<PAGE> 1
As filed with the Securities and Exchange Commission on October 21, 1997
Registration No. 333-5144-D
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(Name of small business issuer in its charter)
TEXAS 6153 75-2669147
(State or jurisdiction of (Primary Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
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<S> <C>
1120 N.W. 63rd Amy Waters
Suite G-106 200 South Rogers, Suite 300A
Oklahoma City, Oklahoma 73116 Waxahachie, Texas 75165
(405) 843-3135 (972) 938-9090
(Address, including the zip code & telephone (Name, address, including zip code
number, including area code of and telephone number, including area code
Registrant's principal executive office) of agent for service)
</TABLE>
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Copy to:
Amy Waters
Attorney at Law
200 South Rogers
Suite 300A
Waxahachie, Texas 75165
(972) 938-9090
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of Each Amount Proposed Maximum Proposed Amount of
Class of Securities to be Offering Price Maximum Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
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<S> <C> <C> <C> <C>
11% Asset-Backed $24,000,000 100% $24,000,000 $8,276
Promissory Notes Due
December 31, 2001
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</TABLE>
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 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
Cross-Reference Sheet
showing location in the Prospectus of
information required by items of Form SB-2
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<CAPTION>
Form SB-2 Number and Caption Location in Prospectus
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<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page;
Front Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Outside
Pages of Prospectus Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors;
The Company
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security-Holders *
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings *
10. Directors, Executive Officers, Promoters
and Control Persons The Company; Management
11. Security Ownership of Certain Beneficial Security Ownership of Certain
Owners and Management Beneficial Owners and
Management
12. Description of Securities Description of the Notes
13. Interest of Named Experts and Counsel Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities *
15. Organization Within Last Five Years The Company
16. Description of Business The Company; Purchase and
Collection of Contracts
17. Management's Discussion and Analysis Management's Discussion and
or Plan of Operation Analysis of Financial Condition
18. Description of Property *
19. Certain Relationships and Related
Transactions Management
20. Market for Common Equity and Related Risk Factors; Description
Stockholder Matters of Notes; The Company
21. Executive Compensation Allowed Expenses and Flow of
Contract Proceeds
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure *
</TABLE>
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(*) None or Not Applicable
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$24,000,000 (MAXIMUM) $100,000 (MINIMUM)
U. S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
11% ASSET-BACKED PROMISSORY NOTES
DUE DECEMBER 31, 2001
U. S. Automobile Acceptance SNP-III, Inc., a Texas corporation (the
"Company), which is a newly organized, single purpose subsidiary of U.S.
Automobile Acceptance Corporation ("USAAC," or the "Parent"), a Texas
corporation, is hereby offering up to $24,000,000 in principal amount of its
11% Asset-Backed Promissory Notes (the "Notes") due December 31, 2001. The
Notes bear interest at a stated annual rate of 11%, paid monthly (the
"Interest"). Notes may be purchased in multiples of $1,000, subject to a
minimum purchase requirement of $2,000. The offering commenced on November 14,
1996.
The Notes are backed by (i) retail installment sales contracts secured
by used automobiles and light trucks (the "Contracts") to be purchased by the
Company, and (ii) certain other collateral described herein. The Contracts
will be purchased from automobile dealerships (the "Automobile Dealers")
generally at a discount, using (a) the net proceeds from the sale of the Notes
offered hereby, and (b) until January 1, 2001 (the "Note Redemption Trigger
Date"), the net collection proceeds from previously purchased Contracts. The
Company has contracted with its parent corporation, U.S. Automobile Acceptance
Corporation ("USAAC"), to provide purchasing and collecting services.
The Company's business is the purchase and collection of the Contracts,
and the Company's only significant assets will be the Contracts. The
purchasers of the Notes (the "Noteholders") must look to the Contracts and
related motor vehicle collateral as the primary source of payment on the Notes,
as the Company has no other significant assets. (See "Risk Factors"). In many
instances the Automobile Dealers will provide the Company Contract replacement
guarantees or some other form of dealer recourse, which will provide additional
collateral support for the Notes.
The offering will terminate on June 30, 1998, unless sooner terminated
by the Company for certain reasons. (See "Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING
RISKS OF DEFAULT ON THE CONTRACTS. SEE "RISK FACTORS." DEBT SECURITIES OFFERED
WITH HIGH INTEREST OR YIELD GENERALLY INVOLVE MORE RISK THAN MANY OTHER MEDIUM
TERM DEBT INSTRUMENTS WITH LOWER INTEREST OR YIELD. NO PROVISION HAS BEEN MADE
BY THE COMPANY TO ESTABLISH A SINKING FUND TO PAY THE INTEREST ON THE NOTES OR
TO REPAY THE PRINCIPAL.
THESE ARE SPECULATIVE SECURITIES. NO PUBLIC MARKET IS EXPECTED TO
DEVELOP FOR THESE SECURITIES. INVESTORS SHOULD EXPECT TO RETAIN OWNERSHIP OF
THE NOTES AND BEAR THE ECONOMIC RISKS OF THEIR INVESTMENT FOR THE ENTIRE TERM
OF THE NOTES.
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Price to Broker's Commission Proceeds to
Public and Expenses(1) Company(2)
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<S> <C> <C> <C>
Per Note 100% 7.0% 93.0%
Total Minimum $ 100,000 $ 7,000 $ 93,000
Total Maximum $ 24,000,000 $ 1,680,000 $ 22,320,000
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(1) Payable by the Company to participating licensed broker-dealers.
(2) Before deduction of a 5% fee payable by the Company to Parent as
reimbursement of registration, legal, accounting, printing, trustee,
marketing and other out-of-pocket fees and expenses and allocated
general administrative and overhead expenses relating to the offering
and the organization of the Company borne by Parent and for services
provided by Parent in connection with the offering and organization of
the Company. A portion of such fee (up to 1% of the offering price) may
be paid to participating broker-dealers as a non-accountable expense
allowance, and up to 0.5% of the offering price may be paid for due
diligence expenses. See "Use of Proceeds" for an estimated breakdown of
these expenses.
The Notes are being sold on a "best efforts" basis on behalf of the
Company by Anchor Management Group, Inc., Calton & Associates, Inc., Centennial
Capital Management, Rushmore Securities Corporation, Southern Capital
Securities, Inc., VSR Financial Services, Inc., and other licensed soliciting
broker-dealers that are members of the National Association of Securities
Dealers, Inc., who have been or may hereafter be engaged by the Company.
Investor funds were held in an escrow account at Texas Commerce Bank National
Association until $100,000 in principal amount of the Notes (the "Minimum
Subscription Amount") was sold. The Escrow Termination Date was December 20,
1996. The escrowed funds were released to the Company at that time. Any sales
proceeds from the Notes will be immediately available for use by the Company.
The Company reserves the right to reject any subscription in whole or in part.
___________________________________________________
This Prospectus is dated ____________, 1997
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AVAILABLE INFORMATION
The Company has filed a Registration Statement with the Securities and
Exchange Commission (the "Commission") with respect to the Notes offered
pursuant to this Prospectus. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information included in the
Registration Statement and the exhibits thereto. For further information,
reference is made to the Registration Statement and amendments thereof and to
the exhibits thereto, which are available for inspection without charge at the
office of the Commission at 450 Fifth Street, N .W., Washington, D. C. 20549,
and at the regional offices of the Commission at 1801 California, Suite 4800,
Denver, Colorado 80202, and copies of which may be obtained from the Commission
at prescribed rates. The Company is subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934.
REPORTS TO NOTEHOLDERS
The Company will furnish to the Noteholders annual reports of the
Company containing audited financial statements. The Company will also furnish
to the Noteholders quarterly reports containing unaudited summary financial
statements of the Company and other summary information regarding the
Contracts, including the information required to be included in Form 10-Q. An
IRS Form 1099 will be mailed to each Noteholder by January 31 of each year.
AUTHORIZED REPRESENTATIONS
No person is authorized to give any information on or to make any
representations about the Company, the Notes or any other matter referred to
herein, other than the information and representations contained in this
Prospectus and any supplements or amendments thereto. If any other information
or representation is given or made, such information or representation may not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell, or the solicitation of any offer to buy, the
securities offered hereby in any state in which, or to any person to whom, such
an offer would be unlawful.
MINIMUM SUITABILITY STANDARDS
THIS OFFERING IS OPEN ONLY TO INVESTORS WHICH MEET THE COMPANY'S MINIMUM
UNIFORM SUITABILITY STANDARD OR THE APPLICABLE STATE SUITABILITY STANDARD,
WHICHEVER IS MORE STRINGENT. IN ORDER TO MEET THE COMPANY'S MINIMUM UNIFORM
SUITABILITY STANDARD, A POTENTIAL INVESTOR MUST (I) HAVE A GROSS ANNUAL INCOME
OF AT LEAST $25,000 AND A NET WORTH (EXCLUSIVE OF PERSONAL RESIDENCE,
FURNISHINGS AND AUTOMOBILES) OF AT LEAST $25,000, OR (II) HAVE A NET WORTH
(EXCLUSIVE OF PERSONAL RESIDENCE, FURNISHINGS AND AUTOMOBILES) OF AT LEAST
$40,000, WITHOUT REFERENCE TO INCOME. IN ADDITION, THE INVESTOR'S INVESTMENT
MAY NOT EXCEED TEN PERCENT (10%) OF THE INVESTOR'S NET WORTH (EXCLUSIVE OF
PERSONAL RESIDENCE, FURNISHINGS AND AUTOMOBILES). EACH INVESTOR (OR HIS OR HER
REGISTERED REPRESENTATIVE) WILL BE REQUIRED TO REPRESENT, IN WRITING, THAT THE
INVESTOR SATISFIES THE APPLICABLE STANDARDS.
ARKANSAS INVESTORS: ALL ARKANSAS INVESTORS MUST MEET THE FOLLOWING
MINIMUM SUITABILITY STANDARDS: (I) $45,000 NET WORTH (EXCLUSIVE OF HOME, HOME
FURNISHINGS, AND PERSONAL AUTOMOBILES) AND $45,000 GROSS ANNUAL INCOME, OR (II)
$150,000 NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS, AND PERSONAL
AUTOMOBILES).
CALIFORNIA INVESTORS: ALL CALIFORNIA INVESTORS MUST MEET THE FOLLOWING
MINIMUM SUITABILITY STANDARDS: (I) $60,000 LIQUID NET WORTH AND $60,000 GROSS
ANNUAL INCOME, OR (II) $225,000 LIQUID NET WORTH. ANY SALE OR TRANSFER OF THE
NOTES WILL BE RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF CALIFORNIA LAW.
IOWA INVESTORS: ALL IOWA INVESTORS MUST MEET THE FOLLOWING MINIMUM
SUITABILITY STANDARDS: (I) $40,000 NET WORTH (EXCLUSIVE OF HOME, HOME
FURNISHINGS, AND PERSONAL AUTOMOBILES) AND $40,000 GROSS ANNUAL INCOME, OR (II)
$125,000 NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS, AND PERSONAL
AUTOMOBILES).
NEBRASKA INVESTORS: NEBRASKA INVESTORS MUST (I) HAVE A GROSS ANNUAL
INCOME OF AT LEAST $45,000 AND A NET WORTH (EXCLUSIVE OF PERSONAL RESIDENCE,
FURNISHINGS AND AUTOMOBILES) OF AT LEAST $45,000, OR (II) HAVE A NET WORTH
(EXCLUSIVE OF PERSONAL RESIDENCE, FURNISHINGS AND AUTOMOBILES) OF AT LEAST
$150,000, WITHOUT REFERENCE TO INCOME. IN ADDITION, THE INVESTOR'S INVESTMENT
MAY NOT EXCEED TEN PERCENT (10%) OF THE INVESTOR'S NET WORTH (EXCLUSIVE OF
PERSONAL RESIDENCE, FURNISHINGS AND AUTOMOBILES).
TEXAS INVESTORS: TEXAS INVESTORS MUST (I) HAVE A GROSS ANNUAL INCOME OF
AT LEAST $45,000 AND A NET WORTH (EXCLUSIVE OF PERSONAL RESIDENCE, FURNISHINGS
AND AUTOMOBILES) OF AT LEAST $45,000, OR (II) HAVE A NET WORTH (EXCLUSIVE OF
PERSONAL RESIDENCE, FURNISHINGS AND AUTOMOBILES) OF AT LEAST $150,000, WITHOUT
REFERENCE TO INCOME. IN ADDITION, THE INVESTOR'S INVESTMENT MAY NOT EXCEED TEN
PERCENT (10%) OF THE INVESTOR'S NET WORTH (EXCLUSIVE OF PERSONAL RESIDENCE,
FURNISHINGS AND AUTOMOBILES).
2
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.
OVERVIEW This Asset-Backed Promissory Note offering is similar in
terms and structure to two prior note offerings by
affiliates of the Company. The first of such offerings
was completed on December 15, 1994 by U.S. Automobile
Acceptance SNP-I, Inc., a Delaware corporation ("SNP-I",
formerly U.S. Automobile Acceptance Corporation), a single
purpose corporation which is an affiliate of the Company,
with activities and operations similar to the proposed
future activities of the Company. The previous offering
of SNP-I had aggregate note subscriptions totalling
approximately $2,400,000. SNP-I commenced operations in
September 1994.
The second of such offerings was completed on August 15,
1996 by U.S. Automobile Acceptance 1995-I, Inc., a Texas
corporation ("USAA 1995-I"), with aggregate note
subscriptions totalling $9,900,000. USAA 1995-I commenced
operations in October 1995. In addition, management of
the Company may form one to two other entities to do
similar asset-backed note offerings of approximately the
size of this offering in the future. Although the timing
of such future offerings is difficult to predict and
depends on the outcome of the current offering, it is
anticipated that such offerings will occur in the next few
years. See "Management - Prior Activities of Similar
Business Under Common Control."
The Company commenced operations in February 1997. Using
the net proceeds of this offering, the Company will
purchase from automobile dealerships (the "Automobile
Dealers") retail installment sales contracts secured by
used automobiles and light trucks (the "Contracts"). The
Contracts will generally be purchased at discounts ranging
from 5% to 25% below the total future net principal
balance owed on such Contracts. The purchase discount
will vary depending on the credit worthiness of the
borrower and on the availability and financial strength
added by additional recourse or credit support agreements
provided by the Automobile Dealer. These dealer credit
support agreements will be in the form of Contract
replacement guarantees, direct dealer recourse, limited
guaranty agreements or some other form of cash hold-back
arrangement. The Company generally prefers to use
Contract replacement guarantees, whereby the Automobile
Dealer provides the Company a replacement contract of
similar terms if the retail installment sales contract
becomes delinquent.
The Company has contracted with U.S. Automobile Acceptance
Corporation (formerly Settlers Acceptance Corporation, the
parent of the Company ("USAAC"), to provide ongoing
servicing of the Contracts purchased, including
accounting, administration and collections of payments due
under the Contracts. In addition, USAAC will oversee
Automobile Dealer compliance and review, oversee
enforcement and administration of dealer recourse and/or
Contract replacement agreements, and whenever necessary
oversee the repossession and sale of vehicles securing any
Contract in default.
The Company and USAAC will subcontract servicing,
collection and repossession functions to qualified
Automobile Dealers. The Automobile Dealers that will
provide subcontract servicing have substantial prior
experience providing servicing, collection and
repossession functions for their own account and/or on
behalf of other automobile finance companies. The Company
believes that using experienced dealers for Contract
servicing is the best method to assure collection and
efficient administration of the Contracts. Automobile
Dealers can best minimize the Company's losses and their
own losses under dealer Contract replacement and other
recourse agreements by utilization of good pre-sale
screening, efficient and prompt follow-up of payments and
through quick and efficient repossession and resale of
repossessed vehicles. Compensation to Automobile Dealers
for providing Contract servicing, if any, will be paid by
USAAC out of its Contract Servicing Fees. See "Purchase
and Collection of Contracts."
3
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All proceeds from the collection of the Contracts are
deposited in a master collections bank accounts (the
"Master Collections Accounts"). Collections on the
Contracts are used to pay Interest on the Notes and
"Allowed Expenses," which generally include Contract
acquisition fees, Contract servicing and administration,
trustee fees, bank charges, legal and accounting fees,
taxes, repossession costs, repair and liquidation
expenses, insurance premiums and vehicle warranty service
contract charges, cost of enforcement of dealer recourse
agreements, salaries and other general and administrative
expenses. Until the Note Redemption Trigger Date (January
1, 2001), the Company will use cash proceeds available
from Contract collections, less Allowed Expenses, to
purchase additional Contracts, generally at a discount.
After the Note Redemption Trigger Date, the Company is
required to deposit the net collection proceeds in an
interest-bearing Note Redemption Account for payment on
the Notes. See "Security for the Notes - The Contract
Proceeds, Master Cash Accounts" and "Allowed Expenses and
Flow of Contract Proceeds."
The Company provides information monthly to the
independent Trustee so that it can monitor the
disbursement of the Company's funds under the terms of a
trust indenture agreement. See Exhibit B to the
Prospectus.
The Notes provide for monthly payments of Interest at an
annual rate of 11% and payments of outstanding principal
beginning after January 1, 2001 (or earlier under some
circumstances). All unpaid principal and accrued Interest
are payable at maturity on December 31, 2001. These
payments will be made by the Company from collections on
its Contracts. Investors in this offering will receive an
IRS Form 1099 following the end of each calendar year.
See "Description of the Notes - Payments of Principal and
Interest."
NOTES 11% Asset-Backed Promissory Notes due December 31, 2001
(the "Notes") issued to each Noteholder.
INDENTURE OF TRUST An Indenture of Trust was entered into between the Company
and the Trustee, for the benefit of Noteholders on
November 14, 1996. The Trustee accepted title to the
Security Agreement on behalf of Noteholders. The duties
of the Trustee are to hold the Security Agreement, to
perform certain obligations in the event of a default in
the payment of the principal and Interest on the Notes,
and to execute and deliver to the Company partial or full
satisfaction of the Security Agreement upon partial or
full repayment of the Notes. The form of Indenture of
Trust is Exhibit B to the Prospectus. See "Indenture
Provisions" for a summary of the Indenture of Trust
agreement.
