 18% Convertible Notes and the acquisition and financing
of finance contracts. In addition, any remaining net proceeds may be used for
working capital and general corporate purposes. Pending such uses, the Company
may invest the proceeds from this offering in short-term, investment-grade
securities.
DIVIDEND POLICY
Pursuant to the terms of the Preferred Stock, the Company will pay (when
and as declared by the Board of Directors) on the Preferred Stock quarterly
cumulative dividends of % per annum in cash. See 'Description of Capital
Stock -- Preferred Stock.' 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 used to pay dividends on the
Preferred Stock and retained for use in the operation and expansion of its
business. Payment of cash dividends on its Common Stock, 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.
PRICE RANGE OF COMMON STOCK
On November 8, 1996, the Company's Common Stock was listed for quotation
and began trading on Nasdaq National Market ('Nasdaq') under the symbol 'ABND'.
Prior to such date, the Company's stock was closely held and not traded on any
regional or national exchange.
HIGH AND LOW SALE PRICES BY PERIOD
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------------------- ------------ --------------
<S> <C> <C>
November 8, 1996 -- December 31, 1996........................................ $11 $9 1/4
January 1, 1997 -- March 31, 1997............................................ $10 3/8 $4
April 1, 1997 -- June 30, 1997............................................... $ 4 3/4 $2 1/4
July 1, 1997 -- September 30, 1997........................................... $ 5 1/8 $3 13/16
October 1, 1997 -- December 31, 1997......................................... $ 4 1/2 $2 5/8
January 1, 1998 -- January 9, 1998........................................... $ 4 $2 13/16
</TABLE>
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company. As of December 31, 1997, the Company had approximately
stockholders of record, exclusive of holders who own their shares in
'street' or nominee names.
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CAPITALIZATION
The following table sets forth information regarding the capitalization of
the Company as of September 30, 1997 (i) on an actual basis and (ii) on an as
adjusted basis to give effect to the sale of 1,000,000 shares of Preferred Stock
offered by the Company (at an assumed public offering price of $10.00 per share
and after deducting the underwriting discount and estimated offering expenses)
and the application of the estimated net proceeds therefrom. See 'Use of
Proceeds.'
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term Debt -- Notes Payable.......................................................... $10,280 $ 8,280
------- -----------
Shareholder's Equity:
Common Stock, no par value, 25,000,000 shares authorized; 6,512,500 shares issued
and outstanding, actual and as adjusted(1)......................................... 1 1
Preferred Stock, 5,000,000 shares authorized, no par value; no shares issued and
outstanding, actual; 1,000,000 shares of Series A Cumulative Preferred Stock, $10
liquidation preference, issued and outstanding, as adjusted........................ -- 10,000
Additional paid-in capital (2)........................................................... 8,704 7,454
Retained earnings........................................................................ 5,572 5,572
Deferred compensation.................................................................... (1) (1)
Loans to shareholders.................................................................... (7) (7)
Unrealized appreciation on interest-only strip receivables............................... 1,266 1,266
------- -----------
Total shareholders' equity..................................................... 15,535 24,285
------- -----------
Total capitalization........................................................... $25,815 $32,565
------- -----------
------- -----------
</TABLE>
- ------------
(1) Excludes (i) 515,000 shares of Common Stock reserved for issuance under the
Option Plan, (ii) 917,165 shares of Common Stock issuable upon the exercise
of outstanding warrants and notes, and (iii) 300,000 shares of Common Stock
which may be issued and sold upon the exercise in full of the
Representative's Warrants. See 'Description of Capital Stock -- Warrants,'
and 'Management -- Option Plan.'
(2) Includes the effect of Offering expenses of $1,250,000.
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to
combined fixed charges and preferred stock dividends of the Company for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------
1995 1996 1997
---------- ---------- -----------------
<S> <C> <C> <C>
Net Income....................................................... $ 873,487 $3,584,886 $ 1,657,711
Extraordinary loss, net of tax benefit...................... -- 100,000 --
Provision for income taxes.................................. 199,000 1,926,553 895,685
---------- ---------- --------------
Add fixed charges and preferred stock dividends:
Interest expense............................................ 2,099,867 2,382,818 2,930,592
Preferred stock dividends................................... -- -- --
---------- ---------- --------------
Total combined fixed charges and preferred stock
dividends............................................ 2,099,867 2,382,818 2,930,592
---------- ---------- --------------
Total earnings......................................... $3,172,354 $7,994,257 $ 5,483,988
---------- ---------- --------------
---------- ---------- --------------
Ratio of earnings to combined fixed charges and preferred stock
dividends...................................................... 1.51 3.35 1.87
---- ---- ----
---- ---- ----
</TABLE>
The ratio of earnings to combined fixed charges and preferred stock
dividends is not presented for the period from August, 1, 1994 (inception) to
December 31, 1994 as earnings were inadequate to cover combined fixed charges
and preferred stock dividends. The amount of such deficiency was $525,409.
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BUSINESS
GENERAL
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, 1997, the Company acquired 21,187 finance
contracts with an aggregate outstanding principal balance of $209,612,582. Since
inception, the Company has completed eight securitizations pursuant to which it
privately placed $204 million in finance contract-backed securities.
GROWTH AND BUSINESS STRATEGY
The Company's growth strategy anticipates the acquisition of an increasing
number of finance contracts. The key elements of this strategy include: (i)
increasing the number of finance contracts acquired per automobile dealer; (ii)
expanding the Company's presence within existing markets; (iii) penetrating new
markets that meet the Company's economic, demographic and business criteria and
(iv) securitizing portfolios of acquired finance contracts.
To foster its growth and increase profitability, the Company will continue
to pursue a business strategy based on the following principles:
Targeted Market and Product Focus -- The Company targets the 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 September 30, 1997, new vehicles and used vehicles represented 6.4%
and 93.6%, respectively, of the finance contract portfolio. 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
facilities than used car dealers.
Efficient Funding Strategies -- Through an investment-grade warehouse
facility and a periodic 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
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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.
Uniform Underwriting Criteria -- To manage the risk of delinquency or
defaults associated with sub-prime consumers, the Company has utilized
since inception underwriting criteria which are uniformly 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 securitization portfolios
of finance contracts that make them more easily analyzed by the rating
agencies and more marketable and permit static pool analysis of loan
defaults to optimally structure securitizations. See 'Management's
Discussion and Analysis -- Repossession Experience -- Static Pool
Analysis.'
Centralized Operating Structure -- While the Company establishes and
maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's
day-to-day operations are centralized at the Company's offices in Austin,
Texas. This centralized structure allows the Company to closely monitor its
marketing, funding, underwriting and collections operations and eliminates
the expenses associated with full-service branch or regional offices.
Experienced Management Team -- The Company actively recruits and
retains experienced personnel at the executive, supervisory and managerial
levels. The senior operating management of the Company consists of seasoned
automobile finance professionals with substantial experience in
underwriting, collecting and financing automobile finance contracts. In
1997 the difficulties experienced by several competitors provided an
opportunity to attract experienced personnel to work for the Company.
Hiring in 1998 is not expected to be as rapid but will continue
selectively.
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
September 30, 1997, a total of $5,700,863 or 3.24%, of the Company's
finance contract portfolio were between 60 and 89 days past due and
$2,666,668, or approximately 1.51%, of the Company's finance contracts
outstanding were 90 days past due or greater. The aforementioned
percentages and amounts exclude loans in the Company's finance contract
portfolio where, at September 30, 1997, the underlying vehicle has been
repossessed, the borrower is in bankruptcy, the dealer is to buy back the
loan, or where an insurance claim has been filed. From inception through
September 30, 1997, the Company repossessed 1,949 (approximately 10%) of
its financed vehicles, and the Company had completed the disposal of 797
vehicles, resulting in an average loss per repossession of approximately
$1,972 per vehicle. See 'Management's Discussion and Analysis of Financial
Condition & Results of Operations -- Net Loss per Repossession.'
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 vendor'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 contract finance 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 15.49% (excluding
repossession costs) of the principal balance outstanding on disposed
repossessed vehicles for which the liquidation process has been completed
as of September 30, 1997. For its 1997-B and 1997-C securitizations, the
Company purchased credit default insurance from Progressive Northern
Insurance Company. See 'Recent Developments'
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' -- Insurance' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Net Loss per Repossession.'
As discussed, the Company's business strategy depends on its ability
to increase the rate of revenue growth more rapidly than the increase of
expenses, which would involve a reversal of an adverse trend experienced
through much of 1997. Thus, continued growth in revenues is important for the
Company to succeed in its business strategy.
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%. 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 average borrower's age is 34.3 years.
CONTRACT PROFILE
From inception to September 30, 1997, the Company acquired 19,167 finance
contracts with an aggregate initial principal balance of $221,032,319. Of the
finance contracts acquired, approximately 6.4% have related to the sale of new
automobiles and approximately 93.6% have related to the sale of used
automobiles. The average age of used finance vehicles was approximately two
years at the time of sale. The finance contracts had, upon acquisition, an
average initial principal balance of $11,532; a weighted average APR of 19.575%;
a weighted average finance contract acquisition discount of 8.5%; and a weighted
average contractual maturity of 52.2 months. As of September 30, 1997, the
finance contracts in the finance contract portfolio had a weighted average
remaining maturity of 42 months.
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 September 30,
1997, the Company was licensed or qualified to do business in 40 states. Over
the near terms, the Company intends to focus its proposed geographic expansion
on states in the midwest and mid-Atlantic regions.
Location of Dealers. Approximately 40% of the Company's dealer network
consists of dealers located in Texas, where the Company has operated since 1994.
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A group of six dealerships (including Charlie Thomas Ford, Inc.) 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). The Company is no longer
purchasing contracts from these dealerships due to a dispute over repurchase
obligations. See 'Legal Proceedings.'
DEALER SOLICITATION
Marketing Representatives. As of September 30, 1997, the Company utilized
44 marketing representatives, 36 of whom were individuals employed by the
Company and eight of whom were marketing organizations serving as independent
representatives. These representatives have an average of ten years experience
in the automobile financing industry. 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 contracts, the marketing representatives can obtain
real-time information from the Company's newly installed management information
systems, listing by dealership the number of applications submitted, the
Company's response to such applications and the reasons why a particular
application was rejected. The Company believes that the personal relationships
its marketing representatives establish with the F&I managers are an important
factor in creating and maintaining productive relationships with its dealership
customer base.
The role of the marketing representatives is generally limited to marketing
the Company's financing program and maintaining relationships with the Company's
dealer network. The marketing representatives do not negotiate, enter into or
modify dealer agreements on behalf of the Company, do not participate in credit
evaluation or loan funding decisions and do not handle funds belonging to the
Company or its dealers. 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
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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 contacts 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 is obligated
to 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 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
Manufacturer's 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.
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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 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.
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The Company's underwriting standards are applied by experienced credit
underwriters with a personal analysis of each application, utilizing experienced
judgment. These standards have been developed and refined by the Company's
senior 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.
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
$14.8 million in finance contracts in 1996 from Greenwich Capital Financial
Products which were originated by First Fidelity Acceptance Corp. During the
first quarter of 1997, the Company acquired approximately $8.5 million in
finance contracts from Credit Suisse First Boston Mortgage Capital LLC ('CSFB')
which were originated by Jefferson Capital Corporation. During the fourth
quarter of 1997, the Company acquired from CSFB approximately $12.5 million in
finance contracts, which were originated by several third parties. CSFB also
provided acquisition financing for the purchase.
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 servicing and collection. Prior to December 1997, the
Company engaged CSC Logic/MSA L.L.P. (a Texas limited liability partnership
doing business as 'Loan Servicing Enterprise') ('LSE') to provide contract
administration for its warehouse arrangements and securitizations.
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Contract Administration. The Company, as servicer, provides certain
contract administration functions in connection with finance contracts
warehoused or sold to securitization trusts, including payment processing,
statement rendering, insurance tracking, data reporting and customer service for
finance contracts. The Company inputs newly originated finance contracts on the
contract system daily. The servicer 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. The Company also handles account inquiries from borrowers and performs
insurance tracking services. The Company 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.
As of December 31, 1997, the Company employed 191 people full-time,
including 81 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, 1997, there
were 270 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.
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 documentation.
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
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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 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. Certain finance contracts acquired by the Company after December 31,
1996 are covered by either the Interstate VSI Policy, including the Credit
Endorsement, another VSI Policy (which does not include a Credit Endorsement),
or the VSI Policy and deficiency balance endorsement (the 'Progressive Policy')
issued by Progressive Northern Insurance Company ('Progressive').
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. The Company tracks the physical damage insurance of borrowers, and
contacts borrowers in the event of a lapse in coverage or inadequate
documentation. Moreover, 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 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 $50,000 in the case of the Progressive Policy; 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 ($250 for the
Progressive Policy). 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.
Deficiency Balance Endorsements. 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
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(i) the Actual Cash Value of the financed vehicle plus (ii) the total amount
recoverable from all other applicable insurance, including refunds from
cancelable add-on products. The maximum coverage under the Credit Endorsement is
$15,000 per contract.
'Actual Cash Value' for the purposes of the Credit Endorsement only, means
the greater of (i) the price for which the subject financed vehicle is sold or
(ii) the wholesale market value at the time of the loss as determined by an
automobile guide approved by Interstate applicable to the region in which the
financed vehicle is sold.
'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.
The Progressive Policy contains a Deficiency Balance Endorsement (the
'DBE'), pursuant to which Progressive will insure the Company's interest in the
Financed Vehicles against direct loss incurred due to the Company's inability to
recover one hundred percent (100%) of the balance due under an instrument
representing a Finance Contract. Under the DBE, Progressive will cover such
impairment of the Company's interest in the Financed Vehicle, measured as the
Net Payoff Amount, reduced by (a) claim settlements from other insurance
policies, (b) claim settlements due under other coverage provisions of the VSI
Policy or its other endorsements, and (c) monies recoverable under any other
recourse or repurchase agreement or through any dealer hold-back, or any other
source. The maximum liability under the DBE is Five Thousand Dollars ($5,000)
for any financed contract, and claims payments may not exceed, on a monthly
basis, 88% of the premiums paid. See ' -- Recent Developments.'
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 enhance the Company's competitive position. Significant infrastructure
development was completed throughout 1997 to accommodate the servicing functions
which were assumed from LSE. Such development of both personnel and technology
increased expenses in 1997. The Company hopes to realize the benefits of such
investment in 1998 and thereafter.
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, 1997, the Company had no balances outstanding under the
$10 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
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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%.
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 $241,767 for the six months ended June 30, 1997. 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 up to a maximum aggregate
principal amount of $25 million, for the acquisition of finance contracts.
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 borrowings under the Daiwa
Facility are used to acquire finance contracts, and to make deposits to a
reserve account of 10% of the advance. Interest is payable monthly at the 30-day
LIBOR plus 1.15% 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. On June 30, 1997, the Daiwa
Facility was bifurcated to include a special purpose issuer, AutoBond Master
Funding Corporation ('Master Funding') to which finance contracts securing
advances could be sold pursuant to SFAS No. 125. As Master Funding is not a
consolidated subsidiary of the Company, advances outstanding under the Daiwa
Facility that relate to contracts sold to Master Funding are not recognized as
liabilities on the Company's balance sheet.
On December 31, 1997, the Company purchased approximately $12.5 million of
finance contracts from Credit Suisse First Boston Mortgage Capital LLC ('CSFB'),
at a purchase price of 93.5% of the outstanding principal balance of the finance
contracts. The Company financed its purchase through a warehouse securitization
facility with CSFB pursuant to which the finance contracts were transferred to a
bankruptcy remote, special purpose corporation, AutoBond Master Funding
Corporation II. Pursuant to the structure, the Company agreed to maintain
sufficient overcollateralization such that CSFB's investment in the special
purpose corporation is collateralized by assets having a value equal to or
greater than 117% of such investment. Recourse to the Company is limited to 10%
of the original unpaid balance of the finance contracts, and the investment
accrues interest at LIBOR plus 3% per annum. The investment matures at 120 days
and is convertible at CSFB's option into a term securitization.
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 eight securitizations involving approximately $204 million
in aggregate principal amount of finance contracts.
In its securitization transactions through December 31, 1996, the Company
sold pools of finance contracts to a special purpose subsidiary, which then
assigned the finance contracts to a trust in
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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 accounting for its
securitization transactions in 1997, the Company follows 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
Developments.'
Upon each securitization, the Company recognizes the sale of finance
contracts and records a non-cash 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
September 30, 1997, the Company held interest-only strip receivables and Class B
Certificates totalling $18.4 million, a portion of which had been pledged to
secure notes payable of $10.3 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.'
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 entitles
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
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securitized finance contracts for each transaction exceeds the percentage set
forth in the servicing agreements; (vi) a material adverse change in the
consolidated financial condition or operations of the Company, or the occurrence
of any event which materially adversely affects the collectibility of a material
amount of the securitized finance contracts or which materially adversely
affects the ability of the Company to collect a material amount of the finance
contracts or to perform in all material respects its obligations under the
servicing agreements, trust agreements and related documents; or (vii) any of
the rating agencies rating the securitization transactions determines that the
Company's serving as collection agent under the servicing agreement would
prevent such agency from maintaining the required ratings on such transactions,
or would result in such transactions being placed on negative review suspension
or downgrade.
The trust agreements contain amortization events, the occurrence of any of
which may affect the Company's rights to receive payments in respect of the
future excess spread cash flows otherwise payable to it until principal and
interest payments due the holders of all investor certificates are paid in full.
Such amortization events include:
(i) defaults in certain payments or repurchase obligations under the
trust agreements; (ii) unremedied defaults in the performance of any
covenants or terms of the trust agreements by a securitization subsidiary;
(iii) the occurrence of certain bankruptcy or insolvency events of a
securitization subsidiary; (iv) unremedied material breaches of
representations or warranties of a securitization subsidiary; (v)
occurrence of an event of administrator termination; (vi) failure of a
securitization subsidiary to transfer certain required amounts of unpaid
principal balance of finance contracts to each securitization trust or to
retain the resulting shortfall in the collection accounts; (vii) failure of
any transfer under the trust agreements to create, or failure of any
investor certificates to evidence, a valid and perfected first priority
undivided ownership or security interest in the pool of securitized finance
contracts and related collateral; (viii) failure of the Company to own,
directly or indirectly, 100% of the outstanding shares of common stock of
any securitization subsidiary; (ix) entry of unpaid and unstayed judgments
aggregating in excess of $25,000 are entered against any securitization
subsidiary; or (x) occurrence of a 'change in control' with respect to the
Company.
COMPETITION
The 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 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
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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 half 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 a result of the turmoil in the
sub-prime 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
sub-prime auto finance industry will not have an effect on the Company's ability
to raise funds and may result in an increased cost of funding to the Company.
See 'Recent Developments.'
REGULATION
The Company's business is subject to regulation and licensing under various
federal, state and local statues and regulations. As of December 31, 1997, the
Company was licensed to conduct business operations with dealers located in 41
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 regulations. 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
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borrower defaults. Self-help repossession is accomplished by retaking possession
of the vehicle. If a breach of the peace is likely to occur, or if applicable
state law so requires, the Company must obtain a court order from the
appropriate state court and repossess the vehicle in accordance with that order.
None of the states in which the Company presently does business has any law that
would require the Company, in the absence of a probable breach of the peace, to
obtain a court order before it attempts to repossess a vehicle.
In most jurisdictions, the UCC and other state laws require a secured party
to provide an obligor with reasonable notice of the date, time and place of any
public sale or the date after which any private sale of collateral may be held.
Unless the obligor waives his rights after default, the obligor in most
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, 1997, the Company employed 191 persons, none of whom was
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
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
$18,390. 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
does not maintain any regional office facilities, although its securitization
subsidiaries are incorporated and maintain an office in Nevada.
LEGAL PROCEEDINGS
In the normal course of its business, the Company is from time to time made
a party to litigation involving consumer-law claims. These claims typically
allege improprieties on the part of the originating Dealer and name the Company
and/or its assignees as subsequent holders of the finance contracts. To date,
none of these actions have resulted in the payment of damages, or any judgments
therefor, by the Company or its assignees, nor have any actions been certified
as eligible for class-action status.
The Company's carrier for the credit deficiency insurance obtained through
1996, Interstate Fire & Casualty Co. ('Interstate') determined in late 1996 to
no longer offer such coverage to the auto finance industry, including the
Company. In connection with Interstate's attempt to no longer offer credit
deficiency coverage for contracts originated after December 1996, the Company
commenced an action in the United States District Court for the Western District
of Texas, Austin Division, seeking a declaratory judgment that (a) the Company
was entitled to 180 days' prior notice of cancellation and (b) Interstate was
not entitled to raise premiums on finance contracts for which coverage was
obtained prior to the effectiveness of such cancellation, as well as seeking
damages for the Company's alleged deficiencies in paying claims. Prior to
receiving the Company's complaint in the Texas action, Interstate commenced a
similar action for declaratory relief in the United States Court for the
Northern District of Illinois. While settlement discussions are ongoing,
AutoBond and the Company have to date acted on the basis of a cancellation date
of May 12, 1997 (i.e., no finance contracts presented after that date will be
eligible for credit deficiency coverage by Interstate, although all existing
contracts for which coverage was obtained will continue to have the benefits of
such coverage), no additional premiums having been demanded or paid, and the
claims-paying process having been streamlined. In particular, in order to speed
the claims-paying process, Interstate has paid lump sums to the Company as an
estimate of claims payable prior to completion of processing. Pending the
Company's determination of the appropriate destination for such claims payments,
the Company will deposit such funds into a segregated account.
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As set forth in the discussion of finance contracts held for sale in Note 3
to the Notes to the Company's audited financial statements, in February 1997 the
Company discovered certain breaches of representations and warranties by certain
dealers with respect to finance contracts sold into a securitization. The
Company honored its obligations to the securitization trust and repurchased
finance contracts totaling $619,520 from a trust during the three months ended
March 31, 1997. Of the total amount of these finance contracts, $190,320 were
purchased from one dealer. Although the Company has requested that this dealer
repurchase such contracts, the dealer has refused. After such dealer's refusal
to repurchase, the Company commenced an action in the 157th Judicial District
Court for Harris County, Texas against Charlie Thomas Ford, Inc. to compel such
repurchase. Discovery is proceeding but no trial date has been set.
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SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries for the periods and at the date indicated. The
selected income statement and balance sheet data for the period from August 1,
1994 (inception) to December 31, 1994, and the years ended December 31, 1995 and
1996, and as of December 31, 1994, 1995 and 1996 presented below were derived
from the financial statements of the Company which were audited by Coopers &
Lybrand L.L.P. independent accountants, as indicated in their report thereon
appearing elsewhere in this Prospectus, and are qualified by reference to such
consolidated financial statements. The financial data as of and for the nine
months ended September 30, 1996 and September 30, 1997 have been derived from
the Company's unaudited interim financial statements, prepared in conformity
with generally accepted accounting principles, and include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. The operating data and selected
portfolio data are derived from the Company's accounting records. Results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of results to be expected for the fiscal year ending December 31,
1997. The data presented below should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
PERIOD FROM AUGUST YEAR ENDED NINE MONTHS ENDED
1, 1994 (INCEPTION) DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ----------------------- -----------------------
1994(2) 1995 1996 1996 1997
-------------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income............................. $ 19 $ 781 $ 137 $ 263 $ 177
Servicing fee income............................ 0 0 658 475 660
Gain on sale of finance contracts............... 0 4,086 12,820 9,423 13,533
Other income (loss)............................. 0 0 388 -- (530)
------- --------- --------- --------- ---------
Total revenues............................. 19 4,867 14,003 10,161 13,840
------- --------- --------- --------- ---------
Provision for credit losses..................... 45 49 412 113 125
Salaries and benefits........................... 226 1,320 4,529 3,082 5,413
General and administrative...................... 245 1,463 2,331 1,318 4,482
Other operating expenses........................ 48 963 1,120 842 1,266
------- --------- --------- --------- ---------
Total expenses............................. 564 3,795 8,392 5,355 11,286
------- --------- --------- --------- ---------
Income before taxes and extraordinary item...... (545) 1,072 5,611 4,806 2,554
Provision for income taxes...................... 0 199 1,926 1,634 896
Extraordinary loss net of tax effect............ -- -- (100) (100) --
------- --------- --------- --------- ---------
Net income...................................... $ (545) $ 873 $ 3,585 $ 3,072 $ 1,658
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Earnings per share before extraordinary item.... $(0.11) $ 0.17 $ 0.64 $ 0.56 $ 0.25
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Earnings per share.............................. $(0.11) $ 0.17 $ 0.62 $ 0.54 $ 0.25
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Weighted average shares outstanding............. 5,118,753 5,190,159 5,811,377 5,701,086 6,537,129
CASH FLOW DATA:
Cash used in operating activities..... (2,514) (5,458) (4,169) (2,171) (6,301)
Cash used in investing activities..... (16) (442) (1,140) (1,425) (2,136)
Cash provided by financing activities. 2,530 5,992 9,337 3,839 4,490
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a percentage
of principal balance of finance contract
portfolio serviced (end of period)(1)....... 0.30% 2.30% 3.01% 2.73% 4.75%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 0 $ 93 $ 4,121 $ 173
Restricted funds............................................................ 0 1,683 2,982 6,165
Finance contracts held for sale, net........................................ 2,361 3,355 228 1,000
Interest-only strip receivable.............................................. 0 847 4,247 9,979
Total assets........................................................... 2,500 11,065 26,277 37,386
Notes payable............................................................... 0 2,675 10,175 10,280
Repurchase agreement........................................................ 0 1,061 0 0
Revolving credit agreement.................................................. 2,055 1,150 0 4,240
Subordinated debt........................................................... 0 0 0 0
Total debt............................................................. 2,055 4,886 10,175 14,520
Shareholders' equity........................................................ (109) 3,026 12,286 15,535
</TABLE>
- ------------
(1) Includes the Company's entire finance contract portfolio of contracts held
and contracts securitized. Excludes finance contracts where underlying
vehicle is repossessed (but subject to redemption), the borrower is in
bankruptcy, the dealer is to buy back the loan, or insurance claims
have been filed and are pending.
(2) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
34
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding 'Selected
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 Prospectus.
The Company is a specialty consumer finance company engaged in
underwriting, acquiring, servicing and securitizing retail installment contracts
('finance contracts') originated by franchised automobile dealers in connection
with the sale of used and, to a lesser extent, new vehicles to selected
consumers with limited access to traditional sources of credit ('sub-prime
consumers'). Sub-prime consumers generally are borrowers unable to qualify for
traditional financing due to one or more of the following reasons: negative
credit history (which may include late payments, charge-offs, bankruptcies,
repossessions or unpaid judgments); insufficient credit; employment or residence
histories; or high debt-to-income or payment-to-income ratios (which may
indicate payment or economic risk).
The Company acquires finance contracts generally from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company also acquires finance contracts from
third parties other than dealers, for which the Company reunderwrites and
collects such finance contracts in accordance with the Company's standard
guidelines. The Company securitizes portfolios of these retail automobile
installment contracts to efficiently utilize limited capital to allow continued
growth and to achieve sufficient finance contract volume to allow profitability.
The Company markets a single finance contract acquisition program to automobile
dealers which adheres to consistent underwriting guidelines involving the
purchase of primarily late-model used vehicles. The Company has experienced
significant growth in its finance contract portfolio since it commenced
operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components:
interest income, gain on sale of finance contracts and servicing fee income.
Interest Income. Interest income consists of the sum of three primary
components: (i) interest income earned on finance contracts held for sale by the
Company and (ii) interest income earned on Class B certificates. Other factors
influencing interest income during a given fiscal period include (a) the annual
percentage rate of the finance contracts acquired, (b) the aggregate principal
balance of finance contracts acquired and funded through the Company's warehouse
and other credit facilities prior to securitization, and (c) the length of time
such contracts are funded by the warehouse and other credit facilities. Finance
contract acquisition growth has had a significant impact on the amount of
interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization
prior to 1997, the Company recognized a gain on sale of finance contracts equal
to the present value of future excess spread cash flows from the securitization
trust, and the difference between the net proceeds from the securitization and
the net carrying cost (including the cost of insurance premiums, if any) to the
Company of the finance contracts sold. Excess spread cash flows represent the
difference between the weighted average contract rate earned and the rate paid
on multiple class certificates issued to investors in the securitization, taking
into account certain assumptions regarding prepayments, defaults, proceeds from
disposal of repossessed assets, and servicing and other costs, over the life of
the securitization.
The Company implemented Statement of Financial Accounting Standards No. 125
'Transfer and Servicing of Financial Assets and Extinguishment of Liabilities'
(SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement also provides consistent standards
for
35
<PAGE>
<PAGE>
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings and requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value. For transfers that result in the recognition of a sale,
SFAS No. 125 requires that the newly created assets obtained and liabilities
incurred by the transferors as a part of a transfer of financial assets be
initially measured at fair value. Interests in the assets that are retained are
measured by allocating the previous carrying amount of the assets (e.g. finance
contracts) between the interests sold (e.g. investor certificates) and interests
retained (e.g. interest-only strip receivable) based on their relative fair
values at the date of the transfer. The amounts initially assigned to these
financial components is a determinant of the gain or loss from a securitization
transaction under SFAS No. 125.
The discounted excess spread cash flows are reported on the consolidated
balance sheet as 'Interest-Only Strip Receivable'. The fair value of the
interest-only strip receivable is determined by discounting the excess spread
cash flows at a rate based on assumptions that market participants would use for
similar financial instruments subject to prepayment, default, collateral value
and interest rate risks. The subordinated certificates are then formed by
carving out a portion of the discounted excess spread cash flows. The remainder
of the discounted excess spread cash flows represent the interest-only strip
receivable. All of the excess spread cash flows are paid by
the securitization trustee to the investor security holders until such time as
all accrued interest together with principal have been paid in full.
Subsequently, all remaining excess spread cash flows are paid to the Company.
An impairment review of the interest-only strip receivable is performed
quarterly by calculating the net present value of the expected future excess
spread cash flows after giving effect to changes in assumptions due to market
and economic changes and the performance of the loan pool to date. The discount
rate used is the same as that used to record the initial interest-only strip
receivable. Impairment is determined on a disaggregated basis consistent with
the risk characteristics of the underlying finance contracts, consisting
principally of origination date and originating dealership, as well as the
performance of the pool to date. To the extent that the Company deems the asset
to be permanently impaired, the Company would record a charge against earnings
and write down the asset accordingly. The Company recorded an adjustment to
other income (loss) of $467,926 during the nine months ended September 30, 1997
as a result of the impairment review. Should the Company be unable to sell
finance contracts acquired during a financial reporting period, the Company
would likely incur a significant decline in total revenues and net income or
report a loss for such period.
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 103% of the value of the senior investor securities. This
portion of recognized gain on sale varies based on the Company's cost of
insurance covering the finance contracts and the discount obtained upon
acquisition of the finance contracts. Generally, the Company has acquired
finance contracts from dealers at a greater discount than with finance contracts
acquired from third parties. Additionally, costs of sale reduce the total gain
recognized. As the Company's securitization program matures, placement fees and
other costs associated with the sale are expected to shrink as a percentage of
the size of the securitization.
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the senior investor
securities and the age of the finance contracts in the pool, as the excess
spread cash flow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts from dealers at approximately an 8.5% discount.
The gain on sale of finance contracts is affected by the aggregate
principal balance of contracts securitized and the gross interest spread on
those contracts. The following table illustrates the gross interest spread for
each of the Company's securitizations (dollars in thousands):
36
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
REMAINING AVERAGE
BALANCE AT CONTRACT CERTIFICATE GROSS
SECURITIZATION BALANCE(1) SEPTEMBER 30, 1997 RATE RATE RATINGS(2) SPREAD(3)
- ------------------------------------------ ---------- ------------------ -------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables Trust 1995-A......... $ 26,261 $ 13,577 18.9% 7.23% A/A3 11.7%
AutoBond Receivables Trust 1996-A......... 16,563 10,438 19.7% 7.15% A/A3 12.5%
AutoBond Receivables Trust 1996-B......... 17,833 12,001 19.7% 7.73% A/A3 12.0%
AutoBond Receivables Trust 1996-C......... 22,297 18,248 19.7% 7.45% A/A3 12.3%
AutoBond Receivables Trust 1996-D......... 25,000 21,862 19.5% 7.37% A/A3 12.1%
AutoBond Receivables Trust 1997-A(4)...... 27,196 23,951 20.8% 7.82% A/A2 13.0%
BBB/BB
AutoBond Receivables Trust 1997-B(6)...... 34,725 33,937 19.9% 7.66% A/A3 12.3%
AutoBond Receivables Trust 1997-C(5)(6)... 34,430 34,430 20.0% 7.56% A/A3 12.5%
---------- -------------
Total................................ $204,305 $168,444
---------- -------------
---------- -------------
</TABLE>
- ------------
(1) Refers only to balances on senior investor certificates.
(2) Indicates ratings by Fitch Investors Service, L.P. ('Fitch') and Moody's
Investors Service, Inc. ('Moody's'), respectively.
(3) Difference between weighted average contract rate and senior certificate
rate.
(4) Includes Class A and Class B Notes.
(5) Transaction closed subsequent to September 30, 1997.
(6) See 'Prospectus Summary -- Recent Developments' for a discussion of recent
actions taken by Fitch and Moody's.
------------------------
On June 30, 1997, a new warehouse and securitization structure was formed
whereupon finance contracts were transferred to a special purpose entity. The
special purpose entity issued variable funding warehouse notes which are
convertible into term notes at the option of the holder of such notes. The
transfer of the finance contracts to the special purpose entity was recognized
as a sale under SFAS No. 125.
Servicing Fee Income. The Company earns substantially all of its servicing
fee income on the contracts it services on behalf of securitization trusts.
Servicing fee income consists of: (i) contractual administrative fees received
through securitizations, equal to $7.00 per month per contract included in each
trust (excluding amounts paid to third-party servicers by the trust); (ii) the
accretion of the discount applied to excess spread cash flows in calculating the
carrying value of the interest-only strip receivable; and (iii) fee income
earned as servicer for such items as late charges and documentation fees, which
are earned whether or not a securitization has occurred. During 1997, the
Company assumed all loan servicing responsibilities in respect of warehousing
and the securitization trusts, resulting in an increase in gross contractual
servicing fees from $7 to $15 per month per contract.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity (dollars in thousands):
37
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Number of finance contracts acquired......................................... 4,979 9,091
Principal balance of finance contracts acquired......................... $57,730 $103,249
Number of active dealerships(1)......................................... 322 839
Number of enrolled dealerships(2)....................................... 603 1,383
</TABLE>
- ------------
(1) Dealers who have sold at least one finance contract to the Company during
the period.
(2) Total number of dealerships which were enrolled as of the end of the period.
RESULTS OF OPERATIONS
Period-to-period comparisons of operating results may not be meaningful,
and results of operations from prior periods may not be indicative of future
results. The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
NET INCOME
In the three months ended September 30, 1997, net income decreased $771,568
to $511,814 from $1,283,382 for the three months ended September 30, 1996. The
decrease in net income was attributable to the expense factors discussed below.
The Company does not expect any material benefits from the increase in personnel
and infrastructure investments to be realized until 1998 at the earliest, due to
the time required to integrate such personnel into its operations, and realize
the benefits of increased capacity.
TOTAL REVENUES
Total revenues increased $1,892,983 to $6,370,219 for the three months
ended September 30, 1997 from $4,477,236 for the three months ended September
30, 1996 due to expansion of the Company's finance contract acquisition and
securitization activities.
Interest Income. Interest income increased $713,112 to $1,313,670 for the
three months ended September 30, 1997 from $600,558 for the three months ended
September 30, 1996 due the growth and timing of finance contract acquisitions.
The Company acquired finance contracts totaling $34.0 million during the three
months ended September 30, 1997 compared to $23.8 million in the comparable 1996
period. Accretion on the interest-only strip receivables increased $176,412 from
the respective 1996 period to $236,483 during the three months ended September
30, 1997.
Gain on Sale of Finance Contracts. The Company recognized gain on sale
totaling $4,840,621 on finance contracts carried at $31.0 million (15.5%) during
the three months ended September 30, 1997. Gain on sale amounted to $3,679,081
on finance contracts carried at $23.2 million (15.9%) in the comparable 1996
period. Accordingly, gain on sale of finance contracts rose $1,161,540 during
the three months ended September 30, 1997 over the comparable 1996 period.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the three months ended
September 30, 1997, servicing fee income was $225,389, primarily collection
agent fees. Servicing fee income increased by $27,792 from the three months
ended September 30, 1996 as a result of increased securitization activity by the
Company. The ratio of servicing fee income to the average principal balance of
finance contracts outstanding declined from 1.1% at September 30, 1996 to .5% at
September 30, 1997 on an annualized basis as the Company waived $55,843 in
servicing fees during the latter period. The Company waived these servicing fees
to enhance the liquidity of specific outstanding securitization trusts during
the third quarter of 1997, increasing the rate of repayment of non-recourse
notes. The result of such waiver is the deferral and subordination of
the Company's ultimate receipt of such waived fees.
38
<PAGE>
<PAGE>
Other Income (Loss). For three months ended September 30, 1997, other loss
amounted to $9,461, compared with $0 for the comparable 1996 period. Other loss
included unrealized loss on the Company's Class B certificates totaling $27,463
recorded during the three months ended September 30, 1997.
TOTAL EXPENSES
Total expenses of the Company increased $2,993,727 to $5,573,445 for the
three months ended September 30, 1997 from $2,579,718 for the three months ended
September 30, 1996. The ratio of total expenses to the average principal balance
of finance contracts outstanding declined from 14.9% for the three months ended
September 30, 1996 to 13.5% for the three months ended September 30, 1997 on an
annualized basis. As of December 1, 1997 the Company completed the transfer of
certain servicing functions from LSE to in-house personnel and equipment. The
Company incurred significant expenses in the hiring and training of personnel as
well as the acquisition and leasing of equipment to facilitate the servicing
transfer during the three months ended September 30, 1997.
Provision for Credit Losses. Provision for credit losses on finance
contracts rose to $125,000 for the three months ended September 30, 1997
compared to $49,750 for the three months ended September 30, 1996. The Company
charged off loans totaling $105,173 to the allowance for credit losses during
the three months ended September 30, 1997.
Interest Expense. Interest expense rose to $1,102,195 for the three months
ended September 30, 1997 from $669,815 for the three months ended September 30,
1996. Interest expense increased by $432,380 due to higher net borrowing costs
associated with the revolving credit facilities, along with increased debt
issuance costs amortization of $96,800.
Salaries and Benefits. Salaries and benefits increased $904,058 to
$2,140,420 for the three months ended September 30, 1997 from $1,236,352 for the
three months ended September 30, 1996. This increase was due primarily to an
increase in the number of the Company's employees necessary to handle the
increased contract acquisition volume and the collection activities on a growing
portfolio of finance contracts. The number of employees of the Company increased
by 97 to 198 employees at September 30, 1997, compared to 101 employees at
September 30, 1996. Due to weakened competitors, the Company more aggressively
added professionals as they became available in the three months ended September
30, 1997 and this added to the growth in salary and benefit expenses.
General and Administrative Expenses. General and administrative expenses
increased $1,289,526 to $1,722,689 for the three months ended September 30, 1997
from $433,163 for the three months ended September 30, 1996. This increase was
due primarily to growth in the Company's operations. General and administrative
expenses consist principally of office, furniture and equipment leases,
professional fees, non-employee marketing commissions, communications and office
supplies, and are expected to increase as the Company continues to grow and also
due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting principally
of servicer fees, credit bureau reports and insurance) increased $292,503 to
$483,141 for the three months ended September 30, 1997 from $190,638 for the
three months ended September 30, 1996. This increase was due to increased
finance contract acquisition volume.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
NET INCOME
In the nine months ended September 30, 1997, net income decreased
$1,414,436 to $1,657,711 from $3,072,147 for the nine months ended September 30,
1996. The decrease in net income was primarily attributable to an increase in
infrastructure costs to support higher finance contract acquisition and
servicing volume, as more fully discussed under 'Total Expenses' below. The
principal balance of finance contracts acquired increased $45.5 million to
$103.3 million for the nine months ended September 30, 1997 from $57.7 million
for the nine months ended September 30, 1996. Due to weakened competitors, the
Company more aggressively added qualified personnel as they became
39
<PAGE>
<PAGE>
available in the nine months ended September 30, 1997, and this added to the
growth in salary and benefit expenses.
TOTAL REVENUES
Total revenues increased $4,800,928 to $16,769,709 for the nine months
ended September 30, 1997 from $11,968,781 for the nine months ended September
30, 1996 due to expansion of the Company's finance contract acquisition and
securitization activities.
Interest Income. Interest income increased $1,036,493 to $3,107,402 for the
nine months ended September 30, 1997 from $2,070,909 for the nine months ended
September 30, 1996 due the growth and timing of finance contract acquisitions.
The Company acquired finance contracts totaling $103.3 million during the nine
months ended September 30, 1997 compared to $57.7 million in the comparable 1996
period. Accretion on the interest-only strip receivables increased $225,285 from
the respective 1996 period to $339,266 during the nine months ended September
30, 1997.
Gain on Sale of Finance Contracts. The Company realized gain on sale
totaling $13,532,765 on finance contracts carried at $96.7 million (14.0%)
during the nine months ended September 30, 1997. Gain on sale amounted to
$9,423,067 on finance contracts carried at $59.0 million (16.0%) in the
comparable 1996 period. Accordingly, gain on sale of finance contracts rose
$4,109,698 during the nine months ended September 30, 1997 over the comparable
1996 period.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the nine months ended
September 30, 1997, servicing fee income was $659,791, primarily collection
agent fees. Servicing fee income increased by $184,986 from the nine months
ended September 30, 1996 as a result of increased securitization activity by the
Company. The ratio of servicing fee income to the average principal balance of
finance contracts outstanding declined from .9% at September 30, 1996 to .5% at
September 30, 1997 on an annualized basis, as the Company waived $55,843 in
servicing fees during the later period. The Company waived these servicing fees
to enhance the liquidity of specific outstanding securitization trusts during
the third quarter of 1997, increasing the rate of repayment of non-recourse
notes. The result of such waiver is the deferral and Subordination of the
Company's ultimate receipt of such waived fees.
Other Income (Loss). For nine months ended September 30, 1997, other loss
amounted to $530,249, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of $467,926
during nine months ended September 30, 1997. Additionally, unrealized loss on
the Company's Class B certificates totaled $80,325 during the nine months ended
September 30, 1997.
TOTAL EXPENSES
Total expenses of the Company increased $7,053,815 to $14,216,313 for the
nine months ended September 30, 1997 from $7,162,498 for the nine months ended
September 30, 1996. The ratio of total expenses to the average principal balance
of finance contracts outstanding declined from 17.6% for the nine months ended
September 30, 1996 to 13.4% for the nine months ended September 30, 1997 on an
annualized basis.
Provision for Credit Losses. Provision for credit losses on finance
contracts increased $11,766 to $125,000 for the nine months ended September 30,
1997 from $113,234 for the nine months ended September 30, 1996.
Interest Expense. Interest expense rose to $2,930,592 for the nine months
ended September 30, 1997 from $1,807,335 for the nine months ended September 30,
1996. Interest expense increased by $1,123,257 due to higher borrowing volumes
outstanding under the revolving credit facilities, along with increased debt
issuance costs amortization of $391,962.
Salaries and Benefits. Salaries and benefits increased $2,330,646 to
$5,413,045 for the nine months ended September 30, 1997 from $3,082,399 for the
nine months ended September 30, 1996. This increase was due primarily to an
increase in the number of the Company's employees necessary to handle the
increased contract acquisition volume and the collection activities on a growing
portfolio of finance contracts. As of December 1, 1997 the Company completed the
transfer of certain servicing functions
40
<PAGE>
<PAGE>
from LSE to in-house personnel and equipment. The Company incurred significant
expenses in the hiring and training of personnel as well as the acquisition and
leasing of equipment to facilitate the servicing transfer during the nine
months ended September 30, 1997.
General and Administrative Expenses. General and administrative expenses
increased $3,164,335 to $4,481,846 for the nine months ended September 30, 1997
from $1,317,511 for the nine months ended September 30, 1996. This increase was
due primarily to growth in the Company's operations. General and administrative
expenses consist principally of office, furniture and equipment leases,
professional fees, non-employee marketing commissions, communications and office
supplies, and are expected to increase as the Company continues to grow and also
due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting principally
of servicer fees, credit bureau reports and insurance) increased $423,811 to
$1,265,830 for the nine months ended September 30, 1997 from $842,019 for the
nine months ended September 30, 1996. This increase was due to increased finance
contract acquisition volume.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
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
1995-A securitization. The increase in net income was primarily attributable to
an increase in the number of finance contracts securitized during 1996: $81.6
million, compared to $26.2 million in 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
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 $81.6 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 $26.2 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 $402,017 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 percentage balance of finance contracts acquired in the period decreased
slightly to 10.1% during the year ended December 31, 1996 from 12.2% for the
year ended December 31, 1995, reflecting improved efficiency in the Company's
operations.
41
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<PAGE>
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 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.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO PERIOD FROM AUGUST 1, 1994
(INCEPTION) THROUGH DECEMBER 31, 1994
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.
TOTAL REVENUES
Total revenues increased to $4.9 million for the fiscal year ended December
31, 1995 from $19,001 for the period from inception through December 31, 1994.
Although the Company was incorporated in June 1993, it did not commence
operations until August 1994; thus the period from inception through December
31, 1994 reflects only five months of start-up operations.
Net Interest Income. Net interest income increased $762,093 to $781,094 for
the fiscal year ended December 31, 1995 from $19,001 for the period from
inception through December 31, 1994. The increase in net interest income was
primarily due to an increase in average balance of finance contracts held for
sale. The average daily balance of outstanding finance contracts increased $13.8
million to $14.7 million for the fiscal year ended December 31, 1995 from
$855,640 for the period from inception through December 31, 1994. The average
APR of finance contracts outstanding was 19.3% at December 31, 1995 as compared
to 19.1% at December 31, 1994.
Gain on Sale of Finance Contracts. In the fiscal year ended December 31,
1995, the gain on sale of finance contracts was $4.1 million, or 83.9% of total
revenues, from the securitization of approximately $26.2 million in finance
contracts and the sale of finance contracts to a third party. For the period
from inception through December 31, 1994, there were no securitization.
Servicing Fee Income. The Company completed its first securitization
transaction on December 29, 1995; therefore prior to 1996 there was no servicing
fee income collected by the Company.
TOTAL EXPENSES
Total expenses of the Company increased $3.2 million to $3.8 million for
the fiscal year ended December 31, 1995 from $563,606 for the five-month period
ended December 31, 1994. Although operating expenses increased during the year
ended December 31, 1995, the Company's finance contract portfolio grew at a
faster rate than the rate of increase in operating expenses. As a result, total
expenses
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<PAGE>
as a percentage of total principal balance of finance contracts acquired in
period decreased to 12.2% in the year ended December 31, 1995 from 23.0% in the
five months ended December 31, 1994.
Provision for Credit Losses. Provision for credit losses increased $3,702
to $48,702 for the fiscal year ended December 31, 1995, from $45,000 for the
period from inception through December 31, 1994. This increase was due primarily
to increased acquisition volume and does not reflect any change in expected
defaults as a percentage of finance contracts purchased.
Salaries and Benefits. Salaries and benefits increased $1.1 million to $1.3
million for the fiscal year ended December 31, 1995 from $225,351 for the
five-month period ended December 31, 1994. This increase was due primarily to an
increase in the number of the Company's employees.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million to $1.5 million for the fiscal year ended December 31,
1995 from $244,974 for the five-month period ended December 31, 1994. This
increase was due primarily to growth in the Company's operations.
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.
FINANCIAL CONDITION
Restricted Cash. Restricted cash increased $3.2 million to $6.2 million at
September 30, 1997 from $3.0 million at December 31, 1996. In accordance with
the Company's revolving credit facilities, proceeds advanced by the lender for
purchase of finance contracts are held by a trustee until the Company delivers
qualifying collateral to release the funds, normally in a matter of days. The
trustee held $6.1 million of funds advanced for the purchase of finance
contracts at September 30, 1997. The Company is also 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.
Finance Contracts Held for Sale, Net. Finance contracts held for sale, net
of allowance for credit losses, increased $771,109 to $1.0 million at September
30, 1997, from $228,429 at December 31, 1996. The number and principal balance
of contracts held for sale are largely dependent upon the timing and size of the
Company's securitizations. The Company plans to securitize finance contracts on
a regular basis.
Interest-Only Strip Receivable. The following table provides historical
data regarding the interest-only strip receivable:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Beginning balance.................................................... $ 4,247,274
Unrealized appreciation.............................................. 1,918,138
Additions............................................................ 3,942,033
Accretion............................................................ 339,266
Impairment charge.................................................... (467,926)
-------------
Ending balance....................................................... $ 9,978,785
-------------
-------------
</TABLE>
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior investor securities.
Additionally, depending on the structure of the securitization, a portion of the
43
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<PAGE>
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 Company's securitizations follow:
<TABLE>
<CAPTION>
SENIOR INVESTOR INITIAL
CERTIFICATE RESERVE
SECURITIZATION AMOUNT(1) DEPOSIT PERCENT
- ------------------------------------------------------------------ --------------- -------- -------
<S> <C> <C> <C>
AutoBond Receivables Trust 1995-A................................. $26,261,009 $525,220 2.0%
AutoBond Receivables Trust 1996-A................................. 16,563,366 331,267 2.0%
AutoBond Receivables Trust 1996-B................................. 17,833,885 356,658 2.0%
AutoBond Receivables Trust 1996-C................................. 22,297,719 445,934 2.0%
AutoBond Receivables Trust 1996-D................................. 25,000,000 500,000 2.0%
AutoBond Receivables Trust 1997-A(2).............................. 28,037,167 560,743 2.0%
AutoBond Receivables Trust 1997-B................................. 34,725,196 868,130 2.5%
AutoBond Receivables Trust 1997-C(3).............................. 34,430,079 860,752 2.5%
</TABLE>
- ------------
(1) Refers only to balances on senior investor certificates upon issuance.
(2) Includes Class A, Class B and Class C-1 Notes.
(3) Transaction closed subsequent to September 30, 1997.
------------------------
A portion of excess spread cash flows will increase such reserves until
they reach a target reserve level (initially 6%) of the outstanding balance of
the senior investor certificates.
Prepaid Expenses and Other Assets. Prepaid expenses and other assets
increased $4.9 million to $5.6 million at September 30, 1997 from $683,955 at
December 31, 1996. The Company carried $5.7 million in other assets as of
September 30, 1997 related to the Company's retained interest in amounts
transferred to a special purpose subsidiary which issued variable rate funding
notes. Subsequent to September 30, 1997, Daiwa exercised its option to surrender
its variable rate funding notes for term notes in connection with the AutoBond
Receivables Trust 1997-C securitization.
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the Company's
finance contract portfolio:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Principal balance of finance contracts outstanding...... $104,889,000 $176,120,091
Delinquent finance contracts(1):
60-89 days past due................................ 1,826,800 1.74% 5,700,863 3.24%
90 days past due and over.......................... 1,328,300 1.27% 2,666,668 1.51%
------------ ---- ------------ ----
Total......................................... $ 3,155,100 3.01% $ 8,367,531 4.75%
------------ ---- ------------ ----
------------ ---- ------------ ----
</TABLE>
- ------------
(1) Percentage based upon outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed (but subject to redemption), the
borrower is in bankruptcy, a dealer buy back is expected or where insurance
claims are filed and pending.
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for contracts held for sale.
The Company reports a provision for credit losses on finance contracts held for
sale. Management evaluates the reasonableness of the assumptions employed by
reviewing credit loss experience, delinquencies, repossession trends, the size
of the finance contract portfolio and general economic conditions and trends. If
necessary, assumptions will be changed in the future to reflect historical
experience to the extent it deviates
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<PAGE>
materially from that which was assumed. Since inception, the Company's
assumptions have been consistent and are adequate based upon actual experience.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency, the Company's Collections Department will initiate the repossession
of the financed vehicle. Bonded, insured outside repossession agencies are used
to secure involuntary repossessions. In most jurisdictions, notice to the
borrower of the Company's intention to sell the repossessed vehicle is required,
whereupon the borrower may exercise certain rights to cure his or her default
and redeem the automobile. Following the expiration of the legally required
notice period, the repossessed vehicle is sold at a wholesale auto auction (or
in limited circumstances, through dealers), usually within 60 days of the
repossession. The Company closely monitors the condition of vehicles set for
auction, and procures an appraisal under the relevant VSI policy prior to sale.