THE TRUSTEE Texas Commerce Bank National Association, Dallas, Texas,
is the Trustee under the Indenture for the Notes. The
Company is obligated to pay the fees and expenses of the
Trustee relating to the Notes. To secure the Company's
payment of such fees and expenses, the Trustee has a lien
prior to the Notes on the Trust Estate. The Trustee also
acted as "escrow agent" to hold subscription proceeds
until the Minimum Subscription Amount of $100,000 in Notes
was sold.
THE COMPANY U.S. Automobile Acceptance SNP-III, Inc. (the "Company"),
a newly organized Texas corporation and subsidiary of U.S.
Automobile Acceptance Corporation ("USAAC"), formerly
Settlers Acceptance Corporation, a Texas corporation. The
Company has been formed for the purpose of purchasing,
collecting and servicing motor vehicle retail installment
contracts (the "Contracts"). It does not have, and does
not expect to have in the future, any significant assets
other than the Contracts and proceeds thereof that back
the Notes. The Notes are backed by the Contracts and the
related motor vehicle collateral, and in many instances by
additional collateral support agreements from Automobiles
Dealers.
The Company was incorporated under the laws of the State
of Texas in June 1996. The Company's principal executive
offices are located at 1120 N.W. 63rd, Suite G-106,
Oklahoma City, Oklahoma 73116 and its telephone number is
(405) 843-3135. See "The Company."
4
<PAGE> 7
OFFERING AMOUNT Up to a maximum amount of $24,000,000 in principal amount
of the Notes. Investor funds were held in escrow until
subscriptions for a minimum amount of $100,000 in
principal amount of the Notes (the "Minimum Subscription
Amount") were received, on December 20, 1996. See "Plan
of Distribution" hereafter in this Summary for additional
information concerning the escrow.
INTEREST PAYMENTS 11% per annum on the outstanding principal balance
TO NOTEHOLDERS of each Note ("Interest"), payable on the fifteenth
(15th) day of each month beginning with the first
full calendar month following the issuance of such
Note and upon maturity (the "Payment Dates"). The
record date for each payment of Interest on the
Notes is the close of business on the first day of
the month of the Payment Date for that payment.
The first such interest payments were made on
December 15, 1996. See "Description of the Notes -
Payments of Principal and Interest."
EFFECTIVE YIELD Although the stated interest rate on the Notes is
11% per annum, the effective interest rate will be
somewhat lower because each payment of Interest
will be paid 15 days after the month over which it
accrued.
PRINCIPAL PAYMENTS No principal payments will be required to be made
TO NOTEHOLDERS on the Notes until after the Note Redemption
Trigger Date (January 1, 2001), except that in the
event the Company has been unable to invest the net
proceeds from the sale of the Notes in suitable
Contracts for a period of one hundred eighty (180)
days following the termination date of the
offering, the uninvested net proceeds at such date
will be utilized for a mandatory partial redemption
of the Notes within forty-five (45) days following
such date. Commencing on January 1, 2001, all net
collection proceeds from the Contracts, following
deduction of Allowed Expenses, will be required to
be deposited into the Note Redemption Account for
payment of the Notes, with no schedule of minimum
payments into the Note Redemption Account. See
"Description of the Notes - Payments of Principal
and Interest."
MATURITY December 31, 2001.
SECURITY FOR THE THE CONTRACTS. The Notes will be backed by
NOTES specified motor vehicle retail installment sales
contracts (the "Contracts") and the proceeds
thereof. These Contracts will be secured by liens
on used automobiles and light trucks (the "Financed
Vehicles") and will be purchased by the Company from
automobile dealerships (the "Automobile Dealers") at
a discount, using (i) the net proceeds from the sale
of Notes, and (ii) until the Note Redemption Trigger
Date, any remaining net collection proceeds from
previously purchased Contracts after deduction for
payments of Interest and Allowed Expenses. In
addition, the Automobile Dealers will generally
provide Contract replacement guarantees or some
other form of dealer recourse agreements, which will
provide additional collateral support for the
Notes. The Company presently intends to utilize
employees, independent commission agents and USAAC
to assist in locating eligible Contracts. Such
independent agent or agents will be selected on the
basis of their experience and reputation, the
quality of the Contracts offered to the Company,
and on the reputation and financial strength of the
dealers originating such Contracts. Commissions or
Contract note purchase fees will be negotiated,
with a normal fee being approximately 2% of the
outstanding principal balance of the Contracts
acquired. The Contracts will be originated by
independent Automobile Dealers not affiliated with
the Company or USAAC. See "Security for the
Notes."
THE NOTE REDEMPTION FUND. The Note Redemption
Trigger Date will be January 1, 2001. After the
Note Redemption Trigger Date, all collection
proceeds from the Contracts, following deduction of
Allowed Expenses, will be transferred to a separate
account (the "Note Redemption Account") for payment
of the Notes. No schedule of minimum payments into
the Note Redemption Account will exist. See
"Security for the Notes - The Note Redemption
Account."
THE CONTRACT PROCEEDS. The proceeds from the
Contracts also will constitute security for the
Notes under the Indenture. All proceeds from the
Contracts will be deposited to master
5
<PAGE> 8
collection accounts maintained by the Company (the "Master
Collections Accounts"). The amounts in the Master
Collections Accounts attributable to the Contracts will be
directly transferred to an operating account maintained by
the Company (the "Master Operating Account"). The Company
will have the right to cause that portion of the funds
contained in the Master Operating Account which is
attributable to the Contracts to be withdrawn or applied
for the following purposes: (1) to the Note Redemption
Fund for the payment of any Interest due on the
outstanding Notes on each Payment Date, (2) to any amounts
due the Trustee for its fees and expenses; (3) to the
payment of any other Allowed Expenses of the Company; (4)
after the Note Redemption Trigger Date, to the deposit
into the Note Redemption Account for payment of the Notes;
and, (5) prior to the Note Redemption Trigger Date, to the
purchase of additional eligible Contracts. The Trustee
will be provided regular reports by which the use of such
funds may be monitored. See "Security for the Notes - The
Contract Proceeds, Master Cash Accounts."
THE SERVICING AGREEMENT. The Company has granted a
security interest to the Trustee in all of its rights
under the Servicing Agreement. See "Security for the
Notes - The Servicing Agreement."
PURCHASE OF The Company will purchase Contracts using (i) the net
THE CONTRACTS proceeds from the sale of Notes, and (ii) until the Note
Redemption Trigger Date, any remaining net collection
proceeds from previously purchased Contracts, after
deduction for payments of Interest and Allowed Expenses.
The Company commenced purchasing Contracts in February
1997. In connection with such purchases, the Contracts
will satisfy certain purchasing criteria. Obligors under
the Contracts are anticipated to be somewhat less credit-
worthy than typical purchasers of automobiles from new car
dealers. However, the Company will endeavor to purchase
Contracts (i) at prices representing substantial discounts
on their unpaid net principal balances and for less than
the wholesale values of the related Financed Vehicles,
(ii) having maturities that are less than the remaining
useful lives of the Financed Vehicles, (iii) under which
substantial down payments have been paid by the Obligors,
and (iv) generally guaranteed by the Automobile Dealers by
utilizing Contract replacement guarantees or some other
form of dealer recourse. Management of the Company
believes that an adequate supply of eligible Contracts
will be available for purchase, based on its experience in
the industry; however, there can be no assurances that
Contracts will continue to be available. See "Purchase
and Collection of Contracts."
REDEMPTION OF The Company may, at any time, elect to redeem the Notes in
NOTES whole or in part. A partial redemption from time to time
would reduce the average life of the Notes, and thereby
reduce the overall return, but not the annual rate of
return, to the Noteholders. In the event that prior to
one hundred eighty (180) days following the termination
date of the offering the Company has been unable to invest
the net proceeds from the sale of the Notes in suitable
Contracts, the uninvested net proceeds at such date will
be utilized for a mandatory partial redemption of the
Notes within forty-five (45) days following such date. In
addition, Notes may be redeemed in the event the Company
is unable to purchase suitable Contracts throughout the
term of the Notes.
SERVICING The Servicer is U.S. Automobile Acceptance Corporation
("USAAC"), the parent of the Company, whose principal
offices are located at 1120 N.W. 63rd, Suite G-106,
Oklahoma City, Oklahoma 73116. USAAC is to provide
services for the administration and collecting of the
Contracts on behalf of the Company. USAAC has limited
operating history, and its management has limited
experience in the servicing and collection of consumer
contracts and notes, including those secured by
automobiles. USAAC intends to subcontract with third
parties to provide certain of these services and to
subcontract collecting services to selected Dealers.
USAAC will be paid $21.50 per month per Contract for
servicing and collecting the Contracts. See Exhibit E to
the Prospectus.
TAX STATUS The Notes will be taxable obligations under the Internal
Revenue Code of 1986, as amended, and Interest paid or
accrued will be taxable to non-exempt holders of the
Notes. See "Certain Federal Income Tax Considerations."
6
<PAGE> 9
USE OF PROCEEDS The Company intends to use 88% of the net proceeds from
the sale of the Notes for the purchase of Contracts and
12% of such proceeds to pay commissions, fees and expenses
as stated in this Prospectus. See "Use of Proceeds."
DENOMINATIONS The Notes will be issued in fully registered form in
denominations of $1,000 and integral multiples thereof.
NO RATING The Company has not sought, and is not required by the
Indenture or any other document, to obtain a rating of the
Notes by a rating agency.
RISK FACTORS An investment in the Notes entails certain risks,
including the risk of default on the Contracts. See "Risk
Factors."
PLAN OF The Notes will be offered and sold on a "best efforts"
DISTRIBUTION basis on behalf of the Company by Anchor Management Group,
Inc., Calton & Associates, Inc., Centennial Capital
Management, Rushmore Securities Corporation, Southern
Capital Securities, Inc., VSR Financial Services, Inc.,
and other licensed soliciting broker-dealers that are
members of the National Association of Securities Dealers,
Inc., and are qualified to offer and sell the Notes in a
particular state, who have been or may hereafter be
engaged by the Company. Investor funds were held in a
subscription escrow account until the minimum of $100,000
in principal amount of the Notes (the "Minimum
Subscription Amount") was sold. The Escrow Termination
Date was December 20, 1996. The escrowed funds were
released to the Company at that time. See "Plan of
Distribution."
RISK FACTORS
An investment in the Notes entails certain risks. In considering a
purchase of these securities, prospective investors should carefully consider
the risks involved, including the following:
RISKS UPON MINIMUM OFFERING
In the event only the Minimum Subscription Amount is raised, the Company
may be unable to pay certain of its operating expenses. Although the Company's
Parent, U.S. Automobile Acceptance Corporation, has represented that it will
pay such expenses or furnish required services to the Company without
compensation, the parent may have limited incentive to do so. In the event
these expenses are not paid by the Company or the Parent, or the Parent does
not furnish the required services, the Noteholders could be adversely affected.
LIMITED ASSETS AND OPERATING HISTORY
The Company has no prior operating history and does not have, and is not
expected to have, any significant assets other than the Contracts and the
proceeds thereof that back the Notes. While the Notes remain outstanding, the
Company will not engage in any business other than the purchase, collection and
servicing of the Contracts (including repossession and resale of the vehicle
collateral). USAAC, with whom the Company has contracted for the purchasing
and servicing of the Contracts on the Company's behalf, began operations in
1995 and has limited operating history.
PURCHASING AND AVAILABILITY OF CONTRACTS; REDEMPTION OF NOTES
The success of the Company, in large part, depends on its ability to
keep its assets continuously invested in Contracts. While the Company believes
that an adequate supply of eligible Contracts will be available for purchase,
there can be no assurances that the Company will be able to keep its assets so
invested, which may result in lower rates of return.
The Company includes in its review of prospective Automobile Dealers the
delinquency and repossession rates, and losses which they have experienced.
Moreover, the Company must be satisfied with Contracts prior to purchasing
them; there is no assurance, however, that an Automobile Dealer's historical
rates of delinquency, repossession and
7
<PAGE> 10
losses will reflect future transactions or that the Automobile Dealers will be
able to honor Contract replacement guarantees or other dealer recourse
requirements.
In the event that the Company has been unable to invest the total net
proceeds from the sale of the Notes in suitable Contracts prior to one hundred
eighty (180) days following the termination date of the offering, the
uninvested net proceeds at such date will be utilized for a mandatory partial
redemption of the Notes within forty-five (45) days following such date. In
addition, Notes may be redeemed in the event the Company is unable to purchase
suitable Contracts throughout the term of the Notes. In such a case, Notes
will be redeemed on a random basis, by lot.
NO SINKING FUND
No provision has been made by the Company to establish a sinking fund,
that is, a segregated fund with annually scheduled payments, in order to pay
the Interest or principal on the Notes. There can be no assurance that
sufficient funds will be available to make the Interest payments when due or to
repay the principal amount of the Notes at maturity.
SUFFICIENCY OF NOTE REDEMPTION FUND
Beginning on the Note Redemption Trigger Date, which is January 1, 2001,
the Company is required to transfer all net collection proceeds from the
Contracts, after deduction of Allowed Expenses, to the Note Redemption Account.
Such proceeds will be used to pay the Interest and principal of the Notes at
Maturity on December 31, 2001, or upon earlier redemption in whole or in part.
The risk exists that if the Company has made insufficient collections
and/or has purchased insufficient Contracts, it may be unable to pay Interest
payments in full when due, and it would be unable to repay the principal of the
Notes in full. In such an event, the Company would be in default under the
Indenture, and the Trustee may exercise any of its available remedies, which
include the rights to continue to collect on the Contracts until the Notes are
paid, to foreclose on the Contracts or to seek a judgment against the Company.
CONFLICTS OF INTEREST
USAAC, which owns all of the outstanding common stock of the Company
(the "Common Stock"), also owns all the outstanding common stock of U.S.
Automobile Acceptance 1995-I, Inc. ("USAA 1995-I"), a limited purpose
corporation engaged in the same business as the Company which began operation
in October 1995. In addition, the sole director of the Company and USAA 1995-I
is an officer, director and sole shareholder of a similar limited purpose
corporation, U.S. Automobile Acceptance SNP-I, Inc. ("SNP-I") which began
operation in September 1994. Consequently, there will be conflicts of interest
with respect to allocation of management time, services, overhead expenses and
functions. There can be no assurance that any particular conflict may not be
resolved in a manner that adversely affects Noteholders. Management will have
conflicts of interest with respect to the choice of Contracts purchased by the
Company or by parties other than the Company. In addition, management of the
Company may form one to two other entities to do similar asset-backed note
offerings of approximately the size of this offering in the future. Although
the timing of such future offerings is difficult to predict and depends on the
outcome of the current offering, it is anticipated that such offerings will
occur in the next few years. Accordingly, there will be additional conflicts
of interest in the future. Although management of the Company, SNP-I, and USAA
1995-I have established a policy for apportioning business opportunities among
affiliates on a pro rata basis, the risk exists that an entity other than the
Company will receive more favorable treatment with respect to business
opportunities, including the purchase of Contracts. If an insufficient supply
of eligible Contracts is available for purchase, there can be no assurances
that the Company will be able to keep its assets so invested, which may result
in lower rates of return to the investors, and/or early redemption of the
Notes. See "Purchase and Collection of Contracts - Allocation of Available
Contracts."
The Company has contracted with USAAC, its parent, to act as Servicer of
the Contracts to be purchased. The Company did not seek competitive bids
before contracting with USAAC, and amounts to be paid to USAAC have not been
determined by arms-length negotiation. There can be no assurance that any of
these conflicts will be resolved in a manner that will not adversely affect
Noteholders. The sole director of the Company and USAAC may face legal
consequences based on his conflicting duties of loyalty, which may adversely
affect the Company and his ability to serve the Company and USAAC.
8
<PAGE> 11
COMPETITION
The Company has numerous competitors engaged in the business of buying
new and used motor vehicle retail installment contracts at a discount,
including affiliates of the Company. More and more companies have recently
become involved in businesses similar to that of the Company, which could lead
to a possible decline in the future availability and quality of automobile
contracts. In addition, the Company competes to some extent with providers of
alternative financing services, such as floor plan lines of credit from
financial institutions, lease financing and dealer self-financing. National or
regional rental car companies, auction houses, dealer groups or other firms
with greater financial resources than the Company could elect to compete with
the Company in its market. These competitive factors could have a material
adverse effect upon the operations of the Company.
RELIANCE ON MANAGEMENT
The Company's day-to-day affairs, including but not limited to
evaluating the Contracts, determining which Contracts are to be purchased,
effecting Contract purchases, and overseeing the servicing of the Contracts,
will be administered entirely through, and decisions with respect thereto will
be made exclusively by, management of the Company and USAAC. The sole officer
and director of both the Company and USAAC is Michael R. Marshall. The success
of the Company, therefore, will depend on the quality of the services provided
by Mr. Marshall and persons under the control of Mr. Marshall. Accordingly, no
person should purchase any of the Notes offered hereby unless he is willing to
entrust all aspects of the management and control of the business of the
Company to Mr. Marshall. See "Management."
RELIANCE ON PARENT
U.S. Automobile Corporation, the Company's parent (the "Parent"), has
executed a guaranty agreement in favor of the Trustee, pursuant to which the
Parent guarantees payment of up to $150,000 of the principal of the Notes when
due. The financial statements of the Parent, which are included in the
Prospectus, reflect that the Parent's liabilities currently exceed its assets,
and that the Parent has a deficit in stockholders' equity. Although the parent
cannot claim a right of offset against the guaranty agreement for amounts owed
to the Parent by the Company, other creditors of the Company may be able to
claim an interest in the funds represented by the guarantee. In the event the
Parent is unable to meet its obligations under the guaranty agreement, there
may be insufficient funds to repay the principal amount of the Notes upon
maturity. In addition, the guarantee of the Parent goes only to the principal
of the Note; the investors, therefore, may lose their interest on the Notes
even if the Parent meets its obligations under the guaranty agreement.
LIMITED RESPONSIBILITIES OF TRUSTEE
The duties and responsibilities of the Trustee for the Notes under the
Indenture and the other security documents are limited to serving as (i) paying
agent/registrar for the Notes, and (ii) collateral agent following the
occurrence of an Event of Default. In connection with discharging such duties
and responsibilities, prior to the occurrence of an Event of Default, the
Trustee does not maintain possession of or control over any of the funds used
to pay the principal or interest on the Notes or any of the Collateral securing
payment of the Notes. Until the occurrence of an Event of Default, all such
funds and all of the Collateral remain in the possession of and under the
control of the Company and/or one of its affiliates. Upon the occurrence of an
Event of Default, the Company has agreed to cause the Collateral to be
delivered to the Trustee.
COLLECTIONS AND REPOSSESSIONS; PERFORMANCE OF CONTRACTS
The Contracts represent the financing of the sale of used motor
vehicles. The delinquency and repossession rates for this class of retail
installment sales contracts are expected to be higher than for contracts
resulting from the sale of new vehicles.
Based upon management's previous experience and preliminary negotiations
for the purchase of Contracts, the Company believes that Contracts bearing
interest at close to legal rate ceilings in a number of states where Contracts
will be acquired will be available at significant discounts during the life of
the Notes. Accordingly, the Company expects to meet its obligations on the
Notes by purchasing Contracts at a range of 75% - 95% of the remaining
principal balance of the Contracts, bearing interest at rates higher than the
Notes. The collection proceeds of such Contracts will
9
<PAGE> 12
be the source for prepayment of the Notes, as the total future installments
required to be paid under such Contracts would be substantially greater than
the payments on the Notes.
The Company believes that the aggregate dollar amount of the Contracts
securing the Notes will increase until the Note Redemption Trigger Date. As a
result of the reinvestment by the Company of the net collection proceeds from
existing Contracts, after deduction for Interest and Allowed Expenses, and the
purchase of additional Contracts, the Company believes that the ratio of the
aggregate principal of the outstanding Notes to the total unpaid installments
of the Contracts securing the Notes will continue to increase until the Note
Redemption Trigger Date.
As a consequence of the foregoing, the Company believes that prior to
maturity the Notes will be backed by Contracts whose aggregate value
substantially exceeds the principal amount of the Notes and that the net
collection proceeds from the Contracts, after deduction of Allowed Expenses,
will be sufficient to make the required payments on the Notes. Nevertheless,
the actual collection rates for the Company's Contracts are impossible to
predict precisely. Substantial adverse changes in collectability rates caused
by changes in economic conditions or other factors could adversely affect the
Company's ability to collect on the Contracts. If the Contracts do not
collectively perform as expected by the Company, the Company's ability to make
the required payments on the Notes could also be adversely affected. If
Contract Obligors fail in sufficient quantities to make payments on their
respective Contracts and the Company is unable to sufficiently enforce dealer
Contract replacement obligations or other dealer recourse agreements or resell
Financed Vehicles for enough to cover the outstanding balances on such
Contracts, the Company might become unable to pay the Notes in full.
In the event the Automobile Dealer has not replaced a defaulted Contract
or is unable to honor other dealer recourse agreements, USAAC is required to
commence repossession of a Financed Vehicle if the Obligor is four payments
past due or has failed to remit any payment for 60 days, in the case of
biweekly or semimonthly Contracts, or is two payments past due or has failed to
remit any payment for 75 days, in the case of monthly Contracts. Such policy
is based upon the Company's belief that collection of proceeds on the Contracts
will be maximized by permitting some latitude to work with Obligors who may be
in technical default for nonpayment of an installment but who are making
payments. The Company does not believe that the resulting delays in
repossession of Financed Vehicles will adversely impact the Company's ability
to pay the Notes.
LACK OF MARKET FOR NOTES
No public market presently exits for the Notes. Although certain
broker-dealers may determine to make a market in the Notes, there can be no
assurance that a secondary market will develop, or that if one develops it will
continue for the life of the Notes. Noteholders have no right to require
redemption of the Notes and may not be able to liquidate their investment in
the Notes in the event of an emergency or for any other reason, and the Notes
may not be readily accepted as collateral for loans. Accordingly, investors
should anticipate holding the Notes until maturity. The Notes should be
purchased only by persons who have no need for liquidity in their investment.
DELAYS IN CONTRACT PURCHASES
To maximize its investment yields, the Company expects to purchase
Contracts using the net proceeds from the sale of Notes without significant
delay after the receipt of such proceeds. If unforeseen delays occur, the
Company's overall profitability and ability to repay the Notes could be
adversely affected because the yields of the short-term investment alternatives
for such funds, i.e., rates in the interim, are expected to be much less than
the yields anticipated to be received by the Company from the Contracts.
FLOW OF CONTRACT PROCEEDS
The Automobile Dealers will collect payments by the Obligors under the
Contracts and deposit them into the Master Collections Accounts. Although the
Company has strict standards for selecting the Automobile Dealers, the risk
exists that a Dealer will withhold funds or fail to make timely deposits. Such
practices by Automobile Dealers would have an adverse effect on the business of
the Company and could affect its ability to pay principal and/or Interest to
Noteholders when due.
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<PAGE> 13
LACK OF DAMAGE INSURANCE
The owners of the Financed Vehicles may fail to maintain physical damage
insurance. As a consequence, in the event any theft or physical damage to a
Financed Vehicle occurs and no such insurance exists, the Company may suffer a
loss unless the owner is otherwise able to pay for repairs or replacement or
its obligations under the related Contract. If the Company incurs significant
losses from uninsured Financed Vehicles, its ability to pay the Notes may be
adversely affected.
SALE OF SMALL AMOUNT OF NOTES
The offering may be consummated by the Company with the sale of as
little as $100,000 in principal amount of the Notes. In the event the Company
sells only a small portion of the Notes, the performance of individual
Contracts in the pool securing the Notes will have a greater effect on the
ability of the Company to pay the Notes than if a large portion of the offered
Notes are sold. In addition, although most of the Allowed Expenses of the
Company will generally vary with the amount of Contracts, relatively small
amounts of fixed fees and expenses payable to the Trustee and for on-going
banking, accounting and legal services may not vary in proportion with the
amount of the Contracts and may be relatively higher if only a small portion of
the Notes are sold than if a large portion of the Notes are sold. If the fixed
Allowed Expenses are higher than expected, the Company's ability to repay a
small amount of Notes may be adversely affected.
CERTAIN LEGAL MATTERS RELATING TO THE CONTRACTS
PRIORITY LIENS IN FINANCED VEHICLES. Statutory liens for repairs or
unpaid taxes may have priority even over a perfected security interest in the
Financed Vehicles, and certain state and federal laws permit the confiscation
of motor vehicles used in unlawful activity which may result in the loss of a
secured party's perfected security interest in a confiscated motor vehicle.
Liens for repairs or taxes, or the confiscation of a Financed Vehicle, could
arise or occur at any time during the term of a Contract. No notice may
necessarily be given to the Company or USAAC in the event such a lien arises or
confiscation occurs.
BANKRUPTCIES AND DEFICIENCY JUDGMENTS. Certain statutory provisions,
including federal and state bankruptcy and insolvency laws, may limit or delay
the ability of USAAC or the Company to repossess and resell Financed Vehicles
or enforce a deficiency judgment. In addition, the Company may determine in
its discretion that a deficiency judgment is not an appropriate or economically
viable remedy, or may settle at a significant discount any deficiency judgment
that it does obtain. In the event that deficiency judgments are not obtained,
are not satisfied, are satisfied at a discount or are discharged in whole or in
part in bankruptcy proceedings, the loss will reduce the collateral securing
the Notes, and if other collateral or dealer recourse agreements are
insufficient may adversely affect the ability of the Company to repay the
Notes.
In the event that either USAAC or an Automobile Dealer were declared
bankrupt, there may be delays in the collection of the Contracts; however, such
an event should not affect the nature or extent of the collateral securing the
Notes. In the event of a bankruptcy by the Company, the Trustee is empowered
to file such proofs of claim and other papers or documents to have the claims
of the Trustee and the Noteholders allowed in any judicial proceedings relative
to the Company, its creditors or its property. In the event of a bankruptcy by
an Automobile Dealer, the servicing of Contracts purchased from that Automobile
Dealer would be assumed by USAAC and/or subcontracted to another satisfactory
Automobile Dealer or to a secondary Servicer. While the Company believes that
the best servicer of Contracts will be the Automobile Dealer selling such
Contracts, the Company does believe that satisfactory servicing and collection
of Contracts can be accomplished by subcontracting to another Automobile Dealer
or secondary servicer. In the event an Automobile Dealer has collected
payments on Contracts it is servicing and fails to deposit them in the Master
Collections Accounts, notwithstanding its obligation to do so, the Company may
have difficulty recovering such funds in the event of such Automobile Dealer's
bankruptcy. It is the intention of the Company, however, to take such actions
as may be necessary to minimize the effect on the collateral securing the Notes
in the event of an Automobile Dealer's bankruptcy.
CONSUMER PROTECTION LAWS. Numerous federal and state consumer
protection laws impose requirements upon the origination and collection of
retail installment contracts. State laws impose finance charge ceilings and
other restrictions on consumer transactions and may require certain contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their
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<PAGE> 14
provisions. A risk exists that this liability could affect the ability of the
Company, as an assignee of the Contracts, to enforce the Contracts. In
addition, certain of these laws make an assignee of such contract liable to the
Obligor thereon for any violation by the assignor. Accordingly, the Company,
as holder of the Contracts, may be subject to liability to an Obligor under one
or more of the Contracts.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1997.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C>
Common Stock, $1.00 par value, $ 1,000
authorized 3,000 shares, issued
and outstanding 1,000 shares
Paid-in Capital $ 49,000
Retained Earnings (Deficit) $ (246,230)
---------
TOTAL SHAREHOLDERS' EQUITY $ (296,230)
</TABLE>
USE OF PROCEEDS
The Company intends to apply 88% of the proceeds from the sale of any
Notes to the purchase of Contracts. The Company will pay to licensed broker-
dealers engaged by the Company a commission of 7%. The Company will also pay
to the Parent a fee of 5% of the gross proceeds from the sale of Notes, as
reimbursement for paying the registration, legal, accounting, printing,
marketing, trustee and other out-of-pocket fees and expenses, for bearing the
general administrative and overhead expenses associated with the offering and
the organization of the Company, and for the services provided by the Parent in
connection with the offering and organization of the Company. All expenses
related to this offering, other than the commissions and fees payable to
licensed broker-dealers, will be advanced by the Parent. In the event the
Parent advances fees in excess of 5% of the offering proceeds, such excess
amount shall be borne by the Parent. If fees advanced by the Parent are less
than 5% of the offering proceeds, the balance of the 5% will represent
compensation to the Parent.
The following table sets forth the anticipated use of proceeds from the
offering, reflecting the Minimum and Maximum Subscription Amounts:
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Purchase of Contracts $ 86,240 $ 20,697,600
Contract Purchase Fees (1) 1,760 422,400
Broker-Dealer Commissions 7,000 1,680,000
Legal, Accounting & Printing Expenses (2) 5,000 150,000
Trustee and Escrow Fees (2)(3) -0- 50,000
Other Offering Expenses (2)(3)(4) -0- 400,000
Marketing Expenses & Due Diligence (2)(3)(5) -0- 360,000
Compensation to Parent (2)(3)(6) -0- 240,000
--------- -------------
TOTAL $ 100,000 $ 24,000,000
</TABLE>
_________________________
(1) To be paid to automobile contract suppliers.
(2) To be paid or reimbursed to an affiliate.
(3) The anticipated expenses of the offering if only the Minimum
Subscription Amount is raised are in excess of $5,000. Only $5,000 will
be reimbursed to the Parent.
(4) Includes SEC registration fee, Blue Sky fees and miscellaneous expenses.
(5) Anticipated to be paid to registered broker-dealers. One third of such
amount represents due diligence fees, and two thirds of such amount
represents a non-accountable expense reimbursement.
(6) If the Maximum Subscription Amount is raised, the Parent anticipates
that a portion of the 5% reimbursement will represent profit to the
Parent.
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<PAGE> 15
PLAN OF DISTRIBUTION
The Company is offering up to $24,000,000 in aggregate principal amount
of the Notes. The Notes are being sold on a "best efforts" basis on behalf of
the Company by Anchor Management Group, Inc., Calton & Associates, Inc.,
Centennial Capital Management, Rushmore Securities Corporation, Southern
Capital Securities, Inc., VSR Financial Services, Inc. and other licensed
soliciting broker-dealers that are members of the National Association of
Securities Dealers, Inc. ("NASD") and that are qualified to offer and sell the
Notes in a particular state, as have been or may hereafter be engaged by the
Company.
The Company has agreed to pay to soliciting broker-dealers, in
consideration for their services, a sales commission of 7% of the principal
amount of Notes which the broker-dealers sell. In addition, the Parent
anticipates that it will pay to such broker-dealers up to an additional 1.5% of
the principal amount of Notes sold by broker-dealers, which represents 1.0% for
a non-accountable expense allowance and 0.5% for due diligence fees. Such
fees, if any, will be paid out of the 5% payable to the Parent. The total
compensation to be paid to NASD members in connection with the offering will
not exceed 8.5%, which includes 7% for sales commissions, 1% for expenses, and
0.5% for due diligence. The Company has agreed to indemnify the broker-dealers
against certain liabilities, including liabilities under applicable securities
laws.
Minimum suitability requirements have been established. Subscribers
will not be deemed suitable for an investment in the Notes unless they meet one
of two minimum standards established by the Company. All subscribers must
represent that they (i) have a minimum net worth of $25,000, together with an
annual income of a minimum of $25,000, excluding personal residence,
furnishings and automobiles, OR (ii) they have a minimum net worth of $40,000,
without reference to annual income, excluding personal residence, furnishings
and automobiles. Residents of certain states must meet the Company's minimum
standards or the applicable state standard, whichever is more stringent. The
minimum investment is $2,000.
Investor subscriptions are to be made payable to, and were held in an
escrow account by, Texas Commerce Bank National Association, Dallas, Texas, as
escrow agent, until the Minimum Subscription Amount of $100,000 in principal
amount of the Notes was raised. The Escrow Termination Date was December 20,
1996, and the escrowed funds were released to the Company at that time. All
proceeds from the sale of additional Notes will now be immediately available
for use by the Company. All subscriptions are subject to the right of the
Company to reject any subscription in whole or in part.
The offering will terminate on June 30, 1998, unless sooner terminated
by the Company upon the sale of all of the Notes, or if the Company believes
that suitable Contracts will not be available for purchase by the Company or
that additional selling efforts will be unsuccessful. Although early
termination of the offering may result in the Company selling less than the
Maximum Subscription Amount and may expose prior purchasers of Notes to certain
risks, the Company does not believe an early termination will have a material
adverse effect on any prior purchasers of Notes. The aforedescribed
termination provisions are the exclusive termination provisions for the
offering.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are general obligations of the Company, and the holders of the
Notes will have recourse against the assets of the Company; however,
substantially all of the Company's assets will be the Contracts. The Company
has not sought, and is not required to obtain, a rating of the Notes by a
rating agency.
The Notes will be issued pursuant to a trust indenture agreement (the
"Indenture"), between the Company and Texas Commerce Bank National Association,
as trustee (the "Trustee"). The following summaries of certain provisions of
the Indenture and the summaries included under "The Indenture of Trust
Provisions" do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Indenture. The Trustee
will accept title to the Security Agreement on behalf of Noteholders. The
duties of the Trustee are to hold the Security Agreement, to perform certain
obligations in the event of a default in the payment of the principal and
Interest on the Notes, and to execute and deliver to the Company partial or
full satisfaction of the Security Agreement upon partial or full repayment of
the Notes. See "Indenture Provisions" for a more complete summary of the
Indenture of Trust agreement. The form of Indenture of Trust is Exhibit B to
the Prospectus.
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<PAGE> 16
No public market exists for the Notes. Accordingly, Investors should
expect to retain ownership of the Notes and bear the economic risks of their
investment for the life of the Notes.
ISSUANCE OF NOTES; TRANSFERS
The Notes will be issued in an aggregate principal amount of up to
$24,000,000, in minimum denominations of $1,000 and integral multiples thereof.
The minimum investment amount for each investor is $2,000. The Company may
charge a reasonable fee for any transfer or exchange of a Note. Each Note will
mature on December 31, 2001.
PAYMENTS OF PRINCIPAL AND INTEREST
Each Note will accrue interest from the date of issuance at the rate of
11% per annum. Interest shall be computed on the basis of a 365-day year but
is paid in twelve (12) equal monthly installments regardless of the number of
days in each month. The Company will be required to make monthly payments of
Interest, paid in arrears, on the outstanding principal balance at such rate of
11% per annum (the "Interest"). Payments of Interest will be due and payable
on the fifteenth (15th) day of each successive calendar month (for Interest
accruing during the prior month or months), commencing with the first full
calendar month following the issuance of the Note, and upon the Maturity Date.
The principal balance of the Note will be due and payable on the Maturity Date.
The first of such Interest payments were made on December 15, 1996. Any
installment of Interest which is not paid when and as due will accrue interest
at the lesser of 18% or the highest lawful rate of interest from the date due
to the date of payment. Although the stated interest rate on the Notes is 11%
per annum, the effective interest rate will be somewhat lower because each
payment of Interest will be paid 15 days after the month over which it accrued.
All payments of Interest will be made by check mailed to Noteholders
registered as of the close of business on the first day of the month of the
Payment Date, at their addresses appearing on the Note Register, except that
all payments of principal and the payment of Interest due on each Note at
maturity or upon redemption in whole or in part will be made only upon
presentation and surrender of such Note on or after the Maturity Date or
Redemption Date, as the case may be, at the office of the Company.
The Company expects to use the amounts collected under the Contracts to
make the required payments under the Notes. All installments and other
proceeds from the Contracts will be deposited in the Master Collections
Accounts maintained by the Company for all of the various motor vehicle retail
installment contracts ("Contracts"). USAAC and the Company have agreed to
deposit all installments and other proceeds, including proceeds from sales of
repossessed vehicles, net of repossession expenses, into the Master Collections
Accounts. On a periodic basis, the funds in the Master Collections Accounts
will be transferred to a Master Operating Account maintained by the Company.
Payments of Interest on the Notes will be made on each Payment Date by
the Company, or its designee. On or prior to the business day immediately
preceding each Payment Date, the Company will transfer to the Note Redemption
Account that portion of the funds in the Master Operating Account which,
together with any funds in the Note Redemption Account, is sufficient to pay
the accrued Interest due on the outstanding Notes on such Payment Date. Prior
to collection of the Contracts, funds to pay Interest will be advanced by USAAC
and reimbursed as Contracts are collected.