Liquidation proceeds are applied to the borrower's outstanding obligation under
the finance contract and insurance claims under the VSI policy and, if
applicable, the deficiency balance policy are then filed.
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 1997 versus 1996 delinquency percentages. The
portfolio is tangibly more seasoned as of December 31, 1997 versus December 31,
1996. Accordingly, delinquency and charge-off rates in the portfolio may not
fully reflect the rates that may apply when the average holding period for
finance contracts in the portfolio is longer. Increases in the delinquency
and/or charge-off rates in the portfolio would adversely affect the Company's
ability to obtain credit or securitize its receivables.
REPOSSESSION EXPERIENCE -- STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage losses on the basis of a percentage of the
Company's finance contract portfolio, because percentages can be favorably
affected by large balances of recently acquired finance contracts. Management
monitors actual dollar levels of delinquencies and charge-offs and analyzes the
data on a 'static pool' basis.
The following table provides static pool repossession frequency analysis in
dollars of the Company's portfolio performance from inception through September
30, 1997. In this table, all finance contracts have been segregated by quarter
of acquisition. All repossessions have been segregated by the quarter in which
the repossessed contract was originally acquired by the Company. Cumulative
repossessions equals the ratio of repossessions as a percentage of finance
contracts acquired for each segregated quarter. Annualized repossessions equals
an annual equivalent of the cumulative repossession ratio for each segregated
quarter. This table provides information regarding the Company's repossession
experience over time. For example, recently acquired finance contracts
demonstrate very few repossessions because properly underwritten finance
contracts to subprime consumers generally do not default during the initial term
of the contract. Between approximately one year and 18 months of seasoning,
frequency of repossessions on an annualized basis appear to reach a plateau.
Based on industry statistics and the performance experience of the Company's
finance contract portfolio, the Company believes that finance contracts seasoned
in excess of approximately 18 months will start to demonstrate declining
repossession frequency. The Company believes this may be due to the fact that
the borrower perceives that he or she has equity in the vehicle. The Company
also believes that since the loans generally amortize more quickly than the
collateral depreciates, losses and/or repossessions will decline over time.
45
<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
- ------------------------------------------- -------------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
1994
Q3.................................... $ 21,930 23.54% 7.24% $ 93,170
Q4.................................... 557,839 23.52% 7.84% 2,371,600
1995
Q1.................................... 1,412,092 22.38% 8.14% 6,310,420
Q2.................................... 1,357,521 22.05% 8.82% 6,157,440
Q3.................................... 1,454,691 20.19% 8.97% 7,205,900
Q4.................................... 2,658,117 21.81% 10.90% 12,188,860
1996
Q1.................................... 2,990,647 19.34% 11.05% 15,459,930
Q2.................................... 3,420,207 18.53% 12.35% 18,458,820
Q3.................................... 3,143,095 13.24% 10.59% 23,735,100
Q4.................................... 2,496,556 9.68% 9.68% 25,802,890
1997
Q1.................................... 2,239,219 6.58% 8.78% 34,014,880
Q2.................................... 313,943 0.89% 1.78% 35,273,260
Q3.................................... 34,939 0.10% .41% 33,960,049
</TABLE>
- ------------
(1) For each quarter, cumulative repossession frequency equals the number of
repossessions divided by the number of contracts acquired.
(2) Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, principal balance of $557,839
in repossessions divided by principal balance of $2,371,600 in contracts
acquired, divided by 12 quarters outstanding times four equals an annual
repossession frequency of 7.84%).
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent to
complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. As less of
the Company's finance contracts are acquired with credit deficiency insurance,
the Company expects its net loss per repossession to increase. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
FROM AUGUST 1, 1994
(INCEPTION) TO
SEPTEMBER 30, 1997
-----------------------
<S> <C>
Number of finance contracts acquired.................................................... 19,167
Number of vehicles repossessed.......................................................... 1,949
Repossessed units disposed of........................................................... 797
Repossessed units awaiting disposition(2)............................................... 1,152
Cumulative gross charge-offs(1)......................................................... $ 8,672,289
Costs of repossession(1)................................................................ 228,820
Proceeds from auction, physical damage insurance and refunds(1)......................... (5,246,388)
-----------------------
Net loss................................................................................ 3,654,721
Deficiency insurance settlement received(1)............................................. (2,082,812)
-----------------------
Net charge-offs(1)...................................................................... $ 1,571,909
-----------------------
-----------------------
Net charge-offs per unit disposed....................................................... 1,972
Recoveries as a percentage of cumulative gross charge-offs(3)........................... 84.51%
</TABLE>
(footnotes on next page)
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<PAGE>
(footnotes from previous page)
(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 September 30, 1997.
(2) The vehicles may have been sold at auction; however the Company might not
have received all insurance proceeds as of September 30, 1997.
(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) funds provided from borrowers' payments received under finance
contracts held for sale; (ii) borrowings under various warehouse and working
capital facilities; (iii) proceeds from securitization transactions; (iv) cash
flows from servicing fees; (v) proceeds from the issuances of convertible and
subordinated debt and capital contributions of principal shareholders and (vi)
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. Net
cash used in operating activities totaled $6.3 million during the nine months
ended September 30, 1997. The Company used $5.1 million to fund an increase in
other assets during the period, including $5.7 million received upon closing of
the AutoBond Master Funding Corporation 1997-C securitization subsequent to
September 30, 1997. The Company used $99.2 million to purchase finance contracts
and $96.7 million was received from sales of finance contracts, primarily
through securitizations during the nine months ended September 30, 1997.
Significant activities comprising cash flows from investing activities include
net advances to AutoBond Receivables Trusts of $2.5 million for the nine months
ended September 30, 1997. Cash flows from financing activities include net
borrowings under revolving credit facilities of $4.2 million for the nine
months ended September 30, 1997.
Revolving Credit Facilities. The Company obtains a substantial portion of
its working capital for the acquisition of finance contracts through revolving
credit facilities. Under a warehouse facility, the lender generally advances
amounts requested by the borrower on a periodic basis, up to an aggregate
maximum credit limit for the facility, for the acquisition and servicing of
finance contracts or other similar assets. Until proceeds from a securitization
transaction are used to pay down outstanding advances, as principal payments are
received on the finance contracts, the principal amount of the advances may be
paid down incrementally or reinvested in additional finance contracts on a
revolving basis.
At September 30, 1997, the Company had no outstanding balance on a $10.0
million revolving credit facility (the 'Sentry Facility') with Sentry Financial
Corporation ('Sentry'), which expires on December 31, 2000. The proceeds from
borrowings under the Sentry Facility are used to acquire finance contracts, to
pay applicable credit default insurance premiums and to make deposits to a
reserve account with Sentry. The Company pays a utilization fee of up to 0.21%
per month on the average outstanding balance under the Sentry Facility. The
Sentry Facility also requires the Company to pay up to 0.62% per quarter on the
average unused balance. Interest is payable monthly and accrues at a per annum
rate of prime plus 1.75% (10.25% at September 30, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. In April 1996, the Company paid a
one-time commitment fee of $700,000 to Sentry. Under the Sentry Facility, the
Company incurred interest expense of $358,174 for the nine months ended
September 30, 1997.
The Company and its wholly owned subsidiary, AutoBond Funding Corporation
II, entered into a $50 million revolving warehouse facility (the 'Daiwa
Facility') with Daiwa Finance Corporation ('Daiwa') effective as of February 1,
1997. Advances under the Daiwa Facility mature on the earlier of 120 days
following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve
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<PAGE>
<PAGE>
account. The Daiwa Facility is collateralized by the finance contracts acquired
with the outstanding advances. The Daiwa Facility does not require that the
loans funded be covered by default deficiency insurance. Interest is payable
upon maturity of the advances and accrues at the lesser of (x) 30 day LIBOR plus
1.15% (6.81% at September 30, 1997), or (y) 11% per annum. The Company also pays
a non-utilization fee of .25% per annum on the unused amount of the line of
credit. Pursuant to the Daiwa Facility, the Company paid a $243,750 commitment
fee. The debt issuance cost is being amortized as interest expense on a straight
line basis through March 1998. The Daiwa Facility contains certain covenants and
representations similar to those in the agreements governing the Company's
existing securitizations including, among other things, delinquency and
repossession triggers. At December 31, 1997, remaining availability under the
Daiwa Facility totaled $21 million. The Company incurred interest expense under
the Daiwa Facility of approximately $816,396 during the nine months ended
September 30, 1997.
On June 30, 1997, the Daiwa Facility was amended to allow the Company, at
its election, to transfer finance contracts into a qualified unconsolidated
special purpose subsidiary, AutoBond Master Funding Corporation. In conjunction
with these transfers, this special purpose subsidiary issues variable funding
warehouse notes which are convertible into term notes at the option of the
holder of such notes. Transfers of finance contracts to the special purpose
entity have been recognized as sales under SFAS No. 125.
Notes Payable. Pursuant to an agreement (the 'Securities Purchase
Agreement') entered into on June 30, 1997, the Company issued by private
placement $2,000,000 in aggregate principal amount of senior secured convertible
notes ('Convertible Notes'). Interest is payable quarterly at a rate of 18% per
annum until maturity on June 30, 2000. If the Company pays down the Convertible
Notes in full prior to June 30, 1998, the holders will have no conversion
rights. The Convertible Notes, collateralized by the interest-only strip
receivables from the Company's first four securitizations, are convertible into
shares of common stock of the Company upon the earlier to occur of (i) an event
of default on the Convertible Notes and (ii) June 30, 1998, through the close of
business on June 30, 2000, subject to prior redemption. The conversion price is
equal to the outstanding principal amount of the Convertible Note being
converted divided by the lesser of (x) $5.00 (as adjusted by the terms of the
Securities Purchase Agreement) and (y) 85% of the average of the five lowest
closing bid prices of the Company's common stock on the Nasdaq Stock Market, or
such other exchange or market where the common stock is then traded during the
60 trading days immediately preceding the date the Convertible Note is converted
or the applicable date of repayment (subject to adjustment under certain
circumstances specified in the Securities Purchase Agreement). The Company also
paid certain debt issuance costs to the purchaser totaling $25,000, which is
being amortized as interest expense on a straight line basis through June 30,
2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998. To date, the holders have
purchased $2,900,000 of subordinated asset-backed securities.
Securitization Program. In its securitization transactions through the end
of 1996, the Company sold pools of finance contracts to a special purpose
subsidiary, which then assigned the finance contracts to a trust in exchange for
cash and certain retained beneficial interests in future excess spread cash
flows. The trust issued two classes of fixed income investor certificates:
'Class A Certificates' which were sold to investors, generally at par with a
fixed coupon, and subordinated excess spread certificates ('Class B
Certificates'), representing a senior interest in excess spread cash flows from
the finance contracts, which were typically retained by the Company's
securitization subsidiary and which collateralize borrowings on a non-recourse
basis. The Company also funded a cash reserve account that provides credit
support to the Class A Certificates. The Company's securitization subsidiaries
also retained a 'Transferor's Interest' in the contracts that is subordinate to
the interest of the investor certificate holders.
In the Company's March 1997, August 1997 and October 1997 securitization
transactions, the Company sold a pool of finance contracts to a special purpose
subsidiary, which then assigned the
48
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<PAGE>
finance contracts to an indenture trustee. Under the trust indenture, the
special purpose subsidiary issued classes of senior and subordinated fixed
income investor notes, which were sold to investors, generally at par, with
fixed coupons. The subordinated notes represent a senior interest in certain
excess spread cash flows from the finance contracts. In addition, the
securitization subsidiary retained rights to the remaining excess spread cash
flows. The Company also funded cash reserve accounts that provide credit support
to the notes.
The retained interests entitle the Company to receive the future cash flows
from the trust after payment to investors, absorption of losses, if any, that
arise from defaults on the transferred finance contracts and payment of the
other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in two
ways. First, the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. During the nine months ended September 30, 1997,
the Company securitized approximately $94.9 million 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 has been obtained through the Company's
practice of borrowing funds, on a non-recourse basis, its interest in future
excess spread cash flows from its securitizations. At September 30, 1997, the
Company held interest-only strip receivables and Class B Certificates totaling
$18.4 million, substantially all of which had been pledged to collateralize
notes payable of $10.3 million. To date the Company has raised $17.8 million
through such non-recourse excess spread notes than in all other recourse debt
and equity offerings. This is significant in two respects: (i) the Company has
in eight securitizations monetized in excess of the principal balance of
securitized contracts (about 108-110%) and (ii) the Company has not had as much
of a mismatch between cash and GAAP income than is typically the case in the
sub-prime auto finance industry. Successful marketing of subordinated
securities, including excess spread notes, from securitizations has become more
difficult and the Company will not longer rely on monetizing these interests.
Accordingly, with the additional capital expected to be raised through this
Offering, the Company will consider full retention of future residual cash flows
as an alternative to the issuance of non-recourse excess spread notes.
Initial Public Offering. On November 14, 1996, the Company completed the
initial public offering of its Common Stock. The closing comprised 825,000
shares sold by the Company (including 75,000 shares issued pursuant to the
exercise of the underwriters over allotment option) and 250,000 shares sold by
the Selling Shareholders. With a price to public of $10 per share and an
underwriting discount at $.70 per share, the Company received gross proceeds of
$7,492,500 from the offering, from which it paid offering expenses of
approximately $1.8 million. The net proceeds were utilized for working capital,
repayment of subordinated debt of $300,000 and investment in finance contracts.
Management recognizes that the ability to monetize residual cash flows from
securitizations in 1998 is uncertain and that both warehousing and
securitization of the Company's finance contracts will require greater levels of
cash outlays by the Company. Accordingly, the Company intends to tap the equity
markets, initially in the context of this Offering, as well as the debt markets,
in order to meet its cash needs during 1998 and to take better advantage of
growth opportunities. There can be no assurance, however, that the Company will
be able to obtain such additional funding.
The statements contained in this document that are not historical facts are
forward looking statements. Actual results may differ from those projected in
the forward looking statements. These forward looking statements involve risks
and uncertainties, including but not limited to the following risks and
uncertainties: changes in the performance of the financial markets, in the
demand for and market acceptance of the Company's loan products, and in general
economic conditions, including interest rates, presence of competitors with
greater financial resources and the impact of competitive products and pricing;
the effect of the Company's policies; and the continued availability to the
Company of adequate funding sources. Investors are also directed to other risks
discussed in document filed by the Company with the Securities and Exchange
Commission.
49
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IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128 'Earnings Per
Share.' SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share and is designed to improve earnings per
share information by simplifying the existing computational guidelines and
revising the previous disclosure requirements. The statement is effective for
periods ending after December 15, 1997, including interim periods.
In June 1997, the FASB issued SFAS No. 130, 'Reporting Comprehensive
Income,' which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, 'Disclosure about Segments
of an Enterprise and Restated Information,' which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997.
The Company does not believe the implementation of these recent accounting
pronouncements will have a material effect on its consolidated financial
statements.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and principal officers of the Company, their respective ages
and their present positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William O. Winsauer(1)............................... 37 Chairman of the Board and Chief Executive Officer and
Director
Adrian Katz.......................................... 33 Vice Chairman of the Board and Chief Operating
Officer and Director
John S. Winsauer(1).................................. 35 Secretary and Director
R.T. Pigott, Jr...................................... 43 Vice President and Chief Financial Officer
Alan E. Pazdernik.................................... 57 Vice President -- Credit
Robert R. Giese...................................... 58 Vice President -- Collections
Robert S. Kapito..................................... 40 Director
Manuel A. Gonzalez................................... 47 Director
Stuart A. Jones...................................... 42 Director
Thomas I. Blinten.................................... 41 Director
</TABLE>
- ------------
(1) Messrs. William and John Winsauer are brothers.
------------------------
Directors serve for annual terms. Officers are elected by the Board of
Directors and serve at the discretion of the Board.
MANAGEMENT BACKGROUND
William O. Winsauer, Chairman of the Board and Chief Executive Officer
Mr. Winsauer has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation in 1993. Mr. Winsauer has
been involved in arranging and developing various sources of financing for
subprime finance contracts since 1989. Mr. Winsauer was the founder of ABI in
1989 and served full time as its President and sole shareholder from 1989
through 1993, and remains its President and sole shareholder to date. ABI has no
material current operations other than to manage its and Mr. Winsauer's
investments in securitizations sponsored by Mr. Winsauer. In the late 1980s, Mr.
Winsauer began selling whole loan packages of contracts originated by the
Gillman Companies, a large dealership group based on Houston, Texas and worked
with his brother, John S. Winsauer, in certain of the transactions placed
through The Westcap Corporation in 1991 and 1992. Subsequently, Mr. Winsauer was
directly responsible for initiating, negotiating, coordinating and completing a
number of transactions involving the issuance of over $235 million of both
public and private asset-backed securities backed by subprime automobile finance
contracts, $190 million of which were sponsored by Mr. Winsauer. Mr. Winsauer
was among the first individuals to be involved in the structuring and marketing
of securitization transactions involving subprime finance contracts.
Adrian Katz, Vice Chairman, Chief Operating Officer and Director
Mr. Katz joined the Company in November 1995 and was elected Vice Chairman
of the Board of Directors and appointed Chief Operating Officer in December
1995. Immediately prior to that, from February 1995 he was employed as a
managing director at Smith Barney, Inc. (a broker/dealer), where he was
responsible for structuring asset-backed, commercial and residential
mortgage-backed securities. Form 1989 through 1994, Mr. Katz was employed by
Prudential Securities Incorporated (a broker/dealer), where he was appointed a
managing director in 1992 and where he served as a co-head of the Mortgage and
Asset Capital Division with corresponding sales, trading, banking and research
management responsibilities. From 1985 to 1989, Mr. Katz worked for The First
Boston Corporation developing software and managing the structure of new
securitizations. Mr. Katz has been involved in the sale and financing through
securitization of consumer assets since 1985.
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John S. Winsauer, Secretary and Director
Mr. Winsauer has served as Secretary and a Director of the Company since
October 1995. In addition, Mr. Winsauer has been a shareholder of the Company
since June 1993. Mr. Winsauer's primary responsibilities have included the
development and implementation of the Company's computer and communications
systems. From January 1993 until present, Mr. Winsauer has been employed by
Amherst Securities Group (a broker/dealer previously known as USArbour
Financial) as a Senior Vice President, prior to which he served as a Senior Vice
President of The Westcap Corporation (a broker/dealer) from April 1989 to
January 1993. From June 1989 through August 1992, in his position as Senior Vice
President with The Westcap Corporation, Mr. Winsauer participated in the
successful marketing of whole-loan packages of finance contracts placed by the
Gillman Companies.
R.T. Pigott, Jr., Vice President and Chief Financial Officer
Mr. Pigott joined the Company in April 1997 as its Vice President and Chief
Financial Officer. From 1988 to 1996, Mr. Pigott was Executive Vice President
and Chief Financial Officer of Franklin Federal Bancorp of Austin, Texas. Mr.
Pigott is a CPA with approximately twenty years experience in financial
services, including six years as an audit manager with a national accounting
firm.
Alan E. Pazdernik, Vice President -- Credit
Mr. Pazdernik joined the Company in September 1995 as Vice
President -- Credit. From October 1991 until he joined the Company, Mr.
Pazdernik was employed as Credit Manager by E-Z Plan, Inc., a company he created
to handle the internal financing of subprime automobile paper. Prior to October
1991, Mr. Pazdernik served over 18 years as the Director of Finance and
Insurance Operations for Red McCombs Automotive (an automobile dealership),
handling the credit, collection and finance contract administration functions
for a $70 million portfolio of automobile finance contracts. In his present
capacity with the Company, Mr. Pazdernik manages the credit and funding
departments, and has been involved in the Company's efforts to increase market
share in the San Antonio area.
Robert R. Giese, Vice President -- Collections
Mr. Giese joined the Company in April 1994 as Vice
President -- Collections. From 1984 to April 1994, he served as Vice President
in Retail Credit Administration with First Interstate Bank of Texas, with
responsibility for controlling the performance of the consumer loan portfolio in
Texas. Mr. Giese has more than 30 years experience in sales, finance and
banking, including management experience coordinating credit underwriting,
collections, asset disposal, centralized loss recovery and loan workout
functions. His experience in sales, credit and collections supports the Company
in its management of delinquency and loss performance.
Robert S. Kapito -- Director
Since May 1990, Mr. Kapito has been Vice Chairman of BlackRock Financial
Management, an investment advisory firm ('BlackRock'). Mr. Kapito is a member of
BlackRock's Management Committee and Investment Strategy Committee and Co-Head
of the Portfolio Management Group. Mr. Kapito also serves as Vice President for
BlackRock's family of mutual funds and for the Smith Barney Adjustable Rate
Government Income Fund. Mr. Kapito has also served since May 1987 as President
of the Board of Directors of Periwinkle National Theatre.
Manuel A. Gonzalez -- Director
From September 1993 to December 1994, Mr. Gonzalez was Executive Vice
President of the Company and ABI. Mr. Gonzalez is currently Dealer
Principal/Owner of NorthPoint Pontiac Buick GMC, an automobile dealership
located in Kingwood, Texas. Since March 1991, Mr. Gonzalez has been President of
Equifirst Financial Services, Inc., a consulting firm specializing in the
automobile dealership industry. From 1988 through 1990, Mr. Gonzalez was Chief
Financial Officer for the Gillman Companies, prior to which he served as a Vice
President at First City Bank, Texas, where he managed the banking relationships
of a large number of automobile dealers.
52
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Stuart A. Jones -- Director
From March 1989 to the present, Stuart Jones has been self-employed as head
of Stuart A. Jones Finance and Investments, Dallas, Texas, a privately-owned
consultancy specializing in investment banking and real estate financing. From
January 1990 to January 1994, Mr. Jones also served as Counsel to the Brock
Group, Ltd., Washington, D.C., an international trade and investment strategies
consulting firm, where he represented clients in various real estate, energy and
environmental matters.
Thomas I. Blinten -- Director
Currently a private investor. From November 1995 to September 1997, Thomas
Blinten was a Managing Director and executive management committee member of
Nomura Capital Services, Inc., New York, New York, a majority-owned subsidiary
of Nomura Securities Company, responsible for interest rate swap and OTC
derivative sales and trading. From March 1993 to November 1995, Mr. Blinten was
a Principal and management committee member of General Re Financial Products, a
wholly-owned subsidiary of General Re Corporation. From July 1990 through March
1993, he was a manager in the Derivative Products department for Kemper
Securities Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors established a Compensation Committee and an Audit
Committee comprised of outside directors. The Company's bylaws provide that each
such committee shall have three or more members, who serve at the pleasure of
the Board of Directors.
The Compensation Committee is responsible for administering incentive
grants under the Company's incentive stock option plan (the 'Option Plan') and
reviewing and making recommendations to the Board of Directors with respect to
the administration of the salaries, bonuses and other compensation of executive
officers, including the terms and conditions of their employment, and other
compensation matters.
The Audit Committee is responsible for making recommendations to the Board
concerning the engagement of the Company's independent auditors and consulting
with independent auditors concerning the audit plan and, thereafter, concerning
the auditors' report and management letter.
EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 1997,
1996 and 1995, the annual and long-term compensation of the Company's highest
paid employees. These were the only employees whose annual compensation exceeded
$100,000 for the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
BASE OTHER ANNUAL
NAMES AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------ ---- -------- ------- ------------
<S> <C> <C> <C> <C>
William O. Winsauer(1) ....... 1997 $240,000 $ 0 $ 0
Chairman of the Board and 1996 160,000 0 0
Chief Executive Officer 1995 0 0 0
Adrian Katz .................. 1997 150,000 0 0
Vice Chairman of the Board 1996 150,000 0 0
and Chief Operating Officer 1995 18,750
John S. Winsauer ............. 1997 120,000 0 0
Director, Vice President and 1996 120,000 0 0
Secretary 1995 40,000 0 0
Ted Pigott ................... 1997 96,000 26,000 0
Vice President and Chief
Financial Officer
Jeremy Wohlblatt ............. 1997 100,000 0 0
Vice President,
Technology
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
NAMES AND PRINCIPAL POSITION OPTIONS(#) COMPENSATION
- ------------------------------------------ ------------
<S> <C> <C>
William O. Winsauer(1) ....... 0 $ 0
Chairman of the Board and 40,000 (3)
Chief Executive Officer 0 (3)
Adrian Katz .................. 0 0
Vice Chairman of the Board 20,000 0
and Chief Operating Officer 75,742(2)
John S. Winsauer ............. 0 0
Director, Vice President and 20,000 (3)
Secretary 0 0
Ted Pigott ................... 10,000 0
Vice President and Chief
Financial Officer
Jeremy Wohlblatt ............. 10,000 0
Vice President
Technology
</TABLE>
(footnotes on next page)
53
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(footnotes from previous page)
(1) Amount reflects actual payments; on an annualized basis Mr. Winsauer's 1996
base salary would have been $240,000.
(2) Stated value of compensation in the form of stock issuance.
(3) See 'Certain Transactions' for a discussion of loans to Will and John
Winsauer.
------------------------
STOCK OPTIONS
STOCK OPTION GRANTS 1996-1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF
SECURITIES % OR TOTAL EXERCISE GRANT DATE
UNDERLYING OPTIONS GRANTED PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED TO EMPLOYEES ($/SH)(1) DATE VALUE(2)
- --------------------------------------- --------------- --------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William O. Winsauer.................... 40,000 14.6% $10.50 11/14/2006 $4.88
John S. Winsauer....................... 20,000 7.3 10.50 11/14/2006 4.88
Adrian Katz............................ 20,000 7.3 10.50 11/14/2006 4.88
Robert S. Kapito....................... 3,000 1.1 10.50 11/14/2006 4.88
Manuel A. Gonzalez..................... 3,000 1.1 10.50 11/14/2006 4.88
Stuart A. Jones........................ 3,000 1.1 10.50 11/14/2006 4.88
Thomas I. Blinten...................... 3,000 1.1 10.50 11/14/2006 4.88
</TABLE>
- ------------
(1) The options were granted under the Company's Option Plan on November 14,
1996. The exercise price is the fair market value of the underlying stock on
the date the options were granted. The options vest 1/3 per year at the end
of each of the three years following the date of grant.
(2) Extracted from the Notes to the Company's audited financial statements.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Messrs. William Winsauer and Katz have entered into employment agreements
with the Company on substantially the following terms:
William O. Winsauer. Mr. Winsauer entered into an employment agreement
with the Company dated May 1, 1996. Under the terms of this agreement, Mr.
Winsauer has agreed to serve as Chief Executive Officer of the Company for
a period of five years and, during such time, to devote his full business
time and attention to the business of the Company. The agreement provides
for compensation of Mr. Winsauer at a base salary of $240,000 per annum,
which may be increased or decreased from time to time in the sole
discretion of the Board, but in no event less than $240,000 per annum. The
agreement entitles Mr. Winsauer to receive the benefits of any cash
incentive compensation as may be granted by the Board to employees, and to
participate in any executive bonus or incentive plan established by the
Board from time to time.
The agreement provides Mr. Winsauer with additional benefits including
(i) the right to participate in the Company's medical benefit plan, (ii)
entitlement to benefits under the Company's executive disability insurance
coverage, (iii) a monthly automobile allowance of $1,500 plus fees,
maintenance and insurance, (iv) six weeks paid vacation and (v) all other
benefits granted to full-time executive employees of the Company.
The agreement automatically terminates upon (i) the death of Mr.
Winsauer, (ii) disability of Mr. Winsauer which continues for a period of
six months, following expiration of such six months, (iii) the termination
of Mr. Winsauer 'for cause' (which termination requires the vote of a
majority of the Board) or (iv) the occurrence of the five-year expiration
date, provided, however, that the agreement may be extended for successive
one-year intervals unless either party elects to terminate the agreement in
a prior written notice. Mr. Winsauer may terminate his employment under the
agreement for good reason as set forth below. In the event of Mr.
Winsauer's termination for cause, the agreement provides that the Company
shall pay Mr. Winsauer his base salary through the date
54
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<PAGE>
of termination and the vested portion of any incentive compensation plan to
which Mr. Winsauer may be entitled.
Mr. Winsauer may terminate his employment under the agreement for
'good reason,' including: (i) removal of, or failure to re-elect, Mr.
Winsauer as Chief Executive Officer; (ii) change in scope of
responsibilities; (iii) reduction in salary; (iv) relocation of the Company
outside Austin, Texas; (v) breach by the Company of the agreement; (vi)
certain changes to the Company's compensation plans; (vii) failure to
provide adequate insurance and pension benefits; (viii) failure to obtain
similar agreement from any successor or parent of the Company; or (ix)
termination of Mr. Winsauer other than by the procedures specified in the
agreement.
Other than following a change in control, and upon termination of Mr.
Winsauer in breach of the agreement or termination by Mr. Winsauer for good
reason, the Company must pay Mr. Winsauer: (i) his base salary through the
date of termination; (ii) a severance payment equal to the base salary
multiplied by the number of remaining years under the agreement; and (iii)
in the case of breach by the Company of the agreement, all other damages to
which Mr. Winsauer may be entitled as a result of such breach, including
lost benefits under retirement and incentive plans.
In the event of Mr. Winsauer's termination following a change in
control, the Company is required to pay Mr. Winsauer an amount equal to
three times the sum of (i) his base salary, (ii) his annual management
incentive compensation and (iii) his planned level of annual perquisites.
The agreement also provides for indemnification of Mr. Winsauer for any
costs or liability incurred by Mr. Winsauer in connection with his
employment.
Adrian Katz. Mr. Katz entered into an employment agreement with the
Company dated November 15, 1995. Under the terms of this agreement, Mr.
Katz has agreed to serve as Vice Chairman and Chief Operating Officer of
the Company for a period of three years and, during such time, to devote
his full business time and attention to the business of the Company. The
agreement grants Mr. Katz a base salary of $12,500 per full calendar month
of service, which amount may be increased from time to time at the sole
discretion of the Board. The agreement terminates upon the death of Mr.
Katz. In the event of any disability of Mr. Katz which continues for a
period of six months, the agreement may be terminated by the Company at the
expiration of such six-month period. The agreement automatically terminates
upon the discharge of Mr. Katz for cause.
Mr. Katz has agreed not to disclose certain confidential proprietary
information of the Company to unauthorized parties, except as required by
law, and to hold such information for the benefit of the Company. The
agreement contains standard non-competition covenants whereby Mr. Katz has
agreed not to conduct or solicit business with any competitors or clients
of the Company within certain restricted geographic areas for a period of
two years following the termination of his employment. The restriction also
applies to the solicitation of any current or recent employees of the
Company. The restricted areas include any territory within a 40-mile radius
of an automobile dealership with which the Company has done business during
the term of the agreement. Pursuant to the terms of the agreement, Mr. Katz
received 568,750 shares of the Company's Common Stock on January 1, 1996,
equal to 10% of the Company's outstanding shares of Common Stock following
the issuance of such shares to Mr. Katz.
OPTION PLAN
The Board of Directors of the Company has adopted and the shareholders of
the Company has approved, the Company's 1996 Stock Option Plan (the 'Option
Plan'), under which stock options may be granted to directors, officers and
employees of the Company and its subsidiaries. The Option Plan permits the grant
of stock options that qualify as incentive stock options ('ISOs') under Section
422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock
options ('NSOs'), which do not so qualify. The Company authorized and
reserved 515,000 shares for issuance under the Option Plan. The shares may be
unissued shares or treasury shares. If an option expires or terminates for any
reason without having been exercised in full, the unpurchased shares subject
to such option will again be available for grant under the Option Plan. In
the event of certain corporate
55
<PAGE>
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reorganizations, recapitalizations or other specified corporate transactions
affecting the Company or the Common Stock, proportionate adjustments shall be
made to the number of shares available for grant and to the number of shares and
prices under outstanding option grants made before the event.
The Option Plan is administered by the Compensation Committee of the Board
of Directors (the 'Committee'). Subject to the limitations set forth in the
Option Plan, the Committee has the authority to determine the persons to whom
options will be granted, the time at which options will be granted, the number
of shares subject to each option, the exercise price of each option, the time or
times at which the options will become exercisable and the duration of the
exercise period. The Committee may provide for the acceleration of the exercise
period of an option at any time prior to its termination or upon the occurrence
of specified events, subject to limitations set forth in the Option Plan.
Subject to the consent of optionees, the Committee has the authority to cancel
and replace stock options previously granted with new options for the same or a
different number of shares and having a higher or lower exercise price, and may
amend the terms of any outstanding stock option to provide for an exercise price
that is higher or lower than the current exercise price.
All directors, officers and employees of the Company and its subsidiaries
are eligible to receive a grant of a stock option under the Option Plan, as
selected by the Committee. The exercise price of shares of Common Stock subject
to options granted under the Option Plan may not be less than the fair market
value of the Common Stock on the date of grant. Options granted under the Option
Plan will generally become vested and exercisable over a three-year period in
equal annual installments, unless the Committee specifies a different vesting
schedule. The maximum term of options granted under the Option Plan is ten years
from the date of grant. ISOs granted to any employee who is a 10% shareholder of
the Company are subject to special limitations relating to the exercise price
and term of the options. The value of Common Stock (determined at the time of
grant) that may be subject to ISOs that become exercisable by any one employee
in any one year is limited by the Internal Revenue Code to $100,000. All options
granted under the Option Plan are nontransferable by the optionee, except upon
the optionee's death in accordance with his will or applicable law. In the event
of an optionee's death or permanent and total disability, outstanding options
that have become exercisable will remain exercisable for a period of one year,
and the Committee will have the discretion to determine the extent to which any
unvested options shall become vested and exercisable. In the case of any other
termination of service, outstanding options that have previously become vested
will remain exercisable for a period of 90 days, except for a termination 'for
cause' (as defined), in which case all unexercised options will be immediately
forfeited. Under the Option Plan, the exercise price of an option is payable in
cash or, in the discretion of the Committee, in Common Stock or a combination of
cash and Common Stock. An optionee must satisfy all applicable tax withholding
requirements at the time of exercise.
In the event of a 'change in control' of the Company (as defined in the
Option Plan) each option will become fully and immediately vested and the
optionee may surrender the option and receive, with respect to each share of
Common Stock issuable under such option, a payment in cash equal to the excess
of the fair market value of the Common Stock at the time of the change in
control over the exercise price of the option. However, there will be no
acceleration of vesting and cash payment if the change in control is approved by
two-thirds of the members of the Board of Directors of the Company and provision
is made for the continuation or substitution of the options on equivalent terms.
The Option Plan has a term of ten years, subject to earlier termination or
amendment by the Board of Directors, and all options granted under the Option
Plan prior to its termination remain outstanding until they have been exercised
or are terminated in accordance with their terms. The Board may amend the Option
Plan at any time.
The grant of a stock option under the Option Plan will not generally result
in taxable income for the optionee, nor in a deductible compensation expense for
the Company, at the time of grant. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
NSO, the optionee will recognize ordinary income in the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the exercise
price, and the Company will generally be entitled to a corresponding deduction.
The treatment of an optionee's disposition of shares of Common Stock acquired
upon the exercise of an option is dependent upon the length of time the shares
have
56
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<PAGE>
been held and whether such shares were acquired by exercising an ISO or an NSO.
Generally, there will be no tax consequence to the Company in connection with
the disposition of shares acquired under an option except that the Company may
be entitled to a deduction in the case of a disposition of shares acquired upon
exercise of an ISO before the applicable ISO holding period has been satisfied.
The Committee made initial grants of stock options under the Option Plan to
certain of the Company's directors, executive officers and other employees to
purchase an aggregate of 300,000 shares of Common Stock at a per share exercise
price equal to the Offering Price. Under this initial phase of the Option Plan,
William O. Winsauer was granted options to purchase a total of 40,000 shares,
and John S. Winsauer, and Adrian Katz have each been granted options to purchase
20,000 shares. The remaining options to purchase 200,000 shares were granted to
other employees and non-employee directors. The employee options become vested
and exercisable over a three-year period in equal annual installments beginning
on the first anniversary of the grant date. The non-employee director options to
purchase 12,000 shares are described below under 'Director Compensation.' The
number of shares of Common Stock that may be subject to options granted in the
future under the Option Plan to executive officers and other employees of the
Company is not determinable at this time.
DIRECTOR COMPENSATION
In return for their services to the Company, each of the non-employee
directors are compensated in the following manner: (i) an annual payment of
$5,000 cash; (ii) payment of $500 per meeting of the Board of Directors attended
and $500 for each committee meeting attended (plus reimbursement of
out-of-pocket expenses); and (iii) an option granted under the Option Plan to
purchase 3,000 shares of the Company's Common Stock.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that, pursuant to Texas
law, no director of the Company shall be liable to the Company or its
shareholders for monetary damages for an act or omission in such director's
capacity as a director except for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) any act or omission not in good
faith or that involves intentional misconduct or a knowing violation of law,
(iii) any transaction from which the director derived an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (iv) any act or omission for which the liability of a
director is expressly provided for by statute. The effect of this provision in
the Articles of Incorporation is to eliminate the right of the Company and its
shareholders (through shareholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
These provisions will not affect the liability of directors under other laws,
such as federal securities laws.
Under Section 2.02-1 of the Texas Business Corporation Act, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, subject to certain limitations. The Company's Articles of
Incorporation provide that the Company will indemnify its directors and officers
to the fullest extent permitted by law.
CERTAIN TRANSACTIONS
The following is a summary of certain transactions to which the Company was
or is a party and in which certain executive officers, directors or shareholders
of the Company had or have a direct or indirect material interest.
William O. Winsauer entered into a Secured Working Capital Loan Agreement
dated as of July 31, 1995 (the 'Sentry Working Capital Line') with Sentry, which
provides for a line of credit of up to $2.25 million. Proceeds from the Sentry
Working Capital Line were contributed to the Company as paid-in capital. The
obligations of Mr. Winsauer under the Sentry Working Capital Line, including all
payment obligations, are guaranteed by the Company and its affiliate, ABI, whose
sole shareholder is William O. Winsauer, pursuant to a Working Capital Guarantee
and Waiver dated as of July 31, 1995.
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All amounts outstanding under the Sentry Working Capital Line, and reimbursement
of a payment of $89,000 made by the Company to Sentry in April 1996 on behalf of
Mr. Winsauer, were paid from the sale of shares by William Winsauer as part of
the Offering. Effective September 26, 1996 the Company was released from its
guarantee of the shareholder's debt.
During 1995, the Company made loans to William O. Winsauer and John S.
Winsauer in the amount of $132,359 and $21,000, respectively. As of December 31,
1996, the outstanding amounts of these loans increased to $201,000 and $34,000,
respectively. Such loans bear no interest and have no repayment terms. As of
March 20, 1997, these advances were repaid in full. See Note 12 to Notes to
Consolidated Financial Statements.
Historically, the Company and ABI, which is wholly-owned by William O.
Winsauer, have provided services for each other on a regular basis. In this
regard, the Company had net advances due from ABI of $132,213 as of September
30, 1997, which funds were utilized by ABI prior to 1996 to cover expenses
incurred in connection with the management of ABI's investments in
securitization trusts. The Company and ABI entered into a management agreement
dated as of January 1, 1996 (the 'ABI Management Agreement') which provides for
repayment of such advances together with interest at 10% per annum on or before
May 31, 1998, the reimbursement of expenses incurred on behalf of ABI and for an
annual fee payable by ABI to the Company for services rendered by it or the
Company's employees on behalf of ABI. The ABI Management Agreement states that
the Company shall provide the following management services for ABI on an
ongoing basis: (i) day-to-day management of ABI's portfolio of partnership
interests in the securitization trusts sponsored by ABI between 1992 and 1994,
including various monitoring and reporting functions; (ii) certain cash
management services, including the advancing of funds to pay ABI's ordinary
business expenses and (iii) providing advice as to regulatory compliance. The
ABI Management Agreement also provides that the Company will perform certain
accounting functions on behalf of ABI including (i) maintenance of financial
books and records, (ii) monitoring of cash management functions, (iii)
preparation of financial statements and tax returns and (iv) providing advice in
connection with retention of independent accountants. As compensation for
services rendered thereunder, the ABI Management Agreement provides that ABI
shall pay the Company an annual fee of $50,000, payable quarterly. In addition,
the agreement provides for the quarterly reimbursement of advances made by the
Company of out-of-pocket costs and expenses on behalf of ABI. Amounts due to the
Company under the ABI Management Agreement amounted to $132,213 at September 30,
1997.
Since July 1994, ABI has also provided certain administrative services to
Intercontinental Brokerage Inc. ('Intercontinental'), an independent insurance
broker in connection with Intercontinental's obligations as administrator of
pools of finance contracts subject to the Interstate Policy. ABI received fees
from Intercontinental totalling approximately $752,000 for the period from July
1994 to March 1997, including with respect to finance contracts as to which the
Company has paid administrative fees to Intercontinental. Since March 1997 the
Company has elected not to insure finance contracts under the Interstate Policy
and ABI will not receive any future fees from Intercontinental with respect to
such finance contracts.
The Board of Directors has adopted a policy that any future transactions
with affiliates of the Company will be on terms no less favorable to the Company
than are reasonably available from unrelated third parties and shall have been
approved by a majority of the Company's directors who do not have a material
interest in the transactions.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 15, 1997 by (i) each
person who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director and nominee for director, (iii)
each named executive officer, and (iv) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP OWNED
- -------------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
William O. Winsauer .................................................................. 3,648,062 55.9%
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
John S. Winsauer ..................................................................... 1,225,688 18.8
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Adrian Katz .......................................................................... 578,750 8.9
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Robert S. Kapito ..................................................................... 16,000 *
Manuel A. Gonzalez ................................................................... 500 *
Thomas I. Blinten .................................................................... 11,000 *
Stuart A. Jones ...................................................................... 7,000 *
--------- -----
Total (all executive officers and directors as a group)(1)............................ 5,487,000 84.0%
--------- -----
--------- -----
</TABLE>
- ------------
(1) Does not include out-of-the-money options. See 'Management -- Stock
Options.'
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock.
Common Stock. As of December 31, 1997, there were 6,531,311 shares of
Common Stock outstanding. Holders of Common Stock are not entitled to any
preemptive rights. The Common Stock is neither redeemable nor convertible into
any other securities. All outstanding shares of Common Stock are fully paid and
nonassessable. All shares of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of shareholders,
including the election of directors. Shares of Common Stock do not have
cumulative voting rights.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share equally and ratably in all of the
assets remaining, if any, after satisfaction of all debts and liabilities of the
Company.
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
Preferred Stock. The Board of Directors, without further shareholder
action, is authorized to issue shares of preferred stock in one or more series
and to fix the terms and provisions of each series, including dividend rights
and preferences over dividends on the Common Stock, conversion rights, voting
rights (in addition to those provided by law), redemption rights and the terms
of any sinking fund therefor, and rights upon liquidation, including preferences
over the Common Stock. Under certain circumstances, the issuance of a series of
preferred stock could have the effect of delaying, deferring or
59
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preventing a change of control of the Company and could adversely affect the
rights of the holders of the Common Stock.
% Cumulative Preferred Stock, Series A. Prior to completion of this
offering of Preferred Stock, the Board will adopt an amendment to the Articles
of Incorporation designating the terms of the Preferred Stock, consisting of up
to 1,150,000 shares, no par value.
When issued, the Preferred Stock will be validly issued, fully paid and
nonassessable. The holders of the Preferred Stock will have no preemptive rights
with respect to any shares of capital stock of the Company or any other
securities of the Company convertible into or carrying rights or options to
purchase any such shares. The Preferred Stock will not be subject to any sinking
fund or other obligation of the Company to redeem or retire the Preferred Stock.
Unless converted into shares of Common Stock or redeemed by the Company at its
option, the Preferred Stock will have a perpetual term, with no maturity.
Application will be made to list the Preferred Stock on the AMEX under the
symbol 'ABP.'
Ranking. The Preferred Stock will rank senior to the Common Stock with
respect to payment of dividends and amounts upon liquidation, dissolution or
winding up of the Company.
While any shares of the Preferred Stock are outstanding, the Company may
not authorize, create or increase the authorized amount of any class or series
of stock that ranks prior or senior to the Preferred Stock with respect to the
payment of dividends or amounts upon liquidation, dissolution or winding up
without the consent of the holders of two-thirds of the outstanding shares of
the Preferred Stock. However, the Company may create additional classes of
stock, increase the authorized number of shares of preferred stock or issue
series of preferred stock which rank on a parity with the Preferred Stock with
respect, in each case, to the payment of dividends and amounts upon liquidation,
dissolution or winding up of the Company (a 'Parity Stock') without the consent
of any holder of the Preferred Stock. See ' -- Voting Rights.'
Dividends. Holders of shares of Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of funds at the
time legally available therefor, dividends at a rate of % per annum, payable
in cash quarterly in arrears on March 31, June 30, September 30 and December 31
of each year beginning March 31, 1998. Dividends will accrue and are cumulative
from the date of first issuance of the Preferred Stock and will be payable to
holders of record as they appear on the stock books of the Company on such
record dates as are fixed by the Board of Directors. Under Texas law, dividends
are generally payable if the Company is not otherwise insolvent to the extent
its net assets exceed its stated capital. Accumulated dividends on shares of
Preferred Stock will not bear interest. Dividends payable on the Preferred Stock
for any period less than a full dividend period will be computed on the basis of
twelve 30-day months and a 360-day year.
Except as provided in the next sentence, no dividend will be declared or
paid or other distribution of cash or other property declared or made directly
by the Company or any affiliate or any person acting on behalf of the Company or
any of its affiliates on any Parity Stock unless full cumulative dividends have
been declared and paid or are contemporaneously declared and funds sufficient
for payment set aside on the Preferred Stock for all prior and contemporaneous
dividend periods. If accumulated and accrued dividends on the Preferred Stock
for all prior and contemporaneous dividend periods have not been paid in full,
then any dividend declared on the Preferred Stock for any dividend period and on
any Parity Stock will be declared ratably in proportion to accumulated, accrued
and unpaid dividends on the Preferred Stock and the Parity Stock.
Neither the Company nor any affiliate nor any person acting on behalf of
the Company or any of its affiliates will (i) declare, pay or set apart funds
for the payment of any dividend or other distribution of cash or other property
declared or made directly or indirectly by the Company or any such affiliate or
person with respect to any Junior Stock (as defined below) or (ii) redeem,
purchase or otherwise acquire for consideration any Junior Stock through a
sinking fund or otherwise (other than a redemption or purchase or other
acquisition of shares of Common Stock made for purposes of an employee incentive
or benefit plan of the Company or any subsidiary) or (iii) pay or distribute any
cash or other property for the benefit of any holder of Junior Stock in respect
thereof, directly or indirectly, unless (A) all cumulative dividends with
respect to the Preferred Stock and any Parity Stock at the time
60
<PAGE>
<PAGE>
such dividends are payable have been paid or such dividends have been declared
and funds have been set apart for payment of such dividends and (B) sufficient
funds have been paid or set apart for the payment of the dividend for the
current dividend period with respect to the Preferred Stock and any Parity
Stock. The foregoing limitations do not restrict the Company's ability to take
the foregoing actions with respect to any Parity Stock.
As used herein, (i) the term 'dividend' does not include dividends payable
solely in shares of Junior Stock on Junior Stock, or in options, warrants or
rights to holders of Junior Stock to subscribe for or purchase any Junior Stock,
and (ii) the term 'Junior Stock' means the Common Stock, and any other class of
capital stock of the Company now or hereafter issued and outstanding that ranks
junior to the Preferred Stock as to the payment of dividends or amounts upon
liquidation, dissolution or winding up of the Company.
Redemption. The Preferred Stock is not redeemable or convertible at the
option of the holder. The Preferred Stock may not be redeemed by the Company
until three years from the issuance date. One-sixth of the shares of outstanding
Preferred Stock is redeemable each year thereafter at the option of the Company,
for cash at the liquidation preference per share, plus accrued and unpaid
dividends, or in Common Stock as follows:
For each share of Preferred Stock redeemed, the Company may issue to
the holder X number of shares of Common Stock, where
$10/preferred share
---------------------
X = .85($Y/common share),
where Y equals the average of the closing sale price per share of the Common
Stock on NASDAQ for the 5 trading days prior to the redemption date.
Notice of redemption will be given by mail or by publication (with
subsequent prompt notice by mail) to the holders of record of the Preferred
Stock not more than four business days after the Company issues a press release,
in the case of a redemption for Common Stock, or not less than 30 nor more than
60 days prior to the date of redemption, in the case of a redemption for cash.
The redemption date will be a date selected by the Company not less than 30 nor
more than 60 days after the date on which the Company gives the notice of
redemption or issues the press release announcing its intention to redeem the
Preferred Stock, as the case may be. If fewer than all of the shares of
Preferred Stock are to be redeemed, the shares to be redeemed shall be selected
by lot or pro rata or in some other equitable manner determined by the Company.
On the redemption date, the Company must pay in cash on each share of
Preferred Stock to be redeemed any accumulated, accrued and unpaid dividends, if
any, on the redemption date, whether or not earned or declared. In the case of a
redemption date falling after a dividend record date and prior to the related
dividend payment date, the holders of the Preferred Stock at the close of
business on such record date will be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date, notwithstanding the
redemption of such shares following such dividend record date. Except as
provided for in the preceding sentences, no payment or allowance will be made
for accumulated or accrued dividends on any shares of Preferred Stock called for
redemption or on the shares of Common Stock issuable upon such redemption.
In the event that full cumulative dividends on the Preferred Stock have not
been paid or declared and set apart for payment, the Preferred Stock may not be
redeemed in part and the Company may not purchase or acquire shares of Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Preferred Stock.
On and after the date fixed for redemption, provided that the Company has
made available at the office of the registrar and transfer agent a sufficient
number of shares of Common Stock and/or an amount of cash to effect the
redemption, dividends will cease to accumulate or accrue on the Preferred Stock
called for redemption (except that, in the case of a redemption date after a
dividend record date and prior to the related dividend payment date, holders of
Preferred Stock on the dividend record date will be entitled on such dividend
payment date to receive the dividend payable on such shares), such shares shall
no longer be deemed to be outstanding and all rights of the holders of such
shares of
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Preferred Stock shall cease except the right to receive the shares of Common
Stock upon such redemption and/or any cash payable upon such redemption, without
interest from the date of such redemption. At the close of business on the
redemption date, each holder of Preferred Stock to be redeemed (unless the
Company defaults in the delivery of the Common Stock or cash) will be, without
any further action, deemed a holder of the number of shares of Common Stock
and/or the amount of cash for which such Preferred Stock is redeemable.
Fractional shares of Common Stock will not be issued upon redemption of the
Preferred Stock, but, in lieu thereof, the Company will pay an amount in cash
based on the current market price of the Common Stock on the day prior to the
redemption date.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the Company, holders of shares of Preferred Stock are entitled to receive,
out of legally available assets, a liquidation preference of $10.00 per share,
plus an amount equal to any accrued and unpaid dividends to the payment date,
and no more, before any payment or distribution is made to the holders of Common
Stock or any series or class of the Company's stock hereafter issued that ranks
junior as to the liquidation rights to the Preferred Stock, but the holders of
the shares of the Preferred Stock will not be entitled to receive the
liquidation preference on such shares until the liquidation preference of any
other series or class of the Company's stock previously or hereafter issued that
ranks senior as to liquidation rights to the Preferred Stock has been paid in
full.
Voting Rights. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of Preferred Stock will have no
voting rights.
If two quarterly dividends payable on the Preferred Stock or any other
Parity Stock are in arrears, whether or not earned or declared, the number of
directors then constituting the Board will be increased by three and the
holders of Preferred Stock, will have the right to elect three additional
directors to serve on the Board at an annual meeting of stockholders or special
meeting held in place thereof, or at a properly called special meeting of the
holders of the Preferred Stock and at each subsequent annual meeting of
stockholders or special meeting held in place thereof, until all such dividends
in arrears and dividends for the current quarterly period on the Preferred Stock
have been paid or declared and set aside for payment. Notwithstanding the
foregoing, the total number of directors elected by the holders of the Preferred
Stock and the Representative will not exceed three.
The approval of the holders of two-thirds of the outstanding shares of
Preferred Stock will be required in order to amend the Articles of Incorporation
or Bylaws to affect materially and adversely the rights, preferences or voting
power of the holders of the Preferred Stock or to authorize, create, or increase
the authorized amount of, any class of stock having rights prior or senior to
the Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up or change any provision of the Articles
of Incorporation or Bylaws that relate to the Board of Directors or the election
of directors or approve any merger or consolidation involving the Company or a
sale of all or substantially all of the assets of the Company. However, the
Company may create additional classes of Parity or Junior Stock, increase the
authorized number of shares of Parity or Junior Stock and issue additional
series of Parity or Junior Stock without the consent of any holder of Preferred
Stock.
It is not possible to state the actual effect of any other authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of Preferred
Stock. The Board's authority to issue Preferred Stock also provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a third party to
aqcuire a majority of the outstanding voting stock. Accordingly, the issuance of
Preferred Stock may be used as an 'anti-takeover' device without further action
on the part of the stockholders of the Company, and may adversely affect the
holders of the Common Stock.
The Transfer Agent and Registrar for the Preferred Stock will be American
Stock Transfer and Trust.
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WARRANTS AND CONVERTIBLE NOTES
See 'Underwriting' for a description of the Representative's Warrant.
The Company has outstanding warrants (the 'IPO Warrants') which were issued
in favor of The Boston Group, L.P. (the 'Boston Group') in connection with the
Company's initial public offering and warrants with respect to its Common Stock
which were issued on June 30, 1997 in connection with the issuance of the
convertible notes.
The Company agreed to sell to the Boston Group, for $50, IPO Warrants to
purchase up to 100,000 shares of Common Stock at an exercise price per share
equal to 120% of the actual public offering price per share ($12/share). The IPO
Warrants are exercisable for a period of four years beginning November 1997. The
IPO Warrants may not be sold, transferred, assigned or hypothecated except to
the officers or partners of the Boston Group or, beginning November 1997, to the
employees of the Representative. The IPO Warrants include a net exercise
provision permitting the holder, upon consent of the Company, to pay the
exercise price by cancellation of a number of share with a fair market value
equal to the exercise price of the IPO Warrants. As of the date hereof, none of
the IPO Warrants have been exercised.
The IPO Warrants provide certain rights with respect to the registration
under the Securities Act of up to 100,000 shares of Common Stock issuable upon
exercise thereof. The holders of the shares issuable upon exercise of the IPO
Warrants may require the Company to file a registration statement under the
Securities Act with respect to such shares for a period of four years beginning
November 1997. In addition, if the Company registers any of its Common Stock for
its own account during the four year period beginning November 1997, the holders
of the shares issuable upon exercise of the IPO Warrants are entitled to include
their shares of Common Stock in the registration.
In June 1997, the Company issued $2,000,000 in aggregate principal amount
of its 18% Senior Secured Promissory Notes (the '18% Notes') and Common Stock
Purchase Warrants, dated June 30, 1997 (the 'June 1997 Warrants'). The 18% Notes
are convertible into 800,000 shares of Common Stock upon the earlier to occur of
(i) an event of default on the 18% Notes and (ii) June 30, 1998, through the
close of business on June 30, 2000, subject to prior redemption, into shares of
Common Stock of the Company at a price equal to the outstanding principal amount
of the Note being converted divided by the lesser of (x) $5.00 (or the price as
adjusted by the terms of the Securities Purchase Agreement) and (y) 85% of the
average of the five (5) lowest closing bid prices of the Company's Common Stock
on the Nasdaq National Market, or such other exchange or market where the Common
Stock is then traded during each of the sixty (60) Trading Days immediately
preceding the date the Note is converted or the applicable date or repayment
(subject to adjustment under certain circumstances). As of the date of this
Prospectus, the aggregate principal amount of Notes outstanding is $2,000,000,
which may be converted into 762,086 shares of Common Stock.
Pursuant to a Registration Rights Agreement dated as of June 30, 1997 (the
'Registration Rights Agreement') between the Company and the initial purchasers
named therein entered into in connection with the Note and the Warrant
Placement, the Company has filed with the Commission under the Securities Act a
Registration Statement with respect to the resale of the underlying shares from
time to time and has agreed to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the disposition
of all registrable securities covered by such registration statement until the
earlier to occur of (i) with respect to the first Registration Statement, six
(6) years after the date of this Agreement, (ii) with respect to any subsequent
Registration Statement, two (2) years after the issuance of the additional
shares covered thereby and (iii) in each case, such time as all of the
securities which are the subject of such registration statement cease to be
registrable securities (such period, in each case, the 'Registration Maintenance
Period') subject, however, to the right of the Company to suspend effectiveness
of the registration statement for not more than 30 consecutive days or an
aggregate of 90 days during such Registration Maintenance Period, provided the
reference to 30 consecutive days shall be 60 consecutive days in the event the
Company has publicly announced a transaction and, in connection therewith, the
Company's independent certified public accountants have delivered a certificate
to the Holders stating that it is not practicable to prepare and file with the
Commission all necessary information associated with such transaction to cause
the registration statement to be reinstated during such 30 day period.
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As of the date of this Prospectus, none of the 18% Notes have been
converted and none of the June 1997 Warrants have been exercised.
The June 1997 Warrants entitle the holders of such Warrants, upon exercise
of a Warrant, to purchase from the Company 200,000 shares of its Common Stock
(the 'Warrant Shares') at $4.225 per share. The exercise price per share may be
adjusted over time due to certain adjustments that are to be made to the number
of shares constituting a Warrant Share in the event of Common Stock dividends,
stock splits, dilutive issuances of additional Common Stock, consolidation of
outstanding Common Stock shares, issuance of additional warrants or other
rights, or issuance of securities convertible into Common Stock of the Company.
The Company is obligated to register the shares of Common Stock issuable upon
exercise of the Warrants in accordance with the terms of a Registration Rights
Agreement between the Company and the Warrant Holders (the 'Registration Rights
Agreement'). Under the terms of such Registration Rights Agreement, the Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrants, all shares of Common Stock issuable under the
Warrants.
In addition, in connection with the 1997-B and 1997-C securitizations, $5.8
million in Class B Notes are exchangeable (at a rate of 117.5% of the principal
amount of Class B Notes exchanged) for the Company's 17% Convertible Notes,
solely upon the occurrence of a delinquency ratio trigger relating to the
securitized pools.
UNDERWRITING
The Underwriters named below, represented by Tejas Securities Group, Inc.
(the 'Representative'), have severally agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase from the Company
the number of shares of Preferred Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions and that the Underwriters are committed to
purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Tejas Securities Group, Inc......................................................
---------
Total.......................................................................
---------
---------
</TABLE>
The Representative was organized in Texas within the last three years and
its principal business function is to underwrite and sell securities. The
Representative has been recently formed and has underwritten only a limited
number of public offerings. After interviewing various underwriters, the Company
has advised the Representative that it chose the Representative based upon
various factors, including the Company's belief that the Representative has an
understanding of the Company and its business.
The Company has been advised by the Representative that the Underwriters
propose to offer shares to the public at the initial offering price set forth on
the cover page of this Prospectus, and to certain securities dealers at such
price less a concession of not more than $ per share. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of Preferred Stock to certain other brokers and dealers. After the initial
public offering, the public offering price and concessions and discounts may be
changed by the Underwriters. No reduction in such terms
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shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.
The Company has granted the Underwriters an option, exercisable within
forty-five days after the date of this Prospectus, to purchase up to an
aggregate of an additional 15% of the aggregate number of Preferred Shares
offered in connection with the Offering, to cover over-allotments, at the same
price per share of Preferred Stock being paid by the Underwriters for the other
shares of Preferred Stock offered hereby.
The Representative has informed the Company that it does not expect any
sales of the shares of Preferred Stock offered hereby to be made by the
Underwriters to any accounts over which they exercise discretionary authority.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 2% of the amount of the Offering. To date, the Company has not paid
any of the non-accountable expense allowance to the Representative. The
Representative's expenses in excess of the non-accountable expense allowance,
including its legal expenses, will be borne by the Representative. To the extent
that the expenses of the Representative are less that the non-accountable
expense allowance, the excess shall be deemed to be compensation to the
Representative.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act or will
contribute payments the Underwriters may be required to make in respect thereof,
the Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
The Underwriters have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids and syndicate covering
transactions, which may have the effect of stabilizing or maintaining the market
price of any class of the Preferred Stock at levels above those that might
otherwise prevail in the open market. A 'stabilizing bid' is a bid for or the
purchase of any Preferred Stock on behalf of the Underwriters for the purpose of
fixing or maintaining the price of such shares. A 'syndicate covering
transaction' is the bid for or the purchase of Preferred Stock on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with this offering.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Preferred Stock of any class to be higher than it might
be in the absence thereof. Neither the Company nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any such effect
on the prices for the Preferred Stock. Neither the Company nor Underwriters
makes any representation that the Underwriters will engage in any such
transactions or that, once commenced, any such transactions will not be
discontinued without notice.
The Company has agreed to sell to the Representative, for $100, a
Representative's Warrant to purchase up to 300,000 shares of Common Stock at an
exercise price per share equal to $3.25. The Representative's
Warrant are exercisable for a period of four years commencing one year
after the date of this Prospectus. The Representative's Warrant is not
transferable except to the officers or partners of the Representative or,
beginning one year after completion of the Offering, to the employees of the
Representative. The Representative's Warrant includes a net exercise provision
permitting the holder, upon consent of the Company, to pay the exercise price by
cancellation of a number of shares with a fair market value equal to the
exercise price of the Representative's Warrant.
The Representative shall have the right to designate a member of the
Company's board of directors until the next annual meeting at which time
management will cause such designee to be nominated for election to the board of
directors and such nomination shall be supported by management. Such designee
shall continue to be nominated and supported by management until such time as
the Representative's Warrant either expires or is exercised in full by the
Representative. Alternatively, the Representative may designate an observer to
attend meetings of the Board of Directors.
The Representative's Warrants provide certain rights with respect to the
registration under the Securities Act of up to 300,000 shares of Common Stock
issuable upon exercise thereof. The holders of
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the shares issuable upon exercise of the Representative's Warrant may require
the Company to file a registration statement under the Securities Act with
respect to such shares. In addition, if the Company registers any of its Common
Stock for its own account, the holders of the shares issuable upon exercise of
the Representative's Warrant are entitled to include their shares of Common
Stock in the registration.
The Preferred Stock will be traded on AMEX under the symbol 'ABP.'
The Common Stock of the Company is traded on Nasdaq National Market under
the symbol 'ABND.'
LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby will be
passed upon for the Company by Jones, Day, Reavis & Pogue, Dallas, Texas and for
the Underwriters by Wolin, Ridley & Miller LLP, Dallas, Texas.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996, and the
consolidated statements of operations, changes in shareholders' equity, and cash
flows, for the period from August 1, 1994 (inception) through December 31, 1994
and for the years ended December 31, 1995 and 1996, included in this prospectus,
have been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets, December 31, 1996 and September 30, 1997 (unaudited).......................... F-2
Consolidated Statements of Operations for the Three and Nine Month Periods ended September 30, 1996
(unaudited) and September 30, 1997 (unaudited)........................................................... F-3
Consolidated Statements of Shareholders Equity for the nine months ended September 30, 1997 (unaudited).... F-4
Consolidated Statements of Cash Flows for the Nine Month Periods ended September 30, 1996 (unaudited) and
September 30, 1997 (unaudited)........................................................................... F-5
Notes to Consolidated Financial Statements (unaudited)..................................................... F-6
Report of Independent Accountants.......................................................................... F-10
Consolidated Balance Sheets, December 31, 1995 and 1996.................................................... F-11
Consolidated Statements of Operations for the Period From August 1, 1994 (Inception) to December 31, 1994,
and the Years Ended December 31, 1995 and 1996........................................................... F-12
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-13
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-14
Notes to Consolidated Financial Statements................................................................. F-15
</TABLE>
F-1
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 4,121,342 $ 173,582
Restricted funds................................................................... 2,981,449 6,164,785
Finance contracts held for sale, net............................................... 228,429 999,538
Collateral acquired, net........................................................... 152,580 427,026
Class B certificates............................................................... 10,465,294 8,467,246
Interest-only strip receivable..................................................... 4,247,274 9,978,785
Debt issuance cost................................................................. 997,338 751,280
Trust receivable................................................................... 2,230,003 4,726,996
Due from affiliate................................................................. 168,847 132,213
Other assets....................................................................... 683,955 5,564,082
------------ -------------
Total assets............................................................. $ 26,276,511 $37,385,533
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facilities................................................... $ -- $ 4,240,208
Notes payable................................................................. 10,174,633 10,279,888
Accounts payable and accrued liabilities...................................... 1,474,586 3,071,275
Bank overdraft................................................................ -- 445,137
Payable to affiliate.......................................................... 265,998 190,852
Deferred income taxes......................................................... 2,075,553 3,623,405
------------ -------------
Total liabilities........................................................ 13,990,770 21,850,765
------------ -------------
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, 6,531,311 shares
issued and outstanding....................................................... 1,000 1,000
Additional paid-in capital.................................................... 8,617,466 8,704,466
Deferred compensation......................................................... (11,422) (1,142)
Loans to shareholders......................................................... (235,071) (7,006)
Unrealized appreciation on interest-only strip receivable..................... -- 1,265,971
Retained earnings............................................................. 3,913,768 5,571,479
------------ -------------
Total shareholders' equity............................................... 12,285,741 15,534,768
------------ -------------
Total liabilities and shareholders' equity.......................... $ 26,276,511 $37,385,533
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1997 1996 1997
---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Interest income.................................... $ 600,558 $1,313,670 $2,070,909 $ 3,107,402
Gain on sale of finance contracts.................. 3,679,081 4,840,621 9,423,067 13,532,765
Servicing fee income............................... 197,597 225,389 474,805 659,791
Other income (loss)................................ -- (9,461) -- (530,249)
---------- ---------- ---------- -----------
Total revenues................................ 4,477,236 6,370,219 11,968,781 16,769,709
---------- ---------- ---------- -----------
Expenses:
Provision for credit losses........................ 49,750 125,000 113,234 125,000
Interest expense................................... 669,815 1,102,195 1,807,335 2,930,592
Salaries and benefits.............................. 1,236,352 2,140,420 3,082,399 5,413,045
General and administrative......................... 433,163 1,722,689 1,317,511 4,481,846
Other operating expenses........................... 190,638 483,141 842,019 1,265,830
---------- ---------- ---------- -----------
Total expenses................................ 2,579,718 5,573,445 7,162,498 14,216,313
---------- ---------- ---------- -----------
Income before income taxes and extraordinary loss....... 1,897,518 796,774 4,806,283 2,553,396
Provision for income taxes.............................. 614,136 284,960 1,634,136 895,685
---------- ---------- ---------- -----------
Income before extraordinary loss........................ 1,283,382 511,814 3,172,147 1,657,711
Extraordinary loss, net of tax benefits of $50,000...... -- -- (100,000) --
---------- ---------- ---------- -----------
Net income.................................... $1,283,382 $ 511,814 $3,072,147 $ 1,657,711
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Income per common share:
Income before extraordinary loss................... $ 0.23 $ 0.08 $ 0.56 $ 0.25
Extraordinary loss................................. -- -- (0.02) --
---------- ---------- ---------- -----------
Net income.................................... $ 0.23 $ 0.08 $ 0.54 $ 0.25
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares outstanding..................... 5,701,086 6,537,129 5,701,086 6,537,129
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</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 SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------
(UNAUDITED)
<S> <C>
Common stock:
Balance, December 31, 1996.............................................................. $ 1,000
-------------------
Balance, September 30, 1997............................................................. 1,000
-------------------
Additional paid-in capital:
Balance, December 31, 1996.............................................................. 8,617,466
Issuance of common stock warrants....................................................... 87,000
-------------------
Balance, September 30, 1997............................................................. 8,704,466
-------------------
Deferred compensation:
Balance, December 31, 1996.............................................................. (11,422)
Amortization of deferred compensation................................................... 10,280
-------------------
Balance, September 30, 1997............................................................. (1,142)
-------------------
Loans to shareholders:
Balance, December 31, 1996.............................................................. (235,071)
Net payments received................................................................... 228,065
-------------------
Balance, September 30, 1997............................................................. (7,006)
-------------------
Unrealized appreciation on interest-only strip receivable:
Balance, December 31, 1996.............................................................. --
Increase in unrealized appreciation on interest-only strip receivable................... 1,265,971
-------------------
Balance, September 30, 1997............................................................. 1,265,971
-------------------
Retained earnings:
Balance, December 31, 1996.............................................................. 3,913,768
Net income.............................................................................. 1,657,711
-------------------
Balance, September 30, 1997............................................................. 5,571,479
-------------------
Total shareholders' equity......................................................... $15,534,768
-------------------
-------------------
</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 CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
----------------------------
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 3,072,146 $ 1,657,711
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of finance contract acquisition discount and insurance..... (1,161,132) (11,472)
Amortization of deferred compensation................................... 38,552 10,280
Amortization of debt issuance costs..................................... 242,071 634,033
Depreciation and amortization........................................... -- 197,203
Provision for credit losses............................................. 113,234 125,000
Deferred income taxes................................................... 1,584,136 895,685
Accretion of interest-only strip receivable............................. 894,795 (339,266)
Unrealized loss on Class B certificates................................. -- 80,325
Changes in operating assets and liabilities:
Restricted funds........................................................ 127,332 (3,183,336)
Other assets............................................................ (1,218,255) (5,077,330)
Class B certificates.................................................... (5,503,658) 1,917,723
Interest-only strip receivable.......................................... (1,500,502) (3,474,107)
Accounts payable and accrued liabilities................................ (358,159) 1,596,689
Due to/due from affiliate............................................... (389,144) (38,512)
Purchases of finance contracts............................................... (57,729,995) (99,211,259)
Sales of finance contracts................................................... 59,014,035 96,719,843
Repayments of finance contracts.............................................. 603,595 1,199,737
------------ ------------
Net cash used in operating activities.............................. (2,170,949) (6,301,053)
------------ ------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts...................................... (2,223,918) (2,496,993)
Loan payments from (to) shareholders......................................... (297,004) 228,065
Disposal proceeds from collateral acquired................................... 1,095,470 132,596
------------ ------------
Net cash used in investing activities.............................. (1,425,452) (2,136,332)
------------ ------------
Cash flows from financing activities:
Net borrowings (payments) under revolving credit facilities.................. (1,150,424) 4,240,208
Debt issuance costs.......................................................... (675,887) (387,975)
Repayments of borrowings under repurchase agreement.......................... (1,061,392) --
Proceeds from notes payable.................................................. 9,137,333 2,015,150
Payments on notes payable.................................................... (3,840,234) (1,909,895)
Proceeds from subordinated debt borrowings................................... 300,000 --
Increase in bank overdraft................................................... 1,129,949 445,137
Issuance of common stock warrants............................................ -- 87,000
------------ ------------
Net cash provided by financing activities.......................... 3,839,345 4,489,625
------------ ------------
Net increase (decrease) in cash and cash equivalents.............................. 242,944 (3,947,760)
Cash and cash equivalents at beginning of period.................................. 92,660 4,121,342
------------ ------------
Cash and cash equivalents at end of period........................................ $ 335,604 $ 173,582
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of AutoBond Acceptance Corporation
(the 'Company') included herein are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to regulations. In the opinion of management, the
financial statements reflect all adjustments (of a normal and recurring nature)
which are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of the results for a full year. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31, 1996 (Number
000-21673).
Certain data from the prior year has been reclassified to conform to 1997
presentation.
2. EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Fully
diluted earnings per share are not presented because the relevant potentially
dilutive securities are not significant. Effective May 30, 1996, the Board of
Directors of the Company voted to effect a 767.8125-for-1 stock split. All share
information and earnings per share calculations for the periods presented in the
financial statements herein, and the notes hereto, have been retroactively
restated for such stock split.
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 6,537,129
for periods ended September 30, 1997.
3. FINANCE CONTRACTS HELD FOR SALE
The following amounts are included in finance contracts held for sale as
of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Unpaid principal balance................................................. $266,450 $ 1,090,592
Prepaid insurance........................................................ 18,733 42,437
Contract acquisition discounts........................................... (31,554) (88,465)
Allowance for credit losses.............................................. (25,200) (45,026)
------------ -------------
$228,429 $ 999,538
------------ -------------
------------ -------------
</TABLE>
4. INTEREST-ONLY STRIP RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No. 125
'Transfer and Servicing of Financial Assets and Extinguishment of Liabilities'
(SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement also provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings and requires that liabilities and derivatives
incurred or obtained by transferors as part of a transfer of financial assets be
initially measured at fair value.
As a result of adopting SFAS No. 125, the excess servicing receivable
previously shown on the consolidated balance sheet as of December 31, 1996 has
been reclassified as interest-only strip receivable, and accounted for as an
investment security classified similar to those classified as 'available
F-6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
for sale' under Statement of Financial Accounting Standards No. 115, 'Accounting
for Certain Investments in Debt and Equity Securities' (SFAS No. 115).
Accordingly, any unrealized gain or loss in the fair value is included as a
component of equity, net of the income tax effect. Any impairment deemed
permanent is recorded as a charge against earnings.
The fair value of interest-only strip receivable is calculated based upon
the present value of the estimated future interest income after considering the
effects or estimated prepayments, defaults and delinquencies. The discount rate
utilized is based upon assumptions that market participants would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.
The changes in the interest-only strip receivable follow:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Beginning balance.................................................... $ 4,247,274
Unrealized appreciation.............................................. 1,918,138
Additions............................................................ 3,942,033
Accretion............................................................ 339,266
Impairment charge.................................................... (467,926)
-------------
Ending balance....................................................... $ 9,978,785
-------------
-------------
</TABLE>
The Company periodically reviews the fair value of the interest-only strip
receivable. Changes in the fair value of securities available for sale are
recognized as an adjustment to stockholders' equity. This adjustment amounted to
a net unrealized gain of $1,265,971, net of related tax effect of $652,167, on
the valuation of the interest-only strip receivable for the nine months ended
September 30, 1997. Additionally, the Company recorded a charge against earnings
for permanent impairment of the interest-only strip receivable, determined on a
disaggregated basis, of $467,926 for the nine months ended September 30, 1997.
5. REVOLVING CREDIT FACILITIES
At September 30, 1997, the Company had no outstanding balance on a $10.0
million revolving credit facility (the 'Sentry Facility') with Sentry Financial
Corporation ('Sentry'), which expires on December 31, 2000. The proceeds from
borrowings under the Sentry Facility are used to acquire finance contracts, to
pay applicable credit default insurance premiums and to make deposits to a
reserve account with Sentry. The Company pays a utilization fee of up to 0.21%
per month on the average outstanding balance under the Sentry Facility. The
Sentry Facility also requires the Company to pay up to 0.62% per quarter on the
average unused balance. Interest is payable monthly and accrues at a per annum
rate of prime plus 1.75% (10.25% at September 30, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company incurred interest expense of $358,174 for the nine months ended
September 30, 1997.
The Company and its wholly owned subsidiary, AutoBond Funding Corporation
II, entered into a $50 million revolving warehouse facility (the 'Daiwa
Facility') with Daiwa Finance Corporation ('Daiwa') effective as of February 1,
1997. Advances under the Daiwa Facility mature on the earlier of 120 days
following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
F-7
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (6.81% at September 30, 1997) or (y) 11%
per annum. The Company also pays a non-utilization fee of .25% per annum on the
unused amount of the line of credit. Pursuant to the Daiwa Facility, the Company
paid a $243,750 commitment fee. The debt issuance cost is being amortized as
interest expense on a straight line basis through March 1998. The Daiwa Facility
contains certain covenants and representations similar to those in the
agreements governing the Company's existing securitizations including, among
other things, delinquency and repossession triggers. At September 30, 1997,
advances under the Daiwa Facility totaled $4,240,208 and remaining availability
was $13,431,123. The Company incurred interest expense under the Daiwa Facility
of approximately $816,396 during the nine months ended September 30, 1997.
On June 30, 1997, the Daiwa Facility was amended to allow the Company, at
its election, to transfer finance contracts into a qualified unconsolidated
special purpose subsidiary, AutoBond Master Funding Corporation. In conjunction
with these transfers, this special purpose subsidiary issues variable funding
warehouse notes which are convertible into term notes at the option of the
holder of such notes. Transfers of finance contracts to the special purpose
entity have been recognized as sales under SFAS No. 125.
6. NOTES PAYABLE
The following amounts are included in notes payable as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Notes payable, collateralized by Class B certificates.................... $ 10,050,781 $ 8,159,296
Convertible notes payable................................................ -- 2,000,000
Other notes payable...................................................... 123,852 120,592
------------ -------------
$ 10,174,633 $10,279,888
------------ -------------
------------ -------------
</TABLE>
Pursuant to the an agreement (the 'Securities Purchase Agreement') entered
into on June 30, 1997, the Company issued by private placement $2,000,000 in
aggregate principal amount of senior secured convertible notes ('Convertible
Notes'). Interest is payable quarterly at a rate of 18% per annum until maturity
on June 30, 2000. If the Company pays down the Convertible Notes in full prior
to June 30, 1998, the holders will have no conversion rights. The Convertible
Notes, collateralized by the interest-only strip receivables from the Company's
first four securitizations, are convertible into shares of common stock of the
Company upon the earlier to occur of (i) an event of default on the Convertible
Notes and (ii) June 30, 1998, through the close of business on June 30, 2000,
subject to prior redemption. The conversion price is equal to the outstanding
principal amount of the Convertible Note being converted divided by the lesser
of (x) $5.00 (as adjusted by the terms of the Securities Purchase Agreement) and
(y) 85% of the average of the five lowest closing bid prices of the Company's
common stock on the Nasdaq Stock Market, or such other exchange or market where
the common stock is then traded during the 60 trading days immediately preceding
the date the Convertible Note is converted or the applicable date of repayment
(subject to adjustment under certain circumstances specified in the Securities
Purchase Agreement). The Company also paid certain debt issuance costs to the
purchaser totaling $25,000, which is being amortized as interest expense on a
straight line basis through June 30, 2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998. To date, the holders have
purchased $2,900,000 of subordinated asset-backed securities.
F-8
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
The Company is required to represent and warrant certain matters with
respect to the finance contracts sold to the Trusts, which generally duplicate
the substance of the representations and warranties made by the dealers in
connection with the Company's purchase of the finance contracts. In the event of
a breach by the Company of any representation or warranty, the Company is
obligated to repurchase the finance contracts from the Trust at a price equal to
the remaining principal plus accrued interest. The Company repurchased finance
contracts totaling $619,520 from a Trust during the three months ended March 31,
1997. Of the total amount of these finance contracts, $190,320 were purchased
from one dealer. Although the Company has requested that this dealer repurchase
such contracts, the dealer has refused. The Company has commenced litigation
against such dealer. See 'Legal Proceedings.'
F-9
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the period from August 1, 1994 (Inception) through December 31, 1994
and for the years ended December 31, 1995 and 1996. 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.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 26, 1997
F-10
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
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-11
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 YEAR ENDED
(INCEPTION) DECEMBER 31,
THROUGH --------------------------
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-12
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Capital contributions at
inception................... 5,118,753 $1,000 $ 451,000
Loans to shareholders.........
Net loss......................
--------- ------ ---------- ------------
Balance, December 31, 1994.... 5,118,753 1,000 451,000
Capital contributions......... 2,323,103
Loans to shareholders.........
Deferred compensation pursuant
to employee contract........ 138,500 $ (138,500)
Amortization of deferred
compensation................ 75,742
Net income....................
--------- ------ ---------- ------------
Balance, December 31, 1995.... 5,118,753 1,000 2,912,603 (62,758)
Stock issued pursuant to
employee contract........... 568,747
Loans to shareholders.........
Amortization of deferred
compensation................ 51,336
Issuance of common stock in
public offering............. 825,000 5,704,863
Net income....................
--------- ------ ---------- ------------
Balance, December 31, 1996.... 6,512,500 $1,000 $8,617,466 $ (11,422)
--------- ------ ---------- ------------
--------- ------ ---------- ------------
<CAPTION>
LOANS TO RETAINED
SHAREHOLDERS EARNINGS TOTAL
------------ ---------- -----------
<S> <C> <C> <C>
Capital contributions at
inception................... $ 452,000
Loans to shareholders.........$ (16,000) (16,000)
Net loss...................... $ (544,605) (544,605)
------------ ---------- -----------
Balance, December 31, 1994.... (16,000) (544,605) (108,605)
Capital contributions......... 2,323,103
Loans to shareholders......... (137,359) (137,359)
Deferred compensation pursuant
to employee contract........
Amortization of deferred
compensation................ 75,742
Net income.................... 873,487 873,487
------------ ---------- -----------
Balance, December 31, 1995.... (153,359) 328,882 3,026,368
Stock issued pursuant to
employee contract...........
Loans to shareholders......... (81,712) (81,712)
Amortization of deferred
compensation................ 51,336
Issuance of common stock in
public offering............. 5,704,863
Net income.................... 3,584,886 3,584,886
------------ ---------- -----------
Balance, December 31, 1996....$ (235,071) $3,913,768 $12,285,741
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994
(INCEPTION) YEAR ENDED
THROUGH 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-14
<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.
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,
F-15
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-16
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-17
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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).
F-18
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-19
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
</TABLE>
The changes in the excess servicing asset are as follows:
<TABLE>
<S> <C>
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.
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
F-20
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-21
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-22
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
advances under Revolving Credit Facilities, and (iii) for general corporate and
working capital purposes.
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 YEAR ENDED
(INCEPTION) 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.
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.
F-23
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
----------------------
# SHARES WEIGHTED
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>
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.
F-24
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996 DECEMBER 31, 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.
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
F-25
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-26
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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.
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
F-27
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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:
F-28
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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-29
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY
UNDERWRITER OR THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS TO WHICH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 7
Use of Proceeds............................................................................................................. 15
Dividend Policy............................................................................................................. 15
Price Range of Common Stock................................................................................................. 15
Capitalization.............................................................................................................. 16
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends............................................................ 17
Business.................................................................................................................... 18
Selected Financial Data..................................................................................................... 34
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 35
Management.................................................................................................................. 51
Certain Transactions........................................................................................................ 57
Beneficial Ownership of Common Shares....................................................................................... 59
Description of Capital Stock................................................................................................ 59
Underwriting................................................................................................................ 64
Legal Matters............................................................................................................... 66
Experts..................................................................................................................... 66
Index to Financial Statements............................................................................................... F-1
</TABLE>
------------------------
1,000,000 SHARES
AUTOBOND ACCEPTANCE
CORPORATION
% CUMULATIVE
SERIES A PREFERRED STOCK
($10 LIQUIDATION PREFERENCE)
--------------------------
PROSPECTUS
--------------------------
TEJAS SECURITIES GROUP, INC.
, 1998
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $ 3,485
NASD filing fee................................................................. 1,650
AMEX listing fee................................................................ 15,000
Accounting fees and expenses.................................................... *
Legal fees and expenses......................................................... *
Printing Fees................................................................... *
Miscellaneous................................................................... *
----------
Total...................................................................... $ *
----------
----------
</TABLE>
All amounts except the Securities and Exchange Commission registration fee
and, the NASD fee and the AMEX fee are estimated.
- ------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides:
13. A corporation may indemnify any officer or director from and
against any judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by him in an action, suit,
investigation or other proceeding to which he is, was, or is threatened to
be a party; provided that it is determined by the Board of Directors, a
committee thereof, special legal counsel, or a majority of the stockholders
that such officer or director: (a) conducted himself in good faith; (b)(i)
in the case of his conduct as a director of the corporation, reasonably
believed that his conduct was in the best interest of the corporation or
(ii) in all other cases, that his conduct was at least not opposed to the
corporation's interest; and (c) in a criminal case, had no reasonable cause
to believe his conduct was unlawful. In matters as to which the officer or
director is found liable for willful or intentional misconduct in the
performance of his duty to the corporation.
14. A corporation shall indemnify an officer or director against
reasonable expenses incurred by him in connection with an action, suit,
investigation, or other proceeding to which he is, was, or was threatened
to be a party if he has been wholly successful in its defense.
15. A corporation may advance an officer or director the reasonable
costs of defending an action suit, investigation or other proceeding in
certain cases.
16. A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Article.
The Company's Articles of Incorporation provide that the Company will
indemnify its directors and officers to the fullest extent permitted by law.
The Company has procured directors' and officers' liability insurance in
the amount of $5 million.
See 'Item 17. Undertakings' for a description of the Securities and
Exchange Commission's position regarding such indemnification provisions.
II-1
<PAGE>
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1995, March 1996, June 1996, September 1996 and December 1996,
Company's five securitization subsidiaries issued approximately $26.2 million,
$16.6 million, $17.8 million, $22.3 million and $25.0 million, respectively, in
Class A Investor Certificates, in each case evidencing an undivided interest in
a pool of finance contracts with an initial aggregate unpaid principal balance
equal to the initial principal balance of such Class A Certificates. The
certificates issued in the December 1995, March 1996, June 1996, September 1996
and December securitizations have final maturity dates of October 15, 2001,
January 15, 2002, April 15, 2002, July 15, 2002 and November 15, 2002,
respectively. In March 1997, the Company's 1997-A securitization subsidiary
issued approximately $25.8 million in Class A Notes, $1.4 million in Class B
Notes and $1.6 million in Class C Notes and in its 1997B securitization in
August 1997 and 1997C securitization in October 1997, Autobond Master Funding
Corporation issued approximately $34.7 million and $34.4 million in Class A
Notes and $2.9 million and $2.9 million in Class B Notes, respectively
(together, the 'Notes'), secured on a non-recourse basis by a pool of finance
contracts and with final maturities of five years. In each case, the Class A
Certificates and the Notes were privately placed with sophisticated
institutional investors pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the 'Securities Act'). The Company has financed on a non-recourse
basis approximately 80% of the retained excess spread from both the 1995 and
1996 securitizations with sophisticated institutional investors.
In June 1997, the Company issued $2,000,000 in aggregate principal amount
of its 18% convertible promissory notes (convertible into 200,000 shares of the
Company's Common Stock) and warrants to purchase 200,000 shares of the Company's
Common Stock, in each case to institutional investors pursuant to Section 4(2)
of the Securities Act.
In March 1996, the Company issued to a private investor, pursuant to
Section 4(2) of the Securities Act, a Subordinated Note (the 'Subordinated
Note') in the amount of $300,000 and a Warrant (the 'Warrant') for the purchase
of 18,811 shares of Common Stock. The payment obligations of the Company under
the Subordinated Note are subordinated to all other indebtedness of the Company
that is not specifically designated as subordinate to the Subordinated Note. The
Subordinated Note has been repaid in full and the Warrant has been exercised.
In November 1995, the Company agreed to issue, pursuant to Section 4(2) of
the Securities Act, to Adrian Katz 568,750 shares of Common Stock in
consideration for current and future services. Such shares were issued in
January 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following reflects all applicable Exhibits required under Item 601 of
Regulation S-K;
<TABLE>
<C> <S>
1.1 -- Underwriting Agreement (to be filed by amendment)
1.2 -- Form of Representative's Warrrant (to be filed by amendment)
3.1* -- Restated Articles of Incorporation of the Company
3.2* -- Amended and Restated Bylaws of the Company
4.1 -- Specimen Preferred Stock Certificate (to be filed by amendment)
4.2* -- Specimen Common Stock Certificate
5.1 -- Opinion of Jones, Day, Reavis & Pogue (to be filed by amendment)
10.1* -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of December 15, 1995
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
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.6* -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31, 1995 between
Sentry Financial Corporation and the Company
10.7* -- Management Administration and Services Agreement dated as of January 1, 1996 between the Company and
AutoBond, Inc.
10.8* -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9* -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the Company
10.10* -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by Interstate Fire &
Casualty Company
10.11* -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.12* -- Employee Stock Option Plan
10.13* -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas Ford, Inc.
10.14* -- Automobile Loan Sale Agreement, dated as of September 30, 1996, among the Company, First Fidelity
Acceptance Corp., and Greenwich Capital Financial Products, Inc.
10.15'D' -- Servicing Agreement, dated January 29, 1997, between CSC LOGIC/MSA L.L.P., doing business as 'Loan
Servicing Enterprise' and the Company
10.16'D' -- Credit Agreement, dated as of February 1, 1997, among AutoBond Funding Corporation II, the Company and
Daiwa Finance Corporation
10.17'D' -- Security Agreement, dated as of February 1, 1997, among AutoBond Funding Corporation II, the Company
and Norwest Bank Minnesota, National Association
10.18'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
10.19x -- Automobile Loan Sale Agreement, dated March 26, 1997, between Credit Suisse First Boston Mortgage
Capital L.L.C. and the Company.
10.20** -- Credit Agreement, dated as of June 30, 1997, by and among AutoBond Master Funding Corporation,
AutoBond Acceptance Corporation and Daiwa Finance Corporation.
10.21** -- Amended and Restated Trust Indenture, dated as of June 30, 1997, among AutoBond Master Funding
Corporation, AutoBond Acceptance Corporation and Norwest Bank Minnesota, National Association.
10.22** -- Securities Purchase Agreement, dated as of June 30, 1997, by and among AutoBond Acceptance
Corporation, Lion Capital Partners, L.P. and Infinity Emerging Opportunities Limited.
10.23 -- Credit Agreement, dated as of December 31, 1997, among the Company, AutoBond Master Funding
Corporation II and Credit Suisse First Boston Mortgage Capital LLC.
10.24 -- Trust Indenture, dated as of December 31, 1997, among the Company, AutoBond Master Funding Corporation
II and Manufacturers & Traders Trust Company.
10.25 -- Receivables Purchase Agreement, dated as of December 31, 1997, between Credit Suisse First Boston
Mortgage Capital LLC and the Company.
10.26 -- Servicing Agreement, dated as of December 31, 1997, among the Company, AutoBond Master Funding
Corporation II and Manufacturers & Traders Trust Company.
21.1 -- Subsidiaries of the Company (to be filed by amendment)
23.1 -- Consent of Coopers & Lybrand L.L.P. (contained in Exhibit 5.1)
23.2 -- Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1)
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' Incorporated by reference from the Company's 1996 Annual Report on Form
10-K.
x Incorporated by Reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(footnotes continued on next page)
II-3
<PAGE>
<PAGE>
(footnotes continued from previous page)
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
(b) Financial Statement Schedules:
The following schedules are filed as part of this Registration Statement
and are filed herewith:
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
1. The Undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) of Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, office or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Austin, State of Texas, on January 12, 1998.
AUTOBOND ACCEPTANCE CORPORATION
By: /S/ WILLIAM O. WINSAUER
...................................
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
indicated on January 12, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<C> <S>
/S/ WILLIAM O. WINSAUER Chairman of the Board, Chief
......................................... Executive Officer and Director
(WILLIAM O. WINSAUER) (Principal Executive Officer)
/S/ ADRIAN KATZ Vice Chairman of the Board, Chief Operating Officer and
......................................... Director
(ADRIAN KATZ)
/S/ JOHN S. WINSAUER Vice President and Director
.........................................
(JOHN S. WINSAUER)
/S/ R. T. PIGOTT, JR. Vice President and Chief Financial Officer (Principal Accounting
......................................... Officer)
(R. T. PIGOTT, JR.)
/S/ * Director
.........................................
(ROBERT S. KAPITO)
/S/ * Director
.........................................
(MANUEL A. GONZALEZ)
/S/ * Director
.........................................
(STUART A. JONES)
/S/ * Director
.........................................
(THOMAS I. BLINTEN)
* /S/ ADRIAN KATZ Attorney-in-fact
.........................................
(ADRIAN KATZ)
</TABLE>
II-5
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
In connection with our audits of the consolidated financial statements of
Autobond Acceptance Corporation and Subsidiaries as of December 31, 1995 and
1996 and for the period from August 1, 1994 (inception) through December 31,
1994 and for the years ended December 31, 1995 and 1996, which consolidated
financial statements are included in the Prospectus, we have also audited the
financial schedule included herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 26, 1997
S-1
<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-2
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- --------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Underwriting Agreement (to be filed by amendment)...............................................
1.2 -- Form of Representative's Warrrant (to be filed by amendment)....................................
3.1* -- Restated Articles of Incorporation of the Company...............................................
3.2* -- Amended and Restated Bylaws of the Company......................................................
4.1 -- Specimen Preferred Stock Certificate (to be filed by amendment).................................
4.2* -- Specimen Common Stock Certificate...............................................................
5.1 -- Opinion of Jones, Day, Reavis & Pogue (to be filed by amendment)................................
10.1* -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of December 15,
1995 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 effective as of May 1, 1996 between William O. Winsauer and the Company....
10.10* -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by Interstate
Fire & Casualty Company..........................................................................
10.11* -- Warrant to Purchase Common Stock of the Company dated March 12, 1996............................
10.12* -- Employee Stock Option Plan......................................................................
10.13* -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas Ford, Inc. ....
10.14* -- Automobile Loan Sale Agreement, dated as of September 30, 1996, among the Company, First
Fidelity Acceptance Corp., and Greenwich Capital Financial Products, Inc. .......................
10.15'D' -- Servicing Agreement, dated January 29, 1997, between CSC LOGIC/MSA L.L.P., doing business as
'Loan Servicing Enterprise' and the Company......................................................
10.16'D' -- Credit Agreement, dated as of February 1, 1997, among AutoBond Funding Corporation II, the
Company and Daiwa Finance Corporation............................................................
10.17'D' -- Security Agreement, dated as of February 1, 1997, among AutoBond Funding Corporation II, the
Company and Norwest Bank Minnesota, National Association.........................................
10.18'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.............
10.19x -- Automobile Loan Sale Agreement, dated March 26, 1997, between Credit Suisse First Boston
Mortgage Capital L.L.C. and the Company..........................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- --------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
10.20** -- Credit Agreement, dated as of June 30, 1997, by and among AutoBond Master Funding Corporation,
AutoBond Acceptance Corporation and Daiwa Finance Corporation....................................
10.21** -- Amended and Restated Trust Indenture, dated as of June 30, 1997, among AutoBond Master Funding
Corporation, AutoBond Acceptance Corporation and Norwest Bank Minnesota, National Association....
10.22** -- Securities Purchase Agreement, dated as of June 30, 1997, by and among AutoBond Acceptance
Corporation, Lion Capital Partners, L.P. and Infinity Emerging Opportunities Limited.............
10.23 -- Credit Agreement, dated as of December 31, 1997, among the Company, AutoBond Master Funding
Corporation II and Credit Suisse First Boston Mortgage Capital LLC...............................
10.24 -- Trust Indenture, dated as of December 31, 1997, among the Company, AutoBond Master Funding
Corporation II and Manufacturers & Traders Trust Company.........................................
10.25 -- Receivables Purchase Agreement, dated as of December 31, 1997, between Credit Suisse First
Boston Mortgage Capital LLC and the Company......................................................
10.26 -- Servicing Agreement, dated as of December 31, 1997, among the Company, AutoBond Master Funding
Corporation II and Manufacturers & Traders Trust Company.........................................
21.1 -- Subsidiaries of the Company (to be filed by amendment)..........................................
23.1 -- Consent of Coopers & Lybrand L.L.P. ............................................................
23.2 -- Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1)................................
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' Incorporated by reference from the Company's 1996 Annual Report on Form
10-K.
x Incorporated by Reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as...................................'SS'
The dagger symbol shall be expressed as ....................................'D'
<PAGE>
<PAGE>
EXECUTION COPY
================================================================================
AUTOBOND MASTER FUNDING CORPORATION II
(as Borrower),
AUTOBOND ACCEPTANCE CORPORATION
and
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
(as Initial Lender)
------------------------------------
CREDIT AGREEMENT
------------------------------------
Dated as of December 31, 1997
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. COMMITMENT
Section 1.1 Advances................................................................1
Section 1.2 Borrowings; Closings....................................................2
Section 1.3 Notices of Advances.....................................................2
Section 1.4 Use of Proceeds.........................................................3
Section 1.5 Security Agreement......................................................3
Section 1.6 Increased Costs.........................................................3
Section 1.7 Taxes...................................................................5
Section 1.8 Definitions.............................................................7
Section 1.9 Payment Instructions....................................................7
SECTION 2. REPRESENTATIONS AND WARRANTIES
Section 2.1 General Representations and Warranties of the Borrower..................7
Section 2.2 General Representations and Warranties of AutoBond.....................11
Section 2.3 Representations and Warranties with Respect to the Specified
Auto Loans.............................................................13
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE
ON INITIAL CLOSING DATE
Section 3.1 Other Agreements.......................................................14
Section 3.2 Opinion of Special Counsel.............................................14
Section 3.3 Opinions of Nevada Counsel............................................14
Section 3.5 Representations True; No Event of Default..............................14
Section 3.6 No Merger or Change in Control.........................................14
Section 3.7 Consents and Approvals.................................................15
Section 3.8 Use of Proceeds........................................................15
SECTION 4. CERTAIN SPECIAL RIGHTS.
Section 4.1 Home Office Payment....................................................15
Section 4.2 Certain Taxes..........................................................15
SECTION 5. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 5.1 Advance Maturity.......................................................16
Section 5.2 Mandatory Prepayments..................................................16
SECTION 6. ASSIGNMENTS AND PARTICIPATIONS
Section 6.1 Assignments............................................................16
Section 6.2 Participations.........................................................17
SECTION 7. CERTAIN COVENANTS OF THE BORROWER
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 7.1 Maintenance of Office.................................................17
Section 7.2 Existence.............................................................18
Section 7.3 General Maintenance of Business, Etc..................................18
Section 7.4 Inspection............................................................18
Section 7.5 Compliance with Law, etc..............................................18
Section 7.6 Payment of Taxes and Claims...........................................19
Section 7.7 Limitations on Indebtedness...........................................19
Section 7.8 Restricted Investments................................................19
Section 7.9 Nature of Business....................................................19
Section 7.10 Independence..........................................................19
Section 7.11 Other Agreements and Parties..........................................20
Section 7.12 Investment Company Act................................................21
Section 7.13 Borrowing Base Deficien...............................................21
Section 7.14 Liens.................................................................21
SECTION 8. CERTAIN COVENANTS OF AUTOBOND
Section 8.1 Existence.............................................................21
Section 8.2 Compliance with Law, etc..............................................21
Section 8.3 Inspection............................................................21
Section 8.4 Consolidation and Merger..............................................22
Section 8.5 Control...............................................................22
Section 8.6 Tax Returns...........................................................22
Section 8.7 Protection of Right, Title and Interest...............................23
Section 8.8 Further Assurances....................................................24
Section 8.9 Independence..........................................................24
Section 8.10 Other Agreements and Parties..........................................25
Section 8.11 Servicing Arrangements................................................25
Section 8.12 Preservation of Quality of Auto Loans.................................25
Section 8.13 Maintenance of Borrowing Base
SECTION 9. INFORMATION TO BE FURNISHED TO LENDER.
Section 9.1 Information to be Furnished by the Borrower and AutoBond..............26
SECTION 10. DEFAULTS, REMEDIES AND TERMINATION
Section 10.1 Events of Default. ..................................................26
SECTION 11. INTERPRETATION OF AGREEMENT
Section 11.1 Definitions...........................................................26
Section 11.2 Accounting Terms......................................................37
Section 11.3 Governing Law.........................................................38
Section 11.4 Headings..............................................................38
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 11.5 Independence of Covenants, etc........................................38
SECTION 12. MISCELLANEOUS
Section 12.1 Notices..............................................................38
Section 12.2 Survival.............................................................38
Section 12.3 Successors and Assigns...............................................38
Section 12.4 Amendment and Waiver.................................................39
Section 12.5 Counterparts.........................................................39
Section 12.6 Reproduction of Documents............................................39
Section 12.7 Consent to Jurisdiction and Venue....................................40
Section 12.8 No Petition..........................................................40
Section 12.9 Acts of Lender.......................................................40
Section 12.10 Confidentiality......................................................41
</TABLE>
EXHIBITS
EXHIBIT A Form of Borrowing Notice
EXHIBIT B Form of Trust Indenture
EXHIBIT C Form of Opinion
EXHIBIT D Form of Nevada Counsel Opinion
iii
<PAGE>
<PAGE>
CREDIT AGREEMENT dated as of December 31, 1997 among AutoBond
Master Funding Corporation II, a Nevada corporation (the "Borrower"), AutoBond
Acceptance Corporation, a Texas corporation ("AutoBond") and Credit Suisse First
Boston Mortgage Capital LLC (the "Initial Lender").
The Borrower has requested that the Initial Lender make advances
to it in an initial aggregate amount of $11,572,473.63 and the Initial Lender is
prepared to make such advances upon the terms and subject to the conditions
hereof. The advances hereunder shall be evidenced by the Borrower's Variable
Funding Note, Series A (the "Note"), issued to the Initial Lender under the
Trust Indenture, dated as of December 31, 1997 (the "Indenture"), among the
Borrower, AutoBond and Manufacturers & Traders Trust Company, as trustee
(the"Trustee"). The Note shall be entitled to the benefits of the Indenture.
Accordingly, the parties hereto agree as follows:
SECTION 1. COMMITMENT.
Section 1.1 Advances. The Initial Lender agrees, on the terms of
this Agreement and subject to the conditions hereof, to make an initial Advance
to the Borrower in an aggregate principal amount of $11,572,473.63. At its sole
discretion, the Lender may make additional Advances, although the Lender has no
commitment to do so. Each Advance shall (a) mature on the related Maturity Date
and (b) bear interest from the date thereof until such Advance shall be paid in
accordance with the terms hereof (whether at maturity, mandatory prepayment, by
acceleration or otherwise) at the per annum rate with respect to each Interest
Period at the Interest Rate, payable on each Interest Payment Date in accordance
with the provisions of Section 13.04 of the Indenture. Interest shall be
computed on the basis of the actual number of days in such Interest Period and a
three hundred and sixty day year and on each Interest Payment Date shall equal
all unpaid interest accrued in respect of each prior Interest Period. If the
Borrower shall have paid or agreed to pay any interest on any Advance in excess
of that permitted by law, then it is the express intent of the parties hereto
with respect thereto that (i) to the extent possible given the term of such
Advance, all excess amounts previously paid or to be paid by the Borrower be
applied to reduce the principal amount of such Advance and the provisions
thereof immediately be deemed reformed and the amounts thereafter collectable
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with the then applicable law, but so as to permit the recovery
of the fullest amount otherwise called for thereunder and (ii) to the extent
that the reduction of the principal amount of, and the amounts collectible
under, such Advance and the reformation of the provisions thereof described in
the immediately preceding clause (i) 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 5.2
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.
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Section 1.2 Borrowings; Closings. (a) This Agreement and the
other Program Documents shall be executed and the initial Advance is to be made
on December 31, 1997 (the "Initial Closing Date"). Additional Advances may be
made on subsequent Business Days (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").
(b) The Advances shall be evidenced by the Variable Funding Note,
Series A, issued pursuant to the terms of the Indenture (the "Note"), dated the
date of the delivery of such Note to the Initial Lender under the Indenture,
payable to the Initial Lender. The date and amount of each Advance made by the
Initial Lender to the Borrower and each payment made on account of the principal
thereof, shall be recorded by the Initial Lender on its books and, prior to any
transfer of the Note, endorsed by the Initial Lender on the schedule attached to
the Note or any continuation thereof.
(c) The Initial Lender shall be entitled to have the Note
subdivided, by exchange for Notes of lesser denominations or otherwise in
connection with an assignment of all or any portion of the Advances and the Note
pursuant to the terms of this Agreement; provided that in no event may the Note
be subdivided into denominations of less than $500,000.
(d) Each Advance shall be made by wire transfer of immediately
available funds to the Loan Purchase Account.
Section 1.3 Notices of Advances. The Borrower will give notice
substantially in the form of Exhibit A hereto of each Advance (a "Borrowing
Notice") to the Initial Lender and the Trustee, which notice shall be
irrevocable and effective only upon receipt by the Initial Lender and the
Trustee, and which shall specify the date (at least two Business Days prior to
the proposed date of such Advance, except in the case of the Initial 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 $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 or, in the case
of the initial Closing Date, on the Initial 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
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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 3.7.
Section 1.5 Security Agreement. The Advances are to be secured
pursuant to the Trust Indenture, dated as December 31, 1997 (the "Indenture
Agreement"), among the Borrower, AutoBond and Manufacturers & Traders Trust
Company, as Trustee (together with any successors thereto, the "Trustee"),
substantially in the form of Exhibit C (as from time to time amended,
supplemented or modified). The Trust Assets allocated to secure the Borrower's
obligations under this Agreement are identified in Schedule 1 to the Indenture.