Following the Note Redemption Trigger Date, funds attributable to the
Contracts in the Master Operating Account, less Allowed Expenses payable by
the Company, will be transferred on at least a monthly basis to the Note
Redemption Account. The funds will accumulate in the Note Redemption Account
for payment of the Notes at maturity or earlier redemption at the option of the
Company.
REDEMPTION
The stated maturity of the principal of the Notes is December 31, 2001.
No principal payments will be made on the Notes until the earlier of maturity
or any redemption at the election of the Company of the Notes in whole or in
part, except in the event that prior to one hundred eighty (180) days following
the termination date of the offering the Company has been unable to invest the
total net proceeds from the sale of the Notes in suitable Contracts, the
uninvested net proceeds at such date will be utilized for a mandatory partial
redemption of the Notes within forty-five (45) days following such date. In
addition, Notes may be redeemed in the event the Company is unable to purchase
suitable Contracts throughout the term of the Notes. In such a case, Notes
will be redeemed on a random basis, by lot.
14
<PAGE> 17
Redemption of the Notes must occur at the option of the Company on any
Payment Date and may be in whole or from time to time in part. Any redemption
of Notes will be at 100% of the principal amount thereof being redeemed,
together with Interest accrued to the Redemption Date, without any premium or
penalty. Notice will be mailed to all Noteholders setting forth (i) the
Redemption Date, (ii) the Redemption Price, (iii) the name and address of the
Paying Agent, (iv) a statement that the Notes must be delivered to the Paying
Agent, and (iv) a statement that interest on the Notes, or portion thereof
being redeemed, ceases to accrue on and after the Redemption Date. In the case
of notice to the holder of any Note to be redeemed in part, a new Note or Notes
in principal amount equal to the unredeemed portion of such Note will be
issued. In the event of partial redemption of the Notes, the Notes to be
redeemed in whole or in part will be selected on a random basis, by lot.
REPORTS TO NOTEHOLDERS
The Company intends to furnish to the holders of the Notes on a
quarterly basis information containing unaudited quarterly financial statements
and other summary information regarding the Contracts, including information
required to be filed in Form 10-Q. Annually, the Company will furnish audited
financial statements of the Company to the Noteholders, prepared in accordance
with generally accepted accounting principles. Copies of Quarterly Operational
Effectiveness Reviews will be provided to Noteholders upon request.
SECURITY FOR THE NOTES
GENERAL
The collateral securing the Notes (the "Trust Estate") will consist of
all of the Company's right, title and interest in (a) the Contracts, together
with all payments and instruments received with respect thereto, (b) the
Servicing Agreement, (c) the Master Collections Accounts, the Master Operating
Account, the Note Redemption Account and all funds (including investments)
therein, (d) all repossessed or returned Financed Vehicles, and (e) all
proceeds of the conversion, voluntary or involuntary, of any of the foregoing
into cash or other liquid property. In most instances the Automobile Dealer
will provide the Company Contract replacement guarantees or some other form of
dealer recourse, such as direct dealer recourse, limited guaranty agreements or
some other form of cash hold-back arrangement. These dealer recourse
agreements will be additional collateral securing the notes. The Company will
serve as custodian of the collateral pursuant to the Custodian Agreement, which
is Exhibit D to the Prospectus. The collateral will be deposited with the
Custodian, and the Custodian will have possession, custody and control of the
collateral, which could create conflicts of interest. Pursuant to the
Indenture, Texas Commerce Bank National Association, the Trustee, has been
granted a lien senior to the lien of the Indenture in order to secure payment
of its fees and expenses as Trustee under the Indenture. Texas Commerce Bank
National Association also serves as Trustee under similar indenture agreements
with affiliates of the Company, which could create conflicts of interest.
THE CONTRACTS
Each of the Contracts will be a retail installment sales contract
originated by a used motor vehicle dealer and purchased by the Company and will
be secured by a used automobile or light-duty truck (a "Financed Vehicle"). The
Contracts will constitute a part of the Trust Estate and will be purchased by
the Company using (i) the net proceeds from the sale of Notes, or (ii) until
the Note Redemption Trigger Date, any remaining net collection proceeds from
any previously purchased Contracts after deduction for payments of Interest and
Allowed Expenses. The Company will be recorded as lienholder of record on each
Financed Vehicle's title. The Company will file a UCC financing statement
covering the Contracts, and also covering the proceeds therefrom, in each state
in which a Contract is purchased. The financing statements shall name the
Trustee as secured party for the benefit of the Noteholders and will perfect
the security interest of the Trustee. The Security Agreement between the
Company and the Trustee is Exhibit C to the Prospectus.
THE NOTE REDEMPTION ACCOUNT
The Company has established a trust account at a financial institution
(the "Note Redemption Account"). The Note Redemption Account will relate
solely to the Notes and to the Contracts securing the Notes. Funds in the Note
Redemption Account will not be commingled with any other moneys of the Company.
All moneys deposited from time to time in the Note Redemption Account will be
held as part of the Trust Estate. The funds in the Note Redemption Account
will be employed by the Company or a paying agent to pay Interest on the Notes
on each Payment Date. Funds in the Note Redemption Account may be invested as
directed by the Company, but may not be invested in
15
<PAGE> 18
affiliates of the Company. The Company may only specify investment in (i) bank
accounts, (ii) bank money-market accounts, (iii) short-term certificates of
deposit issued by a bank, or (iv) short-term securities issued or guaranteed by
the U.S. Government. The ability of the Company to direct the investment of
funds in the Note Redemption Account, however, limits the protection provided
by the Trustee.
After the Note Redemption Trigger Date, proceeds from the Contracts,
following deduction of Allowed Expenses, will be deposited in the Note
Redemption Account and held, along with the income earned thereon, for
repayment of the Notes. No schedule of minimum required payments into the Note
Redemption Fund will exist.
THE CONTRACT PROCEEDS, MASTER CASH ACCOUNTS
The Company has established two types of master accounts (the "Master
Accounts") for the benefit of the Company. The first type account is the
"Master Collections Account," into which all payments made on or with respect
to the Contracts will be deposited. These Master Collections Accounts will be
"lock-box" type accounts at financial institutions where all remittance checks,
drafts and other instruments for the Contracts will be deposited. All
servicing subcontractors will be required under their subcontracts to promptly
remit payments collected by them to the Master Collections Accounts. USAAC has
also agreed to deposit in the Master Collections Accounts any payment proceeds
received directly by USAAC, including any proceeds from resales of returned or
repossessed Financed Vehicles, net of liquidation expenses, and any recoveries
from insurance claims on Financed Vehicles. The Company will periodically
transfer all collected funds from the Master Collections Accounts into the
second account, the "Master Operating Account." The funds may be invested as
directed by the Company. Collections or other proceeds from the Contracts in
the Master Collections Accounts or the Master Operations Account, or otherwise
in its possession or control, are the Company's property and subject to the
security interest of the Trustee.
It is the intention of the Company to cause the funds contained in the
Master Operating Account to be withdrawn or applied for the following purposes:
first, to the payment of any Allowed Expenses of the Company; second, to any
amounts due the Trustee for its fees and expenses; third, through a direct
transfer to the Note Redemption Account, to the payment of any Interest due on
the outstanding Notes on each Payment Date; fourth, after the Note Redemption
Trigger Date, to the deposit into the Note Redemption Account for payment of
the Notes; and, fifth, prior to the Note Redemption Trigger Date, to the
purchase of additional eligible Contracts.
On or before the business day immediately preceding each Payment Date,
the Company will cause to be transferred directly from the Master Operating
Account to the Note Redemption Account that portion of the funds in the Master
Operating Account which, together with any funds in the Note Redemption
Account, is sufficient to make all Interest payments on the Notes.
THE SERVICING AGREEMENT
The Company has granted to the Trustee a security interest in all of its
rights under the Servicing Agreement. The Servicer is the parent of the
Company. The Company may terminate the Servicing Agreement, upon written
notice to USAAC, for failure of USAAC to provide adequate services as required
under the terms of the Servicing Agreement. Upon such termination, all rights,
duties, obligations and responsibilities of USAAC with respect to the related
Contracts (except for any obligation of USAAC to indemnify the Company) will
vest in and be assumed by the Company or any servicing agent that the Company
may designate.
ALLOWED EXPENSES AND FLOW OF CONTRACT PROCEEDS
The "Allowed Expenses" of the Company will include but are not limited
to the expenses and fees including contract servicing, purchase and investor
administration fees, trustee fees, bank fees and charges, legal fees, title
transfer fees, account fees, contract purchase fees, insurance, repossession,
repair and liquidation expenses, enforcement costs of dealer Contract
replacement guarantees and/or other dealer recourse agreements, federal state
and local taxes, reasonable out-of-pocket expenses incurred in connection with
any Sale of Contracts to pay the Notes, salaries, and other general and
administrative expenses of the Company (collectively the "Allowed Expenses").
As set forth below, portions of such expenses will be paid to affiliates of the
Company.
The following table summarizes the Company's present estimates of its
anticipated Allowed Expenses. Actual incurred Allowed Expenses may vary
significantly from these estimates. In the event that only the Minimum
16
<PAGE> 19
Subscription Amount is raised, certain of these expenses will not be paid, or
will be paid by the Parent, as indicated. See "Description of the Notes -
Minimum Yield Requirements."
Summary of Estimated Allowed Expenses
-------------------------------------
<TABLE>
<CAPTION>
Allowed Expense Estimated Amount
--------------- ----------------
<S> <C>
Servicing and Operating Fees (to be paid
to affiliates of the Company)
Contract Servicing Fee $21.50 per month per Contract, subject to certain
limitations(1)
Purchase Administration Fee $125 per Contract purchased(2)
Investor Administration Fee 1/12th of 1.0% of the aggregate outstanding principal
amount of the Notes, paid monthly, and 1/12th of
1% of aggregate funds held in investment accounts,
paid monthly(2)
Trustee, Registrar and Custodial Fees
Annual Administration $7,500 per year
Note Payments and Registrar Services $10 per year per Note(2)
Note Certificate Corrections $10 each(2)
Collateral Custodial Services $3 per year per Contract(2)
Bank Fees
Master Collections Accounts $100 to $20,000 per year (varies with volume)
Operating Account $100 to $5,000 per year (varies with number of
transactions)
Legal Fees
Annual Attorney's Opinion to Trustee $1,000 - $5,000
Title Transfers $14 per Contract
Accounting Fees
Annual Audit and Outside Accounting $1,000 - $40,000
Annual Tax Return $1,000 - $10,000
Quarterly Operational Effectiveness Reviews $1,000 - $20,000 ($250 - $5,000 per quarter)
Printing & Mailing $300 - $10,000(2)
Total Annual Servicing, Operating, Trustee, Bank, Estimated to average (i) $1,500,000 if maximum
Legal, Accounting, Administrative amount of Notes is sold, or (ii) $18,000 if the
Minimum Subscription Amount only is sold
Contract Purchase Fees(3) 2% - 3% per Contract(2)
Repossession, Repair and Liquidation Expenses Estimated to average from $1,000 to $3,000 for each
repossessed vehicle
Costs of Enforcement of Dealer Contract Enforcement of dealer recourse agreements reduces
Replacement Guarantees and/or Dealer repossessions, repairs and liquidation expenses
Recourse Agreements
Federal Income Taxes Varies with taxable income
State Corporate Income and Franchise Taxes Varies by state
</TABLE>
__________________________________
(1) Limited to a maximum of $85,000 in any month, for calendar year 1996.
This fee will be adjusted at the beginning of each calendar year for inflation
using the U.S. Dept. of Labor Consumer Price Index.
(2) Will be paid by Parent, or will not be incurred, if only the Minimum
Subscription Amount is raised.
(3) To be paid to independent automobile contract brokers. These fees are
expected to amount to approximately $400,000 initially.
See "Purchase and Collection of Contracts - General."
17
<PAGE> 20
FLOW OF CONTRACT PROCEEDS
Payments under the Contracts will generally be paid by the Obligors to
the Automobile Dealers or to USAAC, who will deposit the funds into the Master
Collections Accounts. The following chart generally illustrates the flow of
Contract proceeds from the Obligors through the Master Accounts to the various
applications of such proceeds including payment of Allowed Expenses, trustee
fees and expenses, Interest payments on Notes, reinvestment in additional
contracts, and after the Note Redemption Trigger Date, the accumulation of
funds to pay the Notes.
<TABLE>
<CAPTION>
===========================================================================================================
Servicer/Dealer Servicer/Dealer Company Transfers Funds Company Utilizes Funds
Collects Installments Deposits Installment From Master Collections in Master Operating
Collections Into Master Accounts To Master Account as Follows(1)
Collections Accounts Operating Account
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
----- ----- -----
===========================================================================================================
</TABLE>
(1) Various Proceeds Applications
-----------------------------
1. Allowed Expenses.
2. Trustee's fees and expenses.
3. Interest paid by transfers to Note Redemption Account for payment
to Noteholders.
4. A. Before Note Redemption Trigger Date, any remaining
proceeds used to purchase additional eligible Contracts.
B. After Note Redemption Trigger Date, any remaining proceeds
deposited into Note Redemption Account by Trustee for
payment of Notes.
THE COMPANY
GENERAL
U. S. Automobile Acceptance SNP-III, Inc. (the "Company") was
incorporated in Texas on June 7, 1996. The Company is a wholly-owned
subsidiary of U.S. Automobile Acceptance Corporation, a Texas corporation. The
Company has no subsidiaries. Financial statements for the Company and U.S.
Automobile Acceptance Corporation are included in this Prospectus.
NOTEHOLDERS WILL RECEIVE NO INTEREST IN THE PARENT CORPORATION. There is no
trading market for the capital stock or Notes of the Company. The principal
offices of the Company are located at 1120 N.W. 63rd, Suite G-106, Oklahoma
City, Oklahoma 73116. The telephone number is (405) 843-3135. The Company is
registered with the Texas Consumer Credit Commissioner as a holder of motor
vehicle retail installment sales contracts. The Company began operations and
commenced Contract purchasing activities in February 1997.
THE BUSINESS OF THE COMPANY
The Company was established for the purpose of purchasing, collecting
and servicing motor vehicle retail installment contracts. The motor vehicle
retail installment sales contracts to be purchased by the Company and pledged
to secure the Notes (the "Contracts") are expected to be purchased at
significant discounts from the net remaining principal balance thereof and will
be secured by used automobiles and light trucks (the "Financed Vehicles"). The
Contracts will be purchased from independent motor vehicle dealers located
principally in Texas, and Automobile Dealers will in many instances provide
Contract replacement guarantees or some other form of dealer recourse. In
addition, the Company may purchase Contracts from affiliated entities. The
Company may expand its dealer group to other states as the Company determines
to be appropriate. The Company will not participate in the retail sales by the
Automobile Dealers of the Financed Vehicles from which the Contracts will
arise. Automobile Dealers are expected to sell Contracts at a discount for
several reasons, including (i) the 1986 repeal of the installment sale tax
treatment for such Contracts, which now requires an automobile dealer who
carries dealer paper to pay 100% of the tax due on a sale at the time of the
sale, even if the dealer only receives a small down payment; (ii) the lack of
availability of financing from traditional financing sources; and (iii) their
expanding market for used automobiles, due to continuing price increases in new
cars, which increases the Automobile Dealers' sales and profit possibilities
but also their capital needs.
18
<PAGE> 21
INITIAL OPERATIONS
The funds necessary to purchase the Contracts will initially be provided
from the sale of the Notes offered hereby. After the payment of Interest due
upon the Notes and Allowed Expenses, the net collection proceeds from the
Contracts will be used to purchase additional eligible Contracts until the Note
Redemption Trigger Date.
The Company presently anticipates that the Contracts purchased by the
Company will relate primarily to Financed Vehicles where wholesale values range
from $2,000 to $20,000. The Company believes that banks and other traditional
financing institutions are not well equipped to finance independent used motor
vehicle dealers, due to the large number of relatively small notes or
installment contracts, the institutions' lack of due diligence and collection
capability with respect to used motor vehicles, and the inability of such
institutions to approve or evaluate contracts on a timely, cost-effective
basis. Consumer used automobile receivables are management and collection
intensive and require constant supervision, review and knowledge of
repossession and resale services. The Company believes that the subcontractors
selected by the Company and Servicer will provide this industry expertise at a
low marginal cost.
As of August 31, 1997, the Company had cash of $6,559,000 and had
incurred organization and operating expenses of approximately $1,353,000. The
Company commenced operations in February 1997 and has commenced purchasing
Contracts.
PURCHASE AND COLLECTION OF CONTRACTS
The Contracts will be purchased by the Company and administered on
behalf of the Company under a Servicing Agreement. USAAC, as Servicer, will be
responsible for providing ongoing servicing of the Contracts purchased,
including accounting, administration and collections of payments due under the
Contracts. In addition, USAAC will oversee Automobile Dealer compliance and
review, oversee enforcement and administration of dealer recourse and/or
Contract replacement agreements, and whenever necessary oversee the
repossession and sale of vehicles securing any Contract in default. The
Servicing Agreement allows USAAC to subcontract with industry-qualified third
parties to perform its obligations thereunder. Any such subcontract will not
relieve USAAC, as Servicer, from liability for its obligations under the
Servicing Agreement. The Company has granted a security interest in the
Servicing Agreement to the Trustee as security for the Notes and for the
Obligations of the Company. The following summaries do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Servicing Agreement. References herein to the "Servicer"
are also to any successor or permitted assignee of the Servicer performing the
duties of the Servicer under the Servicing Agreement.
GENERAL
The Company and USAAC presently intend to utilize independent commission
agents as well as employees of USAAC and Company to assist in locating eligible
Contracts. The use of independent agents who are in the business of brokering
automobile contracts eliminates the need for additional employees. The Company
has established certain criteria as a general guide to govern the purchase of
Contracts. The Servicing Agreement establishes criteria to govern the
servicing of Contracts, including the performance of certain collection
activities.
CERTAIN CONTRACT PURCHASE CRITERIA
The Company will endeavor to purchase the Contracts at substantial
discounts to their aggregate remaining unpaid principal balances and at prices
which are below the wholesale values of the Financed Vehicles. In addition,
the Company will seek to obtain Contracts whose maturities are less than the
remaining useful lives of the Financed Vehicles and which require substantial
down payments by the Obligors. The Company anticipates purchasing Contracts on
a "package" basis involving several Contracts at one time.
With respect to the credit information to be supplied by Obligors on the
Contracts, the Company has established certain credit criteria to be satisfied
by each Obligor. In order to satisfy these criteria, an Obligor, among other
things, must be able to provide verifiable personal references, must have a
valid driver's license issued by his state of residence, and must be at least
18 years of age and have no co-signors on the Contract except immediate family
members. In order to verify the foregoing information, the Company or USAAC
will be required to obtain from the Dealer a copy of the credit application
executed by the Obligor which contains the necessary information, to verify by
telephone or otherwise
19
<PAGE> 22
the Obligor's addresses, employment and personal references and to obtain a
credit report from a credit reporting agency or from the Dealer.
Although Obligors under the Contracts are anticipated to be somewhat
less credit-worthy than typical purchasers of automobiles from new car dealers,
the Company has established certain general criteria to be used as a guide to
purchasing Contracts. These criteria are as indicated below; however, at the
discretion of the Company actual purchase of packages and individual Contracts
may vary substantially from this guide:
* The Company expects the purchase discount will generally range between
5% and 25% depending on the credit worthiness of each individual buyer
and the Automobile Dealer, and the overall credit quality of the package
of Contracts purchased.
* Generally, the Automobile Dealer will be required to provide a Contract
replacement guarantee or some other form of dealer recourse which is
satisfactory to the Company, such as direct dealer recourse, limited
guaranty agreements or some other form of cash hold-back arrangement.
* Contracts will usually have an original term of 48 months or less.
* The age of each Financed Vehicle may not exceed those listed in the
appropriate automobile market guides, which are modified periodically.
* The Obligors on the Contracts are required to make a down payment in
cash plus net trade-in allowance of 10-25% of the purchase price of the
Financed Vehicles.
* The interest rate on the Contracts will not violate any applicable usury
laws.
* The wholesale value for a Financed Vehicle will generally be greater
than $2,000 and less than $20,000. The Company believes that $2,000 is
the minimum value automobile economically feasible for the Company to
finance and $20,000 the maximum desirable.
* The Obligors on the Contracts must have supplied certain credit
information, and credit verification procedures must have been performed
by the Company or Servicer.
DEALER CRITERIA
Contracts will generally be purchased from Automobile Dealers who meets
the following criteria:
* A net worth, exclusive of goodwill or other intangible values, of
$100,000, or a parent or affiliate which meets the net worth criterion
and guarantees the performance of the obligations of the Automobile
Dealer under the Purchase Agreements, servicing subcontracts, Contract
replacement guarantees or other forms of dealer recourse;
* A minimum of two years of successful operation as an automobile dealer,
as evidenced by financial statements or prior tax returns;
* Experienced contract loss rates during the immediately preceding year
acceptable to the Company;
* Verifiable banking references;
* Servicing supervised by an individual with experience in used automobile
financing and servicing;
* Servicing maintained and reported on a computerized system, or a manual
reporting system that provides all information as required by the
Company;
* The ability to provide weekly collection reports as required by the
Company;
* Dealership property owned by dealer or subject to lease of sufficient
length to indicate long term presence;
20
<PAGE> 23
* Satisfactory on-site premises inspection; and
* A trained or experienced repossession staff or repossession
subcontractor.
COLLECTION OF PAYMENTS
Under the Servicing Agreement, USAAC is obligated to exercise
discretionary powers involved in the management, administration and collection
of the Contracts and to bear all costs and expenses incurred in connection
therewith. USAAC presently intends to subcontract its collecting functions to
selected Automobile Dealers. Funds collected by the subcontracting Automobile
Dealer will be required to be deposited directly to the Master Collections
Accounts and not to the Dealer's account. A written agreement between each
subcontracting Dealer and USAAC will be required before any purchase of
Contracts from that subcontracting Dealer is completed.
USAAC will instruct all Automobile Dealers and Obligors under the
Contracts to make all payments to the Master Collections Accounts. USAAC or
subcontractor must contact any Obligor on a past due Contract within fifteen
(15) days after the payment due date to pursue collections. Any material
extensions, modifications, or acceptances of partial payments by Obligors, and
any related necessary Contract amendments or default waivers by USAAC, must be
approved by the chief credit officer or president of the Company. When any
Contract becomes over fifty (50) days past due, USAAC and the Company will take
immediate appropriate action to enforce dealer Contract replacement guarantees
and other dealer recourse agreements on behalf of the Company. "Past Due" is
defined as 20 days after the payment due date. In the event an Automobile
dealer fails to replace such delinquent Contract or honor other dealer recourse
agreements within ten (10) days, USAAC will pursue repossession, subject to
compliance with all state and federal laws relating thereto, of the Financed
Vehicle securing any Contract whose Obligor is (i) past due by at least four
scheduled installments in the case of bi-weekly or semi-monthly installments or
two scheduled installments in the case of monthly installments, and (ii) has
failed for 60 consecutive days, in the case of bi-weekly or semi-monthly
installments, or 75 days, in the case of monthly installments, to remit any
sums against the obligations under the Contract. USAAC may commence
repossession sooner if it deems such activity to be prudent and in the best
interests of the Company. USAAC is also required to document the reasons for
each chargeoff of any material unpaid amount from an Obligor under any
Contract. As indicated by the foregoing repossession requirements, to maximize
its return the Company prefers to continue collecting installments on the
Contract despite a missed installment by the Obligor in lieu of repossession of
the vehicle.
USAAC is required to deliver monthly to the Company a report certifying
that all Contracts managed by USAAC were serviced in material accordance with
the Servicing Agreement and that USAAC is not in default under the Servicing
Agreement. The report also will contain collection information on each
Contract since the date of the last such report and a reconciliation of the
deposits into the Master Accounts, if any.
SERVICER COMPENSATION
USAAC is entitled under the Servicing Agreement to receive a monthly fee
(the "Servicing Fee") per outstanding Contract of $21.50 per month, subject to
certain limitations. Such compensation shall be limited to a maximum of
$85,000 in any month. In addition, the Contract Servicing Fee will be
adjusted, if necessary, so that the total annual Allowed Expenses do not exceed
$18,000 in the event only the Minimum Subscription Amount is sold. If more
than the Minimum Subscription Amount is raised, the Servicer will receive the
Servicing Fee of $21.50 per month per Contract. In each case, fees will be
adjusted annually by the pro rata published Consumer Price Index inflation
factor. The Servicing Fee is intended to compensate and reimburse USAAC for
administering the collection of the Contracts, including collecting and posting
all payments, responding to inquiries of Obligors on the Contracts,
investigating delinquencies, sending payment coupons to Obligors, and reporting
any required tax information to Obligors. USAAC will be entitled to
reimbursement of its costs and expenses incurred in the repossession,
preparation for sale and resale of any Financed Vehicle and reimbursement of
costs of enforcement of dealer recourse agreements. Compensation to
subcontracting Automobile Dealers for providing Contract servicing, if any,
will be paid by USAAC out of its Contract Servicing Fees.
OPERATIONAL EFFECTIVENESS REVIEWS
Operational Effectiveness Reviews are special accounting and Contract
compliance reviews to be performed quarterly by an independent accounting firm.
These review procedures will be determined by management periodically
21
<PAGE> 24
and consist principally of periodic subcontract servicer Contract compliance
testing, review of accuracy and adequacy of dealers' payment reporting and loan
monitoring systems, review of actual payment deposits and timing of deposits,
periodic checks of dealer net worth and profitability, reviews of actual dealer
loan losses, direct confirmation of accuracy of borrower information provided
by dealers, periodic confirmation of borrower balances, and review of the
adequacy and consistency of loan underwriting procedures. A written report of
the results of these special reviews will be provided to the Company. Copies
will be made available to individual Noteholders if requested.
ALLOCATION OF AVAILABLE CONTRACTS
Although the Company's management and consultants anticipate that a
sufficient supply of Contracts will be available for purchase throughout the
term of the Notes, a policy has been established for apportioning business
opportunities among the Company, SNP-I, USAA 1995-I, and future affiliated
entities. In the event a limited number of suitable Contracts are available at
a time when several affiliated entities wish to purchase Contracts, the
Contracts will be divided among the entities on a pro rata basis, according to
the amount of capital each entity has available for contract purchase.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information, as of September 30, 1997,
relating to the beneficial ownership of the Company's capital stock by any
person or "group", as that term is used is Section 13(d)(3) of the Securities
and Exchange Act of 1934 (the "Exchange Act"), known to the Company to own
beneficially five percent (5%) or more of the outstanding shares of Common
Stock, and known to the Company to be owned by each director of the Company and
by all officers and directors of the Company as a group. Except as otherwise
noted, each of the persons named below is believed by the Company to possess
sole voting and investment power with respect to the shares of Common Stock
beneficially owned by each person.
<TABLE>
<CAPTION>
Name of Director or Amount and Nature of Beneficial Ownership(1)
Name and Address of Percentage of
Beneficial Owner Number of Shares Class Outstanding
- ---------------- ---------------- -----------------
<S> <C> <C>
U.S. Automobile Acceptance Corporation (2) 1000 100%
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
Mr. Michael R. Marshall -0- (3)
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
Mr. Robert P. Billy -0-
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
</TABLE>
______________________________________
(1) The information as to beneficial ownership of Common Stock has
been furnished by the Parent of the Company and the sole director and officer
of the Company.
(2) The directors of U.S. Automobile Acceptance Corporation
("USAAC"), a privately-held corporation, could be deemed to share voting
investments powers over the shares owned of record by USAAC. The directors of
USAAC are Michael R. Marshall and Robert P. Billy.
(3) Mr. Marshall owns 100% of the outstanding common stock of USAAC.
MANAGEMENT
BUSINESS BACKGROUND AND EXPERIENCE
The name, age, background and principal occupation of the sole director
and executive officer of the Company are set forth below:
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Mr. Michael R. Marshall, age 48, is Chairman of the Board and President
of the Company and its Parent, U.S. Automobile Acceptance Corporation. Mr.
Marshall is Chairman of the Board of Directors, president, and the owner of all
the outstanding common stock of U.S. Automobile Acceptance SNP-I, Inc. ("SNP-
I"), and, beneficially, U.S. Automobile Acceptance 1995-I, Inc. ("USAA 1995-
I"), both limited purpose corporations with business activities similar to the
proposed activities of the Company. SNP-I began similar automobile finance
contract purchasing activities in September 1994. USAA 1995-I began purchasing
contracts in October 1995.
Mr. Marshall holds a Bachelor of Business Administration Degree in
Accounting which he obtained in 1971 from Texas A&M University and is a
Certified Public Accountant, licensed to practice in Texas. From 1971 through
1977 Mr. Marshall was employed at Coopers & Lybrand, an international firm of
Certified Public Accountants, which he served in various capacities including
general practice manager of its Oklahoma City office. Mr. Marshall was self-
employed from 1977 to 1982 as a practicing Certified Public Accountant and as a
corporate financial consultant and since 1982 has been President and Chief
Executive Officer of Settlers Capital Corporation, an Oklahoma corporation
which specializes in assisting companies in the placement of private and public
debt and equity finance transactions. Additionally, from 1981 through 1988,
Mr. Marshall was the President of Settlers Energy Corporation, an independent
oil and gas company located in Oklahoma, which specialized in purchasing,
managing and liquidation of secured oil and gas loans of distressed financial
institutions.
Mr. Marshall has eighteen years experience as a participating investor
and originator of various secured commercial lending transactions and has more
than fifteen years experience in structuring, monitoring, management and
liquidation of secured lending transactions. Mr. Marshall devotes
substantially all of his time to the automobile finance business, and may do
similar asset-backed note offerings in the future.
KEY CONSULTANTS
Mr. Robert P. Billy, age 53, is on the Board of Directors of USAAC. Mr.
Billy is presently executive vice president of Metro Bank, National
Association, located in Oklahoma City, Oklahoma. Mr. Billy has been a banker
for more than 20 years and has previously been the senior lending officer for
various new and used automobile dealerships and for the largest used automobile
auction in the State of Oklahoma. Mr. Billy assists USAAC and the Company with
developing plans for portfolio credit management and assists in the selection
process for determining eligible automobile dealerships for participation in
the USAAC automobile finance programs. Mr. Billy holds a Bachelor of Business
Administration in Management and Finance from Central State University in
Edmond, Oklahoma, and has attended various advanced banking and credit
management schools.
Mr. David B. Christofferson, age 48, serves as corporate financial and
legal consultant to USAAC and the Company. Mr. Christofferson is presently
Executive Vice President and General Counsel for Frontier Natural Gas
Corporation, an over-the-counter publicly traded oil and gas company, located
in Oklahoma City, Oklahoma. Mr. Christofferson was, from 1982 - 1989, Vice
President and General Counsel of Settlers Capital Corporation and was involved
in assisting with the business, corporate finance and legal planning. Mr.
Christofferson has substantial experience in structuring and monitoring secured
lending transactions, and from 1974-1981 he served as a commercial lending
officer for several Oklahoma banks. Mr. Christofferson received his Bachelors
Degree in Finance in 1971 and a Juris Doctorate in 1974 from the University of
Oklahoma. He also received a Master of Divinity Degree from Phillips
University in 1985. Mr. Christofferson will devote approximately 10% of his
time to the business of the U.S. Automobile Acceptance Corporation and the
Company, and will function as an in-house counsel, assisting with offering
structure, corporate finance matters, contract review, and financial planning.
PARENT
U.S. Automobile Acceptance Corporation (formerly Settlers Acceptance
Corporation), a Texas corporation (the "Parent") was formed in January 1995 to
begin to consolidate ownership, management, and operations of Michael R.
Marshall's automobile asset-backed finance activities. Consolidated financial
statements for the parent and its subsidiaries are included in this Prospectus;
however, investors will receive no interest in such company. The company
changed its name from Settlers Acceptance Corporation to U.S. Automobile
Acceptance Corporation in June 1996.
U.S. Automobile Acceptance Corporation will serve as servicer pursuant
to the Servicing Agreement, a form of which is included as Exhibit E to the
Prospectus. USAAC will provide the staffing, administration and overhead
necessary to administrate and collect automobile finance contracts for the
Company. Among the specific functions
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USAAC will provide are accounting, administration of collections of payments,
dealer selection and supervision, enforcement of dealer recourse, and, if
necessary, overseeing the repossession and sale of repossessed vehicles. USAAC
intends to subcontract a portion of the required services to qualified
Automobile Dealers.
PRIOR ACTIVITIES OF SIMILAR BUSINESSES UNDER COMMON CONTROL
In early 1995, Michael R. Marshall, acquired 100% of the common stock of
U.S. Automobile Acceptance SNP-I, Inc., a Delaware corporation (formerly named
U.S. Automobile Acceptance Corporation) ("SNP-I") from BTB Capital Corporation
("BTB"), the former parent of SNP-I, in exchange for Marshall's ownership of 33
1/3% of the outstanding common stock of BTB, and certain other consideration.
All officers and directors of SNP-I other than Marshall resigned their
positions effective February 1, 1995. Effective the same day Marshall resigned
all his positions with BTB and its affiliated contract servicer. Mr. Marshall
is now the sole shareholder, sole officer and sole director of SNP-I. On
December 15, 1994, SNP-I completed an asset-backed note offering similar to the
asset-backed note offering proposed in this Prospectus. As of August 31, 1997,
SNP-I had asset-backed note subscriptions totalling approximately $2,400,000,
and had purchased approximately 500 automobile finance contracts with a total
aggregate contract balances outstanding of approximately $2,500,000. SNP-I has
incurred credit losses averaging approximately 3% annually. The company
changed its name from U.S. Automobile Acceptance Corporation to U.S. Automobile
Acceptance SNP-I, Inc. in May 1996.
On June 16, 1995, U.S. Automobile Acceptance 1995-I, Inc. ("USAA 1995-
I"), a Texas corporation wholly owned by the parent of the Company, commenced
an offering of $9,900,000 of 14% asset-backed promissory notes due December 31,
1999. In September 1995 USAA 1995-I exceeded the minimum subscription escrow
requirements of $500,000 and began its contract purchasing operations. The
offering was completed on August 15, 1996, with note subscriptions totalling
$9,900,000. As of August 31, 1997, USAA 1995-I had purchased approximately
1,400 automobile finance contracts with aggregate balances outstanding of
approximately $9,000,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to owning beneficially 100% of the Company's Common Stock,
Mr. Marshall owns all of the outstanding common stock of U. S. Automobile
Acceptance SNP-I, Inc. ("SNP-I"). The parent of the Company, U.S. Automobile
Acceptance Corporation ("USAAC"), also owns 100% of the outstanding common
stock of U.S. Automobile Acceptance 1995-I, Inc.("USAA 1995-I"), giving Mr.
Marshall beneficial ownership of that company as well. Operations and
activities of SNP-I and USAA 1995-I are similar to the planned activities and
operations of the Company.
The Company, SNP-I, USAA 1995-I, and USAAC will have conflicts of
interest in allocating management time, services, overhead and functions.
Management of the Company intends to resolve any such conflicts in a manner
that is fair and equitable to the Company, but there can be no assurance that
any particular conflict may not be resolved in a manner that adversely affects
Noteholders. Management of the Company will endeavor to ensure that it has
sufficient staff personnel to be fully capable of discharging its
responsibilities to all affiliated entities, but there can be no assurance that
such personnel will be available. Although management has established a policy
for apportioning business opportunities on a pro rata basis among affiliates,
the risk exists that an entity other than the Company will receive more
favorable treatment with respect to business opportunities, including the
purchase of Contracts. If an insufficient supply of eligible Contracts is
available for purchase, there can be no assurances that the Company will be
able to keep its assets so invested, which may result in lower rates of return
to the investors and/or early redemption of the Notes. See "Risk Factors -
Conflicts of Interest."
There are no family relationships among any of the directors and
executive officers of the Company. Except as indicated herein, none of the
Company's directors hold directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
GENERAL
The Company began operations in February 1997. The Company is
considered to be in the development stage as substantially all of its efforts
have been expended in establishing the new business, raising capital and
purchasing initial Contracts. The net proceeds of the sale of the Notes are
being employed to purchase the Contracts. The Company began purchasing
Contracts in February 1997 and expects to be fully operational in the fourth
quarter of 1997. While the Notes remain outstanding, the Company will not
engage in any business other than the purchase, collection and servicing of the
Contracts (including repossession and resale of the vehicle collateral).