Section 1.6 Increased Costs. (a) In the event that any change
after the date upon which the Lender makes an Advance or acquires an interest in
an Advance in any Requirement of Law (including any change to the certificate of
incorporation, articles of association, by-laws or other organizational or
governing documents of the Lender, but only to the extent that such change is
the result of the compliance by the Lender with any request or directive
reflecting a change in Requirement of Law from any central bank or other
Governmental Authority in the United States of America), or in the
interpretation or application thereof or compliance by the Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority in the United States of America made after
the date upon which the Lender makes its Advances or acquires an interest in an
Advance:
(i) shall subject the Lender to any tax of any kind whatsoever
with respect to this Agreement or the Note, or change the basis of
taxation of payments in respect thereof (except for taxes referred to in
Section 1.7(a) and 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 Trustee of a written request therefor, the Trustee
shall, subject to Section 1.6(c), on behalf of the Borrower, pay to
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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 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), then, from time to
time, after submission by the Lender to the Borrower and the Trustee of a
written request therefor, the Trustee shall, subject to Section 1.6(c), on
behalf of the Borrower, pay to the Lender such additional amount or amounts as
will compensate the Lender for such reduction.
(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
inconsistent with any applicable law or otherwise be disadvantageous to the
Lender.
(d) If the Lender claims the increased amounts described in
Section 1.6(a) or (b) ("Increased Cost"), the Lender will furnish to the
Borrower and the Trustee a certificate setting forth the basis and amount of
each request by the Lender for any such Increased Cost.
(e) Failure on the part of the Lender to demand compensation for
any Increased Cost or amount pursuant to Section 1.6(a) with respect to any
period shall not constitute a waiver of the Lender's right to demand
compensation with respect to such period.
(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
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provide such Lender with an Officer's Certificate stating that such new lender
is not subject to, or has agreed not to seek, such increased costs.
Section 1.7 Taxes. (a) All payments made by the Trustee on behalf
of the Borrower, under this Agreement shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, 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 from the Lender
having executed, delivered, performed its obligations or received a payment
under, or enforced, this Agreement) or any political subdivision or taxing
authority thereof or therein, and also excluding United States of America
withholding taxes to the extent that a Lender incorporated in or under the laws
of a jurisdiction other than the United States, any state thereof or the
District of Columbia fails to provide to the Trustee at such times as are
required by law a duly completed and executed Internal Revenue Service form 1001
or 4224, as applicable (all such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions and withholdings being hereinafter called "Taxes"),
provided that the Lender is not subject to backup withholding or provides the
Trustee with a duly completed and executed Internal Revenue Service form W-8 or
W-9, as appropriate. If any Taxes are required to be withheld from any amounts
payable to the Lender hereunder, after submission by the Lender to the Borrower
and the Trustee of a written request therefor, the amounts so payable to the
Lender shall be increased by the Trustee, subject to Section 1.7(c), on behalf
of the Borrower, to the extent necessary to yield to the Lender (after payment
of all Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement, except that no increase shall be
made if the Lender is subject to backup withholding and fails to provide the
Trustee with a duly completed and executed Internal Revenue Service form W-8 or
W-9, as appropriate. Any Lender shall utilize available tax credits to decrease
amounts payable with respect to any such withholding which the Lender in its
sole judgment believes are directly related to this Agreement, except that no
increase shall be made if the Lender is subject to backup withholding and fails
to provide the Trustee with a duly completed and executed Internal Revenue
Service form W-8 or W-9, as appropriate. Nothing in the preceding sentence shall
give the Borrower or any other third party rights to inspect, audit or otherwise
request information regarding Lender records, including records relating to
available tax credits. If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority the Trustee shall, subject to Section 1.7(c), on
behalf of the Borrower, pay the Lender for any incremental taxes, interest or
penalties that may become payable by the Lender as a result of any such failure.
(b) If the Lender claims the amounts for Taxes referred to in
Section 1.7(a), the Lender will furnish to the Borrower and the Trustee an
officer's certificate setting forth the basis and amount of each request by the
Lender for such Taxes. If the Borrower, within 30
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days after receiving a notice of the basis and amount of such Taxes, disputes
the basis or amount set forth in such notice, the Lender and the Borrower shall
consult in good faith to resolve such dispute. If such consultation does not
resolve such dispute within 45 days (or such longer period as the Lender and the
Borrower may then agree) after the Lender shall have provided the Borrower with
such notice, the Borrower may request that the Lender furnish to an Independent
Accountant all information reasonably necessary to permit the confirmation of
the accuracy of the Lender's computation of the Taxes described in such notice.
Within 30 days of the receipt of such information, the Independent Accountant
either shall confirm the accuracy of such computation or shall notify the Lender
and the Borrower that such computation proposed by the Lender is inaccurate. In
the latter event, the Lender shall consult with the Borrower and the Independent
Accountant as to the proper computation of the Taxes, whereupon the Lender shall
recompute the Taxes in such a manner as shall enable the Independent Accountant
to confirm their accuracy. The Borrower and the Lender agree that the sole
responsibility of the Independent Accountant shall be to verify the calculation
of the Taxes and that matters of interpretation of the Program Documents are not
within the scope of its responsibilities. All expenses incurred by the Lender
and the Borrower in connection with the verification procedures described in
this Section 1.7 (including the fees and expenses of the Independent Accountant)
shall be paid by the Borrower. Any information provided to the Independent
Accountant by the Lender shall be and remain the exclusive property of the
Lender and shall be deemed by the parties to be (and the Independent Accountant
shall confirm in writing that it will treat such information as) the private,
proprietary and confidential property of the Lender, and no Person other than
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 contrary to applicable law or would otherwise be disadvantageous to
the Lender.
(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.
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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 Payment Instructions. Each of the Lender and AutoBond
shall provide written payment instructions (including the account number of the
bank account to which payments are to be directed and the name, address and ABA
number of the bank in which such account is maintained, if payments are to be
made to such party by the wire transfer of immediately available funds) to the
Trustee. Failure to provide such notice shall not affect such party's right to
receive any funds to which it is otherwise entitled in accordance with the
Program Documents, but failure to deliver such notice may result in a delay in
the receipt of such funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender, as of the
date hereof, and as of each Closing Date, as follows:
Section 2.1 General Representations and Warranties of the
Borrower. (a) Organization and Authority. The Borrower:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada;
(ii) has all requisite power and authority to own and operate its
properties and to conduct its business as currently conducted and as
proposed to be conducted by the Program Documents to enter into the
Program Documents to which it is a party, to issue and deliver the Note
and to perform its obligations under the Program Documents to which it
is a party and the Note;
(iii) has made all filings and holds all franchises, licenses,
permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it
or the nature of its activities makes such filings, franchises,
licenses, permits or registrations necessary.
(b) Place of Business. The address of the principal place of
business and chief executive office of the Borrower is 300 South Fourth Street,
Suite 620, Las Vegas, Nevada 89101 and there have been no other such locations
during the immediately preceding four months.
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(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, or shareholder of,
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 other than the Program Documents, 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.
(e) Compliance with Law. The Borrower is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it or any of its Properties are subject. The policies and procedures set
forth in the AutoBond Program Manual are in compliance with all applicable
statutes, laws and ordinances and all governmental rules and regulations.
Neither the execution, delivery or performance of the Program Documents to which
it is a party or the Note nor the borrowings hereunder does or will cause the
Borrower to be in violation of any law or ordinance, or any order, rule or
regulation, of any federal, state, municipal or other governmental or public
authority or agency.
(f) Pending Litigation, etc. There is no action at law, suit in
equity or other proceeding or investigation (whether or not purportedly on
behalf of the Borrower) in any court, tribunal or by or before any other
governmental or public authority or agency or any arbitrator or arbitration
panel, pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower or any of its respective Properties (i) an adverse
determination of which could materially and adversely affect the business,
earnings, prospects, Properties or condition (financial or other) of the
Borrower, each taken as a whole or (ii) that could question the validity of any
Program Document to which it is a party or the Note or the priority or
perfection of any Liens created under the Indenture. The Borrower is not in
default with respect to any order, writ, injunction, judgment or decree of any
court or other governmental or public authority or agency or arbitrator or
arbitration panel.
(g) Taxes. The Borrower and each entity which might have tax
liabilities for which the Borrower is or may be liable, has filed all tax
returns and paid all taxes required by law to be filed or paid, which are due
pursuant to said returns (or which to the
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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 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 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 consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency, is or
will be required for (i) the valid execution, delivery and performance by the
Borrower of the Program Documents to which it is a party or the Note, (ii) the
perfection or maintenance of the Liens intended to be created by the Indenture
(including the first priority status thereof) or (iii) the borrowings hereunder.
The
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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, and entitled to the benefits of the Indenture.
(n) Representations and Warranties in Program Documents. The
representations and warranties of the Borrower contained in each of the Program
Documents to which it is a party and in any document, certificate or instrument
delivered pursuant to any such Program Document are true and correct and the
Lender may rely on such representations and warranties, if not made directly to
the Lender, as if such representations and warranties were made directly to the
Lender.
(o) Solvency. The Borrower is Solvent and, immediately after
giving effect to the issue of the Note and the consummation of the other
transactions contemplated by this Agreement, the Borrower will be Solvent.
(p) 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.
(q) Representations and Warranties Updated. The representations
and warranties set forth above shall be deemed repeated on, and as of, each
Closing Date.
(r) Allocated Trust Assets. The Trust Assets allocated to secure
the obligation of the Borrower under this Agreement and the related Trust Assets
have not been pledged as collateral security for any other Indebtedness of the
Borrower.
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Section 2.2 General Representations and Warranties of AutoBond.
AutoBond represents and warrants to the Lender, as of the date
hereof, and as of each Closing Date, as follows:
(a) Organization and Authority. AutoBond:
(i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas;
(ii) has all requisite power and authority to own and operate
its properties and to conduct its business as currently conducted and as
proposed to be conducted as contemplated by the Program Documents to
which it is a party, to enter into the Program Documents to which it is
a party and to perform its obligations under the Program Documents to
which it is a party.
(iii) has made all filings and holds all material 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
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in the future will materially and adversely affect, the business, earnings,
prospects, Properties or condition (financial or other) of AutoBond.
(e) Compliance with Law. AutoBond is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it is subject, the violation of which, either individually or in the
aggregate, could materially adversely affect the business, earnings, Properties
or condition (financial or other) of AutoBond, each taken as a whole. The
policies and procedures set forth in the AutoBond Program Manual are in
compliance with all applicable statutes, laws and ordinances and all
governmental rules and regulations. The execution, delivery and performance of
the Program Documents to which it is a party do not and will not cause AutoBond
to be in violation of any law or ordinance, or any order, rule or regulation, of
any federal, state, municipal or other governmental or public authority or
agency.
(f) Pending Litigation, etc. There is no action at law, suit in
equity or other proceeding or investigation (whether or not purportedly on
behalf of AutoBond) in any court, tribunal or by or before any other
governmental or public authority or agency or any arbitrator or arbitration
panel, pending or, to the best knowledge of AutoBond, threatened against or
affecting AutoBond or any of its respective Properties (i) an adverse
determination of which could materially and adversely affect the business,
earnings, prospects, Properties or condition (financial or other) of AutoBond,
each taken as a whole or (ii) that could question the validity of the Program
Documents. AutoBond is not in default with respect to any order, writ,
injunction, judgment or decree of any court or other governmental or public
authority or agency or arbitrator or arbitration panel.
(g) 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.
(h) 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.
(i) No Event of Default. No event has occurred and is continuing,
and no condition exists, that constitutes a Default or an Event of Default.
(j) 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
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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.
(k) 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.
(l) Solvency. AutoBond is Solvent.
(m) 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) upon assigning such Auto Loan to the Borrower,
AutoBond had full right to transfer such Auto Loan to the
Borrower; upon assigning such Auto Loan to the Trustee, the
Borrower had full right to collaterally assign such Auto Loan to
the Trustee;
(ii) each Auto Loan was acquired by the Borrower from
AutoBond and was not an extension of financing to AutoBond but
was acquired in a transaction constituting a "true sale" under
applicable state law;
(iii) the Indenture and each related Collateral
Assignment constitutes a valid pledge to the Trustee of all
right, title and interest of the Borrower and AutoBond in and to
such Auto Loan now existing and hereafter created; and
(iv) the applicable Sale Assignment has been duly
executed and delivered by AutoBond;
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(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive the sale or contribution
of a Specified Auto Loan to the Borrower and any assignment of such Specified
Auto Loan by the Borrower to the Trustee pursuant to the Indenture and shall
continue so long as any such Specified Auto Loan shall remain outstanding until
such time as such Specified Auto Loan is repurchased pursuant to the Indenture.
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE
ON INITIAL CLOSING DATE.
The Initial Lender's obligation to make the initial Advance
hereunder on the Initial Closing Date shall be subject to the satisfaction,
prior to or concurrently with the making of such Advance, of the conditions set
forth in Section 4 hereof, as well as the following conditions:
Section 3.1 Other Agreements. The Program Documents and the Note
shall each have been duly authorized by all necessary action. The Borrower and
AutoBond shall have duly executed and delivered the Program Documents to which
they are a party and, in the case of the Borrower, the Note and such Program
Documents are in full force and effect.
Section 3.2 Opinion of Special Counsel. The Initial Lender shall
have received from Jones, Day, Reavis & Pogue, who are acting as special New
York and Texas counsel for AutoBond and the Borrower 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 Nevada Counsel. The Initial Lender shall
have received from Woodburn & Wedge, who are acting as special Nevada counsel
for Borrower, in connection with the transactions contemplated by this
Agreement, an opinion, dated the Initial Closing Date, in the form attached as
Exhibit F.
Section 3.4 Opinion of Trustee's Counsel. The Initial Lender
shall have received the opinion of counsel to the Trustee, in form and substance
satisfactory to such Initial Lender.
Section 3.5 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.
There shall exist on such Closing Date no Default or Event of Default.
Section 3.6 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
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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 3.7 Consents and Approvals. The Borrower and AutoBond
shall have obtained any necessary consents, waivers, approvals, authorizations,
registrations, filings, licenses and notifications (including, if necessary,
qualifying to do business in, and qualifying under the applicable consumer laws
of, each jurisdiction where the Borrower and AutoBond is then doing business, or
is expected to be doing business utilizing the proceeds of such Advance) and the
same shall be in full force and effect.
Section 3.8 Use of Proceeds. The proceeds of Advances hereunder
shall be used by the Borrower for the purchase of Specified Auto Loans.
SECTION 4. CERTAIN SPECIAL RIGHTS.
Section 4.1 Home Office Payment. Notwithstanding any provision to
the contrary in the Program Documents, the Trustee, on behalf of the Borrower,
will punctually pay in immediately available funds prior to noon, New York City
time, all amounts payable with respect to the Advances in accordance with the
provisions of this Agreement and the Indenture (without the necessity for any
presentation or surrender thereof or any notation of such payment thereon) in
the manner and at any address as the Lender may from time to time direct in
writing. The Initial Lender agrees that, as promptly as practicable after the
payment or prepayment of any Advance, the Initial Lender will record such
payment or prepayment on the Note. The Borrower will afford the benefits of this
Section 7.1 to any Assignee, each of which, by its receipt and acceptance of a
Note, will be deemed to have made the same agreement relating to the Advances as
the Initial Lender has made in this Section 7.1. The Borrower shall only be
obligated to make payments on any Advance to an Assignee in the manner provided
in this Section 7.1 from and after the time such Assignee provides to the
Borrower and the Trustee written notice of its election to receive payments in
such manner and the address to which payments are to be directed (including the
account number of Assignee's bank account to which payments are to be directed
and the name, address and ABA number of the bank in which such account is
maintained, if payments are to be made to such Assignee by the wire transfer of
immediately available funds).
Section 4.2 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 Indenture 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
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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 4.2 shall survive the payment in full of the
Advances and the termination of the Program Documents.
SECTION 5. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 5.1 Advance Maturity. The remaining unpaid principal and
interest on each Advance and other amounts owing by the Borrower under this
Agreement shall be due and payable 120 days after the funding of such Advance,
or if such day is not a Business Day, the immediately following business day
(the "Maturity Date").
Section 5.2 Mandatory Prepayments. The Borrower shall immediately
prepay, or (in the case of an Exchange) be deemed to have prepaid, the Advances,
without premium, together with interest accrued on the amount to be prepaid to
the date of prepayment and any unpaid fees with respect thereto, (a) to the
extent required on each Payment Date pursuant to Section 13.05 of the Indenture
and (b) upon the occurrence of an Exchange. Upon the occurrence of an Event of
Default, the Borrower will make payments on the Advances in accordance with
Section 10 hereof and Section 13.05 of the Indenture.
SECTION 6. ASSIGNMENTS AND PARTICIPATIONS.
Section 6.1 Assignments. (a) The Borrower may not assign its
rights or obligations hereunder or under the Note without the prior consent of
the Lender in its sole discretion (or, if multiple Lenders, the Lenders in
respect of a majority in aggregate principal amount of Advances outstanding).
(b) The Lender may assign to any commercial lending or financial
institution (each, an "Assignee"), all or any portion of the Advances and the
Notes; provided that any assignment of a portion of the Advances and the Notes
shall be in an amount not less than the Minimum Assignment Denomination. Upon
written notice to the Borrower of an assignment in accordance with the preceding
sentence (which notice shall identify the Assignee and the amount of the
Advances and Notes assigned), the Assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment), the obligations,
rights and benefits of the Lender hereunder with respect to the Advance(s)
assigned to it. For all purposes of this Agreement, the Assignee shall, so long
as the Advance(s) assigned to such Assignee remain unpaid, be entitled to the
rights and benefits of this Agreement with respect to the Advance(s) assigned to
it as if (and the Borrower shall be directly obligated to such Assignee under
this Agreement as if) such Assignee were the "Lender" for purposes of this
Agreement. Accordingly, unless otherwise provided, whenever any action, waiver,
notice or consent is to
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be provided to or by the Lender as herein specified, such action, waiver, notice
or consent shall (unless otherwise expressly specified herein) also be provided
to or by each Assignee.
(c) The Lender shall provide notice of each assignment to the
Trustee and AutoBond; provided that failure to provide such notice shall not
affect the validity of any assignment.
(d) Notwithstanding the provisions of this Section 6.1, 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 6.2 Participations. (a) The Lender may sell or agree to
sell to any commercial lending or financial institution a participation in all
or any part of any Advance held by it or Advances made or to be made by it, but
shall not have any direct 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 9.1(a) and 9.1(b) 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 7. CERTAIN COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that so long as any Advance
shall remain unpaid:
Section 7.1 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,
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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 7.2 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.
Section 7.3 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 Servicer or the Trustee, as the case
may be, to enforce) all of its rights under each of the Program
Documents to which it is a party and each other agreement entered into
in connection with the transactions contemplated hereby.
Section 7.4 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, so long as no
Default or Event of Default shall have occurred and than be continuing, 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 7.5 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
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the ownership of its property or to the conduct of its business, except in each
case 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 7.6 Payment of Taxes and Claims. The Borrower will pay,
and discharge, promptly when due all taxes, assessments and governmental charges
and levies imposed upon it, its income or profits or any of its properties;
provided, however, that the foregoing need not be paid while the same is being
contested in good faith by appropriate proceedings diligently conducted so long
as:
(a) adequate reserves shall have been established in accordance
with generally accepted accounting principles with respect thereto; and
(b) the right of the Borrower to use the particular property
shall not be materially and adversely affected thereby.
Section 7.7 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 (which shall contain an agreement from the lender
thereunder similar to that appearing in Section 12.8 hereof).
Section 7.8 Restricted Investments. With respect to amounts on
deposit in the Trust Accounts, the Borrower will not make any Restricted
Investments.
Section 7.9 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 Dispositions.
Section 7.10 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;
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(b) the Borrower shall not commingle any of its assets or funds
with those of AutoBond or any of the other Affiliates of AutoBond;
(c) the Borrower shall maintain a separate board of directors
(including an "independent director" (as such term is defined in the
Borrower's Certificate of Incorporation)) and shall observe all separate
corporate formalities, and all decisions with respect to the Borrower's
business and daily operations shall be independently made by the
officers of the Borrower pursuant to resolutions of its board of
directors;
(d) other than payment of dividends and return of capital, no
transactions shall be entered into between the Borrower and AutoBond or
between the Borrower and any of the other Affiliates of AutoBond except
such transactions as are contemplated by the Loan Sale 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 7.11 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), (b) except as otherwise expressly set forth herein and in
the Indenture, agree to any amendment, supplement or modification to or waiver
of the terms of the Program Documents to which it is a party without the consent
of the Lender (or, if multiple Lenders, the Lenders in respect of a majority in
aggregate principal amount of Advances outstanding), (c) appoint any Successor
Servicer, without the consent of the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal
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amount of the Advances outstanding), (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 7.12 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 7.13 Borrowing Base Deficiency. The Borrower will not
allow a Borrowing Base Deficiency to occur.
Section 7.14 Liens. The Borrower will not permit any Lien to
exist on any of its Properties, whether now owned or hereafter acquired, other
than Permitted Liens.
SECTION 8. CERTAIN COVENANTS OF AUTOBOND.
AutoBond covenants and agrees that so long as any Advances shall
remain unpaid:
Section 8.1 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 8.2 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 8.3 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 Servicer (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
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reasonable times during normal business hours, the properties of AutoBond. It is
understood and agreed by the parties hereto that all reasonable expenses in
connection with any such inspection or discussion incurred by the Lender or
AutoBond, any officers and employees thereof and the independent certified
public accountants therefor shall be expenses payable by AutoBond.
Section 8.4 Consolidation and Merger. AutoBond shall not merge or
consolidate with any other Person unless (i) the entity surviving such merger or
consolidation is a corporation organized under the laws of the United States or
any State, (ii) the surviving entity, if not AutoBond, shall execute and deliver
to AutoBond Funding and the Trustee, in form and substance satisfactory to each
of them, (x) an instrument expressly assuming all of the obligations of AutoBond
hereunder and under the Program Documents, and (y) an Opinion of Counsel to the
effect that such Person is a corporation of the type described in the preceding
clause (i), has effectively assumed the obligations of AutoBond hereunder, that
all conditions precedent provided for in this Agreement relating to such
transaction have been complied with, and, that in the opinion of such counsel,
all UCC financing statements and continuation statements and amendments thereto
have been executed and filed that are necessary fully to preserve and protect
the interest of AutoBond Funding and the Trustee in the Trust Assets, and
reciting the details of such filings, or stating that no such action shall be
necessary to preserve and protect such interest, and (iii) immediately after
giving effect to such transaction, no Event of Default or Default shall have
occurred and be continuing. AutoBond and any surviving entity, if not AutoBond,
will keep all of its material assets within the United States at all times.
Section 8.5 Control. So long as any of the Variable Funding Notes
remain Outstanding, AutoBond will not (i) sell, pledge or otherwise transfer any
of the capital stock of AutoBond Funding held by AutoBond or (ii) vote such
stock in favor of any amendment to or alteration of the certificate of
incorporation of AutoBond Funding.
Section 8.6 Tax Returns. (a) At all times, so long as any of the
Notes or the other obligations secured by the Indenture remain outstanding,
AutoBond and AutoBond Funding shall be members of the same affiliated group
within the meaning of Section 1504 of the Code (the "AutoBond Group") and shall
join in the filing of a consolidated return for federal income tax purposes and,
to the extent permitted by law, in the filing of consolidated or combined
returns for state, local and foreign tax purposes.
(b) AutoBond shall promptly pay and discharge, or cause the
payment and discharge of, all the AutoBond Group, or federal income
taxes (and all other material taxes) when due and payable by AutoBond,
AutoBond Funding, except (i) such as may be paid thereafter without
penalty or (ii) such as may be contested in good faith by appropriate
proceedings and for which an adequate reserve has been established and
is maintained in accordance with GAAP. AutoBond shall promptly notify
AutoBond Funding, the Trustee and the Noteholders of any material
challenge, contest or
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proceeding pending by or against AutoBond or AutoBond Group before any
taxing authority.
Section 8.7 Protection of Right, Title and Interest.
(a) AutoBond shall deliver (or cause to be delivered) to AutoBond
Funding and the Trustee file-stamped copies of, or filing receipts for,
any document filed as provided above, as soon as available following
such filing. In the event that AutoBond fails to perform its obligations
under this subsection, AutoBond Funding or the Trustee may do so, on
AutoBond's behalf, at the expense of AutoBond. AutoBond hereby grants
AutoBond Funding and the Trustee a power of attorney to effectuate the
provisions of the preceding sentence.
(b) AutoBond shall not change its name identity, or corporate
structure in any manner that would, could, or might make any UCC
financing statement or continuation statement filed by AutoBond in
accordance with paragraph (a) above seriously misleading within the
meaning of 'SS' 9-402(7) of the UCC, unless it shall have given AutoBond
Funding and the Trustee at least five days' prior written notice thereof
and shall have promptly filed appropriate amendments to all previously
filed UCC financing statements or continuation statements.
(c) AutoBond shall give AutoBond Funding and the Trustee at least
60 days' prior written notice of any relocation of its principal place
of business or chief executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the
filing of any amendment of any previously filed UCC financing or
continuation statement or of any new UCC financing statement and shall
promptly file any such amendment. AutoBond shall at all times maintain
each office from which it shall service the Auto Loans and its principal
executive office, within the United States of America. AutoBond shall
pay all filing fees or taxes payable in respect of any UCC financing or
continuation statements required to be filed pursuant to this Section
6(e)(iii).
(d) AutoBond shall deliver to AutoBond Funding and the Trustee
promptly after the execution and delivery of each amendment hereto, an
Opinion of Counsel either (i) stating that, in the opinion of such
counsel, all UCC financing statements and continuation statements
necessary to preserve and protect fully the interest of AutoBond Funding
and the Trustee in the Trust Property have been filed, or (ii) stating
that, in the opinion of such counsel, no such action shall be necessary
to preserve and protect such interest.
(e) Other Liens or Interests. Except for the conveyances under
the Indenture, AutoBond will not sell, pledge, assign or transfer to any
other Person, or grant, create,
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incur, assume or suffer to exist any Lien on the Trust Property or any
interest therein, and AutoBond shall defend the right, title, and
interest of AutoBond Funding and the Trustee in, to and under the Trust
Property against all claims of third parties claiming through or under
AutoBond; provided however, that AutoBond's obligations under this
Section 8.7 shall terminate upon the repayment in full of the Variable
Funding Notes and the expiration of any applicable preference period.
Section 8.8 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 8.9 Independence. Until 367 days have elapsed following
payment and satisfaction of all obligations of the Borrower hereunder and in
respect of the Advances, AutoBond shall be required to (and shall assure that
each other Affiliate of AutoBond shall) observe the applicable legal
requirements for the recognition of the Borrower as a legal entity separate and
apart from AutoBond and each other Affiliate of AutoBond, including, without
limitation, assuring that each of the following is complied with:
(a) AutoBond and each other Affiliate of AutoBond shall maintain
separate records and books of account (each of which shall be
sufficiently full and complete to permit a determination of the assets
and liabilities of AutoBond or such Affiliate, as the case may be,
separate and apart from those of the Borrower and to permit a
determination of the obligees thereon and the time for performance on
each of the obligations of AutoBond or such Affiliate, as the case may
be, separate and apart from those of the Borrower) from those of the
Borrower;
(b) neither AutoBond nor any of its other Affiliates shall
commingle any of its assets or funds with those of the Borrower;
(c) the board of directors of AutoBond shall not dictate
decisions with respect to the Borrower's business and daily operations
and AutoBond shall maintain its own corporate formalities and shall
otherwise respect the separate corporate identity of the Borrower;
(d) other than the making of capital contributions and the
transactions contemplated by the Loan Sale 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;
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(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 8.10 Other Agreements and Parties. AutoBond will comply
with all terms of the Program Documents to which it is a party. AutoBond will
not (a) except as otherwise expressly set forth herein and in the Indenture,
agree to any amendment, supplement or modification to or waiver of the terms of
the Program Documents to which it is a party without the consent of the Lender
(or, if multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding), (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 8.11 Servicing Arrangements. AutoBond will take any
necessary action to evidence that the Specified Auto Loans are to be serviced
and administered by the Servicer under the Servicing Agreement. AutoBond will
act as Servicer under the Servicing Agreement and will perform its duties as
Servicer 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.
Section 8.12 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 Servicer to preserve the credit
quality and collectibility of the Specified Auto Loans.
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Section 8.13 Maintenance of Borrowing Base. AutoBond agrees to
contribute to the Collection Account (a) on January 30, 1998, funds equal to
6.5% of the aggregate Unpaid Principal Balance of the Specified Auto Loans
outstanding as of December 31, 1997 (as indicated in the January report
delivered by the Servicer) and (b) on any Payment Date, funds sufficient to cure
a Borrowing Base Deficiency; provided, however, that the cumulative amount of
such contributions shall not exceed 10% of the original aggregate principal
amount of the Advances.
SECTION 9. INFORMATION TO BE FURNISHED TO LENDER.
Section 9.1 Information to be Furnished by the Borrower and
AutoBond.
The Borrower and AutoBond will deliver or cause to be delivered
to the Lender the following:
(a) promptly, (and in any event within five (5) days, after any
Executive Officer of the Borrower or AutoBond shall have obtained
knowledge of any Default or Event of Default, an Officer's Certificate
from the Borrower or AutoBond specifying the nature and period of
existence thereof, what action the Borrower or AutoBond has taken or is
taking or proposes to take with respect thereto, and an estimate of the
time necessary to cure such condition or event; and
(b) promptly upon request therefor, such other data, filings and
information as the Lender may from time to time reasonably request.
SECTION 10. DEFAULTS, REMEDIES AND TERMINATION.
Section 10.1 Events of Default. Events of Default and Remedies
therefor in respect of the Advances and the Note are as set forth in Sections
6.01, 6.03 and 13.07 of the Indenture.
SECTION 11. INTERPRETATION OF AGREEMENT.
Section 11.1 Definitions. Capitalized terms used herein but not
defined shall have the meaning set forth in the Indenture. Except as the context
shall otherwise require, the following terms shall have the following meanings
for all purposes of this Agreement (the definitions to be applicable to both the
singular and the plural form of the terms defined, where either such form is
used in this Agreement):
The term "Adjusted LIBOR" shall mean, with respect to each any
Interest Period, a rate per annum determined by the Lender in its sole
discretion in accordance
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with the following formula (rounded upwards to the nearest 1/100th of
one percent), which rate as determined by the Lender shall be conclusive
absent manifest error by the Lender:
LIBOR
---------------------------------------
1.00 - Eurocurrency Reserve Requirement
The term "Advances" means the advances provided for by Section
1.1.
The term "Affiliate," with respect to any Person (hereinafter
"such Person"), shall mean any other Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is
under common control with, such Person or another Affiliate of such
Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of Voting Stock, by
contract or otherwise.
The term "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 the Servicer, the Trustee and the Lender.
The term "Auto Loan" means a fixed-rate, fully amortizing,
closed-end installment loan (bearing interest calculable on a simple
interest basis or based upon the Rule of 78s arising from the sale of a
new or used automobiles and light-duty trucks and vans 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.
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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, as of the end of each
Due Period as calculated on the following Determination Date, the excess
of Advances outstanding over the sum of (a) the product of (i) the
Overcollateralization Percentage and (ii) the aggregate Unpaid Principal
Balance of all Specified Auto Loans (less the Unpaid Principal Balance
of Excluded Auto Loans) and (b) all amounts on deposit in the Loan
Purchase Account and the Collection Account.
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
New York or [Nevada] (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 mean that portion of the Trust Estate
allocated to the Note.
The term "Collection Period' shall mean each calendar month.
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.
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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
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 "Eurocurrency Reserve Requirement" shall mean, for any
Interest Period as applied to an Advance, the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements applicable to the Lender and in effect during such period
(including without limitation basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto), dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by
a member bank of such Governmental Authority.
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The term "Event of Collection Agent Termination" shall have the
meaning assigned thereto in Section 3.07 of the Servicing Agreement.
The term "Event of Default" shall have the meaning assigned
thereto in the Indenture.
The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
The term "Excluded Auto Loan" means, on any Determination Date,
any Specified Auto Loan (a) which is a Defaulted Auto Loan, (b) as to
which the Obligor is bankrupt, (c) as to which the related Auto has been
repossessed, or which has been paid in full.
The term "Executive Officer" with respect to a Person shall mean
the Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer.
The "fair valuation" of the Properties of any Person shall be
determined on the basis of the amount which may be realized within a
reasonable time, either through collection or sale of such assets at the
regular market value, conceiving the latter as the amount which could be
obtained for the property in question within such period by a capable
and diligent businessman from an interested buyer who is willing to
purchase under ordinary selling conditions.
The term "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
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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 as shown on the liability side of a
balance sheet as at the date on which Indebtedness is to be determined.
The term "Indebtedness" shall also include, whether or not so reflected,
(a) indebtedness, obligations and liabilities secured by any Lien on
property of such Person, whether or not the indebtedness secured thereby
shall have been assumed by such Person, (b) all obligations of such
Person in respect of Capital Leases, and (c) all Guarantees.
The term "Indemnifying Party" shall have the meaning set forth in
Section 15.1 hereof.
The term "Indenture" shall have the meaning set forth in Section
1.5 hereof.
The term "Independent Accountant" shall have the meaning set
forth in Section 1.6 hereof.
The term "Initial Closing Date" shall have the meaning set forth
in Section 1.2 hereof.
The term "Initial Lender" shall mean, subject to Section 4.3,
Credit Suisse First Boston Mortgage Capital LLC.
The term "Interest Payment Date" means each Payment Date and each
date upon which Advances are repaid, either in whole or in part.
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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, an
interest rate per annum equal to Adjusted LIBOR plus 3.00% per annum;
The term "Investment" shall mean any loan, advance, extension of
credit (except for accounts and notes receivable for merchandise sold or
services furnished in the ordinary course of business, and amounts paid
in advance on account of the purchase price of merchandise to be
delivered to the payor within one year of the date of the advance), or
purchase of stock, notes, bonds or other securities or capital
contribution to any Person, whether in cash or other property. The
amount of any Investment shall be its cost (the amount of cash or the
fair market value of other property given in exchange therefor).
The term "Lender" shall mean the Initial Lender and any Assignees
thereof.
The term "LIBOR" shall mean the per annum rate for deposits in
United States dollars for a period of one month which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on the related LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750
on such day, the rate will be determined on the basis of the rates at
which deposits in United States dollars are offered by the Reference
Banks at approximately 11:00 a.m., London time, on such day to prime
banks in the London interbank market for a period of one month
commencing on that day. The Trustee will request the principal London
office of each of the Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that
day will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by two or more major banks in New
York City, selected by the Trustee , in its sole discretion at
approximately 11:00 a.m., New York City time, on that day for loans in
United States dollars to leading European banks for a period of one
month.
The term "LIBOR Determination Date" shall mean the second
Business Day prior to the commencement of each Interest Period; provided
that with respect to the first Interest Period such date shall be the
first Business Day prior to the Initial Closing Date.
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The term "Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of
the property, whether such interest shall be based on the common law,
civil law, statute, civil code or contract, whether or not such interest
shall be recorded or perfected and whether or not such interest shall be
contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances, and including
the lien, privilege, security interest or other encumbrance arising from
a mortgage, deed of trust, hypothecation, cession, transfer, assignment,
pledge, adverse claim or charge, conditional sale or trust receipt, or
from a lease, consignment or bailment for security purposes. The term
"Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting property. For the
purposes of this Agreement, a Person shall be deemed to be the owner of
any property that such Person shall have acquired or shall hold subject
to a conditional sale agreement or other arrangement (including a
leasing arrangement) pursuant to which title to the property shall have
been retained by or vested in some other Person for security purposes.
The term "Loan Acquisition Price" shall mean 90% of the Unpaid
Principal Balance for Specified Auto Loans as of November 30, 1997.
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 or a binder in respect thereof.
The term "Loan File" means, with respect to any Auto Loan, the
original retail installment loan contract and security agreement
evidencing the Auto Loan and originals or copies of such other documents
and instruments relating to such Auto Loan and the security interest on
the selected Financed Vehicle as specified in the Credit and Collection
Policies.
The term "Loan Purchase Account" shall have the meaning set forth
in the Indenture.
The term "Loan Sale Agreement" shall mean the Loan Sale and
Contribution Agreement dated as of December 31, 1997 between the
Borrower and AutoBond, pursuant to which the Borrower agrees to acquire
Eligible Auto Loans, as from time to time further amended, supplemented
or modified.
The term "Maturity Date" in respect of any Advance shall have the
meaning specified in Section 5.1.
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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 Indenture.
The term "Moody's" shall mean Moody's Investors Service, Inc.
The term "Net Payoff Balance" means, in respect of any
Precomputed Auto Loans, the net payoff less any accrued but unpaid late
charges, as determined in accordance with the worksheet attached hereto
as Schedule 2.
The term "Net Principal Balance" means, with respect to any
Precomputed Auto Loan, the Net Payoff Balance as of the due date of the
last full Scheduled Payment, or if more recent, the due date of the last
periodic payment of principal thereon.
The term "Net Unrealized Amount" means, (a) with respect to any
Auto Loan which is more than 90 days contractually past due or where the
Financed Vehicle is otherwise subject to repossession (including
voluntary or involuntary, or upon casualty), the Unpaid Principal
Balance of such Auto Loan minus the sum of (i) any repossession proceeds
allocable to principal actually received on such Auto Loan, (ii) any
insurance proceeds allocable to principal actually received from a claim
with respect to such Auto Loan and (iii) refunds received from the
cancellation of any insurance policies or service contracts with respect
to such Auto Loan, and (b) with respect to any Auto Loan where the
related Obligor is in bankruptcy, the amount of losses allocable to
principal incurred thereon.
The term "Nondefaulted Auto Loan" shall mean an Auto Loan which
is not a Defaulted Auto Loan.
The term "Note(s)" shall have the meaning set forth in Section
1.2(b) hereof and shall include any subdivision of the Note issued in
accordance with Section 1.2(c).
The term "Obligor" shall mean, with respect to any Auto Loan, the
Person primarily obligated to make payments in respect thereto.
The term "Officer's Certificate" (i) with respect to the Trustee,
any officer within the structured capital division (or any successor
thereof) including any vice president, assistant vice president, or any
officer or assistant officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated
officers and (ii) with respect to AutoBond, the Trustee, the Servicer or
the Borrower shall mean a certificate executed on behalf of such party
by the Chairman of the Board, the President or any Vice President of the
relevant entity.
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The term "Originator" means any Person, other than AutoBond, that
acquires Auto Loans directly from a Dealer.
The term "Overcollateralization Percentage" means, (a) for the
December Due Period, 90%, and (b) thereafter, 83.5%.
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 January 15, 1998.
The term "Permitted Liens" shall mean:
(a) Liens created under the Indenture;
(b) Liens securing taxes, assessments, governmental
charges or levies not yet due or the payment of which is not then
required by Section 7(b) hereof; and
(c) any Lien which is a mechanics lien assessed against a
Financed Vehicle securing a Specified Auto Loan.
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency or
political subsection thereof).
The term "Precomputed Auto Loan" shall mean any Auto Loan under
which earned interest (which may be referred to in the Auto Loan as the
add-on finance charge) and principal is determined according to the sum
of periodic balances or the sum of monthly balances or the sum of the
digits or any equivalent method commonly referred to as the "Rule of
78s".
The term "Program Documents" shall mean this Agreement, the
Indenture, the Servicing Agreement, the Collateral Assignments and the
Note.
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 "Reference Banks" shall mean four major banks in the
London interbank market selected by the Trustee.
The term "Repurchase Price" shall mean, with respect to any
Specified Auto Loan which AutoBond is obligated to repurchase, an amount
equal to (a) the Unpaid
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Principal Balance of such Specified Auto Loan as of the end of the
preceding Collection Period, plus (b) accrued and unpaid interest in
respect thereof calculated at the Interest Rate from the last day to
which interest has been paid and credited to the Lockbox or Collateral
Account through the date of repurchase, minus (iii) the amount of any
principal deposited in the Lockbox or the Collection Account in respect
of such Auto Loan since the end of such Collection Period.
The term "Requirement of Law" shall mean, as to any Person, any
law, treaty, rule or regulation, or determination of an arbitrator or
Governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject, whether federal, state or
local (including, without limitation, usury laws, the federal Truth in
Lending Act and Regulation Z and Regulation B of the Board of Governors
of the Federal Reserve System).
The term "Restricted Investment" shall mean any Investment other
than a Permitted Investment.
The term "Securities" shall mean, with respect to any Person, any
shares of any class of such Person's capital stock, or any options or
warrants to purchase its capital stock or other security exchangeable
for or convertible into its capital stock.
The term "Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
The term "Security Interest" shall mean the security interest and
rights created under the Indenture in the Collateral in favor of the
Trustee.
The term "Servicer" means AutoBond..
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 December 31, 1997 among AutoBond, the Borrower
and the Trustee.
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;
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(b) based on current projections, which are based on
underlying assumptions which provide a reasonable basis for the
projections and which reflect such Person's judgment based on
present circumstances of the most likely set of conditions and
such Person's most likely course of action for the period
projected, such Person believes it has sufficient cash flow to
enable it to pay its debts as they mature; and
(c) such Person does not have an unreasonably small
capital with which to engage in its anticipated business.
The term "S&P" shall mean Standard & Poor's Ratings Group.
The term "Specified Auto Loan" shall mean each Auto Loan pledged
by the Borrower to the Trustee under the Indenture as security for its
obligations hereunder and under the Indenture.
The term "Subsequent Closing Date" shall have the meaning set
forth in Section 1.2 hereof.
The term "Successor Servicer" shall have the meaning set forth in
the Servicing Agreement.
The term "Telerate Page 3750" shall mean the display page so
designated on the Dow Jones Telerate Service (or such other page as may
replace that page on that service for the purpose of displaying
comparable rates or prices).
The term "this Agreement" shall mean this Credit Agreement
(including the annexed Exhibits and Schedules), as it may from time to
time be amended, supplemented or modified in accordance with its terms.
The term "Trust Accounts" shall have the meaning set forth in the
Indenture.
The term "Trustee" shall have the meaning set forth in Section
1.5 hereof.
The term "Unpaid Principal Balance" means, with respect to any
Auto Loan as of any Determination Date, (i) for an Auto Loan bearing
interest calculable on a simple interest basis, the unpaid principal
amount for such Auto Loan or (ii) for a Precomputed Auto Loan, the Net
Principal Balance, in each case as of the end of the most recent
Collection Period; provided that, for any Auto Loan where the Net
Unrealized Amount equals the Unpaid Principal Balance, such Unpaid
Principal Balance shall thereafter equal zero (other than for purposes
of calculating the Net Unrealized Amounts).
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Section 11.2 Accounting Terms. All accounting terms used herein
that are not otherwise expressly defined shall have the respective meanings
given to them in accordance with generally accepted accounting principles at the
particular time.
Section 11.3 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 11.4 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 11.5 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 12. MISCELLANEOUS.
Section 12.1 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 12.2 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.
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Section 12.3 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 12 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 12.4 Amendment and Waiver. (a) This Agreement and the
Notes may be amended or supplemented, and the observance of any term hereof or
thereof may be waived, with the written consent of the Borrower, AutoBond and
(i) on or prior to the Initial Closing Date, the Initial Lender, and (ii) after
the Initial Closing Date, the Lender (or, if multiple Lenders, Lenders with
respect to at least 66-2/3% in aggregate unpaid principal amount of the
Advances; provided, however, that no such amendment, supplement or waiver shall,
without the written consent of all Lenders, (a) change, with respect to the
Advances, the amount or time of any required prepayment or payment of principal
or premium or the rate or time of payment of interest, or change the funds in
which any prepayment or payment on the Advances is required to be made; (b)
reduce the percentage of the aggregate principal amount of Advances required for
any amendment, consent or waiver hereunder; or (c) release any material Lien of
the Trustee, held for the benefit of the Lender, on any of the Collateral or
affect the priority thereof.
(b) Any amendment, supplement or waiver effected in accordance
with this Section 12.4 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 12.5 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.
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Section 12.6 Reproduction of Documents. This Agreement and all
documents relating hereto (other than the Note), including, without limitation,
(a) consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Initial Lender at the closing of the Initial Lender's
making of Advances, and (c) financial statements, certificates and other
information heretofore or hereafter furnished to the Lender, may be reproduced
by the Lender by any photographic or other similar process and the Lender may
destroy any original document so reproduced. The Borrower agrees and stipulates
that, to the extent permitted by applicable law and court or agency rules, any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.
Section 12.7 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 12.8 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.
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Section 12.9 Acts of Lender. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by the Lender may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
the Lender in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments is or are delivered to the Borrower. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement if made in the manner provided
in this Section 16.9.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Borrower deems
sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Lender or any Assignee shall bind the
Lender and such Assignee in respect of anything done, omitted or suffered to be
done by the Borrower in reliance thereon, whether or not notation of such action
is made upon such Note.
Section 12.10 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 12.10 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 MASTER FUNDING
CORPORATION II
By:
__________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:
__________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC
By: /s/ Michael A. Commaroto
__________________________________
Name: Michael A. Commaroto
Title: Vice President
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and year first above written.
AUTOBOND MASTER FUNDING
CORPORATION II
By: /s/ Adrian Katz
__________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ Adrian Katz
__________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC
By:
__________________________________
Name:
Title:
<PAGE>
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
AUTOBOND MASTER FUNDING CORPORATION II,
as Company
AUTOBOND ACCEPTANCE CORPORATION,
as Administrator
and
MANUFACTURERS & TRADERS TRUST COMPANY,
as Trustee
----------
TRUST INDENTURE
Dated as of December 31, 1997
----------
Automobile Loan-Backed Notes
- --------------------------------------------------------------------------------
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION...............................................................2
SECTION 1.01 General Definitions....................................................2
SECTION 1.02 Compliance Certificates and Opinions..................................15
SECTION 1.03 Form of Documents Delivered to Trustee................................15
SECTION 1.04 Acts of Noteholders, etc..............................................16
SECTION 1.05 Notice to Noteholders; Waiver.........................................17
SECTION 1.06 Effect of Headings and Table of Contents..............................18
SECTION 1.07 Successors and Assigns................................................18
SECTION 1.08 GOVERNING LAW.........................................................18
SECTION 1.09 Legal Holidays........................................................18
SECTION 1.10 Execution in Counterparts.............................................18
SECTION 1.11 Inspection............................................................18
SECTION 1.12 Survival of Representations and Warranties............................19
SECTION 1.13 Security Forms........................................................19
ARTICLE 2.
THE NOTES...........................................................................20
SECTION 2.01 General Provisions....................................................20
SECTION 2.02 Execution, Authentication, Delivery, and Dating.......................22
SECTION 2.03 Transfer and Exchange.................................................23
SECTION 2.04 Mutilated, Destroyed, Lost and Stolen Notes...........................24
SECTION 2.05 Payment of Interest and Principal; Rights Preserved...................25
SECTION 2.06 Persons Deemed Owners.................................................25
SECTION 2.07 Cancellation..........................................................25
SECTION 2.08 Noteholder Lists......................................................26
SECTION 2.09 Treasury Notes........................................................26
ARTICLE 3.
ACCOUNTS; COLLECTION AND
APPLICATION OF MONEYS; REPORTS......................................................26
SECTION 3.01 Trust Accounts; Investments by Trustee................................26
SECTION 3.02 Establishment and Administration of the Lockbox and the Collection
Accounts............................................................28
SECTION 3.03 Establishment and Administration of Cash Reserve Accounts.............29
SECTION 3.04 Distributions.........................................................30
SECTION 3.05 Reports to Noteholders................................................30
SECTION 3.06 Returned Payments.....................................................30
</TABLE>
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ARTICLE 4.
THE TRUST ESTATE....................................................................31
SECTION 4.01 Acceptance by Trustee and Agreement to Act as Custodian...............31
SECTION 4.02 Subsequent Transfers..................................................32
SECTION 4.03 Conditions Precedent to All Transfers.................................33
SECTION 4.04 Grant of Security Interest; Tax Treatment.............................34
SECTION 4.05 Further Action Evidencing Assignments.................................34
ARTICLE 5.
SERVICING OF TRUST ASSETS...........................................................35
SECTION 5.01 Appointment of Servicer...............................................35
SECTION 5.02 Appointment of Administrator; Monthly Administration Fee..............35
SECTION 5.03 Duties and Responsibilities of the Administrator......................36
ARTICLE 6.
EVENTS OF DEFAULT; REMEDIES.........................................................36
SECTION 6.01 Events of Default.....................................................36
SECTION 6.02 Acceleration of Maturity; Rescission and Annulment....................38
SECTION 6.03 Remedies..............................................................39
SECTION 6.04 Trustee May File Proofs of Claim......................................40
SECTION 6.05 Trustee May Enforce Claims Without Possession of Notes................41
SECTION 6.06 Application of Money Collected........................................41
SECTION 6.07 Limitation on Suits...................................................41
SECTION 6.08 Unconditional Right of Noteholders to Receive Principal and Interest..42
SECTION 6.09 Restoration of Rights and Remedies....................................42
SECTION 6.10 Rights and Remedies Cumulative........................................42
SECTION 6.11 Delay or Omission Not Waiver..........................................42
SECTION 6.12 Control by Noteholders................................................43
SECTION 6.13 Waiver of Events of Default...........................................43
SECTION 6.14 Undertaking for Costs.................................................43
SECTION 6.15 Waiver of Stay or Extension Laws......................................44
SECTION 6.16 Sale of Trust Estate..................................................44
ARTICLE 7.
THE TRUSTEE.........................................................................45
SECTION 7.01 Certain Duties........................................................45
SECTION 7.02 Notice of Events of Default...........................................46
SECTION 7.03 Certain Matters Affecting the Trustee.................................47
SECTION 7.04 Trustee Not Liable for Notes or Receivables...........................47
SECTION 7.05 Trustee May Own Notes.................................................48
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SECTION 7.06 The Administrator to Pay Trustee's Fees and Expenses..................48
SECTION 7.07 Eligibility Requirements for Trustee..................................48
SECTION 7.08 Resignation or Removal of Trustee.....................................48
SECTION 7.09 Successor Trustee.....................................................49
SECTION 7.10 Merger or Consolidation of Trustee....................................50
ARTICLE 8.
COVENANTS ..........................................................................51
SECTION 8.01 Payment of Principal and Interest.....................................51
SECTION 8.02 Maintenance of Office or Agency; Chief Executive Office...............51
SECTION 8.03 Money for Payments to Noteholders to be Held in Trust.................51
SECTION 8.04 Corporate Existence; Merger; Consolidation, etc.......................52
SECTION 8.05 Protection of Trust Estate; Further Assurances........................52
SECTION 8.06 Servicing Agreement...................................................53
SECTION 8.07 Additional Covenants..................................................53
SECTION 8.08 Taxes.................................................................54
ARTICLE 9.
SUPPLEMENTAL INDENTURES.............................................................55
SECTION 9.01 Supplemental Indentures Without Consent of Noteholders................55
SECTION 9.02 Supplemental Indentures with Consent of Noteholders...................55
SECTION 9.03 Execution of Supplemental Indentures..................................56
SECTION 9.04 Effect of Supplemental Indentures.....................................57
SECTION 9.05 Reference in Notes to Supplemental Indentures.........................57
ARTICLE 10.
SATISFACTION AND DISCHARGE..........................................................57
SECTION 10.01 Satisfaction and Discharge of Indenture..............................57
SECTION 10.02 Application of Trust Money...........................................58
SECTION 10.03 Trust Termination Date...............................................58
ARTICLE 11.
REPRESENTATIONS AND WARRANTIES......................................................59
SECTION 11.01 Representations and Warranties of the Company........................59
SECTION 11.02 Representations and Warranties as to Each Receivable ................61
SECTION 11.03 Repurchases and Transfers............................................62
ARTICLE 12.
MISCELLANEOUS
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SECTION 12.01 Indemnities of the Administrator.....................................63
SECTION 12.02 Officers' Certificate and Opinion of Counsel as to Conditions
Precedent ..........................................................63
SECTION 12.03 Statements Required in Certificate or Opinion........................63
SECTION 12.04 Notices..............................................................64
SECTION 12.05 Notices and Reports to be Delivered to the Rating Agencies...........65
SECTION 12.06 No Proceedings.......................................................65
ARTICLE 13.