The Company's use of the net collection proceeds from the Contracts will
be restricted to payments on the Notes and to payments of Allowed Expenses and
purchases of additional eligible Contracts until the Note Redemption Trigger
Date.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of funds for repayment of the Notes will
be proceeds from the Contracts and any income on the reinvestment of such
proceeds. The Company does not have, nor is it expected to have in the future,
any significant source of capital for payment of the Notes and the expenses
incurred by it other than proceeds from the Contracts and any income from
reinvestment of such proceeds. Other than the guaranty by the parent for up to
$150,000, payment of the principal or Interest on the Notes is not guaranteed
by any other person or entity. Nevertheless, management of the Company
believes that the Company will realize sufficient proceeds from the foregoing
sources to pay all installments of Interest when due on the Notes and to
satisfy the principal amount of the Notes in full at maturity and/or upon
prepayment.
INDENTURE OF TRUST PROVISIONS
The following summaries describe certain provisions of the Indenture.
The summaries do not purport to be complete and are subject to, and qualified
in their entirety by reference to, the provisions of the Indenture, and where
particular provisions or terms used in the Indenture are referred to, the
actual provisions are incorporated by reference as part of such summaries.
An Indenture of Trust will be entered into between the Company and the
Trustee, Texas Commerce Bank National Association, Dallas, Texas, for the
benefit of Noteholders.
The Company is obligated to pay the fees and expenses of the Trustee
relating to the Notes. To secure the Company's payment of such fees and
expenses, the Trustee has a lien prior to the Notes on the Trust Estate. The
Trustee will also act as "escrow agent" to hold subscription proceeds until a
minimum of $100,000 in Notes are sold. The Trustee will accept title to the
Security Agreement on behalf of the Noteholders. A description of the
Indenture of Trust is set forth below. The duties of the Trustee are to hold
the Security Agreement and to perform certain obligations in the event of a
default in the payment of the principal and Interest on the Notes. The Trustee
will also act as Registrar and Paying Agent for purposes of registration or
transfer of the Notes and for payment of interest and principal on the Notes.
The Company shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe). The Company also
shall comply with the other provisions of TIA by filing annually a certificate
of compliance with the Trustee. Copies of any reports filed are available upon
request to Noteholders. No fees will be charged in excess of the Company's
out-of-pocket expenses in providing such reports.
The following constitute Events of Default under the Indenture of Trust:
(1) the Company fails to cause the Interest payments on the Notes to
be paid when due;
(2) the Company fails to cause the principal of any Notes to be paid
when due;
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(3) the Company fails to comply with any of its other agreements in
the Notes, the Security Documents, or the Indenture and the default continues
for the period and after the notice specified below;
(4) the Company, pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
any involuntary case,
(c) consents to the appointment of a Receiver of it or for any
substantial part of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) fails generally to pay its debts as they become due; or
(5) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company in an involuntary case,
(b) appoints a Receiver of the Company or for any substantial
part of its property, or
(c) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90
days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. The term "Receiver"
means any receiver, trustee, assignee, liquidator, or similar official under
any Bankruptcy Law.
A default under section (3) above is not an Event of Default until the
Trustee or the Holders of at least a majority in principal amount of the Notes
notify the Company of the default and the Company does not cure the default
within 90 days after receipt of the notice. The notice must specify the
default, demand that it be remedied, and state that the notice is a "Notice of
Default."
If an Event of Default occurs and is continuing, the Trustee may, at the
direction of Holders of at least twenty-five percent (25%) in principal amount
of the Notes by written notice to the Company, declare the principal of and
accrued Interest on all the Notes to be due and payable immediately. After a
declaration such principal and Interest shall be due and payable immediately.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment
of principal and Interest on the Notes or to enforce the performance of any
provision of the Notes, the Security Documents or the Indenture.
Notwithstanding anything to the contrary in the Indenture, the Trustee is
required to proceed against and liquidate all Collateral before looking to any
other assets of the Debtor.
The Holders of not less than seventy-five percent (75%) in Notes at the
time outstanding may consent on behalf of the Holders of all such Notes to the
postponement of any Interest payment for a period not exceeding three years
from its due date. The Holders of a majority of the Notes may consent to the
waiver of any past default and its consequences, except a default in payment of
principal and Interest or any other waiver prohibited under the terms of the
Indenture.
The Holders of a majority in principal amount of the Notes may 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 it. The
Trustee, however, may refuse to follow any direction that conflicts with law or
this Indenture, that is unduly prejudicial to the rights of other Noteholders,
or that may subject the Trustee to personal liability.
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If the Trustee collects any money subsequent to an Event of Default, it
shall pay out the money in the following order:
First: to the Trustee, in its capacity as Trustee, Registrar
and Paying Agent, for amounts due;
Second: to the payment of Allowed Expenses (except in an Event of
Default, payments of Allowed Expenses to affiliates will
be subordinated to the payment of principal and Interest
to Noteholders);
Third: to Noteholders for amounts due and unpaid on the Notes for
Interest, then principal, ratably, without preference or
priority of any kind, according to the amounts due and
payable on the Notes for principal and Interest; and
Fourth: to the Company and USAAC as a payment of amounts in excess
of Trustee fees and costs, Allowed Expenses, and Interest
and principal due on the Notes.
The Company may amend or supplement the Indenture or the Notes without
notice to or consent of any Noteholder to cure any ambiguity, omission, defect,
or inconsistency, or to make any change that does not adversely affect the
rights of any Noteholder.
The Company may amend or supplement the Indenture, the Security
Documents, or the Notes without notice to any Noteholder but with the written
consent of the Holders of not less than a majority in principal amount of the
Notes. The Holders of a majority in principal amount of the Notes may waive
compliance by the Company with any provision of this Indenture, the Security
Documents, or the Notes without notice to any Noteholder. Without the consent
of each Noteholder affected, however, an amendment, supplement, or waiver, may
not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate or extend the time for payment of Interest on any
Note;
(3) reduce the principal of or extend the fixed maturity of any Note;
(4) make any Note payable in money other than that stated in the
Note;
(5) waive a default on payment of principal or of Interest on any
Note; or
(6) impair the right to institute suite to enforce payments due on
any Note on or after the respective due dates.
The Company shall furnish to the Trustee a certificate or opinion of an
appraiser or other expert as to the fair value of any property or securities to
be released from the lien of the Security Documents, which certificate or
opinion shall state that in the opinion of the person making the same the
proposed release will not impair the security under the Security Documents in
contravention of the provisions thereof, and requiring further that such
certificate or opinion shall be made by an independent appraiser, or other
expert, if the fair value of such property or securities and of all other
property or securities released since the commencement of the then current
calendar year, as set forth in the certificates or opinions required by the
Indenture, is 40% or more of the aggregate principal amount of the Notes at the
time outstanding; but such a certificate or opinion of an independent appraiser
or other expert shall not be required in the case of any release of property or
securities, if the fair value thereof as set forth in the certificate or
opinion required by this paragraph is less than $25,000 or less than 1% of the
aggregate principal amount of the Notes at the time outstanding.
The Trustee, in its capacity as Trustee, Registrar and Paying Agent, may
resign by so notifying the Company. The Holders of a majority in principal
amount of the Notes may remove the Trustee, in its capacity as Trustee,
Registrar and Paying Agent, by so notifying the removed Trustee and may appoint
a successor Trustee, Registrar and/or Paying Agent with the Company's consent.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with certain minimum capital
requirements;
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(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or
its property;
(d) the Trustee otherwise becomes incapable of acting; or
(e) the Trustee is sold or otherwise liquidates.
To facilitate payment of the Notes, the Company shall transfer to the
Paying Agent at least one (1) business day prior to the Payment Date or
Redemption Date for the Notes sufficient money to make the required principal
and interest payments.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial
Code (the "UCC"). Pursuant to the UCC, a security interest in chattel paper
may be perfected by taking possession of the chattel paper or by the filing of
a UCC financing statement with the Secretary of State of the state in which a
corporate debtor's principal place of business is located, which in the case of
the Company is the Secretary of State of Oklahoma.
Upon any purchase of Contracts by the Company, the original Contracts
and related title documents for the Financed Vehicles will be delivered to the
Company. Upon its purchase, each Contract will be physically marked to indicate
the security interest therein of the Company. In addition, a UCC financing
statement will be filed in the appropriate public office to perfect by filing
and giving notice of the Company's security interest in the Contracts and all
proceeds therefrom.
SECURITY INTERESTS IN FINANCED VEHICLES
The Company expects that a significant portion of the Contracts will be
originated in Texas. Under the UCC as adopted in Texas and most other states,
retail installment sale contracts such as the Contracts constitute security
agreements for personal property and contain grants of security interests in
the Financed Vehicles.
Perfection of security interests in the Financed Vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In Texas and in many other states, a security interest in
a motor vehicle is perfected by notation of the secured party's lien on the
vehicle's certificate of title.
Upon the purchase of the Contracts, the originating Dealers are required
to assign the Contracts (and the security interests arising thereunder in the
Financed Vehicles) to the Company. The originating Dealers will also provide
evidence that proper applications for certificates of title have been made to
ensure that the Company will be named as the lienholder on the certificates of
title relating to the financed vehicles.
Under the laws of Texas and many other states, liens for repairs
performed on a motor vehicle and liens for certain unpaid taxes take priority
over even a perfected security interest in a vehicle. The Internal Revenue
Code of 1986 also grants priority to certain federal tax liens over the lien of
a secured party. Certain state and federal laws permit the confiscation of
motor vehicles under certain circumstances if used in unlawful activities,
which may result in the loss of a secured party's perfected security interest
in the confiscated motor vehicle. Upon the purchase of each Contract, the
Dealer is required to warrant that the Contract creates a valid, subsisting and
enforceable first priority security interest in favor of the Company in the
Financed Vehicle. However, liens for repairs or taxes, or the confiscation of
a Financed Vehicle, could arise or occur at any time during the term of a
Contract. No notice will be given to the Company in the event such a lien
arises or confiscation occurs.
If the owner of a Financed Vehicle relocates to another state, under the
laws of most states the perfected security interest in the Financed Vehicle
would continue for four months after such relocation and thereafter, in most
instances, until the owner re-registers the Financed Vehicle in such state.
Almost all states generally require surrender of a certificate of title to
re-register a titled vehicle. Therefore, the Company must surrender
possession, if it holds the certificate of title to such Financed Vehicle,
before the Financed Vehicle owner may effect the re-registration. In addition,
the Company should receive, absent clerical errors or fraud, notice of
surrender of the certificate of title
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because the Company will be listed as lienholder on its face. Accordingly, the
Company will have notice and the opportunity to re-perfect its security
interest in the Financed Vehicle in the state of relocation. If the Financed
Vehicle owner moves to one of the few states which does not require surrender
of a certificate of title for registration of a motor vehicle, re-registration
could defeat perfection. In the ordinary course of servicing the Contracts,
the Servicer or the Company takes steps to effect such re-perfection upon
receipt of notice of re-registration or other information from the Obligor as
to relocation. Similarly, when an Obligor under a Contract sells a Financed
Vehicle, the Company must surrender possession of the certificate of title or
the Company will receive notice as a result of its lien noted thereon.
Accordingly, the Company will have an opportunity to require satisfaction of
the related Contact before release of the lien.
REPOSSESSION
In the event of default by an Obligor on a Contract, the holder of the
Contract has all the remedies of a secured party under the 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
Obligor under a Contract voluntarily surrenders a vehicle, self-help
repossession, by an individual independent repossession specialist engaged by
the Servicer, subcontract Servicer or the Company, is the method presently
anticipated to be employed when an Obligor defaults. Repossession by the
Servicer or the Company occurs only if the Dealer has not previously replaced
the contract or has not honored other dealer recourse agreements. Self-help
repossession is accomplished by retaking possession of the Financed Vehicle.
If the Obligor objects or raises a defense to repossession, or if applicable
state law so requires, a court order must be obtained from the appropriate
state court and repossess the vehicle in accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the Obligor, some jurisdictions require that
the Obligor be notified of the default and be given a time period within which
the Obligor may cure the default prior to repossession. Generally, this right
of reinstatement may be exercised on a limited number of occasions in any
one-year period.
In most jurisdictions, the UCC and other state laws require the secured
party to provide the Obligor with reasonable notice of the date, time and place
of any public sale or the date after which any private sale of the collateral
may be held. Unless the Obligor waives his rights after default, the Obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the unpaid installments of the Contract (less any required
discount for prepayment) plus reasonable expenses for repossessing, holding and
preparing the collateral for disposition and arranging for this sale, plus in
some jurisdictions, reasonable attorneys' fees, or, in some states, by payment
of delinquent installments. It is presently anticipated that repossessed
vehicles will generally be resold by the Servicer or the Company, its
participating dealer network or through wholesale automobile networks or
auctions which are attended principally by dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The Servicer or the Company will apply the proceeds of resale of the
repossessed vehicles first to reimburse itself for its expenses of resale and
repossession and then to the satisfaction of the obligations of the Obligor on
the Contract. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the Contract obligations, some states allow a deficiency judgment to
be sought. A deficiency judgment is a personal judgment against the Obligor
for the difference between the amount of the obligations of the Obligor and the
net proceeds from resale. A defaulting Obligor on a Contract typically lacks
capital or income following the repossession of the Obligor's Financed Vehicle.
Therefore, the Servicer or the Company may determine in its discretion that
pursuit of a deficiency judgment is not an appropriate or economically viable
remedy or may settle at a significant discount any deficiency judgment that it
does obtain.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay the ability of the Company or the Servicer
to repossess and resell the Financed Vehicles or enforce a deficiency judgment.
In the event that deficiency judgments are not obtained, are not satisfied, are
satisfied at a discount or are discharged, in whole or in part, in bankruptcy
proceedings, including bankruptcy proceedings under Chapter 13 of the
Bankruptcy Reform Act of 1978, as amended, the loss will be borne by the
Company and may adversely affect the ability of the Company to repay the Notes.
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Occasionally, after resale of a vehicle and payment of all expenses and
obligations, there is a surplus of funds. In that case, the UCC requires the
secured party to remit the surplus to the former Obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon dealers and services involved
in consumer finance. These laws include, but are not limited to, the
Trust-In-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, state motor vehicle retail
installment sales acts, retail installment sales acts, and other similar laws.
Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosure in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated
by the Uniform Consumer Credit Code, other state statutes, or the common law in
certain states, is intended to defeat the ability of the transferor of a
consumer credit contract (such as the Contracts), which transferor is the
seller of the goods that gave rise to the transaction, to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the Obligor under the contract could assert against the seller of the
goods. Most of the Contracts will be subject to the requirements of the FTC
Rule. Accordingly, the Company, as holder of the Contracts, may be subject to
any claims or defenses that the purchaser of the Financed Vehicle may assert
against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts paid by the Obligor on the Contract.
The Obligor, however, may also assert the rule to offset remaining amounts due
on the Contract as a defense against any claim brought by the Company against
such Obligor.
Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles at retail sale.
Furthermore, federal odometer regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of new and used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
an odometer disclosure statement was not provided to the purchaser of a
Financed Vehicle, the Obligor may be able to assert a defense against the
seller of the vehicle.
Courts have imposed general equitable principals on secured parties
pursuing repossession of collateral or litigation involving deficiency
balances. These equitable principals may have the effect of relieving an
Obligor from some or all of the legal consequences of a default.
In several cases, the obligors have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by
the creditors do not involve sufficient state action to afford constitutional
protection to consumers.
The Dealer will warrant that each contract, at the time of its purchase
by the Company, complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim or defense against the Company for
violation of any law and such claim or defense materially and adversely affects
the Company's interest in a Contract, such violation would constitute a breach
of warranty under the Agreements and would create an obligation of the Dealer
to repurchase the Contract or reimburse the Company.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan,
30
<PAGE> 33
reduce the amount of the secured indebtedness to the market value of the motor
vehicle at the time of bankruptcy (as determined by the court), leaving the
party providing financing a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The terms of the Contracts prohibit the sale or transfer of the Financed
Vehicle securing a Contract without the secured party's consent and allow for
the acceleration of the maturity of the Contract upon a sale or transfer
without its consent. In most circumstances, the Company will not consent to a
sale or transfer of a Financed Vehicle by an Obligor unless the Obligor prepays
the Contract.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain federal income tax considerations
relating to an investment in the Notes is based upon the opinion of Tyson
Hopkins, independent certified public accountant.
INTEREST ON NOTES
Noteholders who report their income on the cash method of accounting for
federal income tax purposes are required to include interest in their gross
income in the taxable year in which it is received. Accrued method taxpayers
are generally required to include the interest in their gross income in the
taxable year in which the interest accrues.
PURCHASE OF NOTES BY EXEMPT PLANS AND OTHER EXEMPT ORGANIZATIONS
Generally, trusts forming part of a pension, profit sharing, or Keogh
plan meeting the requirements of Section 401(a) of the Code (all collectively
referred to as "Exempt Plans"), and individual retirement accounts and trusts
("IRAs and IRTs"), as well as certain charitable and other organizations
described in Code Section 501(c) are exempt from federal income tax. However,
this exemption does not apply where "unrelated business taxable income" is
derived by the Exempt Plan, IRAs, IRTs and other exempt organizations from the
conduct of any trade or business which is not substantially related to the
exempt function of the entity. If Exempt Plans, IRAs, IRTs and other exempt
organizations receive unrelated business taxable income, the Exempt Plans,
IRAs, IRTs and other exempt organizations will be subject to a tax imposed by
Section 511 of the Code on the portion of their income constituting unrelated
business taxable income. As Exempt Plan, IRA, IRT or other exempt
organizations will also be subject to alternative minimum tax on the unrelated
business taxable income.
Unrelated business taxable income is defined as the gross income derived
by an Exempt Plan, IRA, IRT, or other exempt organization from any unrelated
trade or business regularly carried on by such entity, less allowed deductions
directly connected with the carrying on of such trade or business. However,
certain types of income, including interest, dividends, royalties, gains or
losses from the sale or exchange of property (other than property held as
inventory or held primarily for sale to customers in the ordinary course of
trade or business) or rental payments from real property are excluded from the
unrelated business taxable income computation.
If an excluded category of income constitutes "unrelated debt-financed
income" then such income is not excluded from the computation of unrelated
business taxable income. Unrelated debt-financed income is the percentage of
gross income derived from or on account of property with respect to which there
is "acquisition indebtedness" equal to the ratio which the average acquisition
indebtedness with respect to the property bears to the acquisition basis of
such property. A portion of the deductions which are directly connected with
the property are allowed in the computation of unrelated debt-financed income.