VARIABLE FUNDING NOTES, SERIES A....................................................65
SECTION 13.01 Designation..........................................................65
SECTION 13.02 Certain Definitions..................................................66
SECTION 13.03 Establishment and Maintenance of Lockbox and Trust Accounts..........67
SECTION 13.04 Required Deposits to the Accounts....................................68
SECTION 13.05 Application of Funds in the Series A Trust Accounts..................68
SECTION 13.06 Exchanges for New Series.............................................70
SECTION 13.07 Additional Events of Default; Remedies...............................72
SECTION 13.08 Resignation or Removal of Trustee....................................72
</TABLE>
SCHEDULES
Schedule 1 - List of Trust Assets allocated to each Series.
EXHIBITS
EXHIBIT A - AutoBond Program Manual
EXHIBIT B - Form of Collateral Assignment
EXHIBIT C - Form of Variable Funding Note
EXHIBIT D - Form of Rule 144A Transferee Letter
EXHIBIT E - Form of Investor Letter
EXHIBIT F - Form of Administrator Report (See Servicing Agreement or Series
Supplement)
EXHIBIT G - Form of Repurchase Assignment
EXHIBIT H - Form of Lockbox Agreement
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TRUST INDENTURE
This TRUST INDENTURE dated as of December 31, 1997, is among
AUTOBOND MASTER FUNDING CORPORATION II, a Nevada corporation (the"Company"),
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation, as Administrator (the
"Administrator") and individually ("AutoBond"), and MANUFACTURERS & TRADERS
TRUST COMPANY, a New York banking corporation, as trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company is a bankruptcy-remote corporation formed
for the sole purpose of acquiring from AutoBond certain automobile finance
contracts ("Auto Loans") acquired by AutoBond and certain other rights and
properties pertaining thereto;
WHEREAS, the Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance from time to time of its
debentures, notes or other evidences of indebtedness (herein called the
"Notes"), to be issued in one or more Series as in this Indenture provided;
WHEREAS, the Company intends that the Trustee, on behalf of the
Trust Estate (as defined herein) for the benefit of the Noteholders and the
Company, will take assignment of the Auto Loans and related rights and benefits,
including those under any collateral security agreement, insurance, guarantees
and dealer agreements from the Company simultaneously with the acquisition of
such Auto Loans by the Company; and
WHEREAS, the Administrator has been requested and is willing to
direct the Trustee to make certain distributions of funds to the Noteholders,
the Company and certain creditors in connection with amounts received as
proceeds from the Trust Estate and to otherwise perform certain administrative
functions in connection with the transactions contemplated hereby.
NOW, THEREFORE, THIS TRUST INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the holders thereof, it is mutually covenanted and agreed, for the
benefit of all Noteholders and the Company, as follows:
GRANTING CLAUSE
The Company hereby Grants to the Trustee for inclusion in the
Trust Estate on each Assignment Date, for the benefit and security of the
Noteholders, all of the Company's right, title and interest in and to (a) the
Transferred Assets specified in each Collateral Assignment, including the
Company's security interests in the Financed Vehicles; (b) all moneys from time
to
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time on deposit in any Trust Accounts, including all investments and income from
the investment of such moneys, and (c) all income or payments received with
respect to any of the foregoing and the proceeds of the conversion, whether
voluntary or involuntary, of any of the foregoing into cash or other property.
Such Grant is made in trust to secure (i) the payment of all amounts due on the
Notes of each Series, (ii) the payment of all other sums payable under this
Indenture with respect to the Notes and (iii) compliance with the provisions of
this Indenture with respect to the Notes.
The Trustee acknowledges such Grant, accepts the trusts hereunder
in accordance with the provisions hereof, and agrees to perform the duties
herein required to the best of its ability and to the end that the Trust Estate
and the interests of the Noteholders and the Company may be adequately and
effectively protected as hereinafter provided.
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01 General Definitions.
Except as otherwise specified or as the context may otherwise
require, the following terms have the meanings set forth below for all purposes
of this Indenture, and the definitions of such terms are applicable to the
singular as well as to the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
Act: with respect to any Noteholder, as defined in Section 1.04.
Administrator: AutoBond and any permitted successor to such
functions in accordance, and in connection with, this Indenture in its capacity
as Administrator hereunder, and if AutoBond is acting as Servicer and/or
Collection Agent under a Servicing Agreement, also in its capacity as Servicer
and/or Collection Agent.
Administrator Duties: specified in Section 5.03.
Administrator Order: a written order or request delivered to the
Trustee and signed in the name of the Administrator by an Authorized Officer.
Adverse Claim: any claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other type
of preferential arrangement having the effect or purpose of creating a lien or
security interest, other than the interests created under this Indenture in
favor of the Trustee and the Noteholders.
Affiliate: of any specified Person, means any other Person which
directly or indirectly controls, or is controlled by, or is under common control
with, such specified Person. The term "control" means the possession, directly
or indirectly, of the power to direct or cause
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the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
APR: the annual percentage rate of an Auto Loan as determined
according to the related contractual documents with the Obligor thereof.
Assignment: collectively, with respect to any Receivable, the
related Sale Assignment and any Collateral Assignment.
Assignment Date: each date when Auto Loans are transferred to the
Trust Estate.
Authorized Officer: with respect to any corporation or
partnership, the Chairman of the Board, the President, any Vice President, the
Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer and
each other officer of such corporation or the general partner of such
partnership specifically authorized in resolutions of the Board of Directors of
such corporation to sign agreements, instruments or other documents in
connection with this Indenture on behalf of such corporation or partnership, as
the case may be.
AutoBond: AutoBond Acceptance Corporation, a Texas corporation,
and its successors and permitted assigns.
AutoBond Program Manual: the AutoBond Program Manual (including
the Credit and Collection Policies) attached hereto as Exhibit A, as modified
from time to time.
Auto Loan: set forth in the recitals hereto.
Automobile Loan Sale Agreement: any agreement under which
AutoBond purchases Auto Loans from an Originator.
Board of Directors: either the board of directors of the Company
or any duly authorized committee of that board.
Board Resolution: a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
Business Day: any day other than a Saturday or a Sunday, or
another day on which banks in the City of New York, or the City of Buffalo, New
York or in Texas (or such other cities and states in which the Corporate Trust
Office, the principal administrative offices of the Administrator, Note
Registrar and Transfer Agent and Paying Agent or the principal offices of the
Servicer or the Administrator are subsequently located, as specified in writing
by the Administrator to the other parties hereto) are required, or authorized by
law, to close.
Cash Reserve Account: the account or accounts, if any, so
designated, established and maintained by the Trustee pursuant to Section 3.03.
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Class: with respect to a Series of Notes, each class of Notes so
designated within such Series.
Collateral Assignment: a certificate of assignment by the Company
to the Trustee substantially in the form of Exhibit B giving notice of, and
evidencing, the pledge of Auto Loans and the related Transferred Assets by the
Company to the Trustee on behalf of the Trust Estate.
Collection Account: the account or accounts by that name
established and maintained by the Trustee pursuant to Section 3.02.
Collection Agent: means the entity designated as such.
Commission: the Securities and Exchange Commission.
Company: the Person named as the "Company" in the first paragraph
of this instrument.
Company Order or Company Request: a written order or request
delivered to the Trustee and signed in the name of the Company by an Authorized
Officer.
Corporate Trust Office: the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of the execution of this Indenture is located at the
address set forth in Section 12.04.
Credit and Collection Policies: written credit procedures and
policies consistent with the requirements of this Indenture and each Servicing
Agreement, in effect from time to time, as formulated by the Administrator and
comprising part of AutoBond Program Manual.
Cut-Off Date: with respect to the Receivables specified in any
Transfer, the date specified in the related Assignment.
Dealer: each automobile dealer with whom AutoBond or an
Originator has entered into a Dealer Agreement.
Dealer Agreement: each agreement between a Dealer and either
AutoBond or an Originator which provides for, among other things, origination of
the Receivables.
Debt: for any Person, (a) indebtedness of such Person for
borrowed money or credit extended, (b) obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (c) obligations of such
Person to pay the deferred purchase price of property or services, (d)
obligations of such Person as lessee under leases which have been or should be,
in accordance with GAAP, recorded as capital leases, (e) obligations secured by
any lien or other charge upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, (f) obligations of such Person under direct or indirect guaranties
in respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or
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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.
Defaulted Auto Loan: an Auto Loan (a) which by its terms has more
than 10% of any installment of principal or interest which is 60 or more days
contractually past due and (b) which is not a Liquidated Receivable.
Defaulted Receivable: as of the end of any Due Period, (a) a
Defaulted Auto Loan, (b) a Receivable as to which the proceeds of the sale of
the related Financed Vehicle have been received by the Administrator or (c) a
Receivable as to which the Administrator has determined (or should have
determined in accordance with the Credit and Collection Policies) that no
further proceeds other than from the Insurance Policies are expected to be
received or that such Receivable is uncollectible and such determination was
made at or prior to the last day of such Due Period.
Default: any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
Deposit Date: the Business Day immediately preceding each related
Payment Date.
Depositary: with respect to Notes of any Series issuable in whole
or in part in the form of one or more Global Notes, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such Notes as
contemplated by Section 2.01.
Determination Date: the 10th day of each month (or the preceding
Business Day, if such day is not a Business Day), or as otherwise specified for
a Series.
Due Period: as specified for each Series.
Eligible Account: a segregated account, which may be an account
maintained with the Trustee, which is either (a) maintained with a depository
institution or trust company (including the Trustee) whose short term unsecured
debt obligations are rated at least P-1 by Moody's or A-1 by Standard & Poor's
and whose long term unsecured debt obligations are rated at least A by Standard
& Poor's and at least A3 by Moody's; provided, that if only Moody's rates such
institution, such single rating shall suffice, or (b) a segregated trust account
or similar account maintained with a federally or state chartered depository
institution with corporate trust powers, subject to regulations regarding
fiduciary funds on deposit substantially similar to 12
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C.F.R. 'SS'9.10(b) and with a long term debt rating of at least A3 by Moody's or
A by Standard & Poor's.
Eligible Investments: any of the following:
(i) Aaa-rated obligations of, or guaranteed as to the full and
timely payment of principal and interest by, the United States or obligations of
any agency or instrumentality thereof, when such obligations are backed by the
full faith and credit of the United States;
(ii) short-term repurchase agreements on obligations specified in
clause (a) having a maturity no greater than the next Payment Date ; provided,
that the short-term debt obligations of the party agreeing to repurchase are
rated no less than A-1 by Standard & Poor's or P-1 by Moody's;
(iii) federal funds, certificates of deposit, time deposits and
bankers' acceptances (which shall each have an original maturity of not more
than 90 days and, in the case of bankers' acceptances, shall in no event have an
original maturity of more than 365 days) of any United States depository
institution or trust company incorporated under the laws of the United States or
any state; provided, that the short-term obligations of such depository
institution or trust company are rated no less than A-1 by Standard & Poor's or
P-1 by Moody's;
(iv) commercial paper (having original maturities of not more
than 30 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition are rated no less
than A-1 by Standard & Poor's or P-1 by Moody's;
(v) securities of money market funds rated in the highest
investment category by Standard & Poor's or Moody's; and
(vi) such other investment grade investments as shall be
acceptable to any applicable Rating Agency and to the holders of at least 75% in
aggregate Outstanding principal amount of the Notes of each affected Series,
upon prior written approval.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
Event of Administrator Termination: as specified in the
designated Servicing Agreement.
Event of Default: as defined in Section 6.01, as supplemented
with respect to any Series.
Event of Servicing Termination: as specified in the designated
Servicing Agreement.
Exchange Act: the Securities Exchange Act of 1934, as amended.
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Financed Vehicle: a new or used automobile, van or light-duty
truck, the purchase of which the Obligor financed with an Auto Loan.
GAAP: generally accepted accounting principles as in effect in
the United States, consistently applied, as of the date of such application.
Global Note: a Note that evidences all or part of the Notes of
any Series and bears such legend as may be specified as contemplated by Section
2.01 for such Notes.
Grant: grant, bargain, sell, convey, assign, transfer, mortgage,
pledge, create and grant a security interest in and right of set-off against,
deposit, set over and confirm. The Grant of the Trust Estate effected by this
Indenture shall include all rights, powers, and options (but none of the
obligations) of the Company with respect thereto, including, without limitation,
the immediate and continuing right to claim for, collect, receive, and give
receipts for Payments in respect of the Auto Loans and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
judicial proceedings in the name of the Company or otherwise, and generally to
do and receive anything that the Company is or may be entitled to do or receive
thereunder or with respect thereto.
Governmental Authority: the United States of America, any state,
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
Holder: a Person in whose name a Note is registered in the Note
Register.
Indenture: this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be part
of and govern this instrument and any such supplemental indenture, respectively.
The term "Indenture" shall also include the terms of particular Series of Notes
established as contemplated by Section 2.01.
Insurance Policies: the insurance policies, if any issued by each
of the Insurers to AutoBond (the benefits of which have been assigned to the
Trust Estate as security for the Notes of a designated Series) and listed on
Schedule 2 (as modified from time to time), in the case of the Variable Funding
Notes, Series A and B, and otherwise as specified with respect to a Series.
Insurers: each of the insurance companies named in the Insurance
Policies.
Intended Tax Characterization: as specified in Section 4.04(b).
Interest Payment Date: as specified with respect to a Series.
Interest Payments: as defined in Section 2.01(d).
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Issuance Date: as specified with respect to a Series.
Liquidated Receivable: as specified with respect to a Series.
List of Receivables: a list containing the Required Information
with respect to each Receivable delivered to the Trustee, the Series to which
such Receivable is allocated and certified by a duly authorized officer of the
Company, which is attached hereto as Schedule 1 (as supplemented from time to
time).
Loan Documents: with respect to an Auto Loan (a) the fully
executed original retail installment loan contract and security agreement
evidencing such Auto Loan, including the assignment to AutoBond, (b) the
original confirmation of title, copy of the application for title or letter of
guaranty from the applicable Dealer, as the case may be, for the related
Financed Vehicle, (c) a copy of the credit application, and (d) a copy of an
executed agreement to provide insurance signed by the Obligor, a binder in
respect thereof or the original confirmation of payment of premiums required
under the VSI Policy.
Loan File: with respect to any Auto Loan, the original retail
installment loan contract and security agreement evidencing the Auto Loan and
originals or copies of such other documents and instruments relating to such
Auto Loan and the security interest on the selected Financed Vehicle as
specified in the Credit and Collection Policies.
Lockbox: the lockbox established and maintained pursuant to the
Lockbox Operations Agreement.
Lockbox Account: the account at the Lockbox Bank designated for
AutoBond Master Funding Corporation II and any Series and maintained pursuant to
the Lockbox Operations Agreement.
Lockbox Bank: as designated with respect to a Series.
Lockbox Operations Agreement: the agreement so designated with
respect to a Series.
Maturity: with respect to any installment of principal of or
interest on any Note, the date on which such installment is due and payable as
therein or herein provided, whether at the Stated Maturity, by declaration of
acceleration, or otherwise.
Monthly Trustee Fee: for any Payment Date with respect to a
Series, an amount equal to the sum of (A) the product of (i) the aggregate
Unpaid Principal Balance of Receivables allocated to such Series at the
beginning of the related Due Period, (ii) the Trustee Fee Rate and (iii) 1/12,
plus (B) amounts payable to the Trustee under Section 7.06 but not paid by the
Administrator.
Moody's: Moody's Investors Service, Inc. and any successors
thereto.
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Net Payoff Balance: in respect of any Precomputed Receivables,
the net payoff less any accrued but unpaid late charges.
Net Principal Balance: with respect to any Precomputed
Receivable, the Net Payoff Balance as of the due date of the last full Scheduled
Payment, or if more recent, the due date of the last periodic payment of
principal thereon.
Net Unrealized Amount: (a) with respect to any Liquidated
Receivable, the Unpaid Principal Balance of such Auto Loan minus the sum of (i)
any repossession proceeds allocable to principal actually received on such Auto
Loan, (ii) any insurance proceeds allocable to principal actually received from
a claim with respect to such Auto Loan and (iii) refunds received from the
cancellation of any insurance policies or service contracts with respect to such
Auto Loan, and (b) with respect to any Auto Loan where the related Obligor is in
bankruptcy, the amount of losses allocable to principal incurred thereon.
Noteholder: at any time, any Person in whose name a Note is
registered in the Note Register.
Note Rate: the weighted-average interest rate with respect to the
Notes of a Series.
Note Register: as defined in Section 2.03.
Notes: as set forth in the Recitals to this Indenture.
Obligor: with respect to any Auto Loan, the Person primarily
obligated to make payments in respect thereto.
Officer's Certificate: with respect to any Person, a certificate
signed by the Chairman of the Board, Vice Chairman of the Board, the President,
a Vice President, the Treasurer, the Secretary, an Assistant Secretary, or the
manager of such Person.
Opinion of Counsel: a written opinion, which shall be
satisfactory in form and substance to the Trustee, of counsel who may, except as
otherwise expressly provided in this Indenture, be inside or outside counsel for
the Company and who shall be satisfactory to the Trustee and any applicable
Rating Agencies.
Original Principal Balance: the Net Principal Balance of a
Precomputed Receivable and otherwise the outstanding Principal Balance of a
Receivable, in each case as of the related Cut-Off Date prior to its assignment
to the Trust Estate.
Originator: any Person, from which AutoBond acquires Auto Loans.
Outstanding: with respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:
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(a) Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes or portions thereof for whose payment money in the
necessary amount has been theretofore irrevocably deposited with the Trustee in
trust for the holders of such Notes; and
(c) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
Person in whose hands the Note is a valid obligation;
provided, however, that in determining whether the holders of the requisite
percentage of the Outstanding Principal Amount of the Notes have given any
request, demand, authorization, direction, notice, consent, or waiver hereunder,
Notes owned by the Company or any Affiliate of the Company shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, or waiver, only Notes that a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded.
Outstanding Principal Amount: the aggregate unpaid principal
amount of the Notes of any Series Outstanding at any time.
Paying Agent: the Trustee, unless otherwise specified for a
Series.
Payment Date: the 15th day (or, if such day is not a Business
Day, the next succeeding Business Day) of each month, commencing as so
designated with respect to a Series and ending with the Stated Maturity of such
Series.
Payments: for any Receivable for any Due Period, all amounts
received with respect to such Receivable during such Due Period, including,
without limitation, payments (including prepayments) from the relevant Obligor
(including principal, interest, late fees and other charges), payments from
Dealers and warranty rebates, proceeds from any insurance policy, including the
Insurance Policies (other than proceeds applied to the restoration or repair, or
in certain circumstances, replacement, of the related Financed Vehicle),
including amounts which constitute Recoveries on Receivables.
Percentage: means, with respect to a particular Note within a
Class, the percentage obtained by dividing the outstanding principal amount of
the related Note by the aggregate outstanding principal amount of all Notes in
such Class, or with respect to Notes of a Class within a Series, the percentage
obtained by dividing the aggregate outstanding principal amount of the related
Notes of such Class, by the aggregate Outstanding Principal Amounts of such
Series.
Person: any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
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Precomputed Receivable: any Auto Loan under which earned interest
(which may be referred to in the Auto Loan as the add-on finance charge) and
principal is determined according to the sum of periodic balances or the sum of
monthly balances or the sum of the digits or any equivalent method commonly
referred to as the "Rule of 78s".
Predecessor Notes: with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 in lieu of a lost, destroyed or
stolen Note (or a mutilated Note surrendered to the Trustee) shall be deemed to
evidence the same debt as the lost, destroyed or stolen Note (or a mutilated
Note surrendered to the Trustee).
Principal: with respect to a Note, the amount designated as
such.
Principal Balance: of an Auto Loan means, on any date of
determination, the Original Principal Balance minus that portion of all payments
made on or prior to such date allocable to principal; provided that, for every
Due Period following the Due Period with respect to which an Auto Loan is
repurchased by the Administrator in accordance with the provisions of Section
11.03 or as to which the Net Unrealized Amount equals the Unpaid Principal
Balance, the Principal Balance shall be deemed to be zero.
Principal Charge-offs: with respect to any Due Period, the
aggregate Net Unrealized Amount experienced for Auto Loans which have become
Liquidated Receivables during such Due Period.
Principal Payments: as defined in Section 2.01(c).
Rating Agency: any nationally recognized statistical organization
rating the Notes of any Series at the request of the Company as specified in the
related Supplement.
Receivable: a fixed rate fully amortizing closed-end consumer
installment Auto Loan (upon which interest is calculated based upon either a
simple interest basis or the Rule of 78s) arising from the sale of a Financed
Vehicle and assigned to the Trustee by the Company as part of the Trust Estate,
and includes, without limitation, (a) the related Assignment, (b) all security
interests or liens and property subject thereto from time to time purporting to
secure payment by the Obligor thereunder, including, without limitation, the
Financed Vehicle, AutoBond's or an Originator's rights under the related Dealer
Agreement, AutoBond's rights under an Automobile Loan Sale Agreement and the
Company's rights under the Sale Agreement, (c) all guarantees, indemnities and
warranties, proceeds of insurance policies (including the Insurance Policies),
certificates of title or other title documentation and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Auto Loan, (d) all collections and all related Loan Documents,
Loan Files and records with respect to the foregoing, and (e) all proceeds of
any of the foregoing.
Record Date: with respect to any Payment Date, the last day of
the calendar month immediately preceding such Payment Date.
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Records: all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) prepared and
maintained by the Collection Agent, the Servicer or by or on behalf of the
Company with respect to Receivables and the related Obligors.
Recoveries on Receivables: for any Due Period, all amounts
received by the Servicer, the Administrator, the Company or the Trustee on
behalf of the Trust Estate during such Due Period with respect to (a) Defaulted
Receivables from any source, including, without limitation, net proceeds from
the repossession and liquidation of Financed Vehicles and proceeds of insurance
(including insurance maintained by Obligors and the Insurance Policies), and (b)
the Repurchase Price of Receivables repurchased by AutoBond pursuant to Section
11.03.
Reimbursable Administrator Expenses: with respect to any Payment
Date, all reasonable and customary out-of-pocket fees and expenses of third
parties incurred by the Administrator (including fees and expenses of the
Trustee paid by the Administrator under Section 7.06 or otherwise, and expenses
related to financing statements and titles required to be paid by the
Administrator) in connection with their respective repossession and liquidation
activities, including, without limitation, fees of attorneys, appraisers, third
party collateral managers and others (who shall have been retained by the
Administrator, in accordance with the Servicing Agreement) for the Due Period
immediately preceding such Payment Date, but not including expenses paid net of
recoveries.
Related Documents: with respect to any Series each Sale
Assignment, each Collateral Assignment, any Automobile Loan Sale Agreement, the
Sale Agreement, each Acquisition Agreement, the Insurance Policies, the
Servicing Agreement and all documents and instruments required to be delivered
hereunder or thereunder.
Repurchase Price: for any repurchase on a Payment Date of any
Auto Loan which AutoBond is obligated to repurchase in accordance with the
provisions of Section 11.03, the sum of (a) the Unpaid Principal Balance of such
Receivable as of the end of the preceding Due Period, plus (b) an amount equal
to the amount of interest accrued on such Unpaid Principal Balance at the
greater of the APR or the Note Rate from the last day to which interest has been
paid and credited to the Lockbox or the Collection Account with respect to such
Receivable through the last day of such Due Period, minus (c) the amount of any
principal deposited in the Lockbox or the Collection Account in respect of such
Auto Loan since the end of such Due Period.
Required Information: with respect to a Receivable as of the
related Cut-Off Date, (a) the name of the Obligor and a description of the
Financed Vehicle, (b) the Original Principal Balance and original term, (c) the
maturity date of such Receivable, (d) the APR, (e) the state of origination, (f)
the dollar amount and the number of Scheduled Payments and (g) whether such
Receivable calculates interest based upon a simple interest basis or the Rule of
78s.
Sale Agreement: the Loan Sale and Contribution Agreement, dated
as of December , 1997 between AutoBond and the Company, providing for the sale
or contribution of the Receivables to the Company.
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Sale Assignment: each assignment executed by AutoBond in favor of
the Company from time to time pursuant to the Sale Agreement conveying
AutoBond's interests in the Receivables to the Company.
Scheduled Payment: a payment due on an Auto Loan in accordance
with its terms.
Series: each Series of Notes designated as such pursuant to this
Indenture.
Securities Act: the Securities Act of 1933, as amended.
Servicer: the servicer designated as such, under the Servicing
Agreement and any successor thereto in accordance with this Indenture and the
Servicing Agreement.
Servicer Duties: specified in Section 2.04(a) of the Servicing
Agreement.
Servicer Order: a written order or request delivered to the
Trustee and signed in the name of the Servicer by an Authorized Officer.
Servicing Agreement: as designated with respect to a Series.
Standard & Poor's: Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
Stated Maturity: the date on which the entire remaining unpaid
Outstanding Principal Amount of a Class of Notes is due and payable.
Subservicer: any Person with whom the Servicer enters into a
Subservicing Agreement.
Subservicing Agreement: any written contract between the Servicer
and any Subservicer, relating to servicing and collection of Receivables, in
such form as has been approved pursuant to the Servicing Agreement.
Subsidiary: as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
Successor Servicer: specified in Section 2.13(a) of the Servicing
Agreement.
Target Reserve Percentage: as so designated with respect to a
Series.
Tax or Taxes: all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, profits,
withholding, excise, property, sales, use, occupation and franchise taxes
(including, in each such case, any interest, penalties or additions
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attributable to or imposed on or with respect to any such taxes, charges, fees
or other assessments) imposed by the United States, any state or political
subdivision thereof, any foreign government or any other jurisdiction or taxing
authority.
Title Document: with respect to any Auto Loan and the related
Financed Vehicle, either (a) the certificate of title for, or other evidence of
a security interest in (including, without limitation, dealer guaranty or proof
of application for notice of lien), such Financed Vehicle or (b) with respect to
any jurisdiction in which the certificate of title or other evidence of
ownership is not issued to the holder of a lien, evidence of the security
interest in the Financed Vehicle, in each case issued by the department of motor
vehicles or other appropriate Governmental Authority in the jurisdiction in
which such Financed Vehicle or the Obligor is located.
Transfer: as specified in Section 4.02(a).
Transfer Notice: as specified in Section 4.02(b).
Transferred Assets: the Receivables, all monies due or paid in
respect of the Receivables after the related Cut-off Date, all rights under each
Insurance Policy in respect of the Receivables (but not the obligation to make
any payment thereunder to the Insurer or for taxes on premiums paid or payable
thereon), all rights of the Company under the Servicing Agreement, each Sale
Assignment and the Sale Agreement, including AutoBond's assigned rights under
the Dealer Agreements and any Automobile Loan Sale Agreement, all documents
contained in the Loan Files relating to the Receivables, all monies due or to
become due and all amounts received with respect thereto and all related rights
and benefits (but not obligations) and all proceeds of the foregoing.
Trust Accounts: the Collection Account, the Cash Reserve Account
and any other account so designated with respect to such Series.
Trust Estate: all money, instruments and other property and
rights subject to the lien of this Indenture, including all proceeds thereof.
Trustee: the Person named as the "Trustee" in the first paragraph
of this instrument or in an indenture supplemental hereto with respect to a
Series, in each case until a successor Person shall have become the Trustee
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Person; provided, that the provisions of
Section 7.07, as applicable to any Person at any time serving as Trustee
hereunder, shall survive the termination of such Person's status as Trustee
hereunder and the succession of any other Person to such status.
Trustee Fee Rate: 0.16% per annum.
UCC: the Uniform Commercial Code as in effect in the relevant
state.
Unpaid Principal Balance: with respect to any Auto Loan as of any
Determination Date, (a) for an Auto Loan bearing interest calculable on a simple
interest basis, the unpaid
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principal amount for such Auto Loan or (b) for a Precomputed Receivable, the Net
Principal Balance, in each case as of the end of the most recent Due Period;
provided that, for any Auto Loan where the Net Unrealized Amount equals the
Unpaid Principal Balance, such Unpaid Principal Balance shall thereafter equal
zero (other than for purposes of calculating the Repurchase Price, Net
Unrealized Amounts and other items designated for such Series).
SECTION 1.02 Compliance Certificates and Opinions.
Upon any written application or request (or oral application with
prompt written or telecopied confirmation) by the Company to the Trustee to take
any action under any provision of this Indenture, other than any request that
(a) the Trustee authenticate the Notes specified in such request, (b) the
Trustee invest moneys in any of the Trust Accounts pursuant to the written
directions specified in such request, or (c) the Trustee pay moneys due and
payable to the Company hereunder to the Company's assignee specified in such
request, the Trustee shall require the Company to furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and that the request otherwise is in accordance with the terms of the Indenture,
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such requested action as to which other evidence of satisfaction of the
conditions precedent thereto is specifically required by any provision of this
Indenture, no additional certificate or opinion need be furnished.
SECTION 1.03 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company delivered
to the Trustee may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such officer's certificate or
opinion and any Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company as to such factual matters unless such
officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any Opinion of Counsel may be based on the written opinion of
other counsel, in which event such Opinion of Counsel shall be accompanied by a
copy of such other counsel's opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Company shall
deliver any document as a condition of the granting of such application, or as
evidence of compliance with any term hereof, it is intended that the truth and
accuracy, at the time of the granting of such application or at the effective
date of such certificate or report (as the case may be), of the facts and
opinions stated in such document shall in such case be conditions precedent to
the right of the Company to have such application granted or to the sufficiency
of such certificate or report. The foregoing shall not, however, be construed to
affect the Trustee's right to rely upon the truth and accuracy of any statement
or opinion contained in any such document as provided in Section 7.01(b).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default, Event of
Administrator Termination or Event of Servicing Termination is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Company, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Company's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default, Event of Administrator Termination or Event of
Servicing Termination. For all purposes of this Indenture, the Trustee shall not
be deemed to have knowledge of any Default or Event of Default, Event of
Administrator Termination or Event of Servicing Termination nor shall the
Trustee have any duty to monitor or investigate to determine whether a default
has occurred (other than an Event of Default of the kind described in Section
6.01(a)), Event of Administrator Termination or Event of Servicing Termination
unless a Responsible Officer of the Trustee shall have actual knowledge thereof
or shall have been notified in writing thereof by the Company, the Servicer, or
any Noteholder.
SECTION 1.04 Acts of Noteholders, etc.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 7.01) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section 1.04.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a
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notary public or other officer authorized by law to take acknowledgments of
deeds, certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof. Where such execution is by a signer
acting in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority. The fact and
date of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the holder of any Note shall bind every future
holder of the same Note and the holder of every Note issued upon the
registration of transfer thereof or in exchange therefore or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
(d) By accepting the Notes issued pursuant to this Indenture,
each Noteholder irrevocably appoints the Trustee hereunder as the special
attorney-in-fact for such Noteholder vested with full power on behalf of such
Noteholder to effect and enforce the rights of such Noteholder and the revisions
pursuant hereto for the benefit of such Noteholder; provided that nothing
contained in this Section 1.04(d) shall be deemed to confer upon the Trustee any
duty or power to vote on behalf of the Noteholders with respect to any matter on
which the Noteholders have a right to vote pursuant to the terms of this
Indenture.
SECTION 1.05 Notice to Noteholders; Waiver.
(a) Where this Indenture provides for notice to Noteholders of
any event, or the mailing of any report to Noteholders, such notice or report
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid or certified mail return receipt
requested, or sent by private courier or confirmed telecopy to each Noteholder
affected by such event or to whom such report is required to be mailed, at its
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice or
the mailing of such report. In any case where a notice or report to Noteholders
is mailed, neither the failure to mail such notice or report, nor any defect in
any notice or report so mailed, to any particular Noteholder shall affect the
sufficiency of such notice or report with respect to other Noteholders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Noteholders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
(b) In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to mail or send notice
to Noteholders, in accordance with Section 1.05(a), of any event or any report
to Noteholders when such notice or report is required to be delivered pursuant
to any provision of this Indenture, then such notification or delivery as shall
be made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.
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SECTION 1.06 Effect of Headings and Table of Contents.
The Article and Section headings herein and in the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 1.07 Successors and Assigns.
All covenants and agreements in this Indenture by each of the
Company, the Administrator or the Trustee shall bind its respective successors
and permitted assigns, whether so expressed or not.
SECTION 1.08 GOVERNING LAW.
THIS TRUST INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. UNLESS MADE
APPLICABLE IN A SUPPLEMENT HERETO, THIS TRUST INDENTURE IS NOT SUBJECT TO THE
TRUST INDENTURE ACT OF 1939 AND SHALL NOT BE GOVERNED THEREBY AND CONSTRUED IN
ACCORDANCE THEREWITH.
SECTION 1.09 Legal Holidays.
In any case where any Payment Date or the Stated Maturity or any
other date on which principal of or interest on any Note is proposed to be paid
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) such payment need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such Payment Date (unless such date is in the next calendar month, in
which case the payment shall be made on the next preceding Business Day), Stated
Maturity, or other date on which principal of or interest on any Note is
proposed to be paid, provided that no interest shall accrue for the period from
and after such Payment Date, Stated Maturity, or any other date on which
principal of or interest on any Note is proposed to be paid, as the case may be,
until such next succeeding Business Day.
SECTION 1.10 Execution in Counterparts.
This Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 1.11 Inspection.
The Company agrees that, on reasonable prior notice, it will
permit the representatives of the Trustee or any Noteholder holding Notes
evidencing at least 25% of the Outstanding Principal Amount of the Notes of any
Series, during the Company's normal business hours, to examine all of the books
of account, records, reports and other papers of the Company,
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to make copies thereof and extracts therefrom, and to discuss its affairs,
finances and accounts with its officers, employees and independent accountants
(and by this provision the Company hereby authorizes its accountants to discuss
with such representatives such affairs, finances and accounts), all at such
reasonable times and as often as may be reasonably requested for the purpose of
reviewing or evaluating the financial condition or affairs of the Company or the
performance of and compliance with the covenants and undertakings of the Company
and the Administrator in this Indenture, the Sale Agreement and the Servicing
Agreement or any of the other documents referred to herein or therein. Any
expense incident to the exercise by the Trustee at any time or any Noteholder
during the continuance of any Default or Event of Default, of any right under
this Section 1.11 shall be borne by the Company. Nothing contained herein shall
be construed as a duty of the Trustee to perform such inspection.
SECTION 1.12 Survival of Representations and Warranties.
The representations, warranties and certifications of the Company
made in this Indenture or in any certificate or other writing delivered by the
Company pursuant hereto shall survive the authentication and delivery of the
Notes hereunder.
SECTION 1.13 Security Forms.
The Notes of each Series shall be in such form as shall be
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or Depositary therefor or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. If the form of Notes of any Series is
established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 2.03 for the
authentication and delivery of such Notes.
The definitive Notes shall be printed, lithographed or engraved
on steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Notes, as evidenced by their execution
of such Notes.
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ARTICLE 2.
THE NOTES
SECTION 2.01 General Provisions.
(a) Amount Unlimited; Issuable in Series; Denominations. The
aggregate principal amount of Notes which may be authenticated and delivered
under this Indenture is unlimited.
The Notes may be issued in one or more Series. Pursuant to an
Exchange permitted under Section 13.06, there shall be established in one or
more indentures supplemental hereto, prior to the issuance of Notes of any
Series (other than the Variable Funding Notes, Series A, established pursuant to
Article 13),
(i) the title of the Notes of the Series (which shall
distinguish the Notes of the Series from Notes of any other
Series) and the designation of each Class, if any, within such
Series;
(ii) any limit upon the aggregate principal amount of the
Notes of the Series which may be authenticated and delivered
under this Indenture (except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for,
or in lieu of, other Notes of the Series pursuant to Sections
2.04, 2.05 or 9.05 and except for any Notes which, pursuant to
Section 2.02, are deemed never to have been authenticated and
delivered hereunder);
(iii) the Person to whom any interest or principal on a
Note of the Series shall be payable, if other than the Person in
whose name that Security (or one or more Predecessor Notes) is
registered at the close of business on the Record Date for such
interest;
(iv) the Payment Date or Dates on which the principal of
any Notes of the Series is payable and the amount of principal
payable on such date or dates;
(v) the rate or rates at which any Notes of the Series
shall bear interest, if any, the date or dates from which any
such interest shall accrue, the Interest Payment Dates on which
any such interest shall be payable;
(vi) the designation of the Lockbox Account and Trust
Accounts specific to such Series;
(vii) the designation of Trust Assets allocable to such
Series and the Cut-off Date or Dates applicable thereto;
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(viii) any form of credit enhancement, including surety
bonds, letters of credit, derivative contracts, guarantees or
cash reserve accounts applicable to such Series (as required by
the applicable Rating Agencies);
(ix) the priority of payments to Noteholders of such
Series and to the Trustee, the Servicer, the Collection Agent,
any providers of credit enhancement, liquidity or hedging
contracts, the Company and any other party with an interest in
the proceeds of the allocated Trust Assets;
(x) the applicable Servicing Agreement and the Servicer
and Collection Agent thereunder, if other than AutoBond;
(xi) the Trustee;
(xii) representations and warranties of the Company with
respect to the allocated Trust Assets, as customarily required
for such Series;
(xiii) the place or places where the principal of and any
premium and interest on any Notes of the Series shall be payable;
(xiv) if other than denominations of $100,000 and any
integral multiple of $1,000 in excess thereof, the denominations
in which any Notes of the Series shall be issuable;
(xv) the forms of the Notes of such Series;
(xvi) if applicable, that any Notes of the Series shall be
issuable in whole or in part in the form of one or more Global
Notes and, in such case, the respective Depositaries for such
Global Notes, the form of any legend or legends which shall be
borne by any such Global Security and any circumstances in which
any such Global Security may be exchanged in whole or in part for
Notes registered, and any transfer of such Global Security in
whole or in part may be registered, in the name or names of
Persons other than the Depositary for such Global Security or a
nominee thereof;
(xvii) any addition to or change in the Events of Default
which applies to any Notes of the Series and any change in the
right of the Trustee or the requisite Holders of such Notes to
declare the principal amount thereof due and payable pursuant to
Section 6.02 or to liquidate all or a portion of the Trust Estate
(in each case, only to the extent customarily required for such a
Series);
(xviii) any addition to or change in the covenants which
applies to Notes of the Series (in each case, only to the extent
customarily required for such a Series); and
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(xix) any other terms of the Series (which terms shall not
be inconsistent with the provisions of this Indenture, except as
permitted by Section 9.02).
(b) Denominations. The Notes of each Series shall be issuable
only in registered form without coupons and only in such denominations as shall
be specified as contemplated by Section 2.01(a).
(c) Principal Payments; Clean-up Call. For each Payment Date,
payments of principal (the "Principal Payments") on the Notes will be made in
accordance with Sections 3.04 or 6.06, as applicable. Except as otherwise
provided in Section 6.02, no part of the principal of any Note shall be paid
prior to the Payment Date on which such principal is due in accordance with the
preceding provisions of this Section 2.01(b), except that, upon the
Administrator's direction, the Company may redeem the Notes of any Series in
their entirety, without premium, as of any Payment Date on which the sum of the
Outstanding Principal Amount of the Notes of such Series is less than or equal
to ten percent (10%) of the initial Outstanding Principal Amount of the Notes of
such Series (after giving effect to all Principal Payments on such Payment
Date). The Administrator will give notice of any such redemption to each
Noteholder and the Trustee at least 30 days before the Payment Date fixed for
such prepayment by certified mail return receipt requested, hand delivery or
overnight courier. Notice of such prepayment having been so given, the remaining
unpaid principal as of the Payment Date fixed for prepayment together with all
interest accrued and unpaid to such Payment Date, shall become due and payable
on such Payment Date.
(d) Interest Payments. For each Payment Date, the interest due
and payable (the "Interest Payments") with respect to any Series of Notes will
be the interest that has accrued on the Notes during the previous Due Period,
plus unpaid interest from prior Due Periods, at the designated interest rates.
Interest Payments will be made in accordance with Sections 3.04 and 6.06, as
applicable. Interest will be calculated as designated with respect to a Series.
SECTION 2.02 Execution, Authentication, Delivery, and Dating.
(a) The Notes shall be manually executed on behalf of the Company
by its Chairman or Vice Chairman.
(b) Any Note bearing the signature of an individual who was at
the time of execution thereof a proper officer of the Company shall bind the
Company, notwithstanding that such individual ceases to hold such office prior
to the authentication and delivery of such Note or did not hold such office at
the date of such Note.
(c) No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Each Note shall be dated the date of
its authentication.
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(d) The Notes may from time to time be executed by the Company
and delivered to the Trustee for authentication together with a Company Request
to the Trustee directing the authentication and delivery of such Notes and
thereupon the same shall be authenticated and delivered by the Trustee in
accordance with such Company Request.
SECTION 2.03 Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the "Note Register") in which, subject to such reasonable
regulations as the Trustee may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby appointed
"Note Registrar" for the purpose of registering Notes and transfers of Notes as
herein provided.
No transfer of any Note may be made unless that transfer is made
pursuant to an effective registration statement under the Securities Act and an
effective registration or a qualification under applicable state securities
laws, or is made in a transaction that does not require such registration or
qualification because the transfer satisfies one of the following: (i) such
transfer is in compliance with Rule 144A under the Securities Act, to a person
who the transferor reasonably believes is a Qualified Institutional Buyer (as
defined in Rule 144A) that is purchasing for its own account or for the account
of a Qualified Institutional Buyer and to whom notice is given that such
transfer is being made in reliance upon Rule 144A under the Securities Act as
certified by such transferee in a letter in the form of Exhibit D hereto; (ii)
after the appropriate holding period, such transfer is pursuant to an exemption
from registration under the Securities Act provided by Rule 144 under the
Securities Act; (iii) such transfer is to a transferee who is an accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any State of the United States or (iv) such transfer is otherwise exempt from
the registration requirements of the Securities Act. The Trustee will require,
in order to assure compliance with such laws, that the Noteholder's prospective
transferee referred to in the preceding clauses (iii) or (iv) deliver an
investment letter certifying to the Company and the Trustee as to the facts
surrounding such transfer in the form of Exhibit E hereto. Except in the case of
a transfer of Notes to a transferee referred to in the preceding clause (i) or,
in general, a transfer that is to be made after two years from the Issuance
Date, the Administrator shall require an opinion of counsel satisfactory to it
to the effect that such transfer may be made pursuant to an exemption from the
Securities Act without such registration (which opinion of counsel shall not be
an expense of the Trustee, the Administrator or the Company). None of the
Company, the Administrator or the Trustee is obligated to register or qualify
the Notes under the Securities Act or any other securities law or to take any
action not otherwise required under this Indenture to permit the transfer of any
Note without registration.
Neither the Trustee nor the Note Registrar shall effect the
registration of transfer of any Note, if after giving effect to such transfer,
the Notes of such Series would be held by more than ninety-eight Noteholders.
(b) Subject to Section 2.03(a), upon surrender for registration
of transfer of any Note at the office of the Company designated pursuant to
Section 8.02 for such purpose, the
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Company shall execute and the Trustee upon request shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations and of a like aggregate original
principal amount.
(c) Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the holder thereof
or his attorney duly authorized in writing.
(d) No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company or the Trustee may require
payment by the transferor of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes, other than exchanges pursuant to Section 9.05 not
involving any transfer.
(e) The Administrator agrees to cause the Company, and the
Company agrees, to provide such information as required under Rule 144A under
the Act so as to allow resales of Notes to Qualified Institutional Buyers in
accordance herewith.
SECTION 2.04 Mutilated, Destroyed, Lost and Stolen Notes.
(a) If any mutilated Note is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefore a replacement Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any Note
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless (the unsecured indemnity of an
institutional investor being satisfactory for all such purposes), then, in the
absence of actual notice to the Company or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Note, a replacement Note of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
(c) In case the final installment of principal on any such
mutilated, destroyed, lost or stolen Note has become or will at the next Payment
Date become due and payable, the Company in its discretion may, instead of
issuing a replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this Section,
the Company or the Trustee may require the payment by the Noteholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed as
a result of the issuance of such replacement Note.
(e) Every replacement Note issued pursuant to this Section 2.04
in lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by
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anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
(f) The provisions of this Section 2.04 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.05 Payment of Interest and Principal; Rights Preserved.
(a) Any installment of interest or principal, payable on any Note
that is punctually paid or duly provided for by or on behalf of the Company on
the applicable Payment Date shall be paid to the Person in whose name such Note
was registered at the close of business on the Record Date for such Payment Date
by check mailed to the address specified in the Note Register, or upon the
request of a holder of more than $1,000,000 original principal amount of Notes,
by wire transfer of federal funds to the account and number specified in the
Note Register, in each case on such Record Date for such Person (which shall be,
as to each original purchaser of the Notes, the account and number specified by
such purchaser to the Trustee in writing, or, if no such account or number is so
specified, then by check mailed to such Person's address as it appears in the
Note Register on such Record Date.
(b) All reductions in the principal amount of a Note effected by
payments of installments of principal made on any Payment Date shall be binding
upon all holders of such Note and of any Note issued upon the registration of
transfer thereof or in exchange therefore or in lieu thereof, whether or not
such payment is noted on such Note. All payments on the Notes shall be paid
without any requirement of presentment but each holder of any Note shall be
deemed to agree, by its acceptance of the same, to surrender such Note at the
Corporate Trust Office against payment of the final installment of principal of
such Note.
SECTION 2.06 Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer,
the Company, the Trustee, and any agent of the Company or the Trustee may treat
the registered Noteholder as the owner of such Note for the purpose of receiving
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee, nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.07 Cancellation.
All Notes surrendered for registration of transfer or exchange or
following final payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All
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cancelled Notes held by the Trustee may be disposed of in the normal course of
its business or as directed by a Company Order.
SECTION 2.08 Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. In the event the Trustee no longer serves as the Note Registrar,
the Company (or any other obligor upon the Notes) shall furnish to the Trustee
at least five Business Days before each interest payment date (and in all events
in intervals of not more than 6 months) and at such other times as the Trustee
may request in writing a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Noteholders.
SECTION 2.09 Treasury Notes.
In determining whether the Noteholders of the required
Outstanding Principal Amount of the Notes have concurred in any direction,
waiver or consent, Notes held or redeemed by the Company or any other obligor
upon the Notes or held by an Affiliate of the Company shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which a corporate trust officer of the Trustee knows are so owned
shall be so disregarded.
ARTICLE 3.
ACCOUNTS; COLLECTION AND
APPLICATION OF MONEYS; REPORTS
SECTION 3.01 Trust Accounts; Investments by Trustee.
(a) On or before the Issuance Date for any Series, the Trustee
shall establish in the name of the Trustee for the benefit of the Noteholders of
such Series and the Company to the extent of their interests therein as provided
in this Indenture and in the Servicing Agreement, the Trust Accounts designated
for such Series, which accounts shall be Eligible Accounts maintained at the
Corporate Trust Office.
Subject to the further provisions of this Section 3.01(a), the Trustee shall,
upon receipt or upon transfer from another account, as the case may be, deposit
into such accounts all amounts received by it which are required to be deposited
therein in accordance with the provisions of this Indenture. All such amounts
and all investments made with such amounts, including all income and other gain
from such investments, shall be held by the Trustee in such accounts as part of
the Trust Estate as herein provided, subject to withdrawal by the Trustee in
accordance with, and for the purposes specified in the provisions of, this
Indenture.
(b) The Trustee shall hold in trust but shall not be required to
deposit in any account specified pursuant to Section 3.01(a) any payment
received by it until such time as the
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Trustee shall have identified to its reasonable satisfaction the nature of such
payment and, on the basis thereof, the proper account or accounts into which
such payment is to be deposited. In determining into which of the accounts, if
any, referred to above any amount received by the Trustee is to be deposited,
the Trustee may conclusively rely (in the absence of bad faith on the part of
the Trustee) on the advice of the Administrator. Unless the Trustee is advised
differently in writing by the Administrator, the Trustee shall assume that any
amount remitted to it is to be deposited into the designated Collection Account
pursuant to Section 3.03. The Trustee may establish from time to time such
deadline or deadlines as it shall determine are reasonable or necessary in the
administration of the Trust Estate after which all amounts received or collected
by the Trustee on any day shall not be deemed to have been received or collected
until the next succeeding Business Day.
(c) None of the Administrator, the Trustee nor the institution
then acting as Trustee shall have any right of set-off with respect to any
Lockbox Account or any Trust Account, or any investment therein.
(d) So long as no Event of Default shall have occurred and be
continuing, all or a portion of the amounts in any Trust Account shall be
invested and reinvested by the Trustee pursuant to an Administrator Order in one
or more Eligible Investments. Subject to the restrictions on the maturity of
investments set forth in Section 3.01(f), each such Administrator Order may
authorize the Trustee to make the specific Eligible Investments set forth
therein, to make Eligible Investments from time to time consistent with the
general instructions set forth therein, or to make specific Eligible Investments
pursuant to instructions received in writing or by telegraph or facsimile
transmission from the employees or agents of the Administrator, as the case may
be, identified therein, in each case in such amounts as such Administrator Order
shall specify.
(e) In the event that either (i) the Administrator shall have
failed to give investment directions to the Trustee by 9:30 A.M., New York City
time on any Business Day on which there may be uninvested cash or (ii) an Event
of Default shall be continuing, the Trustee shall promptly invest and reinvest
the funds then in the designated Trust Account to the fullest extent practicable
in one or more Eligible Investments, in accordance with Section 3.02(d). All
investments made by the Trustee shall mature no later than the maturity date
therefore permitted by Section 3.01(f) unless the Trustee shall have received
written confirmation from each Rating Agency that the liquidation of such
Eligible Investments prior to their respective maturity dates will not result in
the reduction or withdrawal of such Rating Agency's then-current rating of the
Notes of such Series.
(f) No investment of any amount held in any Trust Account shall
mature later than the Deposit Date preceding the Payment Date which is scheduled
to occur immediately following the date of investment. All income or other gains
(net of losses) from the investment of moneys deposited in any Trust Account
shall be deposited by the Trustee in such account immediately upon receipt.
(g) Any investment of any funds in any Trust Account and any sale
of any investment held in such accounts, shall be made under the following terms
and conditions:
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(i) each such investment shall be made in the name of the
Trustee or in the name of a nominee of the Trustee, in each case in such
manner as shall be necessary to maintain the identity of such
investments as assets of the Trust Estate;
(ii) any certificate or other instrument evidencing such
investment shall be delivered directly to the Trustee or its agent and
the Trustee shall have sole possession of such instrument, and all
income on such investment; and
(iii) the proceeds of any sale of an investment shall be
remitted by the purchaser thereof directly to the Trustee for deposit in
the account in which such investment was held.
(h) If any amounts are needed for disbursement from any Trust
Account and sufficient uninvested funds are not collected and available therein
to make such disbursement, in the absence of an Administrator Order for the
liquidation of investments held therein in an amount sufficient to provide the
required funds, the Trustee shall select and cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such accounts.
(i) The Trustee shall not in any way be held liable by reason of
any insufficiency in any Trust Account resulting from losses on investments made
in accordance with the provisions of this Section 3.01 (but the institution
serving as Trustee shall at all times remain liable for its own debt
obligations, if any, constituting part of such investments). The Trustee shall
not be liable for any investment made by it in accordance with this Section 3.01
on the grounds that it could have made a more favorable investment or a more
favorable selection for sale of an investment. The Trustee may trade with itself
or an Affiliate in the purchase or sale of Eligible Investments.
SECTION 3.02 Establishment and Administration of the Lockbox and
the Collection Accounts. (a) The Administrator shall cause to be established and
maintained at all times a Lockbox and related Lockbox Account pursuant to the
designated Lockbox Agreement for such Series, of which such Lockbox and Lockbox
Account and shall be in the name of the Servicer or the Company, as custodian,
and shall be maintained on behalf of the Trustee for the benefit of the
allocated Trust Estate. Each Collection Account shall be an Eligible Account
initially established at the office of the Trustee, bearing a designation
clearly indicating that the funds deposited therein are held solely for the
benefit of the Series. The Trustee shall possess all right, title and interest
in all funds on deposit from time to time in each Lockbox Account and each
Collection Account and in all proceeds thereof. Each Lockbox Account and each
Collection Account shall be under the sole dominion and control of the Trustee
for the benefit of the Noteholders as their interests appear in the designated
Trust Estate. The Administrator or Servicer agrees to cause the Lockbox Bank to
sweep funds from each Lockbox to the related Lockbox Account on a daily basis
and from each Lockbox Account to the related Collection Account at least once
each week. The Administrator agrees to require, and to cause the Servicer to
require, that all Payments by Obligors on Auto Loans be made to the Lockbox
Account (and that only Payments on Receivables will be received in the Lockbox
Account and no other funds other than funds in which the Trust Estate has an
interest hereunder will be commingled therein). If, at any time, the Collection
Account ceases to be an Eligible Account, the Administrator and
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the Trustee shall within 5 Business Days establish a new Collection Account
which shall be an Eligible Account, transfer any cash and/or any investments to
such new Collection Account and from the date such new Collection Account is
established, it shall be the "Collection Account".
(b) The Administrator shall cause the Servicer to deposit into
the applicable Collection Account, as soon as practicable, but in no event later
than the close of business on the second Business Day after the date of receipt
thereof (i) all amounts representing Payments (net of insufficient fund fees and
overpayment credits), if any, collected by the Servicer or anyone else and (ii)
all Recoveries on Receivables received by the Servicer during such Due Period.
(c) Each of the Administrator and the Company shall immediately
deposit and pay directly into the applicable Lockbox Account any Payments it may
receive, all Recoveries on Receivables and the Repurchase Price of Receivables
repurchased by it pursuant to Section 11.03 hereof, with a written notice to the
Servicer of such remittance.
(d) The Administrator shall direct the Trustee in writing to
invest, and the Trustee shall so invest, the amounts in each Collection Account
in specified Eligible Investments that mature not later than the next succeeding
Deposit Date; provided, that any Eligible Investment as to which the Trustee is
the obligor in its individual capacity may mature not later than such Payment
Date. If the Trustee receives no such direction, such amounts shall be invested
in mutual funds maintained by the Trustee (or an Affiliate of the Trustee),
provided such mutual funds constitute Eligible Investments; and provided,
further, that such mutual funds maintain at all times a net asset value of $1
per share. The Trustee may trade with itself or an Affiliate in the purchase or
sale of Eligible Investments. The Trustee shall not be liable for any losses
suffered on amounts invested hereunder so long as such investments are Eligible
Investments satisfying the timing requirements specified in the first sentence
of this Section 3.02(d).
(e) The Administrator shall instruct the Trustee in writing to
make withdrawals and payments from each Collection Account for the purposes of
carrying out the Administrator's and the Trustee's duties hereunder.
SECTION 3.03 Establishment and Administration of Cash Reserve
Accounts. If so designated with respect to a Series, on or prior to each
Issuance Date, the Administrator shall cause to be established and maintained at
all times a Cash Reserve Account on behalf of and in the name of the Trustee for
the benefit of the Trust Estate allocated to such Series. Each Cash Reserve
Account shall be an Eligible Account initially established at the offices of the
Trustee. If, at any time, the Cash Reserve Account ceases to be an Eligible
Account, the Administrator on behalf of the Trustee shall within 5 Business Days
establish a new Cash Reserve Account which shall be an Eligible Account,
transfer any cash and/or any investments to such new Cash Reserve Account and
from the date such new Cash Reserve Account is established, it shall be the
"Cash Reserve Account" in the name of the Trustee for the benefit of the Trust
Estate. If applicable for such Series, on the Issuance Date, the Company shall
deposit an amount equal to the Initial Cash Reserve Account Deposit into the
Cash Reserve Account which amounts shall be allocated in the manner provided
herein.
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(a) The Administrator shall deliver or cause to be delivered to
the Trustee no later than the Business Day following any applicable
Determination Date a written notice (a "Cash Reserve Account Withdrawal Notice")
requesting the withdrawal and application of funds in each Cash Reserve Account
in accordance with the terms of the designated Series, and the Trustee shall so
withdraw and allocate such funds.
(b) Funds on deposit in the Cash Reserve Account shall be
invested in accordance with Section 3.01.
SECTION 3.04 Distributions.
(a) Distributions from that portion of Trust Assets allocated to
such Series will be made by the Trustee in accordance with the terms of such
Series.
(b) On the first Business Day following the Payment Date on which
all Noteholders of a given Series have been paid in full, all amounts held in
the applicable Trust Accounts, if any, shall be disbursed to the Company and all
interests of the Trust Estate in all Receivables allocated to such Series which
have an outstanding balance shall be reconveyed by the Trustee to the Company.
Such disbursement and reconveyance shall constitute the final payment to which
the Company is entitled with respect to its Company Interest pursuant to the
terms of this Indenture.
SECTION 3.05 Reports to Noteholders. On each Payment Date,
concurrently with the distribution or allocation to the Noteholders, the Trustee
shall furnish to the Noteholders (with a copy to each Rating Agency), a report
(which the Administrator covenants to timely prepare and deliver to the Trustee
at least one Business Day prior to such Payment Date) prepared by the
Administrator substantially in the form designated for such Series. Such report
shall include a certification (i) that the information contained in such report
is accurate, (ii) that no Event of Administrator Termination, or event that with
notice or lapse of time or both would become an Event of Administrator
Termination, has occurred, or if an Event of Administrator Termination or such
event has occurred and is continuing, specifying the Event of Administrator
Termination or such event and its status and (iii) that the representations and
warranties of the Administrator contained in the Servicing Agreement are true
and correct as though made on and as of the date of such certificate.
Notwithstanding any provision of this Agreement to the contrary,
the Trustee shall have no duty or obligation with respect to the information
provided via the monthly computer tape or diskette, including, without
limitation, to verify, monitor or otherwise supervise or administer the
performance of the Servicer or the Administrator.
SECTION 3.06 Returned Payments. If the principal amount of any
Note or any other amount payable under any Note (including interest) shall have
been reduced by any distribution or allocation of any portion of collections or
other Payments on Receivables, and thereafter such distribution or allocation is
rescinded or must otherwise be returned by or on behalf of the recipient thereof
to the Company, the Trust Estate or any other creditor of the Company for any
reason, such principal or other amount distributed or allocated in respect of
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such Note shall be increased by the amount of such distribution or allocation to
the extent so returned, all as though such distribution or allocation had not
been made.
ARTICLE 4.
THE TRUST ESTATE
SECTION 4.01 Acceptance by Trustee and Agreement to Act as
Custodian. (a) Pursuant to each Collateral Assignment, the Trustee will
acknowledge the conveyance of the Transferred Assets and the receipt of Loan
Documents and other Transferred Assets conveyed by the Company pursuant to such
Collateral Assignment and the Trustee will hold such Receivables, the Loan
Documents and all other Trust Assets comprising the Trust Estate, to the extent
allocated to a Series, in trust for the benefit of the Noteholders of such
Series subject to the terms and provisions hereof.
(b) The Trustee shall perform its duties under this Section 4.01
and hereunder on behalf of the Trust Estate and for the benefit of the
Noteholders in accordance with the terms of this Indenture and applicable law
and, in each case, taking into account its other obligations hereunder, but
without regard to:
(i) any relationship that the Trustee or any Affiliate of
the Trustee may have with the related Obligor;
(ii) the ownership of any Note by the Trustee or any
Affiliate of the Trustee;
(iii) the Trustee's right to receive compensation for its
services hereunder or with respect to any particular transaction; or
(iv) the ownership, or holding in trust for others, by the
Trustee of any other automobile loans or property.
(v) The Trustee shall promptly report to the
Administrator, each Rating Agency and the Noteholders any failure by it
to hold the Loan Documents as herein provided and shall promptly take
appropriate action to remedy any such failure but shall be liable
therefor only to the extent (i) any such failure is caused by the acts
or omissions of the Trustee and (ii) such remedial action is or was at
the time of such failure otherwise within its capabilities or control.
As custodian, the Trustee shall have and perform the following powers
and duties:
(A) hold the Loan Documents for the benefit of the
Noteholders of the allocated Series, maintain accurate records
pertaining to each Receivable to enable it to comply with the
terms and conditions of this Indenture, and maintain a current
inventory thereof;
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(B) implement policies and procedures in accordance
with the Trustee's normal business practices with respect to
custody of the Loan Documents so that the integrity and physical
possession of the Loan Documents will be maintained; and
(C) attend to all details in connection with
maintaining custody of the Loan Documents on behalf of the Trust
Estate.
(vi) In acting as custodian of the Loan Documents and as
Trustee hereunder, the Trustee agrees further that it does not and will
not have or assert any interest in the Trust Assets in its individual
capacity. Promptly upon the Trustee's receipt thereof, the Trustee on
behalf of the Trust Estate shall mark the Loan Documents and its master
data processing records to reflect that the Trust Estate has been
assigned the Receivables and that such Receivables have been allocated
to a particular Series as provided herein and in the applicable
supplemental indenture.
(vii) The Trustee agrees to maintain the related Loan
Documents at its office located in Buffalo, New York or at such other
offices of the Trustee as shall from time to time be identified by prior
written notice to the Administrator and the Noteholders; provided that
prior to relocating any Loan Documents at any of such other offices, the
Trustee shall have obtained an Opinion of Counsel as to the Trustee's
perfected security interest in the Auto Loans. Subject to the foregoing,
the Trustee may temporarily move individual Loan Documents or any
portion thereof without notice as necessary to conduct collection and
other servicing activities.
SECTION 4.02 Subsequent Transfers. (a) On each Assignment Date
the Company shall request that the Trust Estate acquire and the Trust Estate
shall so acquire Receivables (each, a "Transfer") from the Company on the terms
and subject to the conditions of this Indenture; provided, however, that the
conditions specified in Section 4.03 shall have been satisfied; and provided,
further, that the Administrator may cause the Company to contribute (i), if
applicable, Receivables that satisfy Section 11.02(a) to the Trust Estate as
allocated to a Series on any Payment Date and (ii) funds for deposit in a Cash
Reserve Account at any time.
(b) On any Business Day which is an Assignment Date after the
Issuance Date for a Series, the Company shall give the Administrator, the
Trustee and the Servicer written notice of each Transfer (in each case, a
"Transfer Notice") specifying the Unpaid Principal Balance of each Receivable
transferred thereby to the Trust Estate on such Assignment Date. The
Administrator shall independently confirm and hereby represents and warrants as
to, and the Trustee may, without any duty to make any independent investigation
with respect thereto, rely on, the facts set forth in such Transfer Notice.
(c) On each Assignment Date following its delivery of a Transfer
Notice, the Company will complete, execute and deliver a Collateral Assignment
to the Administrator and the Trustee. The Administrator and the Trustee, as
custodian for and on behalf of the Trust Estate, shall thereupon execute such
Collateral Assignment and deliver executed copies thereof to each other and to
the Company and the Noteholders.
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(d) Following delivery of a duly executed Collateral Assignment,
subject to the satisfaction of the conditions set forth in Sections 4.02(a) and
4.03, all Receivables specified in such Collateral Assignment (including all
Payments allocable to principal and interest received after the related Cut-off
Date) will be assigned to the Trustee on behalf of the Trust Estate and such
Receivables shall become Trust Assets and part of the Trust Estate, as allocated
to a particular Series.
SECTION 4.03 Conditions Precedent to All Transfers.
Each Transfer shall be subject to the conditions precedent that:
(a) On the related Assignment Date (including the initial
Transfer on the date hereof), the Company and the Administrator shall have
certified and are deemed to have represented and warranted hereunder and shall
so represent and warrant in the related Collateral Assignment that:
(i) the representations and warranties (A) of the Company
and AutoBond set forth in Sections 11.01 and 11.02 hereof and (B) of the
Administrator set forth in the applicable Servicing Agreement, are true
and correct on and as of such date, before and after giving effect to
such Transfer, as though made on and as of such date;
(ii) no event has occurred, or would result from such
Transfer or from the application of the proceeds therefrom, which
constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both;
(iii) each of the Company and AutoBond is in material
compliance with each of its covenants set forth herein and in all
Related Documents;
(iv) no event has occurred which constitutes an Event of
Servicing Termination or would constitute an Event of Servicing
Termination but for the requirement that notice be given or time elapse
or both; and
(v) no event has occurred which constitutes an Event of
Administrator Termination or would constitute an Event of Administrator
Termination but for the requirement that notice be given or time elapse
or both.
(b) The Company shall have delivered to the Trustee (with a copy
to each Rating Agency and the Noteholders) as custodian for and on
behalf of the Trust Estate an executed copy of the related Collateral
Assignment and an Officer's Certificate stating and representing and
warranting (and hereby represents and warrants) that all conditions
precedent to the effectiveness thereof as specified herein shall have
been satisfied;
(c) The Trustee shall have confirmed receipt of the Loan
Documents with respect to the Receivables subject to such Transfer; and
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(d) No Responsible Officer of the Trustee has actual knowledge
that any conditions to such Transfer have not been fulfilled and no Noteholder
shall have notified the Trustee of the same, and the Trustee shall have received
such other documents, opinions, certificates and instruments as any Noteholder
or the Trustee may request.
SECTION 4.04 Grant of Security Interest; Tax Treatment. (a) For
purposes of legal form and the Intended Tax Characterization, it is the
intention of the parties hereto that this Indenture and each related Collateral
Assignment shall constitute a security agreement under applicable law, and that
the Company has granted to the Trustee on behalf of the Trust Estate for the
benefit of the Noteholders, the Company and other creditors of the Trust Estate,
a first priority perfected security interest in all of the Company's right,
title and interest in, to and under the Transferred Assets and the other Trust
Assets. The Trustee shall treat the Trust Estate as a security device for tax
purposes and shall not file tax returns or obtain an employer identification
number on behalf of the Trust Estate. The provisions of this Indenture shall be
construed in furtherance of the foregoing intended tax treatment. The conveyance
by the Company of the Transferred Assets to the Trustee on behalf of the Trust
Estate on each Assignment Date shall not constitute and are not intended to
result in an assumption by the Trustee or any Noteholder (other than the Company
or any Affiliate of any obligations at the Trust Estate or of the Company) of
any obligation of the Company or the Administrator to the Obligors, the insurers
under any insurance policies, or any other Person in connection with the
Transferred Assets.
(b) It is the intention of the parties hereto that, with respect
to all Taxes, the Notes will be treated as indebtedness of the Company to the
Noteholders secured by the Transferred Assets (the "Intended Tax
Characterization"). The Company, the Administrator and the Trustee, by entering
into this Agreement, and each Noteholder by the purchase of a Note, agree to
report such transactions for purposes of all Taxes in a manner consistent with
the Intended Tax Characterization.
(c) The Company and the Administrator shall take no action
inconsistent with the Trustee's interest in the Transferred Assets and shall
indicate or shall cause to be indicated in its books and records held on its
behalf that each Receivable and the other Transferred Assets has been assigned
to the Trustee on behalf of the Trust Estate and the Noteholders.
SECTION 4.05 Further Action Evidencing Assignments. (a) The
Company and the Administrator each agrees that, from time to time, at its
respective expense, it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or
appropriate, or that the Administrator, the Servicer or the Trustee or
Noteholders of a Series with a Percentage greater than 50% may reasonably
request, in order to perfect, protect or more fully evidence the security
interest in the Transferred Assets allocated to such Series or to enable the
Trustee to exercise or enforce any of its rights hereunder, and under any
Collateral Assignment. Without limiting the generality of the foregoing, the
Company will, without the necessity of a request and upon the request of the
Administrator or the Trustee, execute and file (or cause to be executed and
filed) such financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be necessary
or appropriate including, without limitation, recording and filing UCC-1
financing statements, amendments or continuation statements with the office of
the Secretary of State of
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the state of [Nevada] (and other locations): (i) each Assignment Date, and (ii)
prior to the effective date of any change of the name, identity or structure or
relocation of its chief executive office or any change that would or could
affect the perfection pursuant to any financing statement or continuation
statement or assignment previously filed or make any UCC-1 or continuation
statement previously filed pursuant to this Agreement seriously misleading
within the meaning of applicable provisions of the UCC (and the Company shall
give the Trustee at least 10 Business Days prior notice of any circumstance in
(ii) before the same occurs). The Company shall deliver promptly to the Trustee
file-stamped copies of any such filing.
(b) (i) The Company hereby grants to each of the Administrator
and the Trustee a power of attorney to execute all documents on behalf of the
Company as may be necessary or desirable to effectuate the foregoing and (ii)
AutoBond hereby grants to the Trustee a power of attorney to execute all
documents on behalf of AutoBond as may be necessary or desirable to effectuate
the foregoing; provided, however, that such grant shall not create a duty on the
Trustee to file, prepare, record or monitor or any responsibility for the
contents or adequacy of any such documents.
ARTICLE 5.
SERVICING OF TRUST ASSETS
SECTION 5.01 Appointment of Servicer. For each Series hereunder,
there shall be designated a Servicing Agreement for the servicing,
administration and collection of the Receivables and the Trustee shall enforce
the provisions thereof on behalf of the Noteholders.
SECTION 5.02 Appointment of Administrator; Monthly Administration
Fee. (a) AutoBond agrees to act as the Administrator under this Indenture and
the Noteholders by their acceptance of Notes consent to AutoBond acting as
Administrator subject to the terms and conditions hereof. AutoBond shall cease
to act as the Administrator hereunder with respect to any Series, in each case
after the determination of the Trustee or the holders of more than 50% of the
principal amount of the affected Notes upon the occurrence of an Event of
Administrator Termination under the related Servicing Agreement, whereupon the
Trustee shall assume the Administrator's duties hereunder (but not including
collection agent duties under the Servicing Agreement and the duties specified
in Section 5.03(a)(i)-(vi), which shall remain duties of AutoBond until a
successor to such duties is appointed) as additional Trustee duties. The
Administrator shall have no right to voluntarily resign from its duties and
obligations hereunder.
(b) The Administrator shall conduct the duties specified herein
and as specified in each Servicing Agreement (together, the "Administrator
Duties") in accordance with (i) customary and prudent business practices for
the performance of similar activities, all applicable laws, rules and
regulations and contracts with respect to it, its business and properties and
all Receivables, Insurance Policies, and other Trust Assets with respect thereto
and, (ii) to the extent consistent with the foregoing, in the same manner in
which, and the same care, skill, prudence and diligence with which, it performs
similar management and administrative services for its
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own account or on behalf of other Persons giving due consideration to customary
and prudent business practices.
(c) As compensation for its services hereunder and under the
Servicing Agreement, subject to the terms and conditions hereof and thereof, the
Trustee shall remit to the Administrator such fees as may be designated from
time to time in respect of a particular Series.
SECTION 5.03 Duties and Responsibilities of the Administrator.
(a) In addition to the other duties specified in this Indenture and in the
Servicing Agreement, the Administrator Duties shall, on behalf of the Trust
Estate, consist of: (i) administering collections on the Receivables; (ii)
arranging for and administering repossessions of the Financed Vehicles related
to the Receivables; (iii) disposing of each Financed Vehicle related to a
Receivable whether following repossession or otherwise; (iv) maximizing
collections of Receivables, and filing of insurance claims under and in
accordance with the Insurance Policies (if any) with respect to each Auto Loan
affected by a repossession or otherwise; (v) delivering to the Trustee and to
any Noteholder with a Percentage of at least 50% in respect of a Series upon the
request of such Noteholder the List of Receivables allocated to such Series as
amended from time to time, on each Assignment Date; and (vi) formulating the
Credit and Collection Policies, from time to time.
(b) Other than in connection with its duty as Collection Agent or
Servicer to effect liquidations of Financed Vehicles and its obligation to make
repurchases of Receivables hereunder, AutoBond shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or suffer to
exist any Adverse Claim upon or written respect to, any Receivable (or any right
to receive income in respect thereof), or any Collection Account.
ARTICLE 6.
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01 Events of Default.
"Event of Default," wherever used herein with respect to Notes of
any Series, means any one of the following :
(a) (i) default in the making of Principal Payments or Interest
Payments in respect of any Note of that Series when such become due and payable,
and continuance of such default for one Business Day; or (ii) failure to make
any deposit when due hereunder or under the applicable Servicing Agreement and
continuance of such default for one Business Day;
(b) failure of AutoBond to repurchase pursuant to Section 11.03
any Auto Loans allocated to such Series, and such failure continues for 30 days;
(c) default in the performance, or breach, of any covenant of the
Company or the Administrator in this Indenture and applicable to such Series
(other than a covenant dealing with
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a default in the performance of which or the breach of which is specifically
dealt with elsewhere in this Section 6.01) and continuance of such default or
breach for a period of 30 days after the earliest of (i) any officer of the
Company or the Administrator first acquiring knowledge thereof, (ii) the
Trustee's giving written notice thereof to the Company or (iii) the holders of a
majority of the then Outstanding Principal Amount of the Notes of such Series
giving written notice thereof to the Company and the Trustee;
(d) if any representation or warranty of the Company or the
Administrator made in this Indenture and applicable to such Series shall prove
to be incorrect in any material respect as of the time when the same shall have
been made, and, if such inaccuracy is capable of cure, such breach is not
remedied within 30 days after discovery by the Company or the Administrator,
notice of breach from the Trustee or the holders of a majority of Outstanding
Principal Amount of the Notes of such Series; provided, however, that a breach
of any representation or warranty made by the Company or the Administrator in
Section 11.02 with respect to any of the Auto Loans or the interests in the
Financed Vehicles shall not constitute an Event of Default if the Company or the
Administrator repurchases such Receivables in accordance with Section 11.03(a);
(e) the entry by a court having jurisdiction in the premises of
(i) a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator, or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(f) the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or similar official of the Company or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the Company's failure to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(g) an Event of Administrator Termination under the Servicing
Agreement applicable to such Series shall have occurred and be continuing; or
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(h) any Transfer shall for any reason (other than pursuant to the
terms hereof) cease to create a valid and perfected first priority security
interest (within the meaning of the UCC) in the Auto Loans taken as a whole and
the related security and collections with respect thereto in favor of the
Trustee on behalf of the Trust Estate, or the applicable Note shall for any
reason cease to be entitled to the benefits of security interest (within the
meaning of the UCC) in the Receivables and related security and other
Transferred Assets allocated to such Series, to the extent of such Note's
purported interest therein; or
(i) AutoBond shall at any time cease to own, directly or
indirectly, at least 100% of the outstanding shares of common stock of the
Company; or
(j) a judgment or judgments aggregating in excess of $25,000
shall be entered against the Company and shall not be paid, stayed or dismissed
within 30 days thereof; or
(k) any other Event of Default provided with respect to Notes of
that Series.
SECTION 6.02 Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default of the kind specified in Section
6.01(e) or Section 6.01(f) occurs, the unpaid principal amount of the Notes of
each Series shall automatically become due and payable at par together with all
accrued and unpaid interest thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company. If an Event
of Default (other than an Event of Default of the kind described in Section 6.01
(e) or Section 6.01(f)) with respect to Notes of any Series occurs and is
continuing, then and in every such case the Trustee shall, if so directed by the
holders of Notes evidencing at least 66-2/3% of the then Outstanding Principal
Amount of the most senior Class of such Series (or if the Notes of such Class
are no longer Outstanding, the holders of Notes evidencing at least 66-2/3% of
the then Outstanding Principal Amount of the next most senior Class, and so on),
or the holders of at least 66-2/3% of the then Outstanding Principal Amount of
Notes of such Series may, declare the unpaid principal amount of all the Notes
of such Series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Noteholders), and upon any such
declaration such principal amount shall become immediately due and payable
together with all accrued and unpaid interest thereon, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Company.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the holders of
a like percentage of Notes of such Series by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all Principal Payments on any Notes of such Series
which have become due otherwise than by such declaration of
acceleration and interest
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thereon from the date when the same first became due until the
date of payment or deposit at the appropriate Note Interest Rate
plus two percent (2%) per annum,
(B) all Interest Payments due with respect to any Notes
of such Series and, to the extent that payment of such interest
is lawful, interest upon overdue interest from the date when the
same first became due until the date of payment or deposit at a
rate per annum equal to the appropriate Note Interest Rates, and
(C) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements, and
advances of each of the Trustee, the Servicer and the
Administrator, its agents and counsel;
and
(ii) all Events of Default with respect to Notes of that
Series, other than the non-payment of the Outstanding Principal Amount
of the Notes of such Series which become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 6.03 Remedies.
(a) If an Event of Default with respect to Notes of any Series
occurs and is continuing of which a Responsible Officer has actual knowledge,
the Trustee shall immediately give notice to each Noteholder of such Series as
set forth in Section 7.02 and shall solicit such Noteholders for advice. The
Trustee shall then take such action as so directed by the holders of at least
66-2/3% of the Outstanding Principal Amount of the Notes of such Series, subject
to the provisions of this Indenture.
(b) Following any acceleration of the Notes of any Series, the
Trustee shall have all of the rights, powers and remedies with respect to the
Trust Estate allocated to such Series as are available to secured parties under
the Uniform Commercial Code or other applicable law, subject to subsection (d)
below. Such rights, powers and remedies may be exercised by the Trustee in its
own name as trustee of an express trust.
(c) (i) If an Event of Default specified in Section 6.01(a)
occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company
for the whole amount of principal and interest remaining unpaid with
respect to the affected Series of Notes.
(ii) If an Event of Default occurs and is continuing, the
Trustee may in its discretion, and at the instruction of an aggregate
Percentage of greater than 50% of the Noteholders of each affected
Series shall, proceed to protect and enforce its rights and the rights
of the Noteholders of such Series by such appropriate judicial or other
proceedings
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as the Trustee shall deem most effectual to protect and enforce any such
rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy. The Trustee shall
notify the Company, the Administrator, the Servicer, the Noteholders of
such Series and each applicable Rating Agency of any such action.
(d) If (i) the Trustee shall have received instructions within 90
days from the date notice pursuant to Section 6.03(a) is first given from
holders of each Class of Notes of such Series evidencing more than 50% of the
aggregate unpaid principal amount of such Class of Notes, to the effect that
such Persons approve of or request the liquidation of the Trust Assets allocated
to such Series and do not wish to continue such Trust Estate pursuant to the
terms of this Indenture or (ii) upon an Event of Default set forth in Section
6.01(e) or (f), the Trust Estate allocated to such Series shall be terminated
and, the Trustee shall to the extent lawful, promptly sell, dispose of or
otherwise liquidate the Trust Assets allocated to such Series in a commercially
reasonable manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids. The Trustee may obtain a prior determination
from any such conservator, receiver or liquidator of the Company that the terms
and manner of any proposed sale, disposition or liquidation are commercially
reasonable.
SECTION 6.04 Trustee May File Proofs of Claim. (a) In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company, or any other obligor upon the Notes, or the
property of the Company, or such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes or any
amounts owing on the Receivables or the other Trust Assets and to file
such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee and any predecessor Trustee (including
any claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and
counsel) and of the Noteholders allowed in such judicial proceeding; and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Noteholder to make such payments to the Trustee and to pay to the Trustee
any amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and counsel,
and any other amounts due the Trustee and any predecessor Trustee under Section
7.06.
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(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, agreement, adjustment or composition
affecting the Notes or the rights of any Noteholder thereof or affecting the
Receivables or the other Trust Assets or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such proceeding.
SECTION 6.05 Trustee May Enforce Claims Without Possession of
Notes. All rights of action and claims under this Agreement, the Notes, the
Receivables or the other Trust Assets may be prosecuted and enforced by the
Trustee without the possession of any of the Notes or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provisions for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, be for the benefit of the
Noteholders in respect of which such judgment has been recovered, and pursuant
to the priorities contemplated by Section 3.04.
SECTION 6.06 Application of Money Collected. Any money collected
by the Trustee pursuant to this Article 6 shall be deposited in the applicable
Collection Account or Accounts for disbursement in accordance with the
provisions of Article 3.
SECTION 6.07 Limitation on Suits. No Noteholder of any Series
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture or for any other remedy hereunder, unless:
(a) there is a continuing Event of Default with respect to such
Series and such Noteholder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) within 30 days after notice, the Noteholders holding an
aggregate Percentage of greater than 50% of such Series shall not have objected
to such Noteholder's written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Noteholder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee, for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Noteholders of at least
662/3% in aggregate principal amount of the Outstanding Notes of such Series;
it being understood and intended that no one or more of such Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Agreement to affect, disturb or prejudice the rights of any
other Noteholders, or to obtain or to seek to obtain priority
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or preference over any other Noteholders or to enforce any right under this
Indenture, except in the manner herein provided and for the ratable benefit of
all such Noteholders. It is further understood and intended that so long as any
portion of the Notes remains Outstanding, AutoBond shall not have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
(other than for the enforcement of Section 3.04) or for the appointment of a
receiver or trustee (including without limitation a proceeding under the
Bankruptcy Code), or for any other remedy hereunder. Nothing in this Section
6.07 shall be construed as limiting the rights of otherwise qualified
Noteholders to petition a court for the removal of a Trustee pursuant to Section
7.09 hereof.
SECTION 6.08 Unconditional Right of Noteholders to Receive
Principal and Interest.
Notwithstanding any other provision in this Indenture, other than
the provisions hereof limiting the right to recover amounts due on the Notes to
recoveries from the property of the allocated Trust Estate, the holder of any
Note shall have the absolute and unconditional right to receive payment of the
principal of and interest on such Note on the Maturities for such payments,
including the Stated Maturity, and such right shall not be impaired without the
consent of such Noteholder.
SECTION 6.09 Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Noteholders
continue as though no such proceeding had been instituted.
SECTION 6.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost, or stolen Notes in the last paragraph of
Section 2.04, no right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any holder of any Note
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and
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remedy given by this Article or by law to the Trustee or to the Noteholders may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Noteholders, as the case may be.
SECTION 6.12 Control by Noteholders.
Except as may otherwise be provided in this Indenture, until such
time as the conditions specified in Sections 10.01(a)(i) and (ii) have been
satisfied in full, the holders of at least 66-2/3% of the then Outstanding
Principal Amount of the Notes of any Series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Notes of such Series. Notwithstanding the foregoing,
(i) no such direction shall be in conflict with any rule
of law or with this Indenture;
(ii) the Trustee shall not be required to follow any such
direction which the Trustee reasonably believes might result in any
personal liability on the part of the Trustee for which the Trustee is
not adequately indemnified; and
(iii) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with any such direction;
provided that the Trustee shall give notice of any such action to each
Noteholder of such Series.
SECTION 6.13 Waiver of Events of Default.
(a) The holders of at least 66-2/3% of the then Outstanding
Principal Amount of the Notes of any Series may, by one or more instruments in
writing, waive any Event of Default on behalf of all Noteholders of such Series
hereunder and its consequences, except a continuing Event of Default:
(i) in respect of the payment of the principal of or
interest on any Note (which may only be waived by the holder of such
Note), or
(ii) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of
the holder of each Outstanding Note affected (which only may be waived
by the holders of all Outstanding Notes affected).
(b) A copy of each waiver pursuant to Section 6.13(a) shall be
furnished by the Company to the Trustee and each Noteholder. Upon any such
waiver, such Event of Default shall cease to exist and shall be deemed to have
been cured, for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Event of Default or impair any right consequent
thereon.
SECTION 6.14 Undertaking for Costs.
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All parties to this Indenture agree (and each holder of any Note
by its acceptance thereof shall be deemed to have agreed) that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% of the then Outstanding Principal Amount
of the Notes of any Series, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or interest on any Note on or
after the Maturities for such payments, including the Stated Maturity as
applicable.
SECTION 6.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted allocated to a Series of
Notes.
SECTION 6.16 Sale of Trust Estate.
(a) The power to effect any sale of any portion of the Trust
Estate allocated to a Series of Notes pursuant to Section 6.03 shall not be
exhausted by any one or more sales as to any portion of the Trust Estate
remaining unsold, but shall continue unimpaired until the entire Trust Estate so
allocated shall have been sold or all amounts payable on the Notes of such
Series shall have been paid. The Trustee may from time to time, upon directions
in accordance with Section 6.12, postpone any public sale by public announcement
made at the time and place of such sale.
(b) To the extent permitted by applicable law, the Trustee shall
not sell to a third party the Trust Estate, or any portion thereof except as
permitted under Section 6.03(d).
(c) In connection with a sale of all or any portion of the Trust
Estate:
(i) any one or more Noteholders may bid for and purchase
the property offered for sale, and upon compliance with the terms of
sale may hold, retain, and possess and dispose of such property, without
further accountability, and any Noteholder may, in paying the purchase
money therefore, deliver in lieu of cash any Outstanding Notes or claims
for interest thereon for credit in the amount that shall, upon
distribution of the net proceeds of such sale, be payable thereon, and
the Notes, in case the amounts so payable
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thereon shall be less than the amount due thereon, shall be returned to
the Noteholders after being appropriately stamped to show such partial
payment;
(ii) the Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a sale thereof;
(iii) the Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Company to transfer and convey its
interest in any portion of the Trust Estate in connection with a sale
thereof, and to take all action necessary to effect such sale; and
(iv) no purchaser or transferee at such a sale shall be
bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of
any moneys.
(d) The method, manner, time, place and terms of any sale of all
or any portion of the Trust Estate shall be commercially reasonable.
ARTICLE 7.
THE TRUSTEE
SECTION 7.01 Certain Duties. (a) The Trustee undertakes to
perform such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee (including, without limitation, the duties
referred to in each Servicing Agreement during the continuance of an Event of
Servicing Termination, or an Event of Administrator Termination resulting in the
appointment of the Trustee as Successor Servicer) under any Servicing Agreement.
(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(c) In case an Event of Default, an Event of Servicing
Termination (resulting in the appointment of the Trustee as Successor Servicer
under any Servicing Agreement) or an Event of Administrator Termination
(resulting in the appointment of the Trustee as successor Administrator
hereunder) has occurred and is continuing with respect to any Series, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs; provided, however, that no provision
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in this Indenture shall be construed to limit the obligations of the Trustee to
provide notices under Section 7.02.
(d) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Noteholders pursuant to this Indenture, unless such Noteholders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or directions (the unsecured indemnity of an institution being in
all instances adequate for its purposes).
(e) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) this Section shall not be construed to limit the
effect of Section 7.01(a) and (b);
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it shall be
proved that the Trustee shall have been negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the written direction of the holders of the requisite principal
amount of the outstanding Notes, or in accordance with any written
direction delivered to it under Section 6.02(a), relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.
(f) Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 7.01.
(g) The Trustee makes no representations or warranties with
respect to the Trust Assets or the validity or sufficiency of any assignment of
the Receivables to the Company or to the Trust Estate.
SECTION 7.02 Notice of Events of Default. The Trustee shall
promptly (but in any event within five Business Days) notify the applicable
Rating Agencies, the Administrator, the Servicer and the Noteholders of any
Series upon a Responsible Officer obtaining actual knowledge of any event which
constitutes an Event of Default, an Event of Servicing Termination, or an Event
of Administrator Termination or would constitute an Event of Default, an Event
of Servicing Termination, or an Event of Administrator Termination but for the
requirement that notice be given or time elapse or both, in each case with
respect to such Series, unless such default shall have been cured or waived;
provided, further, that this Section 7.02 shall not limit the obligations of the
Trustee to provide notices expressly required by this Indenture.
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SECTION 7.03 Certain Matters Affecting the Trustee. Subject to
the provisions of Section 7.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) Any request or direction of any Noteholders, the
Administrator, the Company, or the Servicer mentioned herein shall be in
writing;
(c) Whenever in the performance of its duties hereunder the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officer's Certificate or Opinion of Counsel;
(d) The Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be deemed authorization in respect of
any action taken, suffered, or omitted by it hereunder in good faith and in
reliance thereon;
(e) Prior to the occurrence of an Event of Default, an Event of
Servicing Termination, or an Event of Administrator Termination, or after the
curing of all Events of Default, Events of Servicing Termination or Events of
Administrator Termination which may have occurred, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper document, unless
requested in writing so to do by Noteholders of any affected Series holding an
aggregate Percentage of more than 50%; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
reasonable opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such cost, expense or liability as a condition to
so proceeding. The reasonable expense of every such examination shall be paid by
the Administrator or, if paid by the Trustee, shall be reimbursed by the
Administrator upon demand; and
(f) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian (which may be Affiliates of the Trustee) and the
Trustee shall not be liable for any acts or omissions of such agents, attorneys
or custodians appointed with due care by it hereunder.
SECTION 7.04 Trustee Not Liable for Notes or Receivables. (a) The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or any Related Document, the Notes (other than the authentication
thereof) or of any Receivable. The Trustee shall not be accountable for the use
or application by the Company of funds paid to the Company in consideration of
conveyance of the Receivables to the Trust Estate.
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(b) Except with respect to the Trustee in its capacity as
Successor Servicer pursuant to the Servicing Agreement, the Trustee shall have
no responsibility or liability for or with respect to: the validity of any
security interest in any Financed Vehicle; the existence or validity of any
Receivable, the validity of the assignment of any Receivable to the Trust Estate
or of any intervening assignment; the review of any Receivable, any Loan File or
the Electronic Ledger as defined in the Servicing Agreement, the completeness of
any Loan File, the receipt by it or its custodian of any Receivable or Loan File
(it being understood that the Trustee has not reviewed and does not intend to
review such matters); the performance or enforcement of any Receivable; the
compliance by the Administrator, the Company or the Servicer with any covenant
or the breach by the Administrator or the Company of any warranty or
representation made hereunder or in any related document or the accuracy of any
such warranty or representation; the acts or omissions of the Administrator, the
Servicer or any Obligor or Dealer; or any action of the Administrator or the
Servicer taken in the name of the Trustee.
SECTION 7.05 Trustee May Own Notes. The Trustee in its individual
or any other capacity may become the owner or pledgee of Notes with the same
rights as it would have if it were not Trustee.
SECTION 7.06 The Administrator to Pay Trustee's Fees and
Expenses. The Administrator agrees to reimburse the Trustee upon its request for
all reasonable third-party expenses, disbursements and advances incurred or made
by the Trustee in its capacity as such in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursement of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith. The
obligations of the Administrator under this Section 7.06 shall survive the
termination of this Indenture and the resignation or removal of the Trustee.
SECTION 7.07 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times (a) be a corporation, depository institution, or
trust company organized and doing business under the laws of the United States
of America or any state thereof authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $250,000,000,
(b) be subject to supervision or examination by federal or state authority, (c)
be capable of maintaining an Eligible Account and (d) have a long-term unsecured
debt rating of not less than Baa2 from Moody's and BBB+ from S&P or such other
rating as may be acceptable to the Rating Agencies, and shall be acceptable to
Noteholders of each Series with a Percentage of more than 50%. If such
institution publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section 7.07, the combined capital and surplus of such
institution shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 7.07, the Trustee shall resign immediately in the manner and with the
effect specified in Section 7.08.
SECTION 7.08 Resignation or Removal of Trustee. (a) The Trustee
may at any time resign and be discharged with respect to the Notes of one or
more Series by giving 90 days' written notice thereof to the Administrator, the
Servicer, the Company, the Noteholders of such
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Series and the Rating Agencies. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor Trustee not objected to by
Noteholders of such Series with a Percentage of more than 50% within 30 days
after prior written notice, by written instrument, in quintuplicate, one
counterpart of which instrument shall be delivered to each of the Company, the
Servicer, the successor Trustee and the predecessor Trustee. A copy of such
instrument shall be delivered to the Rating Agencies. If no successor Trustee
shall have been so appointed and have accepted appointment within 90 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.07 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Administrator or Noteholders of each Series with a Percentage greater than 50%
may direct, and the Administrator shall follow such direction and remove the
Trustee. If it removes the Trustee under the authority of the immediately
preceding sentence, the Administrator shall promptly appoint a successor Trustee
not objected to by Noteholders of each Series with a Percentage of more than
50%, within 30 days after prior written notice, by written instrument, in
quintuplicate, one counterpart of which instrument shall be delivered to each of
the Company, the Servicer, the Noteholders, the successor Trustee and the
predecessor Trustee. Copies of such instrument shall also be delivered by the
Administrator to each of the Rating Agencies.
(c) The Trustee may be removed by the Administrator at any time
by giving written notice thereof to the Trustee and each of the holders of the
Notes then outstanding. Such removal by the Administrator will become effective
unless the holders of at least 51% of the principal amount of the Notes of each
Series then outstanding deliver a written statement to the Administrator
opposing such removal within 30 days following receipt of such notice of removal
from the Administrator.
(d) Any resignation or removal of the Trustee and appointment of
a successor Trustee pursuant to any of the provisions of this Section 7.08 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 7.09.
SECTION 7.09 Successor Trustee. (a) Any successor Trustee
appointed as provided in Section 7.08 shall execute, acknowledge and deliver to
each of the Administrator, the Company, the Servicer, the Noteholders and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder with like effect as if originally named
a Trustee. The predecessor Trustee shall deliver or cause to be delivered to the
successor Trustee or its custodian any related documents and statements held by
it or its custodian hereunder; and the Administrator and the Company and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may
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reasonably be required for the full and certain vesting and confirmation in the
successor Trustee of all such rights, powers, duties and obligations.
(b) In case of the appointment hereunder of a successor Trustee
with respect to the Notes of one or more (but not all) Series, the Company, the
retiring Trustee and each successor Trustee with respect to the Notes of one or
more Series shall execute and deliver an indenture supplemental hereto wherein
each successor Trustee shall accept such appointment and which (1) shall contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Notes of that or those Series to
which the appointment of such successor Trustee relates, (2) if the retiring
Trustee is not retiring with respect to all Notes, shall contain such provisions
as shall be deemed necessary or desirable to confirm that all the rights,
powers, trusts and duties of the retiring Trustee with respect to the Notes of
that or those Series as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (3) shall add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the Trust Estate hereunder by more than one
Trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such Trustees co-trustees of the same allocated trust
and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustee; and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Notes of that or those
Series to which the appointment of such successor Trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Notes of that
or those Series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts referred
to in the preceding paragraph.
(c) No successor Trustee shall accept appointment as provided in
this Section 7.09 unless at the time of such acceptance such successor Trustee
shall be eligible under the provisions of Section 7.07.
(d) Upon acceptance of appointment by a successor Trustee as
provided in this Section 7.09, the Administrator shall mail notice of the
succession of such Trustee hereunder to each Noteholder of each affected Series
at its address as shown in the Note Register and to the Rating Agencies. If the
Administrator fails to mail such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Company and the Administrator.
SECTION. 7.10 Merger or Consolidation of Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation
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resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 7.07, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
ARTICLE 8.
COVENANTS
SECTION 8.01 Payment of Principal and Interest.
The Company will cause the due and punctual payment of the
principal of and interest on the Notes in accordance with the terms of the Notes
and this Indenture.
SECTION 8.02 Maintenance of Office or Agency; Chief Executive
Office.
(a) The Company will maintain at the Corporate Trust Office an
office or agency where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company hereby appoints the Trustee
as its agent to receive all such presentations, surrenders, notices and demands.
(b) The Company will not change the location of its principal
place of business without giving the Trustee and the Rating Agencies at least 30
days' prior written notice thereof.
SECTION 8.03 Money for Payments to Noteholders to be Held in
Trust.
(a) All payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Trust Accounts
pursuant to Section 3.04 or Section 6.06 shall be made on behalf of the Company
by the Trustee, and no amounts so withdrawn from the applicable Collection
Account for payments of Notes shall be paid over to the Company under any
circumstances except as provided in this Section 8.03, in Section 3.04 or
Section 6.06.
(b) In making payments hereunder, the Trustee will hold all sums
held by it for the payment of amounts due with respect to the Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and pay such sums to
such Persons as herein provided.
(c) Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of or interest on any Notes,
deposit with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Noteholders
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
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The Company will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will hold all sums held by it for the payment of the principal
of or interest on Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided.
(d) Except as required by applicable law, any money held by the
Trustee in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for three years after such amount has become due and payable
to the Noteholder shall be discharged from such trust and, subject to applicable
escheat laws, and so long as no Event of Default has occurred and is continuing,
paid to the Company upon request; otherwise, such amounts shall be redeposited
in the Collection Account as available funds, and such Noteholder shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof (but only to the extent of the amounts so paid to the Company),
and all liability of the Trustee with respect to such trust money shall
thereupon cease.
SECTION 8.04 Corporate Existence; Merger; Consolidation, etc.
(a) The Company will keep in full effect its existence, rights
and franchises as a corporation under the laws of the State of Nevada, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes or any of
the Auto Loans.
(b) The Company shall at all times observe and comply in all
material respects with (i) all laws applicable to it, (ii) all requirements of
law in the declaration and payment of dividends on its capital stock, and (iii)
all requisite and appropriate corporate and other formalities (including without
limitation meetings of the Company's board of directors and, if required by law,
its charter or otherwise, meetings and votes of the shareholders of the Company
to authorize corporate action) in the management of its business and affairs and
the conduct of the transactions contemplated hereby.
(c) The Company shall not issue or register the transfer of any
of its common stock to any Person other than AutoBond or a wholly-owned
subsidiary of AutoBond.
(d) The Company shall not (i) consolidate or merge with or into
any other Person or convey or transfer its properties and assets substantially
as an entirety to any other Person or (ii) commingle its assets with those of
any other Person.
SECTION 8.05 Protection of Trust Estate; Further Assurances.
The Company will from time to time execute and deliver all such
supplements and amendments hereto and all such Financing Statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable
to:
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(i) Grant more effectively the Trust Assets comprising all
or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or
carry out more effectively the purposes hereof;
(iii) publish notice of, or protect the validity of, any
Grant made or to be made by this Indenture and perfect the security
interest contemplated hereby in favor of the Trustee in each of the
Receivables and all other property included in the Trust Estate;
provided, that the Company shall not be required to cause the
recordation of the Trustee's name as lienholder on the related
certificates of title for the Financed Vehicles so long as no Event of
Default has occurred and is continuing;
(iv) enforce or cause the Administrator to enforce any of
the Receivables;
(v) preserve and defend title to the Receivables
(including the right to receive all payments due or to become due
thereunder), the interests in the Financed Vehicles, or other property
included in the Trust Estate and preserve and defend the rights of the
Trustee in such Trust Assets (including the right to receive all
payments due or to become due thereunder) against the claims of all
Persons and parties other than as permitted hereunder; and
(vi) cause the Trustee to be added as an additional named
insured on each of the Insurance Policies.
The Company, upon the Company's failure to do so, hereby designates the Trustee
its agent and attorney-in-fact to execute any Financing Statement or
continuation statement required pursuant to this Section 8.05; provided,
however, that such designation shall not be deemed to create a duty in the
Trustee to monitor the compliance of the Company with the foregoing covenants,
and provided, further, that the duty of the Trustee to execute any instrument
required pursuant to this Section 8.05 shall arise only if a Responsible Officer
of the Trustee has actual knowledge of any failure of the Company to comply with
the provisions of this Section 8.05.
SECTION 8.06 Servicing Agreement.
(a) If any Authorized Officer of the Administrator shall have
knowledge of the occurrence of a default under any Servicing Agreement, the
Administrator shall promptly notify the Trustee and the Noteholders of each
affected Series, and shall specify in such notice the action, if any, the
Administrator and the Company is taking in respect of such default. Unless
consented to by the holders of at least 66 2/3% of the then Outstanding
Principal Amount of the Notes of each affected Series, the Company may not waive
any material default under or amend the Servicing Agreement in a manner
materially adverse to the Noteholders of such Series.
SECTION 8.07 Additional Covenants.
(a) The Company will not:
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(i) sell, transfer, exchange or otherwise dispose of any
portion of the Trust Estate except as expressly permitted by this
Indenture;
(ii) claim any credit on, or make any deduction from, the
principal of, or interest on, any of the Notes by reason of the payment
of any taxes levied or assessed upon any portion of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture or any Grant hereby to be impaired, or permit the lien of this
Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations under this Indenture, except as may be expressly permitted
hereby, (B) permit any lien, charge, security interest, mortgage or
other encumbrance to be created on or to extend to or otherwise arise
upon or burden the Trust Estate or any part thereof or any interest
therein or the proceeds thereof other than the lien of this Indenture,
or (C) except as otherwise contemplated in this Indenture, permit the
lien of this Indenture not to constitute a valid first priority security
interest in the Trust Estate.
(b) Notice of Event of Default - immediately upon becoming aware
of the existence of any condition or event which constitutes a Default or an
Event of Default, the Company shall deliver to the Trustee a written notice
describing its nature and period of existence and what action the Company is
taking or proposes to take with respect thereto.
(c) Report on Proceedings - promptly upon the Company's becoming
aware of
(i) any proposed or pending investigation of it by any
governmental authority or agency, or
(ii) any pending or proposed court or administrative
proceeding which involves or may involve the possibility of materially
and adversely affecting the properties, business, prospects, profits or
condition (financial or otherwise) of the Company
the Company shall deliver to the Trustee a written notice specifying the nature
of such investigation or proceeding and what action the Company is taking or
proposes to take with respect thereto and evaluating its merits.
SECTION 8.08 Taxes.
AutoBond shall pay all Taxes of the Company when due and payable
or levied against the Company's assets, properties or income, including any
property that is part of the Trust Estate. AutoBond will not seek reimbursement
from the Company for any such Taxes except to the extent of funds of the Company
which may, consistent with this Indenture, be distributed to Autobond.
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ARTICLE 9.
SUPPLEMENTAL INDENTURES
SECTION 9.01 Supplemental Indentures Without Consent of
Noteholders.
(a) Without the consent of any Noteholders, the Company, by a
Company Order, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or to better assure,
convey and confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture; provided such action
pursuant to this clause (i) shall not adversely affect the interests of
the Noteholders of any Series in any respect; or
(ii) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Notes
of one or more Series and to add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 7.09; or
(iii) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture; provided that such
action pursuant to this Clause (iii) shall not adversely affect the
interests of the Holders of Notes of any Series; or
(iv) to establish a Series permitted upon an exchange
under Section 13.06.
(b) The Trustee shall promptly deliver to each Noteholder of an
affected Series and each Rating Agency a copy of any supplemental indenture
entered into pursuant to Section 9.01(a).
SECTION 9.02 Supplemental Indentures with Consent of Noteholders.
(a) With the consent of the holders of not less than 66-2/3% of
the then Outstanding Principal Amount of the Notes of each Series affected by
such supplemental indenture and by Act of said Noteholders delivered to the
Company and the Trustee, the Company, by a Company Order, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Noteholders of such Series under this Indenture; provided, that no supplemental
indenture shall, without the consent of the holder of each Outstanding Note
affected thereby,
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(i) change the Stated Maturity of any Note or the
Principal Payments or Interest Payments due or to become due on any
Payment Date with respect to any Note, or change the priority of payment
thereof as set forth herein, or reduce the principal amount thereof or
the Note Interest Rate thereon, or change the place of payment where, or
the coin or currency in which, any Note or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Maturity thereof;
(ii) reduce the percentage of the Outstanding Principal
Amount of the Notes of any Series, the consent of whose Noteholders is
required for any such supplemental indenture, for any waiver of
compliance with provisions of this Indenture or Events of Default and
their consequences, provided for in this Indenture;
(iii) modify any of the provisions of this Section or
Section 6.13 except to increase any percentage or fraction set forth
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the holder of each
Outstanding Note affected thereby;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding"; or
(v) permit the creation of any lien ranking prior to or on
a parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as provided in the applicable Servicing
Agreement, terminate the lien of this Indenture on any property at any
time subject hereto or deprive any Noteholder of the security afforded
by the lien of this Indenture;
provided, no such supplemental indenture may modify or change any terms
whatsoever of the Indenture that could be construed as increasing the Company's
or AutoBond's discretion hereunder.
(b) The Trustee shall promptly deliver to each Noteholder of an
affected Series and each Rating Agency a copy of any supplemental indenture
entered into pursuant to Section 9.02(a).
SECTION 9.03 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture (a) pursuant to Section 9.01 of this Indenture or (b)
pursuant to Section 9.02 of this Indenture without the consent of each holder of
the Notes to the execution of the same, or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 7.01) shall be, fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any supplemental indenture which affects the Trustee's
own rights, duties, projections, or immunities under this Indenture or
otherwise.
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SECTION 9.04 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 9.05 Reference in Notes to Supplemental Indentures.
Notes of any Series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. New Notes of any
Series so modified as to conform, in the opinion of the Trustee and the Company,
to any such supplemental indenture may be prepared and executed by the Company
and authenticated and delivered by the Trustee in exchange for Outstanding Notes
of such Series.
ARTICLE 10.
SATISFACTION AND DISCHARGE
SECTION 10.01 Satisfaction and Discharge of Indenture.