Generally, acquisition indebtedness is indebtedness incurred directly or
indirectly in connection with the acquisition of property as well as
indebtedness the incurrence of which was reasonably foreseeable at the time of
the acquisition of the property. Therefore, if an Exempt Plan, IRA, IRT or
other exempt organization borrows funds to acquire the Notes, the Interest
received on such Notes may be reclassified as unrelated business taxable income
on which the Exempt Plan, IRA, IRT or other exempt organization may be taxed.
In considering an investment in the Notes of the Company of a portion of
the assets of an Exempt Plan, IRA or IRT, a fiduciary should consider: (i)
whether the investment is in accordance with the documents and instruments
31
<PAGE> 34
governing the Exempt Plan, IRA or IRT, (ii) whether the investment satisfies
the diversification requirements of Section 404(a)(1)(C) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), (iii) whether the investment
is prudent, because there may not be a market created in which he can sell or
otherwise dispose of the Notes or because the Notes are not adequately secured,
(iv) whether the assets of the Company are considered to be "plan assets" under
Department of Labor Regulation 2510.3-101, and (v) whether the income would be
unrelated business taxable income because of the use of acquisition
indebtedness as a source of the funds used to acquire the Notes.
EXEMPT PLANS, IRAS, IRTS AND OTHER EXEMPT ORGANIZATIONS ARE STRONGLY
URGED TO CONSULT THEIR TAX ADVISORS RELATIVE TO THE POSSIBILITY OF UNRELATED
BUSINESS TAXABLE INCOME AND ITS CONSEQUENCES TO THEIR SPECIFIC CIRCUMSTANCES
PRIOR TO AN INVESTMENT IN THE NOTES OF THE COMPANY.
THIS SUMMARY IS OF THE TAX LAWS UNDER THE INTERNAL REVENUE CODE AND DOES
NOT INCLUDE A DISCUSSION OF ANY RULES OR REGULATIONS ENACTED OR PROMULGATED BY
THE DEPARTMENT OF LABOR UNDER ERISA. ANY INVESTOR SUBJECT TO ERISA OR
DEPARTMENT OF LABOR REGULATIONS RELATING TO EXEMPT PLANS SHOULD CONSULT ITS
ADVISORS REGARDING AN INVESTMENT IN THE NOTES.
EXPERTS
The financial statements of the Company and of U.S. Automobile
Acceptance Corporation included in this Prospectus have been audited by Tyson
Hopkins, Oklahoma City, Oklahoma, independent certified public accountant,
whose report thereon appears elsewhere herein, and have been so included in
reliance upon the report and authority of such firm as an expert in auditing
and accounting. Tyson Hopkins has also delivered his opinion to the Company as
to the federal income tax matters discussed under "Certain Federal Income Tax
Considerations."
LEGAL MATTERS
Certain matters with respect to the validity of the Notes have been
passed upon the Company by Amy Waters, Attorney at Law, Waxahachie, Texas. The
discussion of the federal income tax considerations relating to the Notes has
been passed upon by Tyson Hopkins, independent certified public accountant,
Oklahoma City, Oklahoma.
32
<PAGE> 35
TYSON HOPKINS
CERTIFIED PUBLIC ACCOUNTANT
P.O. BOX 12127
OKLAHOMA CITY, OKLAHOMA 73157
(405) 789-3617
INDEPENDENT AUDITOR'S REPORT
Board of Directors
U.S. Automobile Acceptance Corporation
I have audited the balance sheets of U.S. Automobile Acceptance Corporation
(the Company) as of December 31, 1995, 1996 and August 31, 1997, and the
related statements of income, stockholders' equity, and cash flows for the
period from incorporation on January 12, 1995 through December 31, 1995 for the
year ended December 31, 1996 and for the eight months ended August 31, 1997.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Automobile Acceptance
Corporation as of December 31, 1995, 1996, and August 31, 1997 and the results
of operations, changes in stockholders' equity and cash flows for the periods
then ended in conformity with generally accepted accounting principles.
TYSON HOPKINS
Oklahoma City, Oklahoma
October 13, 1997
33
<PAGE> 36
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
BALANCE SHEET
As of December 31, 1996 and August 31, 1997
<TABLE>
<CAPTION>
ASSETS
December 31, August 31,
1996 1997
---- ----
<S> <C> <C>
Restricted cash and cash equivalents $ 1,511,517 $ 6,559,063
Contracts receivable -0- 5,084,287
Capitalized note offering and
organization costs 273,372 1,352,981
Other 12,925 4,595
------------ ------------
TOTAL ASSETS $ 1,797,814 $ 13,000,926
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 11,542 $ 96,092
Notes payable 1,739,000 11,271,000
Unearned interest, contract purchases
discount and allowance for losses -0- 1,864,591
Other 13,700 15,473
------------ ------------
TOTAL LIABILITIES 1,764,242 13,247,156
------------ ------------
Commitments
Stockholders' equity:
Common Stock $1.00 par value 3,000
shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 49,000 49,000
Retained earnings (deficit) (16,428) (296,230)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 33,572 (246,230)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,797,814 $ 13,000,926
============ ============
</TABLE>
See accompanying notes to financial statements
34
<PAGE> 37
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
STATEMENT OF OPERATIONS
For the period from incorporation on June 7, 1996 through
December 31, 1996 and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Eight Months
Ended
December 31, 1996 August 31, 1997
----------------- ---------------
<S> <C> <C>
Interest income $ 195 234,806
Interest expense 12,603 433,325
-------- ---------
Net interest expense (12,408) (198,519)
Gain from sale of contracts -0- 11,385
Net (12,408) (187,134)
General and administrative expenses 4,020 92,668
-------- ---------
Net loss $(16,428) $(279,802)
======== =========
Net loss per share of common stock $ (16.43) $ (279.80)
======== =========
</TABLE>
See accompanying notes to financial statements
35
<PAGE> 38
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from incorporation on June 7, 1996 through
December 31, 1996 and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance prior to
incorporation on
June 7, 1996 0 0 0 0 0
June 1996, issuance of
common stock for cash,
par value $1.00, sales
price $50.00 per share 1,000 $1,000 $49,000 0 $ 50,000
Net loss 1996 0 0 0 (16,428) (16,428)
----- ------ ------- --------- ---------
Balances, December 31, 1996 1,000 1,000 49,000 (16,428) 33,572
Net loss, August 31, 1997 0 0 0 (279,802) (279,802)
----- ------ ------- --------- ---------
Balance, August 31, 1997 1,000 $1,000 $49,000 $(296,230) $(246,230)
===== ====== ======= ========= =========
</TABLE>
See accompanying notes to financial statements
36
<PAGE> 39
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
STATEMENT OF CASH FLOWS
For the period from incorporation on June 7, 1996 through
December 31, 1996 and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Eight Months
Ended
December 31, 1996 August 31, 1997
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (16,428) $ (279,802)
Adjustments to reconcile net income
(loss) to cash provided by operating
activities:
(Increase) decrease in other assets (12,925) 8,330
Increase in accrued interest
payable and other liabilities 25,242 86,323
----------- -----------
Cash used by operating
activities (4,111) (185,149)
----------- -----------
Cash flows from investing activities:
Finance contracts purchased -0- (5,271,655)
Finance contracts collections -0- 187,368
Unearned interest, discounts and deferred
dealer collection fees -0- 1,864,591
----------- -----------
Cash used by investing
activities -0- (3,219,696)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 50,000
Proceeds from issuance of notes payable 1,739,000 9,532,000
Capitalized offering and organization
costs (273,372) (1,079,609)
----------- -----------
Cash provided by financing
activities 1,515,628 8,452,391
----------- -----------
Increase in cash and cash
equivalents 1,511,517 5,047,546
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -0- 1,511,517
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,511,517 $ 6,559,063
=========== ===========
</TABLE>
See accompanying notes to financial statements
37
<PAGE> 40
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
GENERAL - U.S. Automobile Acceptance SNP-III, Inc. (herein referred to as
"Company" or "SNP-III") was incorporated on June 7, 1996 as a Texas Corporation
and a wholly owned subsidiary of U.S. Automobile Acceptance Corporation,
formerly named Settlers Acceptance Corporation. The Company was formed to
purchase, collect and service retail installment sale financing contracts
created by the sale of used automobiles and light trucks. The Company targets
automobile purchasers who are typically unable to obtain credit from
traditional sources. The contracts generally have APR interest rates at or
near the maximum rate allowed by the state in which the automobile sale was
originated and the payment terms are generally from 24 to 48 months. The
contracts are originated by used car divisions of new car dealerships and by
independent used car dealerships ("Dealers"), with the Company's type financing
arrangement generally being referred to as indirect consumer lending.
To date, all contract purchases have been financed through the issuance of
publicly registered notes ("Notes") of the Company. The Notes are
collateralized by individual motor vehicle retail installment contracts. The
contracts are secured by liens on used automobile and light trucks and are
generally purchased at discounts ranging from 5% to 25% below the total future
net principal balance owed on such contracts. Purchase discounts vary
depending on the credit worthiness of the individual borrower and financial
strength added by additional credit support agreements provided by the Dealers
from which contracts have been purchased. The Dealer credit support agreements
are usually in the form of contract replacement agreements, direct dealer
recourse agreements, limited guarantee agreements or some other form of cash
hold-back arrangement. The Company customarily requires the individual owner
of the automobile dealership to personally guarantee performance of the various
agreements.
DEVELOPMENT STAGE ENTERPRISE - The Company is considered to be in the
"development stage" as substantially all of its efforts have been expended in
establishing the new business, raising capital and purchasing initial finance
contracts. The Company began purchasing finance contracts in the late first
quarter of 1997 and expects to be fully operational in the fourth quarter of
1997. The Company has not received significant revenues as of August 31, 1997.
ASSET-BACKED NOTE OFFERING - The Company filed a Registration Statement in 1996
with the Securities and Exchange Commission and various state security boards
with respect to its offering of up to $24,000,000 of 11% Promissory Notes due
December 31, 2001. The $100,000 minimum required subscription amount was
reached in November 1996 and the offering became effective. Subscriptions of
$1,739,000 had been received at year end and $11,271,000 at August 31, 1997.
The Company expects the Note offering to continue through at least December
1997 and currently plans to apply with the various federal and state regulatory
authorities to extend the offering selling period through a portion of 1998.
The Notes are offered through licensed broker-dealers on a "best efforts
basis". The net proceeds of the offering are used to acquire sub-prime credit
automobile retail installment financing contracts.
38
<PAGE> 41
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
NOTES TO FINANCIAL STATEMENTS
The Notes are issued under the terms of an Indenture Agreement between the
Company and Texas Commerce Bank National Association, as Trustee. The Notes are
secured by the contracts and proceeds thereof.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices
within the finance industry.
USE OF ESTIMATES - The preparation of 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, the
disclosures regarding contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses reported during
the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all investments with a
maturity of three months or less, when purchased, to be cash equivalents.
RESTRICTED CASH - The use of cash of SNP-III is restricted by the terms of an
indenture agreement between the Company and Texas Commerce Bank, as Indenture
Trustee, and restricted cash can only be utilized for the payment of: 1)
Allowed Expenses, 2) Trustee's fees and expenses, 3) Interest paid by transfers
to Note Redemption Account for payment to Noteholders and 4) Before Note
Redemption Date (January 1, 2001), any remaining proceeds used to purchase
additional eligible contracts, and After Note Redemption Trigger Date, any
remaining proceeds deposited into Note Redemption Account for payment of Notes.
FINANCE CONTRACTS AND INCOME RECOGNITION - Upon purchase of a contract, the
Company records the gross amount of the contract as a gross contract receivable
and the difference between gross contract receivable and cost of the contract
purchased is recorded as unearned interest, discounts and dealer hold-backs.
Income from finance contracts is recognized using the effective interest
method.
CAPITALIZED NOTE OFFERING AND ORGANIZATION COSTS - Costs directly related to
note offering cost are capitalized and will be amortized over the period
benefited after completion of the Note offering, organization costs will be
amortized over 60 months.
CREDIT LOSSES - The company believes that amounts included in unearned
interest, discounts and dealer hold-back accounts are sufficient to cover any
loan losses that will be incurred in the future. If management determines that
additional loss reserves are necessary in the future they will be established
at that time.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, Disclosure About Fair
39
<PAGE> 42
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
NOTES TO FINANCIAL STATEMENTS
Value of Financial Instruments, requires the disclosure, to the extent
practicable, of the fair value of financial instruments which are recognized or
unrecognized in the balance sheet. In Management's opinion, the fair value of
finance contracts and Notes payable is approximately the same as the carrying
value reflected in the financial statements.
INCOME TAXES - The Company has adopted SFAS No. 109, Accounting for Income
Taxes, whereby deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax reporting
purposes, and (b) net operating loss carry forwards. There are no timing
differences between financial and taxable income. Since the Company has
incurred small operating losses since it's inception the Company has no income
tax liability as of August 31, 1997.
3. CONTRACTS RECEIVABLE
At August 31, 1997 contracts receivable were as follows:
<TABLE>
<CAPTION>
August 31, 1997
---------------
<S> <C>
Cost of contracts purchased $ 3,219,696
Unearned interest, purchase
discounts and dealer hold-
backs 1,864,591
-----------
TOTAL ANTICIPATED CONTRACT
PAYMENTS $ 5,084,287
===========
</TABLE>
The Company holds vehicle titles as collateral for all installment contracts
receivable until they are paid in full.
Use of proceeds of contract receivable collections is restricted to repayment
of Notes payable described in Note 4, payment of certain allowed expenses of
the Company and the purchase of additional contracts.
4. NOTES PAYABLE
At December 31, 1996 and August 31, 1997 the Company had outstanding notes
payable of $1,739,000 and $11,271,000 respectively. The Notes bear interest at
11% payable monthly, and the principal is due December 31, 2001.
The Notes have been issued under the terms of an Indenture Agreement between
SNP-III and Texas Commerce Bank National Association ("TCB"), as trustee. The
Notes are collateralized by the contracts and proceeds thereof. SNP-III holds
vehicle titles as collateral for contracts until they are paid in full. Use of
proceeds of contract collections of SNP-III is restricted to payments on the
Notes, payment of certain allowed expenses
40
<PAGE> 43
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
NOTES TO FINANCIAL STATEMENTS
of SNP-III and the purchase of additional contracts.
TCB serves as Indenture Trustee on behalf of noteholders of SNP-III. Under the
terms of the various agreements TCB holds a security agreement for the benefit
of the noteholders, serves as paying agent, note registrar, controls the note
redemption bank account and serves as escrow agent, initially receiving all
funds received as Note subscriptions from the noteholders of SNP-III. In the
event of non payment of principal or interest on the Notes, the Indenture
Trustee may declare the principal and interest payable immediately and may
pursue any available remedies by proceeding at law or in equity to collect or
to enforce the performance of any provision of the Notes or the security
agreement.
As of August 31, 1997 all automobile Dealers, and the individual dealership
owners, who have sold contracts to SNP-III have guaranteed performance of
contracts either by executing contract replacement agreements whereby
non-performing contracts are replaced with similar term performing contracts,
direct dealer recourse agreements, limited guarantee agreements, or some other
form of cash holdback arrangement. As of August 31, 1997 SNP-III had purchased
contracts from approximately 50 automobile Dealers.
Noteholders may incur risks and uncertainties including concentration of assets
since SNP-III is not expected to have any significant assets other than
automobile finance contracts and since most of the borrowers and the related
automobile collateral are expected to be located in the state of Texas. Other
risks include limited operating history of the Servicer and SNP-III, possible
decline in future availability and quality of finance Contracts to be purchased
due to increased competition, possible conflicts of interest between SNP-III
and current affiliate entities, including its parent, other affiliates and
securitization entities which may be formed in the future.
5. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has issued 1,000 shares of common stock to its parent for $50,000
in connection with the organization of the Company.
The Company has incurred operating losses through August 31, 1997 and expects
to continue to incur small future operating losses until purchase of the
initial contract portfolio of SNP-III is completed. Management expects the
finance operations of SNP-III will become profitable early to mid 1998.
6. RELATED PARTY TRANSACTIONS - COMMITMENT
The Company's parent U.S. Automobile Acceptance Corporation contractually
administers, services and collects contracts on behalf of USAA SNP-III and
subcontracts a portion of the servicing and collection functions to Automobile
Dealers and other subcontractors. The amount paid to the Company for such
services is restricted by the terms of various agreements.
Five percent (5%) of the proceeds of the Asset-Backed Note offering are paid to
the parent as reimbursement of registration, legal, accounting,
41
<PAGE> 44
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
(a development stage enterprise)
A wholly owned subsidiary of U.S. Automobile Acceptance Corporation
NOTES TO FINANCIAL STATEMENTS
printing, trustee, marketing, and other out of pocket fees and expenses and
allocated general and administrative and overhead expenses related to the
offering and organization of the Company.
The Company's contracts will be administrated, serviced and collected on behalf
of the Company by U.S. Automobile Acceptance Corporation (Parent and Servicer).
The Servicer intends to subcontract a portion of the servicing of the contracts
to qualified automobile dealers.
The Servicer will be paid a servicing fee of $21.50 per month, per contract,
limited to maximum of $85,000 per month. In addition, the Company's Parent will
be paid a one time purchase administration fee of $125 per contract purchased,
paid monthly, and will be paid a monthly investor administration fee of 1/12th
of 1% of the aggregate principal amount of the Notes outstanding, and 1/12th of
1% of aggregate funds held in investment accounts.
42
<PAGE> 45
TYSON HOPKINS
CERTIFIED PUBLIC ACCOUNTANT
P.O. BOX 12127
OKLAHOMA CITY, OKLAHOMA 73157
(405) 789-3617
INDEPENDENT AUDITOR'S REPORT
Board of Directors
U.S. Automobile Acceptance Corporation
I have audited the accompanying consolidated balance sheets of U.S. Automobile
Acceptance Corporation and subsidiaries as of December 31, 1995, 1996 and
August 31, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from incorporation of the
Company on January 12, 1995 through December 31, 1995, for the year ended
December 31, 1996 and for the eight months ended August 31, 1997. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of U.S. Automobile
Acceptance Corporation and subsidiaries as of December 31, 1995, 1996 and
August 31, 1997, and the results of operations, changes in stockholders' equity
and cash flows for the periods then ended in conformity with generally accepted
accounting principles.