(a) This Indenture shall cease to be of further effect (except as
to any surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(i) 100 days shall have elapsed since either
(A) all Notes theretofore authenticated and delivered
(other than (1) Notes which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 2.04
and (2) Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such
trust, as provided in Section 8.03(c)) have been delivered to the
Trustee for cancellation; or
(B) the final installments of principal on all such
Notes not theretofore delivered to the Trustee for cancellation
(1) have become due and payable, or
(2) will become due and payable at their Stated
Maturity, as applicable, within one year,
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and the Company has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal and interest to the date
of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity thereof;
(ii) the Company and the Administrator have paid or caused
to be paid all other sums payable hereunder by the Company and the
Administrator for the benefit of the Noteholders and the Trustee; and
(iii) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
At such time, the Trustee shall deliver to the Company all cash, securities and
other property held by it as part of the Trust Estate other than funds deposited
with the Trustee pursuant to Section 10.01(a)(i)(B), for the payment and
discharge of the Notes.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Sections 7.07 and
8.11, and, if money shall have been deposited with the Trustee pursuant to
Section 10.01(a)(i)(B), the obligations of the Trustee under Section 10.02 and
Section 8.03(c) shall survive.
(c) The Trustee shall provide prompt written notice to each
Rating Agency of any satisfaction and discharge of this Indenture pursuant to
this Article 10.
SECTION 10.02 Application of Trust Money.
Subject to the provisions of Section 8.03(c), all money deposited
with the Trustee pursuant to Sections 10.01 and 8.03 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment to the Persons entitled thereto, of the principal and
interest for whose payment such money has been deposited with the Trustee.
SECTION 10.03 Trust Termination Date. Upon the full application
of (a) moneys deposited pursuant to this Article 10 or (b) proceeds of the Trust
Assets pursuant to Sections 3.04 or 6.06, the Trust Estate created by this
Indenture shall be deemed to have terminated (the "Trust Termination Date").
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ARTICLE 11.
REPRESENTATIONS AND WARRANTIES
SECTION 11.01 Representations and Warranties of the Company. The
Company represents and warrants to the Trustee and the Noteholders, as of the
Issuance Date and on each day until the discharge of this Indenture, as follows:
(a) The Company is a wholly-owned bankruptcy remote subsidiary of
AutoBond Acceptance Corporation and is a corporation duly organized, validly
existing and in good standing under the laws of the state of Nevada and is duly
qualified to do business, and is in good standing in each jurisdiction in which
the nature of its business requires it to be so qualified and which permits such
qualification;
(b) The Company has the power and authority to own and convey all
of its properties and to execute and deliver this Indenture and the Related
Documents and to perform the transactions contemplated hereby and thereby;
(c) The Company is operated in such a manner and is constituted
so that it would not be substantively consolidated in the bankruptcy trust
estate of any Affiliate, such that the separate existence of the Company and any
Affiliate would be disregarded, and to such end:
(i) the Company maintains separate records, books of
account and financial statements from those of AutoBond and each other
Affiliate of AutoBond;
(ii) the Company does not commingle any of its assets or
funds with those of AutoBond or any of the other Affiliates of AutoBond
(iii) the Company maintains a separate board of directors
with at least two independent directors and observes all separate
corporate formalities, and all decisions with respect to the Company's
business and daily operations have been and shall be independently made
by the officers of the Company pursuant to resolutions of its board of
directors;
(iv) other than contributions of capital, payment of
dividends and return of capital, no transactions have been entered into
between the Company and AutoBond Funding or between the Company and any
of the other Affiliates of AutoBond except such transactions as are
contemplated by this Indenture and the Related Documents;
(v) except for such administration and collection and
functions as AutoBond may perform on behalf of the Company and the Trust
Estate pursuant to this Indenture and the Related Documents, the Company
acts solely in its own name and through its own authorized officers and
agents and the Company does not act as agent of AutoBond or any other
Person in any capacity;
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(vi) except for any funds received from AutoBond Funding
(or from AutoBond indirectly by way of AutoBond Funding) as a capital
contribution, the Company shall not accept for its own account funds
from AutoBond or any of the other Affiliates of AutoBond; and the
Company shall not allow AutoBond or any of the other Affiliates of
AutoBond otherwise to supply funds to, or guarantee any obligation of,
the Company;
(vii) the Company shall not guarantee, or otherwise become
liable with respect to, any obligation of AutoBond or any of the other
Affiliates of AutoBond; and
(viii) the Company shall at all times hold itself out to
the public under the Company's own name as a legal entity separate and
distinct from AutoBond and the other Affiliates of AutoBond.
(d) The Company is a special purpose company and has not engaged,
and does not presently engage and shall not engage, in any activity other than
the activities undertaken pursuant to this Agreement and the Related Documents
and contemplated hereby and thereby and activities ancillary or incident
thereto, and has no Debt other than the Notes;
(e) The execution, delivery and performance by the Company of
this Agreement, the Related Documents and the transactions contemplated hereby
and thereby, (i) have been duly authorized by all necessary corporate or other
action on the part of the Company, (ii) do not contravene or cause the Company
to be in default under (A) the Company's certificate of incorporation or bylaws,
(B) any contractual restriction contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other agreement
or instrument binding on or affecting the Company or its property, (C) any law,
rule, regulation, order, writ, judgment, award, injunction, or decree applicable
to, binding on or affecting the Company or its property, and (iii) do not result
in or require the creation of any Adverse Claim upon or with respect to any of
the property of the Company;
(f) This Indenture and the Related Documents have each been duly
executed and delivered on behalf of the Company;
(g) No consent of, or other action by, and no notice to or filing
with, any Governmental Authority or any other party, is required for the due
execution, delivery and performance by the Company of this Agreement or any of
the Related Documents or for the perfection of or the exercise by the Trustee or
the Noteholders of any of their rights or remedies thereunder which have not
been duly obtained;
(h) This Indenture and each other Related Document is the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms; except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, receivership, moratorium or other
laws relating to or affecting the rights of creditors generally, and by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in law or in equity);
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(i) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of any nature against
or affecting the Company, its officers or directors, or the property of the
Company, in any court or tribunal, or before any arbitrator of any kind or
before or by any Governmental Authority (i) asserting the invalidity of this
Indenture or any of the Related Documents, (ii) seeking to prevent the sale and
assignment of any Receivable or the consummation of any of the transactions
contemplated thereby, (iii) seeking any determination or ruling that might
materially and adversely affect (A) the performance by the Company of this
Indenture or any of the Related Documents or the interests of the Noteholders,
(B) the validity or enforceability of this Indenture or any of the Related
Documents, (C) any Receivable, (D) the Intended Tax Characterization, or (iv)
asserting a claim for payment of money adverse to the Company or the conduct of
its business or which is inconsistent with the due consummation of the
transactions contemplated by this Indenture or any of the Related Documents;
(j) The principal place of business and chief executive office of
the Company are located at the address in Nevada indicated in Section 12.05 and
there are now no, and there have not been any, other locations where the Company
is located (as that term is used in the UCC) or keeps Records except, after the
date of this Indenture, as disclosed in writing to the Trustee and the
Noteholders and the Administrator at least 30 Business Days prior to any such
change;
(k) The legal name of the Company is as set forth in the
beginning of this Indenture and the Company has not changed its name since its
formation, and during such period, the Company did not use, nor does the Company
now use any tradenames, fictitious names, assumed names or "doing business as"
names;
(l) The Company does not have any Subsidiaries;
(m) The Company is solvent and will not become insolvent after
giving effect to the transactions contemplated by this Indenture and each of the
Related Documents; the Company's transfers of Transferred Assets to the Trust
Estate have been and will be made for reasonably equivalent value and fair
consideration; and the Company, after giving effect to the transactions
contemplated by this Indenture and each of the Related Documents, will have an
adequate amount of capital to conduct its business in the future; and
(n) The Company has complied in all material respects with all
applicable laws, rules, regulations, and orders with respect to it, its business
and properties and all of the Trans ferred Assets.
SECTION 11.02 Representations and Warranties as to Each
Receivable . In connection with the establishment of each Series of Notes, each
of the Company and AutoBond will make the representations and warranties
designated with respect to such Series.
(a) The Company and the Administrator each hereby certifies that
the representations and warranties contemplated in this Section 11.02 shall
survive the transfer of the Receivables to the Trust Estate.
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SECTION 11.03 Repurchases and Transfers. (a) Upon the occurrence
of (i) a breach of any of the representations and warranties set forth in
Sections 11.01 and 11.02, without regard to any limitation set forth in such
representation or warranty concerning the knowledge of the Company or the
Administrator as to the facts stated therein, which may, or does materially and
adversely affect the interests of the Trust Estate or the Noteholders in any
Receivable, (ii) a failure of any Loan Documents to contain original documents
as set forth in Section 4.01, if the Trustee is unable, or is adversely affected
in its ability, to enforce the obligations of the related Obligor by reason of
not having possession of such original documentation, or if the original
certificate of title for any Financed Vehicle has not been obtained within 120
days after the applicable Transfer Date, or (iii) a failure to make any filing
or take other action referred to in Section 4.05, the party discovering such
breach shall give prompt written notice to the others. If within 30 days of such
notice, occurrence or discovery referred to in the immediately preceding
sentence, such breach or failure shall remain uncured, the Receivable as to
which the breach or failure relates shall be repurchased or purchased for the
Repurchase Price as follows:
(i) in respect of matters set forth in Sections 4.05,
11.01, and 11.02(a), by the Company; and
(ii) in respect of the matters set forth in Section 4.05
or 11.02(a), by AutoBond.
(b) Upon receipt by the Trustee of written certification of the
Administrator to the effect that the Repurchase Price has been deposited in the
Collection Account, the Trustee as custodian on behalf of the Trust shall
contemporaneously therewith release such Receivable and the related Loan Files
to the Company or AutoBond, as the case may be, and the Trustee on behalf of the
Trust Estate shall assign to the Company or AutoBond, as the case may be, all of
the Trust Estate's right, title and interest in such purchased or repurchased
Receivable, and all property and rights conveyed to the Trustee and the Trust
Estate relating thereto (excluding, however, payments previously received under
the Insurance Policies), and the Assignments to the extent such payments relate
to such repurchased or purchased Receivables, without recourse, representation
or warranty. The Trustee and the Company shall execute and deliver to the
Company or AutoBond, as the case may be, an assignment substantially in the form
of Exhibit G. The repurchase and purchase obligations pursuant to this Section
11.03 constitute the sole remedy available to the Trustee and the Noteholders
for a breach of a representation or warranty or agreement of the Company or
AutoBond, set forth in Sections 4.05 and 11.02; provided, that the foregoing
limitation shall not be construed to limit in any manner the right of the
Trustee or the Noteholders to declare an Event of Default to have occurred or to
terminate the responsibilities of the Administrator as Collection Agent or
Servicer under the Servicing Agreement to the extent such breaches also
constitute or contribute to the determination of an Event of Default or an Event
of Administrator Termination. For the purposes of this Agreement, a Receivable
has not been "repurchased" or "purchased" by the Company or AutoBond, as the
case may be, pursuant to this Section 3.03 unless the Repurchase Price therefor
has been deposited into the applicable Collection Account.
(c) As used herein, references to the "repurchase" of Auto Loans
by the Company means the release of the lien of this Indenture with respect to
such Auto Loans.
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ARTICLE 12.
MISCELLANEOUS
SECTION 12.01 Indemnities of the Administrator.
(a) The Administrator agrees to indemnify (i) the Trust Estate
from, and hold it harmless against, any and all losses, liabilities, damages,
claims or expenses (including reasonable attorneys' fees of counsel) arising as
a result of the Administrator's acts or omissions (subject to the administration
standard set forth in Section 5.02(b)) in violation of this Indenture and (ii)
the Trustee, its directors, officers, employees and agents, from, and hold it
harmless against, any and all losses, liabilities, damages, claims, expenses
(including attorney's fees and disbursements), fines or penalties, or judgments
arising out of or in connection with the performance by the Trustee of its
duties hereunder or in connection with the Trust Estate, or the issuance of the
Notes except to the extent the Trustee's own bad faith, willful misconduct or
negligence contributes to the loss, liability, damage, claim or expense.
(b) This Section 12.01 shall survive the termination of this
Indenture or the resignation or removal of the Trustee in respect of rights
accrued prior to such resignation or removal.
SECTION 12.02 Officers' Certificate and Opinion of Counsel as to
Conditions Precedent.
Upon any request or application by the Company (or any other
obligor upon the Notes) to the Trustee to take any action under this Indenture,
the Company (or such other Obligor) shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements
set forth in Section 12.03) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set
forth in Section 12.03) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 12.03 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
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(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 12.04 Notices. (a) All communications, instructions,
directions and notices to the parties thereto shall be (i) in writing (which may
be by telecopy, followed by delivery of original documentation within one
Business Day), (ii) effective when received and (iii) delivered or mailed first
class mail, postage prepaid to it at the following address:
If to the Company:
AutoBond Master Funding Corporation II
300 South Fourth Street, Suite 620
Las Vegas, Nevada 89101
If to the Administrator:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
If to the Trustee:
Manufacturers & Traders Trust Company
One M&T Plaza
Buffalo, New York 14203
Attention: Corporate Trust Services - Asset Backed Administration
Facsimile Number: (716) 842-4474
Telephone Number: (800) 724-8330
or at such other address as the party may designate by notice to the other
parties hereto, which shall be effective when received.
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(b) All communications and notices pursuant hereto to a
Noteholder shall be in writing and delivered or mailed first class mail, postage
prepaid or overnight courier at the address shown in the Note Register. The
Trustee agrees to deliver to each Noteholder upon receipt, all notices and
reports that the Trustee may receive hereunder and under any Servicing Agreement
and Related Documents. Unless otherwise provided herein (including Section 8.11
hereof) the Trustee may consent to any requests received under such documents
or, at its option, follow the directions of Noteholders with a Percentage of
greater than 50% within 30 days after prior written notice to the Noteholders.
All notices to Noteholders (or any Class thereof) shall be sent simultaneously.
SECTION 12.05 Notices and Reports to be Delivered to the Rating
Agencies. On or before the later to occur of each Payment Date and, the Business
Day following its receipt thereof, the Administrator shall promptly deliver to
each of the Rating Agencies the notices, reports and certificates referred to in
Section 3.05.
SECTION 12.06 No Proceedings. The Noteholders, the Administrator
and the Trustee each hereby agrees that it will not, directly or indirectly
institute, or cause to be instituted, against the Company or the Trust Estate
any proceeding of the type referred to in Section 6.01(e) so long as there shall
not have elapsed one year plus one day since the Trust Termination Date.
ARTICLE 13.
VARIABLE FUNDING NOTES, SERIES A
SECTION 13.01 Designation.
(a) There is hereby created a Series of Notes to be issued
pursuant to this Indenture designated as "AutoBond Master Funding Corporation II
- -- Variable Funding Notes, Series A (the "Series A Variable Funding Notes"). The
Series A Variable Funding Notes shall initially be evidenced by a single
certificated note in the form attached hereto as Exhibit C-1.
(b) The maximum aggregate principal amount of the Variable
Funding Notes which may be Outstanding at anytime is $11,572,473.63, subject to
the exceptions contained in Section 2.01(a)(2).
(c) The first Payment Date with respect to the Series A Variable
Funding Notes shall be the January 15, 1998 Payment Date.
(d) The Series A Variable Funding Notes shall bear interest at
the rate set forth in the Credit Agreement (as defined in Section 13.02);
principal and interest shall be payable to the Holder in whose name a Variable
Funding Note is registered as of the last day of the month preceding the
applicable Payment Date; and principal and interest shall be payable on the
Payment Dates and such other dates as set forth in the Credit Agreement.
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(e) The Trust Assets allocated to the Series A Variable Funding
Notes are as set forth in Schedule 1, as modified from time to time in
accordance with this Indenture.
(f) The Issuance Date in respect of the Series A Variable Funding
Notes shall be December 31, 1997.
(g) The representations and warranties with respect to the Auto
Loans allocated to such Series, additional covenants, and conditions precedent
to Advances are set forth in the Credit Agreement.
SECTION 13.02 Certain Definitions.
(a) As used in this Article 13 and with respect to the Series A
Variable Funding Notes, the following terms shall have the following meanings:
"Accounts" shall mean the Lockbox Account, the Loan Purchase
Account and the Collection Account.
"Advances" shall have the meaning specified in the Credit
Agreement.
"Automobile" shall mean a new or used automobile, light-duty
truck or van.
"Credit Agreement" means the Credit Agreement, dated as of
December 31, 1997 among the Company, AutoBond and the Note Agent.
"Due Period" shall mean, (a) with respect to the initial Due
Period, the month of December, 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.
"Exchange" has the meaning set forth in Section 13.
"Excess Spread Notes" means Notes issued by the Company to the
extent their principal amount is derived from the discounting of excess spread
cash flows on the Auto Loans allocated to such Series of Notes.
"Funding Date" shall have the meaning set forth in the Credit
Agreement.
"Interest Period" means the period beginning with a Payment Date
(or in the case of the initial Interest Period, December 31, 1997) to and
excluding the following Payment Date.
"Loan Acquisition Price" shall have the meanings set forth in the
Credit Agreement.
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"Loan Purchase Account" shall have the meaning assigned to such
term in Section 13.03 hereof.
"Lockbox" means the Lockbox established and maintained pursuant
to the Lockbox Agreement.
"Lockbox Account" means the account in the name of the Trustee,
established in respect of the Auto Loans at the Lockbox Bank and maintained
pursuant to the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement between the
Trustee and the Lockbox Bank, or any successor agreement hereunder, in the form
of Exhibit H.
"Lockbox Bank" means Banc One, Texas, N.A or any successor
hereunder.
"Monthly Administrator Fee" shall mean, as of any Payment Date,
so long as AutoBond is acting as Administrator hereunder and as Servicer under
the Servicing Agreement, the sum of (a) a fee, payable monthly, equal to the
product of (i) $15.00 and (ii) the total number of Auto Loans included in the
Trust Estate and allocated to the Series A Variable Funding Notes at any time
during the immediately preceding Due Period and (b) Reimbursable Administrator
Expenses.
"Note Agent" means Credit Suisse First Boston Mortgage Capital
LLC, its successors and assigns.
"Payment Date" shall mean the 15th day of each month (or, if such
day is not a Business Day, the next succeeding Business Day), commencing January
15, 1998, and each other date on which Advances and interest thereon are paid or
payable.
"Series A Cash Reserve Account" shall have the meaning assigned
to such term in Section 13.03 hereof.
"Series A Collection Account" shall have the meaning assigned to
such term in Section 13.03 hereof.
"Servicer" means the entity designated as such under the
Servicing Agreement.
"Servicing Agreement" means the Servicing Agreement, dated as of
December 31, 1997 among AutoBond, as Servicer, the Company and the Trustee.
"Specified Auto Loan" shall mean each Auto Loan subject to the
Lien of this Indenture and allocated to the Series A Variable Funding Notes.
SECTION 13.03 Establishment and Maintenance of Lockbox and Trust
Accounts. The Administrator shall cause to be established and maintained at all
times a lockbox
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and related account (the "Lockbox" and the "Lockbox Account") in the name of the
Trustee. The Administrator agrees to cause the Lockbox Bank to sweep funds from
the Lockbox Account to the Collection Account at least once each week. The
Administrator agrees to require, and to cause the Servicer to require, that all
payments by Obligors on Specified Auto Loans be made to the Lockbox. Only
payments on Specified Auto Loans will be received in the Collection Account and
no other funds other than funds in which the Trustee has an interest hereunder
will be commingled therein. In addition, concurrently with the execution and
delivery hereof, the Trustee shall establish the following segregated accounts
entitled (a) the "AutoBond Master Funding Corporation II -- Variable Funding,
Series A Loan Purchase Account, as Trustee" (the "Series A Loan Purchase
Account"); and (b) the "AutoBond Master Funding Corporation -- Variable Funding,
Series A Collection Account, as Trustee" (the "Series A Collection Account").
The Loan Purchase Account and the Collection Account are sometimes collectively
referred to in this Article 13 as the "Series A Trust Accounts".
SECTION 13.04 Required Deposits to the Accounts. (a) The Company
shall cause the following amounts to be paid to the Trustee for deposit to the
accounts established pursuant to Section 13.03:
(i) all amounts payable to or for the account of the
Company by or on behalf of the Holders of Series A Variable Funding
Notes in respect of Advances shall be deposited directly in the Loan
Purchase Account;
(ii) all amounts representing payments in respect of
Specified Auto Loans (including, without limitation, all Recoveries on
Receivables, all late charges, all payments in respect of the Repurchase
Price of Specified Auto Loans repurchased by AutoBond or the Company in
accordance with Section 11.03 and all proceeds of any Exchange) shall be
sent to the Lockbox Account and then deposited in the Collection
Account.
(b) The Trustee acting on behalf of the Holders and the Company
agree (i) that the Trust Accounts shall be maintained in the name of the
Trustee, (ii) that the Trust Accounts shall be subject to the exclusive dominion
of the Trustee, and (iii) that the Trustee shall have the sole right of
withdrawal from the Trust Accounts. The Company, the Holders and AutoBond shall
timely provide written remittance information to the Trustee specifying payment
instructions with respect to amounts payable pursuant to each provision of
Section 13.05. The Trustee shall have no liability to the Company, any Holder or
any other Person for failure to pay funds to any Person in accordance with
Section 13.05 in the absence of timely receipt of such written remittance
instructions or in the event of any errors in such written remittance
instructions.
SECTION 13.05 Application of Funds in the Series A Trust
Accounts. (a) Except as otherwise provided in Section 13.06, if no Event of
Default shall have occurred and be continuing, the Trustee on December 31, 1997
shall apply funds in the Series A Loan Purchase Account to pay to AutoBond (for
the account of the Company) an amount equal to the Loan Acquisition Price in
respect of all Specified Auto Loans, if any, to be purchased by
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the Company on such date on or before 10:00 a.m., New York City time; provided
that, with respect to each such Specified Auto Loan, such amounts shall be
payable only if the Trustee (or its custodian) has received each of the Loan
Documents with respect to such Specified Auto Loan.
(b) If no Event of Default shall have occurred and be continuing,
the Trustee on each Payment Date shall apply funds held in the Series A
Collection Account in respect of the prior Due Period in the following order of
priority:
(i) to the Noteholders, an amount equal to accrued and
unpaid interest on the Advances;
(ii) to the Trustee, an amount equal to clause (A) of the
definition of Monthly Trustee Fee;
(iii) to the Noteholders as principal on the Advances, an
amount equal to any principal received in respect of Specified Auto
Loans, and the principal balance of any Specified Auto Loans that became
Excluded Auto Loans, during the immediately preceding Due Period;
(iv) to the discharge of all other obligations of the
Company which are then due under the Credit Agreement (or, to the extent
such obligations have not yet matured, to be set aside and held in trust
solely to satisfy such obligations, as and when they mature or otherwise
become due) in an amount equal to such obligations;
(v) to the Trustee, an amount equal to clause (B) of the
definition of Monthly Trustee Fee;
(vi) to the Administrator, an amount equal to the sum of
(i) the Monthly Administrator Fee payable on such Payment Date and (ii)
any late charges received in respect of Specified Auto Loans during the
immediately preceding Due Period; and
(vii) so long as a Borrowing Base Deficiency shall not
have occurred and be continuing, to the Company, an amount equal to any
funds remaining in the Series A Collection Account.
(c) If an Event of Default shall have occurred and be continuing,
the Trustee shall apply all amounts held in the Series A Collection Account and
the proceeds of any collection, recovery, receipt, appropriation, realization or
sale of any Trust Assets in connection with any Event of Default (after
deducting all reasonable costs and expenses of every kind incurred in any way
relating to the exercise of rights of the Trustee with respect to the Trust
Assets upon an Event of Default, including reasonable attorney's fees and
expenses) in the following order of priority:
(i) to the Trustee, an amount equal to all fees, costs and
expenses owing to the Trustee under this Indenture;
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(ii) to the Servicer (if other than AutoBond or any
Affiliate thereof), an amount equal to all fees, costs and expenses
owing to the Servicer under the Servicing Agreement;
(iii) to the Noteholders, in the following order of
priority: (A) an amount equal to all unpaid interest on (B) principal
of, the Notes (in the event any such principal is not due and the Notes
have not been accelerated, all such amounts shall be retained in the
Trust Accounts and applied solely to pay principal of and interest on,
and other amounts due or to become due with respect to, the Notes, as
and when due until all principal and interest on, and other amounts due
or to become due with respect to, the Notes shall have been paid and
satisfied in full);
(iv) to the discharge of all other obligations of the
Company which are then due under the Credit Agreement and the Servicing
Agreement (or, to the extent such obligations have not yet matured, to
be set aside and held in trust solely to satisfy such obligations, as
and when they mature or otherwise become due) in an amount equal to such
obligations; and
(v) to the Company, an amount equal to any funds remaining
in the Series A Trust Accounts.
(d) On January 30, 1998, the Trustee shall pay to the Noteholder
(if such Noteholder is Credit Suisse First Boston Mortgage Capital LLC
or an Affiliate thereof ("CSFB"), funds from the Series A Collection
Account in an amount equal to 6.5% of the aggregate Unpaid Principal
Balance of all Specified Auto Loans outstanding as of December 31, 1997
(as indicated in the January report delivered by the Servicer).
SECTION 13.06 Exchanges for New Series.
(a) From time to time, on any Business Day on or before May 15,
1998, and upon 7 days' written notice to the Administrator and the Trustee, the
Note Agent on behalf of the Noteholders (after consultation with the
Administrator), may, at the Note Agent's option, elect to exchange all or a
portion of the unpaid Outstanding Principal Amount of the Series A Variable
Funding Notes for a new Series of Notes (the "Term Notes") to be issued in
accordance with Section 2.01(a) of this Indenture (each such election, an
"Exchange").
(b) The Company agrees to cause the creation of such Series of
Term Notes under the Indenture and to execute and order the authentication of
the Notes of such Series so long as, as designated by the Note Agent:
(1) The aggregate principal amount of the Term Notes of
such Series (other than Excess Spread Notes) shall equal the Unpaid
Principal Balance of the Auto Loans in the Trust Estate allocated to
such Series.
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(2) the Stated Maturity of the Term Notes is 5 years from
the Issuance Date for such Series;
(3) if the senior class of Term Notes are issued without
the benefit of a surety bond, (A) at least 80% of the aggregate
principal amount of the Term Notes (the "Senior Class") are rated at
least investment grade by a Rating Agency; and (B) up to 20% of the
aggregate principal amount of the Term Notes (the "Mezzanine Class") may
be rated by a Rating Agency;
(4) (A) the interest rate of the Senior Class shall be "at
the market" and in any event shall not exceed 200 basis points over
comparable U.S. Treasury securities, on a fixed or floating basis
(assuming a hypothetical at-the-market swap into fixed); and (B) the
fixed interest rate of the Mezzanine Class shall be "at the market" and
in any event shall not exceed (on a weighted average basis) 15% per
annum;
(5) the Unpaid Principal Balance of the Auto Loans
allocated to the Term Notes shall equal 111% of the aggregate principal
amount of the portion of the Series A Variable Funding Notes tendered
for an Exchange;
(6) if risk default insurance is purchased, the Series
shall provide for a Class of Excess Spread Notes, sized to obtain a
rating of at least "BB" or a similar rating from another Rating Agency
and with an interest rate no greater than 17% per annum, which shall be
retained by the Company or AutoBond until sold;
(7) if the senior class of Term Notes is to be entitled to
the benefits of a surety bond, (a) the aggregate principal amount of
such Term Notes upon issuance shall equal at least 80% of the Unpaid
Principal Balance of the Auto Loans allocated to the Series and shall
bear interest "at-the-market" not in excess of 125 basis points over
comparable U.S. Treasury securities, and (b) the aggregate principal
amount of any subordinated Term Notes may equal up to 20% of such Unpaid
Principal Balance, with a weighted average interest rate of no greater
than 15% per annum;
(8) upon payment of risk default insurance premiums, the
Auto Loans allocated to the Term Notes shall be covered by a risk
default Insurance Policy;
(9) a Trustee shall have been appointed for such Series;
(10) after such Exchange, pending their sale by the Note
Agent, payments on the Notes in excess of the aggregate principal amount
of, and accrued interest on, the Variable Funding Notes exchanged for
the Notes shall be for the Company's account; and
(11) after such Exchange, the Term Notes will be sold at
least at par and the proceeds of such sale less a customary underwriting
commission for Notes placed by the Holder thereof (not to exceed 1.00%),
shall be applied as follows:
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(A) to the Holders of Variable Funding Notes
exchanged for the Notes, an amount equal to the aggregate
principal amount of the portion of the Variable Funding Notes so
exchanged, plus interest accrued thereon at the weighted average
interest rate on the Term Notes through the date of sale;
(B) to the Cash Reserve Account for the Term Notes,
such amounts as needed to fill such Trust Account to the initial
required amount; and
(C) the remainder, to the Company.
SECTION 13.07 Additional Events of Default; Remedies. (a) In
addition to the Events of Default set forth in Section 6.01, the following
additional Events of Default shall be applicable to the Series A Variable
Funding Notes:
(i) a Borrowing Base Deficiency (as defined in the Credit
Agreement) is determined to exist on a Determination Date and continues
unremedied after giving effect to the transactions on the related
Payment Date, in each case within one (1) Business Day after notice from
the Note Agent; or
(ii) the Company or AutoBond shall default in the due and
punctual performance of or compliance with any material covenant,
condition or agreement to be performed or observed by it under the
Credit Agreement, respectively, hereof and any such default shall
continue unremedied for a period of twenty (20) Business Days after an
Authorized Officer of the Company or AutoBond obtains knowledge thereof;
or
(iii) any representation, warranty, certification or
statement of the Company or AutoBond made or contained in the Credit
Agreement or in any agreement, instrument, certificate, statement or
other writing furnished in connection herewith or therewith or pursuant
hereto or thereto, shall prove to have been false or inaccurate in any
material respect on the date as of which such representation or warranty
was made and any such breach shall continue unremedied for a period of
thirty (30) days after an Authorized Officer of the Company or AutoBond
obtains knowledge thereof; or
(iv) any Liens on the Trust Assets, other than Permitted
Liens, continue to exist after 5 Business Days' notice from the Note
Agent.
(b) in addition to the remedies set forth in Article 6, upon the
occurrence and continuance of any Event of Default set forth in this Section
13.07 by AutoBond, the Note Agent may remove AutoBond as Servicer under the
Servicing Agreement and appoint a successor Servicer.
SECTION 13.08 Resignation or Removal of Trustee. Notwithstanding
Section 7.08(a), the Trustee may at any time resign and be discharged with
respect to the Series A Variable Funding Notes by giving 30 days' written notice
thereof to the Administrator, the
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Company and the Note Agent. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor Trustee not objected to by Note
Agent within 30 days after prior written notice, by written instrument, in
quintuplicate, one counterpart of which instrument shall be delivered to each of
the Company, the successor Trustee and the predecessor Trustee.
SECTION 13.09 Release of Loan Documents. Notwithstanding any
other provision of this Indenture or the Servicing Agreement, so long as the
Series A Variable Funding Notes are outstanding and held by CSFB, neither
AutoBond nor any Affiliate shall request the Trustee to release, and the Trustee
shall not release, any Loan Documents from its custody, without the prior
consent of CSFB.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust
Indenture to be duly executed as of the day and year first above written.
AUTOBOND MASTER FUNDING CORPORATION II,
as Issuer
By: /s/ Adrian Katz
______________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION,
as Administrator and individually
By: /s/ Adrian Katz
______________________________________
Name:
Title:
MANUFACTURERS & TRADERS TRUST COMPANY,
not in its individual capacity, but
solely as Trustee
By: /s/ Patricia W. Wynne
______________________________________
Name: Patricia W. Wynne
Title: Corporate Trust Officer
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EXHIBIT C
FORM OF VARIABLE FUNDING NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. BY ITS ACCEPTANCE
HEREOF, EACH PURCHASER REPRESENTS AND AGREES THAT THIS NOTE MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT IN COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE PROVISIONS
UNDER STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
PROVISIONS. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH
IN THE INDENTURE REFERRED TO HEREIN.
NEITHER THIS NOTE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE REPRESENTS THAT EITHER (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN, TRUST
OR ACCOUNT, WHETHER OR NOT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR DESCRIBED IN SECTION 4975(e)(1)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL
RETIREMENT ACCOUNT, OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY
REASON OF AN INVESTMENT IN SUCH ENTITY BY A PLAN, TRUST OR ACCOUNT DESCRIBED
ABOVE, OR (B) THE ACQUISITION AND HOLDING OF SUCH NOTES WILL BE COVERED BY A
DEPARTMENT OF LABOR CLASS EXEMPTION.
AUTOBOND MASTER FUNDING CORPORATION II
VARIABLE FUNDING NOTE, SERIES A
December 31, 1997
New York, New York
FOR VALUE RECEIVED, AutoBond Master Funding Corporation II, a
Nevada corporation (the "Company") for value received, hereby promises to pay to
Credit Suisse First Boston Mortgage Capital LLC (the "Holder") or its assigns,
the principal sum $11,572,473.63, 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 Indenture referred to below, and to pay interest on the
unpaid principal amount of this Note until paid in full, at the rates per annum
and on the dates provided in the Indenture and the Credit Agreement, dated as of
December 31, 1997 (the "Credit Agreement") among the Company, AutoBond
Acceptance Corporation and the Holder).
The Stated Maturity of this Note is as set forth in the Credit
Agreement.
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By its holding of this Note, the Holder shall be deemed to accept
the terms of the Credit Agreement and the Indenture and agree to be bound
thereby.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to herein by manual signature, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Notes of the
Company designated as its "Variable Funding Notes, Series A" (herein called the
"Notes") limited in aggregate principal amount of $11,572,473.63, issued under
the Trust Indenture, dated as of December 31, 1997 (herein called the
"Indenture"), among the Company, AutoBond Acceptance Corporation ("AutoBond")
and Manufacturers & Traders Trust Company, as trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, AutoBond, the Trustee and the Holders and
of the terms upon which the Notes are authenticated and delivered. Unless
otherwise defined herein, all capitalized terms used herein shall have the
meanings set forth in the Indenture.
This Note is secured by the pledge to the Trustee under the
Indenture of the Trust Estate allocated to the Notes and recourse is limited to
the Company and AutoBond as set forth in the Indenture and the Credit Agreement.
The amounts owed under this Note shall not include any recourse to the Trustee
or any affiliates thereof.
In addition to the Notes, the Company may from time to time issue
additional Series of Notes under the Indenture, including in exchange for all or
a portion of the outstanding principal amount of this Note.
If certain Events of Default under the indenture have been
declared, the unpaid principal of the Notes may be declared immediately due and
payable in the manner and with the effect provided in the Indenture. Notice of
Note declaration will be given by mail to Noteholders, as their names and
addresses appear in the Note Register, as provided in the Indenture. Upon
payment of such principal amount together with all accrued interest, the
obligations of the Company with respect to the payment of principal and interest
on this Note shall terminate.
The Indenture permits with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Noteholders under the Indenture
at any time by the Company and the Trustee with the consent of the Noteholders
of the percentages specified in the Indenture at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes, at the time Outstanding,
on behalf of all the Holders, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by he Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof, whether or not notation of such consent or waiver is made upon
this Note.
C-2
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Each Note may be issued only in registered form and only in
minimum denominations of at least $100,000 and integral multiples of $1,000 in
excess thereof; provided that the foregoing shall not restrict or prevent the
transfer in accordance with Section 2.03 of the Indenture of any Note having a
remaining Outstanding Principal Amount of other than an integral multiple of
$1,000, or the issuance of a single Note with a denomination less than $100,000.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note may be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture and this Note shall be deemed to be contracts made
under the laws of the State of New York and shall for all purposes be governed
by, and construed in accordance with, the laws of the State of New York.
C-3
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IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual signature of its duly authorized officer.
Dated: December __, 1997
AUTOBOND MASTER FUNDING CORPORATION II
By: ___________________________________
C-4
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Trustee's Certificate of Authentication
This is one of the Variable Funding Notes, Series A referred to
in the within mentioned Indenture.
MANUFACTURERS & TRADERS TRUST COMPANY
as Trustee
By: _________________________________
Authorized Signatory
C-5
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ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _________________, agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
Dated: ____________________ Signed:
(sign exactly as the name appears on the
other side of this Note)
Signature Guarantee
Important Notice: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorney", this Note becomes fully
negotiable, similar to a check endorsed in blank. Therefore, to safeguard a
signed Note, it is recommended that you fill in the name of the new owner in the
"Assignee" blank. Alternatively, instead, of using this Assignment Form, you may
sign a separate "power of attorney" form and then mail the unsigned Note and the
signed "power of attorney" in separate envelopes. For added protection, use
certified or registered mail for a Note.
C-6
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Exhibit 10.25
- --------------------------------------------------------------------------------
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC,
as Seller
and
AUTOBOND ACCEPTANCE CORPORATION
as Purchaser
-------------------
RECEIVABLES PURCHASE AGREEMENT
Dated as of December 31, 1997
-------------------
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TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions .................................................. 1
Section 1.02. Other Definitional Provisions ................................ 4
ARTICLE TWO
CONVEYANCE OF RECEIVABLES
Section 2.01. Conveyance of Receivables .................................... 4
Section 2.02. Servicing of the Receivables; Custody of Receivable Files .... 6
Section 2.03. Representations and Warranties of Seller ..................... 6
Section 2.04. Covenants of Seller .......................................... 9
Section 2.05. Survival of Representations and Warranties;
Repurchase for Breach ........................................ 9
ARTICLE THREE
PAYMENT OF PURCHASE PRICE; COSTS AND EXPENSES
Section 3.01. Payment of Purchase Price .................................... 10
Section 3.02. Costs and Expenses ........................................... 10
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
Section 4.01. Amendment .................................................... 11
Section 4.02. Protection of Right, Title and Interest to Receivables ....... 11
Section 4.03. Governing Law ................................................ 12
Section 4.04. Notices ...................................................... 12
Section 4.05. Severability of Provisions ................................... 12
Section 4.06. Assignment ................................................... 12
Section 4.07. Further Assurances ........................................... 12
Section 4.08. No Waiver; Cumulative Remedies ............................... 13
Section 4.09. Counterparts ................................................. 13
Section 4.10. Third-Party Beneficiaries .................................... 13
Section 4.11. Merger and Integration ....................................... 13
Section 4.12. Headings ..................................................... 13
Exhibit A - Purchase Assignment
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RECEIVABLES PURCHASE AGREEMENT, dated as of December 31, 1997, by and
between CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, a Delaware limited
liability company, as Seller (the "Seller"), and AUTOBOND ACCEPTANCE
CORPORATION, a Texas corporation, as Purchaser (the "Purchaser").
WHEREAS, Seller, as successor by merger to CS First Boston Mortgage
Capital Corp., a Delaware corporation ("FBMCC"), is the owner of certain new
and used automobile, minivan and light duty truck non-prime retail installment
sale contracts originated by WOFCO, Omni Financial or Correspondent Originators
and subsequently sold to FBMCC pursuant to the AutoFlow Program (as hereinafter
defined) or originated by Jefferson and subsequently sold to FBMCC pursuant to
the Jefferson Purchase Agreement (as hereinafter defined); and
WHEREAS, Seller desires to sell such contracts to Purchaser on a
"servicing released" basis; and
WHEREAS, simultaneous with the execution of this
Agreement, Purchaser, Seller, WOFCO and Omni Financial have entered into the
Assignment pursuant to which, among other things, Seller has assigned to
Purchaser certain of its rights and obligations under the AutoFlow Purchase and
Sale Agreement, the Correspondent Receivables Purchase Agreements and the
Jefferson Purchase Agreement.
NOW, THEREFORE, in consideration of the promises and mutual agreements
herein contained, Seller and Purchaser hereby agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Agreement" shall mean this Receivables Purchase Agreement and all
amendments and supplements hereto.
"Assignment" means that certain Assignment and Assumption Agreement,
dated as of December 31, 1997, by and among Seller, Purchaser and WOFCO whereby
Seller assigned certain of its rights and delegated certain of its duties under
the AutoFlow Purchase and Sale Agreement, each of the Correspondent Receivables
Purchase Agreements and the Jefferson Purchase Agreement to Purchaser, but in
each case only with respect to the Receivables conveyed hereunder.
"AutoFlow Program" means the non-prime retail automobile installment sale
finance program pursuant to which FBMCC purchased, and Seller purchases,
non-prime retail automobile installment sale contracts from either WOFCO, Omni
Financial or the Correspondent Originators.
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"Auto Flow Purchase and Sale Agreement" means that certain Amended and
Restated Purchase and Sale Agreement, dated as of April 1, 1994, as amended,
between Seller (as successor by merger to FBMCC) and Omni Financial (as the
assignee of WOFCO) in connection with the AutoFlow Program, pursuant to which
Seller purchased from WOFCO or Omni Financial, among other receivables, certain
of the Receivables listed in the Schedule of Receivables, or their respective
successors.
"Closing Date" means December 31, 1997.
"Correspondent Originator" means each of National City Bank, a national
banking association (or any of its wholly owned subsidiaries specified in
Exhibit K of the applicable Correspondent Receivables Purchase Agreement),
SouthTrust Bank of Alabama, National Association, a national banking association
and Matrix Capital Bank, a federally chartered savings bank.
"Custodial File" means, as to each Receivable, (a) the executed original
of the Receivable, (b) the original or a copy of the original certificate of
title (or application therefor) or such other documents that Servicer shall keep
on file, in accordance with its customary procedures, evidencing the security
interest in the related Financed Vehicle, (c) an original assignment of such
Receivable endorsed in blank or as otherwise specified by Purchaser, and (d) a
copy of the original credit application, fully executed by each related Obligor,
and such other documents that Servicer shall keep on file, in accordance with
its customary procedures, relating to such Receivable or the related Obligor or
Financed Vehicle.
"Custodian" means Manufacturers & Traders Trust Company.
"Correspondent Receivables Purchase Agreement" means each of the (i)
Purchase and Sale Agreement, dated as of September 1, 1995, between National
City Bank (and the other national banks named therein), as sellers, and FBMCC,
as purchaser, (ii) Purchase and Sale Agreement, dated as of October 1, 1995,
between SouthTrust Bank of Alabama, National Association, as seller, and FBMCC,
as purchaser and (iii) Purchase and Sale Agreement, dated as of July 1, 1996,
between Matrix Capital Bank, as seller, and FBMCC, as purchaser.
"Cut-off Date" means November 30, 1997.
"ERISA" means the Employee Retirement and Income Security Act of 1974, as
amended.
"Jefferson" means Jefferson Capital Corp., a Delaware corporation, or any
successor thereto.
"Jefferson Purchase Agreement" means the Purchase and Sale Agreement,
dated as of May 1, 1996, between Jefferson, as seller, and FBMCC, as purchaser.
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"Omni Financial" means Omni Financial Services of America, Inc., a
Delaware corporation and wholly-owned subsidiary of WOFCO, or any successor
thereto.
"Purchase Assignment" means that certain assignment delivered by Seller
to Purchase in the form attached hereto as Exhibit A.
"Purchaser" means AutoBond Acceptance Corporation, a Texas corporation,
in its capacity as purchaser of the Receivables under this Agreement and each
successor to Purchaser (in the same capacity).
"Receivable" means any retail installment sale contract covering a new or
used automobile, minivan or light-duty truck, together with all accessions
thereto, and all proceeds thereof and payments thereunder, which Receivable
shall be identified in the Schedule of Receivables.
"Repurchase Price" means, with respect to any Receivable to be
repurchased by the Seller pursuant to Section 2.05, the sum of (a) 93.5% of the
unpaid principal balance of such Receivable plus (b) accrued interest thereon at
the related APR from the date last paid to the date of such repurchase.
"Schedule of Receivables" means the Schedule of Receivables attached as
Schedule A to the Purchase Assignment and as Schedule I to the Assignment as it
may be amended or supplemented from time to time in accordance with the terms of
this Agreement.
"Seller" means Credit Suisse First Boston Mortgage Capital LLC, a
Delaware limited liability company, as successor by merger to FBMCC, or any
successor thereto.
"Servicer" means Omni Financial in its capacity as servicer under the
Servicing Agreements.
"Servicing Agreement" means each of the (i) Amended and Restated
Servicing Agreement, dated as of April 1, 1994, as amended, between Seller (as
successor in merger to FBMCC), as owner, and Omni Financial (as the assignee of
WOFCO), as servicer, in connection with the AutoFlow Program and (ii) Servicing
Agreement, dated as of May 1, 1996, as amended, between FBMCC, as owner,
Jefferson, as seller, and Omni Financial, as servicer, in connection with the
Jefferson Purchase Agreement, pursuant to both of which the Receivables are
serviced by Omni Financial.
"Servicing File" means (i) a copy of the Custodial File for each
Receivable and (ii) the original certificate of title (or application therefor)
or such documents that Seller maintains on file, in accordance with its
customary procedures, evidencing a security interest in the related Financial
Vehicle. All or any part of a Servicing File may be maintained on the Servicer's
electronic database or in the form of microfiche.
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction.
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"WOFCO" shall mean World Omni Financial Corp., a Florida corporation, or
any successor thereto.
Section 1.02. Other Definitional Provisions.
(a) Capitalized terms used herein that are not otherwise defined shall
have the meanings ascribed thereto with respect to the Receivables in the
related Servicing Agreement as modified by the Assignment.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section, subsection and
Schedule references contained in this Agreement are references to Sections,
subsections and Schedules in or to this Agreement unless otherwise specified;
with respect to all terms in this Agreement, the singular includes the plural
and the plural includes the singular; words importing gender include the other
gender; references to "writing" include printing, typing, lithography and other
means of reproducing words in visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
ARTICLE TWO
CONVEYANCE OF RECEIVABLES
Section 2.01. Conveyance of Receivables.
(a) On the Closing Date, Seller does hereby sell, transfer, assign and
otherwise convey to Purchaser, and Purchaser agrees to purchase from Seller,
without recourse (subject to Seller's obligations hereunder):
(i) all right, title and interest of Seller in and to the Receivables
identified on the Schedule of Receivables and all monies at any time paid
or payable thereon or in respect thereof on or after the Cut-off Date;
(ii) the interest of Seller in the security interests in and Liens on
the related Financed Vehicles and any accessions thereto granted by the
Obligors pursuant to the Receivables;
(iii) the interest of Seller in the proceeds of any Insurance
Policies to the extent that they relate to the Receivables, the related
Financed Vehicles or the related Obligors;
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(iv) the interest of Seller in the Assignment;
(v) the right to realize upon any property (including the right to
receive future Liquidation Proceeds) that shall have secured a Receivable
and have been repossessed by or on behalf of Seller or Purchaser;
(vi) all documents and information contained in the Custodial Files
or Contract Files relating to the Receivables and any and all other
documents or electronic records that Seller or the Servicer keeps on file
in accordance with their customary procedures relating to the
Receivables, the Obligors or the Financed Vehicles; and
(vii) all proceeds of any of the foregoing.
With respect to clause (iii) above, Purchaser understands that there
is no Vendors Single Interest or other similar blanket policy covering
the Receivables or the Financed Vehicles, and that therefore no rights in
any such policy or the proceeds thereto is conveyed pursuant hereto.
(b) In connection with such conveyance and the assignment under the
Assignment, on or prior to the Closing Date Seller will record and file,
at its own expense, a UCC financing statement with respect to the
Receivables and the property transferred under the Assignment meeting the
requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the sale and assignment to
Purchaser of the Receivables and the property transferred under the
Assignment, including the proceeds thereof, as may be perfected by filing
a financing statement (and Seller agrees to deliver subsequent to the
Closing Date any continuation statements as are required by applicable
state law), and will deliver a file-stamped copy of such financing
statement (or continuation statement) or other evidence of such filings
(which may, for purposes of this Section, consist of telephone
confirmation of such filing with the file stamped copy of such filing to
be provided to Purchaser in due course), as soon as is practicable after
Seller's receipt thereof. Seller further agrees, at its own expense, on
or prior to the Closing Date (i) to indicate in its books and records
(including, but not limited to, its computer files, if any, which relate
to the Receivables being transferred) that such Receivables have been
sold to Purchaser pursuant to this Agreement and (ii) to deliver to
Purchaser a computer file or microfiche list containing a true and
complete list of all such Receivables, identified by account number and
by the amount of Principal Balance of each Receivable as of the Cut-off
Date. A hard copy of such file or list appears as Schedule A to the
Purchase Assignment and is hereby incorporated into and made a part of
this Agreement.
(c) The parties hereto intend that the conveyance of Seller's right,
title and interest in the Receivables and the other property described in
Section 2.01(a) be a sale and not a loan; provided, however, in the event
that such conveyance is for any reason not considered a sale, the parties
intend that Seller be deemed to have granted, and Seller does hereby
grant, to Purchaser a first priority perfected security
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interest in, to and under the related Receivables and the other property
conveyed hereunder and all proceeds of any of the foregoing and that this
Agreement constitute a security agreement under applicable law.
(d) On the Closing Date, the Seller has delivered to Purchaser the
Purchase Assignment to evidence to the sale of the Receivables hereunder
and which is hereby incorporated into and made part of this Agreement.
Section 2.02. Servicing of the Receivables; Custody of Receivable
Files.
(a) Seller and Purchaser agree that the Receivables shall be sold on
a "servicing released" basis. Accordingly, the Purchaser shall be fully
responsible for the servicing of the Receivables from and after the
Closing Date. Seller shall use best efforts to cause the Servicer to
remit any collections on the Receivables received by the Servicer to an
account designated by Purchaser within two Business Days of the
Servicer's receipt thereof, but Seller shall have no responsibility for
the Servicer's failure to do so.
(b) Purchaser desires to appoint the Custodian to act as agent of
Purchaser and as custodian of the documentation relating to the
Receivables conveyed hereunder. In furtherance of the foregoing, Seller
shall arrange at its own expense for the shipment and delivery to the
Custodian on or after the Closing Date of the Custodial Files.
(c) Notwithstanding clause (b) of this Section 2.02, Seller shall
deliver items (a), (b) and (d) of the Custodial Files (as such items are
set forth in the definition thereof) to the Custodian no later than
January 19, 1998 in the case of items (a) and (b), and January 30, 1998
in the case of item (d). Seller will be obligated to repurchase any
Receivable as to which the delivery called for in this clause (c) is not
made by applicable date set forth in the preceding sentence at the
Repurchase Price pursuant to the terms set for a repurchase in Section
2.05.
Section 2.03. Representations and Warranties of Seller. Seller hereby
represents and warrants as of the Closing Date (or as of such other date
as is specified below) that:
(a) Incorporation and Status. Seller has been duly organized under
the Delaware General Corporation Law and is validly existing as a
corporation in good standing with power and authority to own its
properties and to conduct its business as such properties shall be
currently owned and such business is presently conducted, and had at all
relevant times, and shall have, power, authority and legal right to
acquire, own and sell the Receivables and to assign its interests in the
AutoFlow Purchase and Sale Agreement, each of the Correspondent
Receivables Purchase Agreements and the Jefferson Purchase Agreement as
such interests relate to the Receivables and the other property conveyed
hereunder.
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(b) Due Qualification. Seller is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property and the Receivables or the conduct of its business
require such qualifications, licenses or approvals.
(c) Power and Authority. Seller has the power and authority to
execute and deliver this Agreement and the Assignment to carry out all
their respective terms and conditions; and the execution, delivery and
performance of this Agreement and the Assignment each have been duly
authorized by Seller by all necessary corporate action. Seller has full
power and authority to sell and assign the Receivables and the other
property to be sold and assigned to and deposited with Purchaser
hereunder and has duly authorized such sale and assignment to Purchaser
by all necessary corporate actions, and the execution and delivery and
performance of this Agreement and the Assignment have been duly
authorized by Seller by all necessary corporate action.
(d) Valid Sale; Binding Obligations. This Agreement shall evidence a
valid sale, transfer and assignment of the Receivables and of the other
property conveyed hereunder, and the Assignment shall evidence a valid
assignment of Seller's interest in the AutoFlow Purchase and Sale
Agreement, each Correspondent Receivables Purchase Agreement and the
Jefferson Purchase Agreement as such interest relates to the Receivables
and the other property conveyed thereunder, in each case enforceable
against creditors of, and purchasers from, Seller; and such agreements
each constitutes a legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms by the other
parties thereto, except as enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights in general and by general principles
of equity, regardless of whether such enforceability shall be considered
in a proceeding in equity or in law.
(e) No Violation. The consummation of the transactions contemplated
by this Agreement and the Assignment and the fulfillment of the terms
hereof and thereof shall not conflict with, result in any breach of any
of the terms and provisions of, nor constitute (with or without notice or
lapse of time) a default under, the articles of incorporation or bylaws
of Seller, or conflict with or violate any of the material terms or
provisions of, or constitute (with or without notice or lapse of time) a
default under, any indenture, agreement or other instrument to which
Seller is a party or by which it is bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than this
Agreement); nor violate any law or any order, rule or regulation
applicable to Seller of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over Seller or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of Seller, threatened against Seller,
before any court, regulatory body, administrative agency or other
tribunal or governmental
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instrumentality having jurisdiction over Seller or its properties:
(i) asserting the invalidity of this Agreement or the Assignment, (ii)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or the Assignment, (iii) seeking any
determination or ruling that, if adversely determined, would materially
and adversely affect the performance by Seller of its obligations under,
or the validity or enforceability of, this Agreement or the Assignment or
(iv) that could have a material adverse effect on the interests of the
Purchaser.
(g) No Consents. Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization or
registration or declaration with any government, authority, bureau or
agency in connection with the execution, delivery, performance, validity
or enforceability of this Agreement or the Assignment.
(h) Approvals. All approvals, authorizations, orders or other actions
of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by it of this Agreement or the Assignment and
the consummation of the transactions contemplated thereby have been or
will be taken on or prior to the Closing Date.
(i) Chief Executive Office. The chief executive office of Seller is
located at 11 Madison Avenue, New York, New York 10010.
(j) The Receivables. The Seller represents and warrants to Purchaser
with respect to each Receivable sold pursuant to this Agreement on the
Closing Date as follows:
(i) The computer tape and all related servicing and loan file
information delivered with respect to the Receivables was complete
and accurate as of the Closing Date and includes a description of the
same Receivables that are described in the Schedule of Receivables.
(ii) While it has been owned by Seller, such Receivable has not
been satisfied subordinated or rescinded and no provision of the
Receivable has been waived, altered or modified in any respect,
except by instruments or documents identified in the loan file. While
it has been owned by Seller, such Receivable has not been modified as
a result of application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended.
(iii) Immediately prior to assigning such Receivable to Purchaser,
the Seller was the sole owner and had full right to transfer the
Receivable to Purchaser, such Receivable has not been sold, assigned
or pledged to any other Person and the Seller has conveyed to
Purchaser good and marketable title to the Receivable, free and clear
of any claim by any other party.
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(iv) There is no default, breach, violation, or event permitting
acceleration under the Receivable except for a payment delinquency
not in excess of 29 days past the contractual due date as of the
Closing Date and, as of the Closing Date, the Obligor has not filed
or had filed against it any petition, or otherwise commenced or had
commenced against it any proceeding, for relief, rearrangement of its
debts or other protection from its creditors under any state or
federal bankruptcy laws unless such petition and proceeding have
previously been dismissed, discharged or otherwise withdrawn and no
longer pending.
(v) This Agreement and the related Assignment constitute a valid
transfer, assignment, set-over and conveyance to Purchaser of all
right, title and interest of the Seller in and to the Receivables
sold thereunder.
(vi) There are no procedures or investigations pending before any
court or governmental authority (i) asserting the invalidity of such
Receivable, (ii) seeking the payment of such Receivable or (iii)
seeking any determination or ruling that might materially and
adversely affect the validity, enforceability or collectability of
such Receivable or in any other respect materially and adversely
affect the interests of the Purchaser therein.
(vii) As of the Closing Date, to the best of Seller's knowledge,
all financial statements, tax returns, journals, ledgers and other
information furnished to the Purchaser in connection with the
purchase of the Receivables was or will be at the time furnished true
and correct in all material respects.
The representations and warranties set forth in this Section shall
survive the transfer and assignment of the related Receivables and the
other property conveyed hereunder to Purchaser on the Closing Date.
Section 2.04. Covenants of Seller. Seller hereby covenants as of the
Closing Date with respect to the Receivables that:
(a) Security Interests. Except for the conveyances hereunder, Seller
will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on any Receivable or
any other property conveyed hereunder, whether now existing or hereafter
created, or any interest therein, and Seller shall defend the right,
title and interest of Purchaser in and to the Receivables and other
property conveyed hereunder against all claims of third parties claiming
through or under Seller.
(b) Conveyance of Receivables. Except as otherwise provided herein,
Seller covenants and agrees that it will not convey, assign, exchange or
otherwise transfer the Receivables or other property conveyed hereunder
to any other Person.
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(c) No Impairment. Seller shall take no action, nor omit to take any
action, which action or omission would impair the rights of Purchaser in
any Receivable, nor shall it reschedule, revise or defer payments due on
any Receivable.
Section 2.05. Survival of Representations and Warranties; Repurchase
for Breach.
(a) It is understood and agreed that the representations and
warranties set forth in Section 2.03(j) hereof shall survive the sale of
the Receivables to Purchaser and any assignment of the Receivables by
Purchaser to any subsequent assignee. The Seller acknowledges that
Purchaser may assign all of its right, title and interest in and to the
Receivables and its right to exercise the remedies created by this
Section 2.05 to a subsequent assignee. The Seller agrees that, upon such
assignment, any subsequent assignee may enforce directly, without joinder
of Purchaser, the repurchase obligations of the Seller set forth in this
Section 2.05 with respect to breaches of the representations and
warranties set forth in Section 2.03(j).
(b) Upon discovery by the Seller, Purchaser or any subsequent
assignee of a breach of any of the representations and warranties in
Section 2.03(j) hereof which materially and adversely affects the value
of a Receivable or the interests of the Purchaser or a subsequent
assignee therein, the party discovering such breach shall give prompt
written notice to the other parties and the Seller shall be obligated to
cure such breach in all material respects within 30 days of its receipt
of such notice. If the Seller does not cure such breach within such
period, the Seller shall repurchase the related Receivable by delivering
to or upon the order of the Purchaser an amount equal to the Repurchase
Price; provided, that, such cure and repurchase obligations of Seller
shall be conditioned upon and subject to the discovery or receipt of
notice by Seller of the related breach occurring within 180 days of the
Closing Date. Any such repurchase shall be made without recourse against,
or warranty, express or implied, of such party.
ARTICLE THREE
PAYMENT OF PURCHASE PRICE; COSTS AND EXPENSES
Section 3.01. Payment of Purchase Price. In consideration of the sale
of the Receivables from Seller to Purchaser on the Closing Date,
Purchaser agrees to pay Seller $12,054,271.35 in immediately available
same day funds. The purchase price shall be equal to 93.5% of the
aggregate principal balance of the Receivables as of the Cut-off Date
plus accrued interest at the weighted average gross coupon on the
Receivables from the date as of which interest was last paid thereon to
the Closing Date.
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As a condition to such purchase by Purchaser, Seller agrees to
deliver executed Powers of Attorney of Seller and Servicer in the forms
attached hereto, and an executed Assignment Agreement and Purchase
Assignment.
Section 3.02. Costs and Expenses. Except as may otherwise be
specifically provided herein or in the Assignment, Seller and Purchaser
each pay their own respective costs and disbursements in connection with
the performance of their respective obligations, and consummation of the
transactions contemplated, hereunder and under the Assignment. In
accordance with the foregoing, Seller shall pay any amounts charged by
the Servicer for terminating the servicing activities with respect to the
Receivables being conducted pursuant to the Servicing Agreements.
Specifically, Seller shall pay all costs associated with the downloading
of information concerning the Receivables from the Servicer's computer
files and records and the preparation of computer tapes or other
appropriate formats to transfer such information to Purchaser or its
designee and all costs of transporting the Custodial Files and Servicing
Files from the Servicer to Purchaser or its designee; provided that the
scope of services requested by Purchaser for all such items is reasonable
and shall have been preapproved by Seller, which approval shall not be
unreasonably withheld.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
Section 4.01. Amendment. This Agreement may be amended from time to
time by a written amendment duly executed and delivered by Seller and
Purchaser.
Section 4.02. Protection of Right, Title and Interest to Receivables.
(a) Seller shall execute and file such financing statements (the form
of which shall be prepared by Seller and reasonably satisfactory to
Purchaser) all in such manner and in such places as may be required by
law fully to preserve, maintain and protect the interest of Purchaser in
the Receivables and in the proceeds thereof and the interest of the
Purchaser in the property transferred under this Agreement and the
Assignment. Seller shall file such continuation and other statements (the
forms of which shall be prepared by Seller) as shall reasonably be
requested by Purchaser. Seller shall deliver (or cause to be delivered)
to Purchaser file-stamped copies of, or filing receipts for, any document
filed as provided in this paragraph, as soon as available following such
filing.
(b) Seller shall not change its name, identity or corporate structure
in any manner that would, could or might make any financing statement
filed by Seller in accordance with paragraph (a) on behalf of Purchaser
above seriously misleading within the meaning of Section 9-402(7) of the
UCC, unless it shall have given Purchaser at
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least 60 days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements.
(c) Seller shall give Purchaser at least 60 days' prior written
notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing
statement or of any new financing statement and shall promptly file any
such amendment. Seller shall at all times maintain its principal
executive office within the United States of America.
(d) Seller shall maintain its books and records (including but not
limited to, its computer systems, if any, relating to the Receivables) so
that, from and after the time of sale of Receivables to Purchaser,
Seller's master computer records (including any back-up archives) that
refer to any such Receivables indicate clearly that such Receivables have
been sold to Purchaser. Indication of Purchaser's ownership of a
Receivable shall be deleted from or modified on such computer systems
when, and only when, the Receivable has been repurchased or re-assigned
pursuant to this Agreement, the AutoFlow Purchase and Sale Agreement, the
Correspondent Receivables Purchase Agreement or the Jefferson Purchase
Agreement.
(e) If at any time Seller shall propose to sell, grant a security
interest in, or otherwise transfer any interest in Financed Vehicles to
any prospective purchaser, lender or other transferee, Seller shall give
to such prospective purchaser, lender or other transferee computer tapes,
records or print-outs (including any restored from back-up archives)
that, if they refer in any manner whatsoever to any Receivable, indicate
clearly that such Receivable has been sold to Purchaser and is owned by
Purchaser.
Section 4.03. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of New York and the
rights and remedies of the parties hereunder shall be determined in
accordance with such laws without regard to any otherwise applicable
principles of conflicts of law.
Section 4.04. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given
if personally delivered at or mailed by registered mail, return receipt
requested, to (a) in the case of Purchaser, to AutoBond Acceptance
Corporation, 301 Congress Ave., Austin, TX 78701, Attention: Chief
Executive Officer; and (b) in the case of Seller, to Credit Suisse First
Boston Mortgage LLC, 11 Madison Avenue, New York, New York, 10010,
Attention: Michael Commarato, Director.
Section 4.05. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of
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this Agreement and shall in no way affect the validity or enforceability
of the other provisions of this Agreement.
Section 4.06. Assignment. This Agreement may not be assigned by
Seller without the prior written consent of the Purchaser. This Agreement
may be assigned by Purchaser and Purchaser may be enforced directly by
Purchaser's assigns.
Section 4.07. Further Assurances. Seller and Purchaser agree to do
and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the other
party hereto or by the Trustee more fully to effect the purposes of this
Agreement, including, without limitation, the execution of any financing
statements, amendments, continuation statements or releases relating to
the Receivables for filing under the provisions of the UCC or other law
of any applicable jurisdiction.
Section 4.08. No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of Purchaser or Seller any right,
remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privileges provided by
law.
Section 4.09. Counterparts. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall
constitute one and the same instrument.
Section 4.10. Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
Section 4.11. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of
the parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
Section 4.12. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or
interpretation of any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC, as Seller
By: /s/ Michael Cammoroto
-----------------------------------
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION,
as Purchaser
By: /s/ Adrian Katz
-----------------------------------
Name:
Title:
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PURCHASE ASSIGNMENT TO
RECEIVABLES PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1997
BY AND BETWEEN
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
AND
AUTOBOND ACCEPTANCE CORPORATION
PURCHASE ASSIGNMENT, dated as of December 31, 1997 by CREDIT SUISSE
FIRST BOSTON MORTGAGE CAPITAL LLC (the "Seller") for the benefit of AUTOBOND
ACCEPTANCE CORPORATION ("AAC").
1. Reference is made to the Receivables Purchase Agreement (the
"Purchase Agreement") dated as of December 31, 1997 by and between the Seller
and AAC. All provisions of such Purchase Agreement are incorporated herein by
reference and this Purchase Assignment is in all respects subject to the terms
of the Purchase Agreement. All capitalized terms used and not defined herein
shall have the meanings set forth in the Purchase Agreement.
2. The Seller does hereby sell, transfer, assign, set over and
convey to AAC, without recourse except as set forth in the Purchase Agreement,
all right, title and interest of the Seller in and to the Receivables listed on
Schedule A, and, upon its execution of this Purchase Assignment, AAC does hereby
purchase each such Receivable.
3. The Seller does hereby represent and warrant that (a) the
representations and warranties referred to in Section 2.03 of the Purchase
Agreement with respect to itself and each Receivable submitted hereby are true
and correct as of the date of this Purchase Assignment (unless such
representations and warranties expressly speak as of another date) as if fully
set forth herein, (b) no event has occurred and is continuing, or would result
from such sale or from the application of the proceeds therefrom which would
constitute a breach of any representation, warranty or covenant of the Purchase
Agreement and (c) the Seller is in compliance with each of its covenants set
forth in the Purchase Agreement.
4. The Purchase Price for the Receivables sold and purchased
hereby is $12,054,271.35. The Purchase Price shall be payable in full
contemporaneously with the execution of this Purchase Assignment.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Seller has caused the Purchase Assignment
to be executed by its duly authorized officer, as of the date first above
written.
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC, as Seller
By __________________________________
Name:
Title:
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Execution Copy
================================================================================
SERVICING AGREEMENT
(Variable Funding Notes, Series A)
among
AUTOBOND MASTER FUNDING CORPORATION II,
as Issuer
AUTOBOND ACCEPTANCE CORPORATION,
as Servicer
and
MANUFACTURERS & TRADERS TRUST COMPANY,
as Trustee
Dated as of December 31, 1997
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION...............................2
SECTION 1.01. Defined Terms......................................................2
SECTION 1.02. Rules of Interpretation............................................4
ARTICLE II
SERVICING OF AUTO LOANS...........................................5
SECTION 2.01. Appointment of Servicer............................................5
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer...........6
SECTION 2.03. Representations and Warranties of the Servicer.....................7
SECTION 2.04. Duties and Responsibilities of the Servicer........................9
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Contingent Disaster
Relief Protection.................................................12
SECTION 2.06. Inspection........................................................13
SECTION 2.07. Possession and Payment of Receivables.............................13
SECTION 2.08. Monthly Servicing Fee; Servicing Expenses.........................13
SECTION 2.09 ..................................................................15
SECTION 2.10. Servicer Not to Resign............................................15
SECTION 2.11. Reliance on the Servicer..........................................15
SECTION 2.12. Events of Servicing Termination...................................15
SECTION 2.13. Appointment of the Successor Servicer.............................17
SECTION 2.14. Effect of Service Transfer........................................18
SECTION 2.15. Annual Reports; Statements as to Compliance.......................19
SECTION 2.16. Servicer Reports..................................................19
SECTION 2.17. Confidentiality...................................................20
SECTION 2.18. Delivery of Documents.............................................20
SECTION 2.20. Standard of Care..................................................21
ARTICLE III
REPOSSESSION AND DISPOSAL.........................................21
SECTION 3.01. Repossession and Disposal.........................................21
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES..............................22
SECTION 4.01. Liabilities of Obligors...........................................22
SECTION 4.02. Limitation on Liability of the Trustee and the Servicer...........22
SECTION 4.03. Indemnities of the Servicer.......................................23
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE V
MISCELLANEOUS.....................................................24
SECTION 5.01. Beneficiaries.....................................................24
SECTION 5.02. Amendment.........................................................24
SECTION 5.03. Notices...........................................................24
SECTION 5.04. Severability of Provisions........................................25
SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF JURY TRIAL.....................................................25
SECTION 5.06. Counterparts......................................................26
SECTION 5.07. No Proceedings....................................................26
SECTION 5.08. Further Assurance.................................................26
SECTION 5.09. Term of Agreement.................................................26
SECTION 5.10 Limitation of Liability of Trustee................................26
EXHIBIT A - AUTOBOND PROGRAM MANUAL
EXHIBIT B - FORM OF TRUST RECEIPT
EXHIBIT C - FORM OF MONTHLY SERVICER REPORT
</TABLE>
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SERVICING AGREEMENT, dated as of December 31, 1997 (this "Agreement"),
among AUTOBOND MASTER FUNDING CORPORATION II, a Nevada corporation (the
"Issuer"), AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation, individually
("AutoBond"), and as servicer (the "Servicer") and MANUFACTURERS & TRADERS TRUST
COMPANY, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer has purchased, pursuant to the Loan Sale and
Contribution Agreement dated of December 31, 1997 (the "Sale Agreement"), by and
between the Issuer and AutoBond, certain Auto Loans (as defined herein) and
pledged such Auto Loans to the Trustee pursuant to the Indenture (as defined
herein) on behalf of the holders (the "Noteholders") of the Issuer's Variable
Funding Notes, Series A (the "Notes");
WHEREAS, the Trustee has been appointed to hold the Auto Loans conveyed to
it pursuant to the Indenture in trust for the benefit of the Noteholders and to
make certain payments with respect thereto;
WHEREAS, the Issuer desires that a servicer be appointed to perform certain
servicing and insurance tracking functions in respect of the Auto Loans pledged
to the Trustee on behalf of the Noteholders;
WHEREAS, Autobond has been requested and is willing to act as the Servicer
hereunder;
WHEREAS, the rights and benefits of the Issuer hereunder (but not the
obligations) have been assigned to the Trustee on behalf of the Noteholders.
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:
<PAGE>
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ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms. Capitalized terms used herein and not defined
shall have the meaning specified in the Indenture. As used herein, the following
terms shall have the following meanings:
"Administrator" means AutoBond and any permitted successor to such
functions in accordance, and in connection with, the Indenture in its
capacity as Administrator thereunder and, if AutoBond is acting as Servicer
hereunder, also in its capacity as Servicer.
"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, other than the interests created in favor of the
Trustee and the Noteholders under the Indenture.
"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 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 A, as modified
from time to time, with notice of each such modification to the Trustee.
"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.
"Business Day" means any day other than a Saturday or a Sunday, or another
day on which banks in the City of New York, or the City of Buffalo, New
York or in Texas (or such other cities or states in which the Corporate
Trust Office, the principal administrative offices of the Administrator,
Note Registrar and Paying Agent or the principal offices of the Servicer
are subsequently located, as specified in writing by the Administrator to
the other parties hereto) are required, or authorized by law, to close.
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"Closing Date" means December 31, 1997.
"Continuing Errors" has the meaning specified in Section 2.13(e).
"Electronic Ledger" means the electronic master record of the Receivables
maintained by the Servicer.
"Errors" has the meaning specified in Section 2.13(e).
"Event of Administrator Termination" means an Event of Servicing
Termination hereunder.
"Event of Servicing 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.
"Indenture" means the Trust Indenture and the Supplements.
"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 the Issuer and the
Administrator, the Servicer and any Subservicer, as the case may be, within
the meaning of the Securities Act of 1933, as amended.
"Issuer" means AutoBond Master Funding Corporation II, a Nevada
corporation, in its capacity as issuer under the Indenture.
"Noteholder" means any of the registered holders of a Variable Funding
Note, Series A, issued under the Indenture.
"Notes" means any of the Variable Funding Notes, Series A, issued under the
Indenture.
"Opinion of Counsel" means a written opinion of counsel (who may be counsel
to the Issuer, the Administrator or the Servicer), which opinion is
acceptable to the Trustee.
"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 Servicer or by or on behalf of the Issuer 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
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of such Person 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 AutoBond Acceptance Corporation, in its capacity as
servicer under this Agreement and any successor thereto in accordance with
this Agreement.
"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 the Issuer and the Trustee 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.
"Successor Servicer" has the meaning specified in Section 2.13(a)
hereunder.
"Trust Indenture" means the Trust Indenture, dated as of December 31, 1997,
among the Issuer, Autobond and the Trustee, as amended or supplemented from
time to time in accordance with the terms thereof.
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;
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(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;
(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; and
(j) capitalized terms used but not defined herein shall have the
respective meanings assigned thereto in the Indenture.
ARTICLE II
SERVICING OF AUTO LOANS
SECTION 2.01. Appointment of Servicer. The Issuer 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 the Noteholders
and the Issuer in accordance with the terms of this Agreement, the respective
Receivables 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 Auto Loans 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 of
similar credit quality automobile loans 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.
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SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer.
(a) Upon the prior written consent of the Trustee and the Issuer, the
Servicer may enter into Subservicing Agreements with a Subservicer for the
performance of all or a part of the Servicer Duties with respect to any
Receivable. The Trustee shall have no duty to investigate any Subservicer in
connection with the granting or denial of consent to a Subservicing Agreement.
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. Without
limiting the first sentence of this Section 2.02(a), the Servicer shall provide
written notice to the Issuer and the Trustee 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 the Issuer and the Trustee, 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 the Issuer
and the Trustee 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 the
Issuer and the Trustee shall be deemed to be between the Subservicer and the
Servicer alone and the Issuer, and the Trustee shall not be deemed parties
thereto and shall have no obligations, duties or liabilities with respect to the
Subservicer, but the Trustee and the Issuer shall be third-party beneficiaries
thereof.
(e) If the Servicer shall for any reason no longer be the Servicer
hereunder (including by reason of any Event of Servicing Termination), the
Servicer shall thereupon terminate each Subservicing Agreement that may have
been entered into, and neither the Issuer, the Trustee nor the Successor
Servicer shall be deemed to have 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.
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SECTION 2.03. Representations and Warranties of the Servicer. The
Servicer represents, warrants and covenants to the Issuer, the Trustee and the
Noteholders, as follows, as of the date hereof (which representations and
warranties shall be deemed repeated 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 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
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 corporate 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 otherwise, 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 through a Subservicer) of this Agreement or any other agreement,
document or instrument to be delivered by it hereunder, or if required,
has been obtained;
(f) This Agreement is a 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
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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) The transactions contemplated by this Agreement are in
the ordinary course of business of the Servicer;
(k) The Financed Vehicle securing each Receivable shall not
be released by the Servicer or a Subservicer in whole or in part from
the security interest granted by the Obligor, except as contemplated
herein;
(l) Each certificate and each statement furnished in writing,
report or electronic medium delivered pursuant to the terms hereof or
under the Indenture by the Servicer is accurate and complete in all
material respects with respect to the information purported to be set
forth therein; and
(m) The practices used by the Servicer 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 all applicable federal and state laws, rules and
regulations, VSI Policy procedures (if applicable) and as set forth with
respect to the Servicer in the AutoBond Program Manual.
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 the Noteholders, the Issuer, the Trustee 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 and the
Noteholders; provided, that the Trustee shall have no duty or responsibility to
inquire, investigate, determine or obtain actual knowledge of facts or events
constituting a breach of any such representations or warranties.
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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. 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"). Prior to a
resignation or termination of the Servicer pursuant to Sections 2.10 or 2.12,
without limitation of the servicing standard set forth in Section 2.01, 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, of a subprime 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 of 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
(5) Preparation and mailing of delinquency notices.
(iv) Payment Processing Functions:
(1) Coordination of lockbox procedures; and
(2) Recording of loan payment information, including
instances of non-sufficient funds.
(v) Reporting Functions:
(1) Preparation and delivery of Servicer's Report and the
other reports described in Section 2.16 hereof.
(vi) Data Processing Functions:
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(1) Entry of data;
(2) Operation of data center;
(3) Operation of telecommunications; and
(4) Operation and maintenance of collection system.
(vii) Collection Functions:
(1) receiving, applying and administering collections on
the Auto Loans;
(2) arranging for and administering repossessions of the
Financed Vehicles related to the Auto Loans;
(3) disposing of each Financed Vehicle related to a
Receivable whether following repossession or otherwise;
and
(4) filing of insurance claims and performing the duties of
the named insured under any VSI Policy with respect to
each Auto Loan affected by a repossession or otherwise.
Notwithstanding any other provision in this Agreement, the
Servicer shall administer collections on Auto Loan at all times in such a manner
that each Auto Loan shall remain eligible for coverage under the Insurance
Policy. The Servicer, on behalf of the Trustee (and any named insured under the
Insurance Policy), shall take such reasonable action as shall be necessary to
permit recovery on each Auto Loan under the Insurance Policy and may engage such
liquidation agents, skiptracers, remarketers, repossession agents or similar
agents as it deems necessary.
(b) The Servicer shall hold in trust for the benefit of the Trustee and
Noteholders and shall forward to the Collection Account or the Lockbox Account,
as applicable, within one (1) Business Day following receipt thereof any payment
or partial payment or deposit with respect to any Receivable received by the
Servicer. The Servicer shall not assert any right of set-off or any lien with
respect to such payment or deposit.
(c) Except as expressly provided herein in connection with its duty to
effect liquidations and repossessions, 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.
(d) The Servicer shall promptly notify the Trustee following its
becoming aware that any Financed Vehicle is no longer eligible for coverage
under the Insurance Policy, or following its receipt of notice from the Insurer
that it has rejected a claim submitted by the Servicer with respect to any
Financed Vehicle or Auto Loan.
(e) Until such time as the Servicer resigns or is removed, the Servicer
shall remain the prior lienholder of record with respect to each Financed
Vehicle relating to the Auto Loans subject to the Lien of the Indenture;
provided that the Servicer shall remain the prior lienholder only in its
capacity as an agent of the Trustee. Upon any resignation or removal of the
Servicer in accordance with Section 2.10 or 2.12, the Servicer shall at its sole
expense, promptly take all
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action necessary for the Trustee or its designee to become the lienholder in
respect of each Financed Vehicle to such Auto Loans.
(f) In accordance with the standard of care in Sections 2.01 and 2.20,
the Servicer may agree, with the prior consent of the Noteholder (so long as
such Noteholder is Credit Suisse First Boston Mortgage Capital or its Affiliate)
to grant to the Obligor on any Auto Loan any rebate, refund or adjustment that
the Servicer in good faith believes is required under the Auto Loan or
applicable law in connection with a prepayment or payment in full of the Auto
Loan, and, pursuant to written instructions from the Servicer, the Trustee shall
remit the amount of any such rebate, refund or adjustment to the Servicer to be
sent to the applicable Obligors from the Collection Account. The Servicer may
not permit any rescission or cancellation of any Auto Loan nor may it take any
action with respect to any Auto Loan or Sale Assignment which would invalidate
the coverage afforded by the Insurance Policy to such Receivable or the related
Financed Vehicle, or would impair the rights of the Trustee therein or in the
proceeds thereof.
(g) The Servicer shall not release, and shall not advise the Trustee to
release, the Financed Vehicle securing an Auto Loan from the vehicle lien
granted in connection with such Receivable in whole or in part, except:
(i) when such Auto Loan has been paid in full;
(ii) immediately upon any exchange or substitution of such
Financed Vehicle by the Dealer or manufacturer thereof in settlement of
claims as to defects, breach of warranties, insurance and similar
matters, with a Financed Vehicle of equal or greater collateral value as
of the date of such exchange in the reasonable judgment of the Servicer
(subject to all the terms hereof including the recordation of the lien
thereon and the requirements of the Insurance Policies); or
(iii) in connection with a repossession of a Financed Vehicle; or
(iv) when all Insurance Proceeds with respect to such Financed
Vehicle have been received by the Servicer on behalf of the Trustee and
the Issuer.
The Servicer shall not extend or otherwise amend the terms of any Receivable,
except in accordance with the provisions of Section 2.04(f) of this Agreement.
(h) The Servicer agrees to monitor and track each Financed Vehicle for
maintenance of required physical damage insurance and to notify the Issuer and
the Trustee, 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.
(i) 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
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payments with respect to any Receivable are deposited, or assign any right to
receive income in respect of any Receivable.
(j) The Servicer and the Issuer shall each instruct each Obligor by
written notice that all payments on Receivables shall be mailed to the Lockbox,
and, so long as AutoBond is serving as the Servicer and the Administrator
hereunder, that such payments shall be made payable to the order of "AutoBond
Acceptance Corporation," in its capacity as Servicer.
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 insurers 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 servicers of
similar auto loans, 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 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 the Issuer or the Trustee, the Servicer shall
cause to be delivered to the Issuer and the Trustee a certification evidencing
coverage under the Servicer's or any Subservicer's fidelity bond and insurance
policy. The Trustee shall have no obligation to request any such certification
or upon receipt of any such certification or of any notice provided for in this
Section 2.05(a), to approve, consent to, or determine its compliance with, the
requirements of this Section 2.05(a). Any such fidelity bond or insurance policy
shall (i) not be cancelled without the Servicer giving prior written notice to
the Issuer and the Trustee 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 the
Issuer and the Trustee.
(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 materially
modify, amend or revoke such procedures without giving prior written notice
thereof to the Trustee. 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.
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SECTION 2.06. Inspection.
(a) At all times during the term hereof, the Servicer shall afford the
Issuer, the Trustee, and each Noteholder owning a Note evidencing at least 25%
of the unpaid principal amount of Notes of such Series, 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
to its other clients or its other areas of its operations. Without otherwise
limiting the scope of the examination, the Issuer, the Trustee, and each such
Noteholder 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 as a result of such obligation shall not
constitute a breach of this Section 2.06.
(b) All information obtained by the Issuer, the Trustee, such
Noteholders or their 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 the Issuer, the Trustee, such
Noteholders and their respective agents in confidence and shall not be disclosed
to any other Person other than the Noteholders, 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 the
Trustee in writing monthly as to each Receivable in connection with which such a
determination has been made. If the Servicer requires possession of any Loan
Documents 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 the Trustee a trust receipt
substantially in the form attached hereto as Exhibit B. 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, unless satisfied in full.
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 the Trustee from the funds on deposit in the Collection
Account an amount equal to the Monthly Administrator Fee as of such Payment
Date. The Servicer acknowledges and agrees that, so long as no Event of Default
under the Trust Indenture with respect to the Variable Funding Notes has
occurred and is continuing, its right to receive on any Payment Date the Monthly
Administrator Fee is
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subordinate to the right of payment on such day of any or all of the following
amounts that are payable on such date pursuant to Section 13.05(b) of the Trust
Indenture:
(i) the payment to the Noteholders of the interest due on such
Payment Date;
(ii) the payment to the Trustee of the Monthly Trustee fee; and
(iii) the payment to the Noteholders of principal due on the
Notes and all other obligations under the Credit Agreement.
(b) (i) 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
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
shall be entitled to reimbursement by wire transfer of immediately available
funds to an account designated in writing by the Servicer to the Trustee for the
amount of any (x) applicable Lockbox charges, freight, communication charges and
refunds for overpayments, and (y) other expenses incurred with the prior written
consent of the Issuer and the Trustee. No later than ten Business Days prior to
each Payment Date, the Servicer shall provide the Issuer and the Trustee with a
list of items eligible for reimbursement pursuant to the immediately preceding
sentence, in such reasonable detail as the Issuer and the Trustee may request,
together with its certification by a Servicing Officer that all such items are
eligible for reimbursement hereunder.
In addition, the Servicer shall be reimbursed by the
Issuer for the following out-of-pocket costs and expenses incurred in connection
with the performance of its Servicing Duties hereunder, including:
(A) any reasonable compensation paid to outside legal
counsel retained to protect the interests of the Issuer and the
Trustee (but not if such retention was made to defend the
Servicer against its own negligence or willful misfeasance);
(B) any reasonable compensation paid to professional
accountants retained to review the assets administered under this
Agreement (but not if such retention was made to defend the
Servicer against it own negligence or willful misfeasance); and
(C) any insurance, title, title transfer or other such
fees arising from or related to any Receivables administered
under this Agreement.
Any reimbursement to the Servicer for fees or costs pursuant to this Section
2.08(b) shall be limited to the extent of the funds available for reimbursement
of Servicer and Administrator fees and expenses under the Indenture.
(c) The Servicer acknowledges and agrees that if an Event of Default
under the Trust Indenture shall have occurred and be continuing, the Servicer's
right to receive any fees, costs and
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expenses owing to the Servicer under this Agreement shall be subordinated to the
fees and expenses of the Trustee, if the Servicer is not AutoBond or an
Affiliate of Auto Bond.
(d) Each of the Issuer and the Trustee covenants and agrees that upon a
Responsible Officer obtaining actual knowledge of the occurrence of an Event of
Default under the Indenture, it shall promptly give notice thereof to the
Servicer; provided, that the Trustee shall have no duty to inquire or to
investigate the occurrence of such Event of Default.
(e) Each of the Issuer and the Trustee agrees that, without the written
consent of the Servicer, it will not amend the Indenture (i) to change the
source and/or priority of the payment of the Monthly Administrator Fee or (ii)
to materially change the rights, duties and obligations under this Agreement of
the Servicer.
SECTION 2.09. [RESERVED]
SECTION 2.10. Servicer Not to Resign.
The Servicer shall not resign from the obligations and duties hereby
imposed on it hereunder, except 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 the
Issuer and the Trustee before any such resignation and as to clause (ii) by an
Officer's Certificate to such effect delivered to the Issuer and the Trustee
before any such resignation. Promptly upon any such resignation, the Trustee
shall notify each Rating Agency and each Noteholder in writing.
SECTION 2.11. Reliance on the Servicer. The Issuer and Trustee have
entered into this Agreement with the Servicer in reliance upon its ability to
perform the servicing duties, if necessary, without any delegation thereof; the
adequacy of its plant, personnel, records and procedures; its integrity,
reputation and financial standing and the continuance of each of the foregoing.
SECTION 2.12. Events of Servicing Termination. If any of the following
events (each, an "Event of Servicing Termination") shall occur and be
continuing:
(a) Any failure by the Servicer to forward to the Trustee, the
Collection Account or the Lockbox, 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 one
Business Day after the date upon which such payment or deposit is
received by the Servicer; or
(b) Failure on the part of the Servicer to observe or perform any
term, covenant or agreement in this Agreement, including the Servicer
Duties (other than the agreement to deliver the Servicer's Report
pursuant to Section 2.17 and subsection (e) of this Section 2.17), which
failure continues unremedied for 10 Business Days after discovery by the
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Servicer or the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer by the
Issuer or by the Trustee; or
(c) Any proceeding shall be instituted against the Servicer (or,
if the Servicer 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 of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of the Servicer 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 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, which failure continues for a period of 5 Business Days; or
(f) There is a breach of any of the representations and
warranties of the Servicer set forth in Section 2.03 and such breach
shall not have been cured in all material respects within 10 Business
Days or such longer period as may be agreed to by the Servicer and the
Trustee after receipt of written notice thereof by the Servicer (if
notice is given by the Trustee or the Issuer) or upon discovery by the
Servicer;
(g) An Event of Default shall haveoccurred and be continuing
under the Indenture then, and in any such event, either the Issuer or
the Trustee may, by delivery to the Servicer (and to the Trustee or the
Issuer, as applicable) of a written notice specifying the occurrence of
any of the foregoing events, terminate the rights and responsibilities
of the Servicer hereunder, without demand, protest or further notice of
any kind, all of which are hereby waived by the Servicer (such
termination and any termination of the Servicer pursuant to Section 2.10
hereby called a "Service Transfer"); provided, that in the event
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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 Servicer shall automatically occur, without, demand, protest, or
further notice of any kind, all of which are expressly waived by the
Servicer.
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,
the Trustee 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 the Trustee (which may be the Trustee).
The Trustee shall give the Noteholders not less than 30 days' prior written
notice of its intent to appoint a Successor Servicer pursuant to this Section
2.13(a). Such appointment shall become effective following the expiration of
such 30-day period (or such shorter period agreed to by the Trustee and the
Noteholders) on a date to be specified by the Trustee. 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 (including its duties as Successor Servicer
hereunder but excluding its duty to indemnify pursuant to Sections 4.03(a) and
(b)). The standard of care, representations and warranties, covenants,
liabilities, rights of indemnification, and all other rights and obligations of
the Trustee under this Agreement and the Indenture shall also be applicable to
the Trustee in its capacity as Successor Servicer hereunder. The Trustee shall
have the right to appoint as its agent a third party to perform the duties and
obligations of the Trustee as Successor Servicer hereunder. The Trustee shall
not be responsible for compensating the Issuer for any increase in the Monthly
Servicing Fee associated with a Successor Servicer.
(b) Any Successor Servicer appointed by the Trustee hereunder shall be
entitled to reasonable compensation (including the estimated termination costs
of such servicing and a reasonable profit) which shall be determined by the
Trustee; provided, however, that the Trustee, when acting as Successor Servicer
hereunder, shall receive compensation that is no less than was being received by
the Servicer at the time of its termination. Any Successor Servicer appointed by
a court of competent jurisdiction or any agent of the Trustee as Successor
Servicer upon becoming the Successor Servicer pursuant to Section 2.13 (a) or
subservicer to the Successor Servicer, shall be entitled to compensation
(including the estimated costs of servicing and a reasonable profit) equal to
the prevailing market rate for such services.
(c) The outgoing Servicer, the Trustee and the Successor Servicer shall
take such action, consistent with this Agreement and the Indenture, 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 (except as to the Trustee as
the Successor Servicer, the Servicer's indemnification obligation under Section
4.03(a) and (b) shall not apply), (ii) notifying Obligors in writing of the
existence of the Successor
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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).
(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 (subject to the same limitations as are contained in this
Section 2.13 with respect to a succession to the outgoing Servicer by the
Trustee).
(e) Upon an assumption by a Successor Servicer, or in the event of
transfer of servicing of any Auto Loans to the Successor Servicer from a prior
servicer (including after the execution of this Agreement), the Successor
Servicer is authorized to accept and rely on all of the accounting, records and
work of the prior servicer without any audit or other examination thereof, and
the Successor Servicer shall have no duty, responsibility, obligation or
liability to any Person for any acts or omissions of the prior servicer. If any
error, inaccuracy or omission (collectively, "Errors") exists in any information
received from the prior servicer and such Errors should cause or materially
contribute to the Successor Servicer making, or continuing to make, any Errors
(collectively, "Continuing Errors"), the Successor Servicer shall have no
liability to any Person for such Continuing Errors. In the event the Successor
Servicer becomes aware of any Errors or Continuing Errors, which in the opinion
of the Successor Servicer impair its ability to perform its services hereunder,
the Successor Servicer may with prior written notice to the Issuer and the
Trustee, undertake such data or records reconstruction as it deems appropriate
to correct such Errors and Continuing Errors and to prevent future Continuing
Errors, and the Successor Servicer's reasonable expenses incurred in connection
therewith shall be deemed expenses owing to the Successor Servicer hereunder for
purposes of the Indenture.
SECTION 2.14. Effect of Service Transfer.
(a) Prior to any Service Transfer, the outgoing Servicer shall notify
(or, to the extent that such Servicer provided such notice pursuant to Section
2.13(c), confirm the notice to) Obligors of the existence of the Successor
Servicer.
(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.
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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 the Issuer and the Trustee
(who shall promptly forward a copy to each Noteholder), a copy of the financial
statements of the Servicer containing a report of a firm of Independent Public
Accountants to the effect that such firm has examined certain books and records
of the 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 the Servicer.
In the event such firm of Independent Public Accountants requires the Trustee to
agree to the procedures performed by such firm of Independent Public
Accountants, the Servicer shall direct the Trustee in writing to so agree; it
being understood and agreed that the Trustee will deliver such letter of
agreement in conclusive reliance upon the direction of the Servicer, and the
Trustee has not made any independent inquiry or investigation as to, and shall
have no obligation or liability in respect of, the sufficiency, validity or
correctness of such procedures.
(b) The Servicer shall deliver to the Trustee (who shall promptly
forward a copy to each Noteholder) by the close of business on the Determination
Date of each month the Officer's Certificate contemplated in Section 2.17, which
shall state as to each signer thereof, that (a) a review of the activities of
the Servicer (and each Subservicer) during the preceding calendar month and of
performance under this Agreement has been made under such officer's supervision
and (b) to the best of such officer's knowledge, based on such review, each of
the Servicer and any Subservicer has fulfilled all its respective obligations
under this Agreement throughout such month, or, if there has been an Event of
Servicing Termination or if an event has occurred that with notice or lapse of
time or both would become an Event of Servicing Termination, specifying each
such Event of Servicing Termination or event known to such officer and nature
and status thereof, and remedies therefor being pursued. Notwithstanding the
obligation to deliver such certificates, the Servicer shall promptly (but in any
event within five Business Days) notify the Issuer, the Noteholders and the
Trustee 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. 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 the Trustee and each Noteholder an Officer's Certificate,
substantially in the form attached hereto as Exhibit C (the "Servicer Report"),
which Servicer Report shall contain all information necessary for the
Administrator to prepare the report allowing the Trustee to make the
distributions from, and transfers among, the accounts required by the Indenture
or in such other form as is mutually acceptable to the Servicer, and the
Trustee. In addition, the Servicer shall provide the Trustee with such
additional written information and certifications as the Trustee may request in
order for the Trustee to make the distributions from, and transfers among, the
various accounts required by this Agreement and the Trust Indenture on a daily,
or other, basis. Each of the parties hereto shall provide to the Noteholders
evidencing a Percentage of not less than 50% such additional
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information as they may reasonably request in order to assist such Noteholders
evidencing a Percentage of not less than 50% in their ongoing monitoring and
assessment of the performance of the Receivables, including the related computer
files. 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
Servicing Termination, or event that with notice or lapse of time or both would
become an Event of Servicing Termination, has occurred, or if an Event of
Servicing Termination or such event has occurred and is continuing, specifying
the Event of Servicing 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 2.17. Confidentiality. Each of the Issuer and the Trustee
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 each of the Issuer and
the Trustee will have no ownership interest therein or ownership claim thereto.
Each of the Issuer and the Trustee 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. Upon any expiration or
termination of this Agreement, each of the Issuer and the Trustee shall promptly
return to the Servicer all property or information which is covered by this
section.
SECTION 2.18. Delivery of Documents.
(a) On the date hereof the Servicer shall have delivered to the Issuer
and the Trustee in form and substance satisfactory to the Issuer an Officer's
Certificate from the Servicer certifying that (i) 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 such date and (ii) no Event of Servicing
Termination, or event that with notice or lapse of time or both would become an
Event of Servicing Termination, has occurred.
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(b) On or prior to February 15, 1998 in each calendar year, beginning in
1998, the Servicer shall deliver to the Issuer and the Trustee (who shall
promptly forward a copy to each of the Noteholders) an Officer's Certificate
from the Servicer dated such date certifying to the items listed in Section
2.19(a).
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 Agreement,
the Servicer will follow the standard of care set forth in Section 2.01;
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 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 the Issuer or the Trustee in the
Receivables.
ARTICLE III
REPOSSESSION AND DISPOSAL
SECTION 3.01. Repossession and Disposal.
(a) The Servicer agrees to use its best efforts to arrange with a third
party for the repossession or other conversion of ownership of any Financed
Vehicle by a professional repossession service within 90 days after the related
Auto Loan becomes past due and agrees not to discriminate among Financed
Vehicles in its performance of its duties hereunder based on its right, if any,
to receive bonus or increased compensation with respect to the repossession and
disposal of certain Financed Vehicles, and otherwise in accordance with the
AutoBond Program Manual, in order to maximize collections.
(b) If requested in writing by the Issuer or the Trustee, the Servicer
is authorized and empowered by the Issuer and the Trustee to execute and
deliver, on behalf of itself, the Issuer and the Trustee, as the case may be,
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 2.20. Without limiting the generality of
the foregoing, the Issuer and the Trustee shall, upon the receipt of a written
request of the Servicer, execute and deliver to the Servicer any limited powers
of attorney and other documents prepared by the Servicer and reasonably
necessary or appropriate (as certified in such written request) to enable the
Servicer to carry out its duties hereunder (including, without limitation,
matters relating to the certificates of title with respect to the Financed
Vehicles), and neither the Issuer nor the Trustee shall be held responsible for
any negligence by the Servicer in its use of such limited powers of attorney.
(c) The Servicer shall forward the proceeds of any disposition of a
Financed Vehicle related to a Receivable upon receipt thereof to the Lockbox or
the Series A Collection Account. If subsequent to the disposal of a Financed
Vehicle related to a Receivable in accordance herewith
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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 the Servicer shall be entitled to reimbursement from the Series A
Collection Account (out of available funds) for any amount which the Servicer
pays in connection with such rescission or adjustment which amount shall be the
"Post-Sale Adjustment".
(d) The Servicer represents and warrants to the Issuer, the Trustee and
the Noteholders and shall be deemed to continuously represent and warrant to the
Issuer, the Trustee and the Noteholders, with respect to each Financed Vehicle
assigned to the Servicer pursuant hereto, that the Servicer will comply in all
material respects with 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 Servicer
shall defend, indemnify and hold the Issuer, the Noteholders and the Trustee
harmless from and against any claim, suit, loss, cost or liability, direct or
indirect, including reasonable attorney's fees, arising out of any breach of any
representation or warranty made by the Servicer in the immediately preceding
sentence.
(e) Except as expressly provided herein, in the Indenture and in the
AutoBond Program Manual, 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 Financed Vehicle related to any Receivable (or any right to
income in respect thereof), or assign any right to receive income in respect of
any such Financed Vehicle.
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 Issuer,
the Servicer, the Trustee or any Noteholder 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 Issuer, the Servicer,
and the Trustee or any Noteholder expressly disclaim such assumption.
SECTION 4.02. Limitation on Liability of the Trustee and the Servicer.
(a) The Trustee and the Servicer shall each 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 Trustee or the
Servicer.
(b) None of the Trustee or the Servicer nor any of the directors,
officers, employees or agents thereof shall be under any liability to the
Issuer, to each other 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 protect the Servicer, the Trustee or any such Person against any
breach of warranties, representations or covenants made herein or against any
liability which would otherwise be imposed by reason of
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willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties hereunder. The Servicer,
the Trustee 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 or other assets.
SECTION 4.03. Indemnities of the Servicer.
(a) The Servicer agrees to indemnify the Issuer, the Trustee and the
Noteholders and any of their respective 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 the Issuer's, the Trustee's, 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; provided, however, that the Servicer's cumulative aggregate liability
pursuant to this Section 4.03 for such acts or omissions, other than those
relating to its failure to account for collections actually received, shall not
exceed $3,000,000. 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 the Issuer, the Trustee, and the
Noteholders and any of their 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) Each of the Servicer, the Issuer and the Trustee 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.
(d) This Section 4.03 shall survive the termination of this Agreement
and the resignation or removal of the Servicer. This Agreement shall also
survive the resignation or removal of the Trustee in respect of rights accrued
to it prior to such resignation or removal.
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ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries. This Agreement will inure to the benefit of
and be binding upon the parties hereto, the Noteholders and their respective
successors and permitted assigns. The Noteholders are intended as, and shall be,
third party beneficiaries of this Agreement. No other Person will have any right
or obligation hereunder. Neither the Servicer nor the Trustee may assign any of
its respective rights and obligations hereunder or any interest herein, other
than as provided in the Indenture with respect to the Trustee, without the prior
written consent of the Issuer and the Trustee.
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,
and provided, further, that notice of any such amendment and a copy thereof
shall be given in writing promptly after the execution thereof to the Trustee.
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):
If to the Issuer:
AutoBond Master Funding Corporation II
300 South Fourth Street, Suite 620
Las Vegas, Nevada 89101
If to the Servicer:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 70701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
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If to the Trustee:
Manufacturers & Traders Trust Company
1 M&T Plaza, 7th Floor
Buffalo, New York 14203
Attention: Corporate Trust
Department - Stuart Mitchell, VP
Facsimile Number: (716) 842-4474
Telephone Number: (716) 842-4217
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 NEW YORK.
(b) THE ISSUER, THE SERVICER, AND THE TRUSTEE HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY. THE
ISSUER, THE SERVICER AND THE TRUSTEE EACH HEREBY WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER. 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 ISSUER, THE SERVICER AND THE TRUSTEE 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 AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
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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. No Proceedings. Each of the Servicer and the Trustee
hereby agrees that it will not, directly or indirectly, institute, or cause to
be instituted, against the Issuer any proceeding of the type described in
connection with the Servicer in Section 2.12(c) so long as there shall not have
elapsed one year plus one day since the Notes issued by the Issuer have been
paid in full in cash. The foregoing covenant shall not limit the right of the
Servicer or the Trustee, as the case may be, to institute legal proceedings of a
type other than those described in connection with the Servicer in Section
2.12(c) against the Issuer for any breach by the Issuer of its obligations
hereunder.
SECTION 5.08. Further Assurance. The Servicer shall cause to be promptly
and duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as the Issuer or the Trustee from time to time may
reasonably request in order to carry out more effectively the intent and
purposes of this Agreement and the transactions contemplated hereby.
SECTION 5.09. Term of Agreement. The term of this Agreement shall begin
on the Closing Date and shall continue until the earlier of the day after the
date on which the Noteholders have been paid in full under the Indenture and
March 15, 2003. The Trustee shall deliver to the Servicer a copy of notice to be
delivered to the Noteholders regarding payment in full of the Notes pursuant to
the Indenture.
SECTION 5.10 Limitation of Liability of Trustee. It is expressly
understood and agreed by the parties hereto that (a) Manufacturers & Traders
Trust Company is executing this Agreement not in its individual capacity but
solely in its capacity as trustee pursuant to the Indenture, as supplemented and
amended, and (b) in no case whatsoever shall Manufacturers & Traders Trust
Company in its individual capacity or, except as provided in the Indenture, as
the Trustee have any liability for any of the statements, representations,
warranties, covenants, agreements or obligations of the Issuer hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, all
such liability, if any, being expressly waived by the parties hereto. For all
purposes of this Agreement, in the performance of its duties or obligations
hereunder or in the performance of any duties or obligations of the Trustee
hereunder, the Trustee shall be subject to, and entitled to the benefits of, the
terms and provisions of Article 7 of the Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Servicing
Agreement to be executed by their respective officers thereunto duly authorized.
AUTOBOND MASTER FUNDING CORPORATION II,
as Issuer
By: /s/ Adrian Katz
_____________________________________
Name: Adrian Katz
Title: Vice President
AUTOBOND ACCEPTANCE CORPORATION
as Servicer
By: /s/ Adrian Katz
_____________________________________
Name: Adrian Katz
Title: Vice President & COO
MANUFACTURERS & TRADERS TRUST
COMPANY, not in its individual capacity, but
solely as Trustee
By: /s/ Patricia W. Wynne
_____________________________________
Name: Patricia W. Wynne
Title: Vice President
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EXHIBIT B
TRUST RECEIPT
[DATE]
Manufacturers & Traders
Trust Company, as Trustee
1 M&T Plaza, 7th Floor
Buffalo, New York 14203
Re: Servicing Agreement, dated as of December 31, 1997 (the "Servicing
Agreement"), among AutoBond Master Funding Corporation II, AutoBond
Acceptance Corporation, and Manufacturers & Traders Trust Company
("Trustee")
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
the Trustee as trustee for AutoBond Master Funding Corporation II and its
Noteholders and (ii) agrees to promptly return such items to the Trustee 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:
AUTOBOND ACCEPTANCE CORPORATION
By:
_________________________________
Name:
Title:
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EXHIBIT C
FORM OF MONTHLY STATEMENT
PAYMENT DATE: ________________
DUE PERIOD: __________ - ___________
Under the Servicing Agreement dated as of December 31, 1997 by and among
AutoBond Acceptance Corporation, as Servicer, AutoBond Master Funding
Corporation II, a Nevada corporation, as Issuer, and Manufacturers & Traders
Trust Company, as Trustee, the Servicer is required to prepare certain
information each month regarding the performance of the assets held in trust
during the previous month and payments due on the Issuer's Variable Funding
Notes, Series A. The information which is required to be prepared with respect
to the Payment Date and Due Period listed above is set forth below.
Beginning Principal Balance:
Non-Cash Adjustments:
Loans Paid in Full:
Principal Collections:
Defaulted and other Excluded Loans:
Ending Principal Balance:
Interest Collections:
Miscellaneous Fee Collections:
Interest Due on Variable Funding Notes:
Principal Due on Variable Funding Notes:
Cash contributions to Collection Account:
Dated: __________ AUTOBOND ACCEPTANCE CORPORATION
By:________________________________
Name:
Title:
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the registration
statement on Form S-1 (File No. 333-41257) of our report dated March 26, 1997,
on our audits of the consolidated financial statements and financial statement
schedule of AutoBond Acceptance Corporation and Subsidiaries. We also consent
to the references to our firm under the captions 'Experts' and 'Selected
Financial Data.'
COOPERS & LYBRAND L.L.P.
Austin, Texas
January 13, 1998
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