TYSON HOPKINS
Oklahoma City, Oklahoma
October 13, 1997
43
<PAGE> 46
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995, 1996 and August 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
Dec. 31, Dec. 31, Aug. 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents $ 110,597 $ 349,055 $ 944,500
Restricted cash 787,166 4,392,994 7,934,386
Marketable securities -0- 386,127 614,415
Automobile finance contracts receivable 365,514 7,867,895 13,655,293
Note offering and organization costs,
less accumulated amortization of
$14,924 at December 31, 1995, $234,332
at December 31, 1996 and $492,332 at
August 31, 1997 243,606 1,200,028 1,946,237
Other assets -0- 201,438 259,467
--------- ---------- ----------
TOTAL ASSETS $ 1,506,883 $ 14,397,537 $ 25,354,298
========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable $ 1,332,000 $ 11,639,000 $ 21,171,000
Accrued interest payable 15,359 127,042 211,592
Unearned interest, contract purchase
discount and allowance for loan losses 107,645 2,971,636 4,466,630
Other -0- 29,096 36,302
--------- ---------- ----------
TOTAL LIABILITIES 1,455,004 14,766,774 25,885,524
--------- ---------- ----------
Commitments
Stockholders' equity:
Common Stock, $.01 par value,
40,000,000 shares authorized,
10,000,000 shares issued and
outstanding 100,000 100,000 100,000
Retained earnings (deficit) (48,121) (469,237) (631,226)
--------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 51,879 (369,237) (531,226)
--------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,506,883 $ 14,397,537 $ 25,354,298
========= ========== ==========
</TABLE>
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
See accompanying notes to financial statements
44
<PAGE> 47
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from incorporation on January 12, 1995 through
December 31, 1995, the year ended December 31, 1996
and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Aug. 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest income $ 14,274 $ 978,269 $ 1,593,727
Interest expense 34,582 921,177 1,357,325
---------- ---------- ----------
Net interest income (expense) (200,308) 57,092 236,402
Other, principally gain on sale of
contracts -0- 65,000 309,169
---------- ---------- ----------
Net (200,308) 122,092 545,571
General and administrative expenses 12,889 323,800 449,560
Amortization of note offering and
organization costs 14,924 219,408 258,000
---------- ---------- ----------
Net loss (48,121) (421,116) (161,989)
---------- ---------- ----------
Net loss per share of common stock (.00481) (.04211) (.01620)
========== ========== ==========
Weighted number of common shares
outstanding 10,000,000 10,000,000 10,000,000
========== ========== ==========
</TABLE>
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
See accompanying notes to financial statements
45
<PAGE> 48
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from incorporation on January 12, 1995 through
December 31, 1995, the year ended December 31, 1996
and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Aug. 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (48,121) $ (421,116) $ (161,989)
Adjustments to reconcile net loss to
cash provided by operating activities:
Amortization 14,924 219,408 258,000
Increase in other assets -0- (201,438) (55,029)
Increase in accrued interest payable 15,359 111,683 84,550
Increase in other liabilities -0- 29,096 7,226
--------- ---------- ----------
Cash provided (used)
by operating activities (17,838) (262,367) 132,758
--------- ---------- ----------
Cash flows used in investing activities:
Marketable securities purchased -0- (386,127) (228,288)
Finance contracts purchased (381,370) (8,673,476) (8,319,048)
Finance contracts collections 15,856 1,171,095 2,531,650
Unearned interest, discounts and
deferred dealer collection fees 107,645 2,863,991 1,494,994
--------- ---------- ----------
Cash used in
investing activities (257,869) (5,024,517) (4,520,692)
--------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock 100,000 -0- -0-
Issuance of notes payable 1,332,000 10,307,000 9,932,000
Note offering costs (258,530) (1,175,830) (1,407,229)
--------- ---------- ----------
Cash provided by
financing activities 1,173,470 9,131,170 8,524,771
--------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 897,763 3,844,286 4,136,837
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD -0- 897,763 4,742,049
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 897,763 $ 4,742,049 $ 8,878,886
========== ========== ==========
</TABLE>
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
See accompanying notes to financial statements
46
<PAGE> 49
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period from incorporation on January 12, 1995 through
December 31, 1995, the year ended December 31, 1996
and for the eight months ended August 31, 1997
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balances prior to
incorporation on
January 12, 1995 -0- -0- -0- -0-
Issuance of common stock for
cash, par value $0.01 per
share, sales price $0.01
per share 10,000,000 $ 100,000 $ -0- $ 100,000
Net loss 1995 -0- -0- (48,121) (48,121)
---------- ------- -------- --------
Balances December 31, 1995 10,000,000 100,000 (48,121) (51,879)
Net loss 1996 -0- -0- (421,116) (421,116)
---------- ------- -------- --------
Balances December 31, 1996 10,000,000 $ 100,000 $ (469,237) $ (369,237)
Net loss for the eight
months ended August 31,
1997 -0- -0- (161,989) (161,989)
---------- ------- -------- --------
Balances August 31, 1997 10,000,000 $ 100,000 $ (631,226) $ (531,226)
========== ======= ======== ========
</TABLE>
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
See accompanying notes to financial statements
47
<PAGE> 50
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
U.S. Automobile Acceptance Corporation, formerly named Settlers Acceptance
Corporation ("Company"), was incorporated on January 12, 1995 as a Texas
corporation. The Company was formed to begin to consolidate ownership,
management and operations of its sole stockholders automobile secured finance
activities which include purchasing, collecting and servicing retail
installment finance contracts ("Contracts") created by the sale of used
automobiles and light trucks. To date the principal business activities of the
Company and its limited purpose securitization subsidiaries (herein referred to
as "Securitization Subsidiaries") have been as follows:
U.S. AUTOMOBILE ACCEPTANCE 1995-1, INC. ("USAA 1995-1")
In June 1995, USAA 1995-1, a Texas corporation, and wholly owned
subsidiary of the Company, commenced a publicly registered note
offering of $9,900,000 of 14% secured promissory notes due December
31, 1999. In September 1995 USAA 1995-I exceeded the minimum
subscription escrow requirements of $500,000 and began its automobile
finance Contract purchasing activities. As of August 15, 1996, USAA
1995-1 completed the note offering with note subscriptions totaling
$9,900,000. Until late first quarter of 1997, USAA 1995-1 was a
development stage enterprise as substantially all of its efforts were
expended in establishing the new business, raising capital and
purchasing the initial finance contract portfolio. As of August 31,
1997, USAA 1995-1 is fully operational and has purchased
approximately 1,400 Contracts from 65 automobile dealers with total
aggregate balances due of approximately $9,000,000.
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.("SNP-III")
SNP-III was incorporated on June 7, 1996 as a Texas corporation and a
wholly owned subsidiary of the Company. SNP-III has filed a
Registration Statement with the Securities and Exchange Commission
and various state security boards with respect to an offering of up
to $24,000,000 of 11% Promissory Notes due December 31, 2001. The
$100,000 minimum required subscription amount was reached in November
1996 and the offering became effective. Subscriptions of $1,739,000
had been received at year end and $11,271,000 at August 31, 1997.
SNP-III expects the Note offering to continue through at least
December 1997 and currently plans to apply with the various federal
and state regulatory authorities to extend the offering selling
period through a portion of 1998. SNP-III is considered to be in the
"development stage" as substantially all of its efforts have been
expended in establishing the new business, raising capital and
purchasing initial finance contracts. SNP-III began purchasing
finance contracts in the late first quarter of 1997 and expects to be
fully operational in the fourth quarter of 1997.
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
48
<PAGE> 51
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and its Securitization Subsidiaries targets automobile purchasers
who are typically unable to obtain credit from traditional sources. The
Contracts generally have APR interest rates at or near the maximum rate allowed
by the state in which the automobile sale was originated and the payment terms
are generally from 24 to 48 months. The Contracts are originated by used car
divisions of new car dealerships and by independent used car dealerships
("Dealers"), with the Company's type financing arrangement generally being
referred to as indirect consumer lending.
To date, all Contract purchases have been financed through the issuance of
publicly registered notes ("Notes") of the Securitization Subsidiaries. The
Notes are collateralized by individual motor vehicle retail installment
Contracts. The Contracts are secured by liens on used automobile and light
trucks and are generally purchased at discounts ranging from 5% to 25% below
the total future net principal balance owed on such Contracts. Purchase
discounts vary depending on the credit worthiness of the individual borrower
and financial strength added by additional credit support agreements provided
by the Dealers from which Contracts have been purchased. The Dealer credit
support agreements are usually in the form of Contract replacement agreements,
direct dealer recourse agreements, limited guarantee agreements or some other
form of cash hold-back arrangement. Generally, the individual owner of the
automobile dealership personally guarantees performance of the various
agreements.
The Notes are issued under the terms of Indenture Agreements between the
Securitization Subsidiaries and Texas Commerce Bank National Association, as
Trustee. The Notes are secured by the Contracts and proceeds thereof.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices
within the finance industry.
USE OF ESTIMATES - The preparation of 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, the
disclosures regarding contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses reported during
the period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all investments with a
maturity of three months or less, when purchased, to be cash equivalents.
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
49
<PAGE> 52
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESTRICTED CASH - The use of cash of the Securitization Subsidiaries is
restricted by the terms of an indenture agreement between each Securitization
and Texas Commerce Bank, as Indenture Trustee, and restricted cash can only be
utilized for the payment of: 1) Allowed Expenses, 2) Trustee's fees and
expenses, 3) Interest paid by transfers to Note Redemption Account for payment
to Noteholders and 4) Before Note Redemption Trigger Dates, any remaining
proceeds used to purchase additional eligible contracts, and After Note
Redemption Trigger Date, any remaining proceeds deposited into Note Redemption
Account for payment of Notes. Note redemption trigger dates are one year prior
to the respective Note maturity dates.
MARKETABLE SECURITIES - Consist of U.S. Treasury securities with maturities in
excess of one year. They are reported in the balance sheet at amortized cost.
FINANCE CONTRACTS AND INCOME RECOGNITION - Upon purchase of a Contract, the
Company records the gross amount of the Contract as a gross contract receivable
and the difference between gross contract receivable and cost of the Contract
purchased is recorded as unearned interest, discounts and allowance for loan
losses. Income from finance Contracts is recognized using the effective
interest method.
The Company makes periodic sales of Contracts to third party buyers for cash.
Income from sale of Contracts is recognized at the time of the sale.
CAPITALIZED NOTE OFFERING AND ORGANIZATION COSTS - Costs directly related to
note offering cost are capitalized and amortized over the period benefited
after completion of the Note offering. Organization costs are amortized over 60
months.
CREDIT LOSSES - The Company believes that amounts included in unearned
interest, discounts and dealer hold-back accounts are sufficient to cover any
losses that will be incurred in the future. If management determines that
additional loss reserves are necessary in the future they will be established
at that time.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, Disclosure About Fair Value
of Financial Instruments, requires the disclosure, to the extent practicable,
of the fair value of financial instruments which are recognized or unrecognized
in the balance sheet. In Management's opinion, the fair value of finance
Contracts and Notes payable is approximately the same as the carrying value
reflected in the financial statements.
INCOME TAXES - The Company has adopted SFAS No. 109, Accounting for Income
Taxes, whereby deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax reporting
purposes, and (b) net operating loss carry forwards. There are no timing
differences between financial and taxable income. Since the Company has
incurred small operating losses since it's inception the Company has no income
tax liability as of August 31, 1997.
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
50
<PAGE> 53
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CONTRACTS RECEIVABLE:
Total contracts receivable due to Securitization Subsidiaries were $365,514 as
of December 31, 1995, $7,867,895 as of December 31, 1996 and $13,655,293 as of
August 31, 1997. The Securitization Subsidiaries holds vehicle titles as
collateral for installment contracts receivable until they are paid in full.
Use of proceeds of contract receivable collections is restricted to repayment
of Notes payable described in Note 4, payment of certain allowed expenses and
the purchase of additional contracts.
4. NOTES PAYABLE
Notes payable of the Securitization Subsidiaries were as follows:
<TABLE>
<CAPTION>
Interest Maturity Dec. 31, Dec. 31, Aug. 31,
Rate Date 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
USAA 1995-1 14% 12/31/99 $ 1,332,000 $ 9,900,000 $ 9,900,000
USAA SNP-III 11% 12/31/01 -0- 1,739,000 11,271,000
----------- ----------- -----------
TOTAL DUE $ 1,332,000 $11,639,000 $21,191,000
=========== =========== ===========
</TABLE>
The Notes have been issued under the terms of Indenture Agreements between
Securitization Subsidiaries and Texas Commerce Bank National Association
("TCB"), as trustee. The Notes are collateralized by the Contracts and proceeds
thereof. Each Securitization Subsidiary holds vehicle titles as collateral for
contracts until they are paid in full. Use of proceeds of contract collections
of the Securitization Subsidiaries is restricted to payments on the Notes,
payment of certain allowed expenses and purchase of additional contracts.
TCB serves as Indenture Trustee on behalf of noteholders of the Securitization
Subsidiaries. Under the terms of the various agreements TCB holds a security
agreement for the benefit of the noteholders, serves as paying agent, note
registrar, controls the note redemption bank accounts and serves as escrow
agent, initially receiving all funds received as Note subscriptions from the
noteholders. In the event of non payment of principal or interest on the Notes,
the Indenture Trustee may declare the principal and interest of the defaulting
Securitization Subsidiary payable immediately and may pursue any available
remedies by proceeding at law or in equity to collect or to enforce the
performance of any provision of the Notes or the security agreements.
As of August 31, 1997 all automobile Dealers, and the individual dealership
owners, who have sold contracts to Securitization Subsidiaries have guaranteed
performance of contracts either by executing contract replacement agreements
whereby non-performing contracts are replaced with similar term performing
contracts, direct dealer recourse agreements, limited guarantee agreements, or
some other form of cash holdback arrangement. At August 31, 1997 USAA 95-1 owns
approximately 1400 Contracts purchased
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
51
<PAGE> 54
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from 65 automobile dealers with aggregate net worths approximating $24,000,000,
SNP-III owns approximately 600 Contracts purchased from 50 automobile dealers
with aggregate net worth approximating $18,000,000.
Noteholders may incur risks and uncertainties including concentration of assets
since Securitization Subsidiaries are not expected to have any significant
assets other than automobile finance contracts and since most of the borrowers
and the related automobile collateral are expected to be located in the state
of Texas. Other risks include limited operating history of the Servicer and the
Securitization Subsidiaries, possible decline in future availability and
quality of finance Contracts to be purchased due to increased competition,
possible conflicts of interest between the Securitization Subsidiaries, their
parent and other affiliates and securitization entities which may be formed in
the future.
5. STOCKHOLDERS' EQUITY (DEFICIT)
The Company issued 10,000,000 shares of common stock to its sole stockholder
for $100,000 in connection with the organization of the Company.
The Company has incurred consolidated operating losses through August 31, 1997
and expects to continue to incur small future operating losses until purchase
of the initial contract portfolio of SNP-III is completed. Management expects
the consolidated finance operations of the Company will become profitable early
to mid 1998.
6. RELATED PARTY TRANSACTIONS - COMMITMENT
The Company contractually administers, services and collects contracts on
behalf of Securitization Subsidiaries. The amount paid to the Parent for such
services is restricted by the terms of various agreements.
Five percent (5%) of the proceeds of the Asset-Backed Note offering of SNP-III
are paid to the parent as reimbursement of registration, legal, accounting,
printing, trustee, marketing, and other out of pocket fees and expenses and
allocated general and administrative and overhead expenses related to the
offering and organization of the Company. Six percent of the proceeds of
previous Note offering of USAA 95-1 was paid to the parent.
The Company is paid a servicing fee of $21.50 per month, per contract, limited
to maximum of $35,000 per month by USAA 95-1 and $85,000 per month by SNP-III.
In addition, the Company's Parent is paid a one time purchase administration
fee of $125 per contract purchased, paid monthly, and is paid a monthly
investor administration fee of 1/12th of 1% of the aggregate principal amount
of the Notes outstanding, and 1/12th of 1% of aggregate funds held in
investment accounts.
As of August 31, 1996, the Company has guaranteed up to $50,000 of the
principal of the Notes of USAA 95-1 and has guaranteed up to $150,000 of the
principal of the Notes of SNP-III.
U.S. AUTOMOBILE ACCEPTANCE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES TO BE ISSUED BY U.S. AUTOMOBILE ACCEPTANCE
SNP-III, INC., EXCEPT TO THE EXTENT OF A LIMITED GUARANTEE IN THE AMOUNT OF
$150,000.
52
<PAGE> 55
EXHIBIT A
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
11% ASSET-BACKED PROMISSORY NOTE DUE DECEMBER 31, 2001
$______________ No. ________________
U.S. Automobile Acceptance SNP-III, Inc., a Texas corporation (herein
referred to as the "Company"), for value received, hereby promises to pay to
_______________________________________________________________________ or
registered assigns, the principal sum of
_____________________________________________________________________ Dollars
on December 31, 2001 (the "Stated Maturity" of such principal), and to pay
interest (computed on the basis of the unpaid portion of said principal sum
outstanding from time to time from the date of issue), until the principal
amount of this Note is paid in full at the rate of eleven percent (11%) per
annum, which interest shall be due and payable upon the fifteenth day of each
calendar month (for such interest accruing during the prior month or months)
commencing with the first calendar month after the issuance hereof and upon the
Stated Maturity (each a "Payment Date"). Interest is calculated on the basis
of a 365-day year but is paid in 12 equal monthly installments, regardless of
the number of days in each month.
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 11% Asset-Backed Promissory Notes Due December 31, 2001
(herein called the "Notes"), all issued and to be issued under an Indenture
(herein called the "Indenture"), between the Company and Texas Commerce Bank
National Association (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
thereunder of the Company, the Trustee and the Holders of the Notes.
The principal of and interest on this Note are payable in such
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made with respect
to this Note shall be applied first to interest due and payable on this Note as
provided above and then to the unpaid principal of this Note. Any installment
of interest which is not paid when and as due shall bear interest, at the
lesser of eighteen percent (18%) or the maximum amount allowed by law, from the
date due to the date of payment thereof.
Monthly payment of interest shall be made by check mailed to the
person whose name appears as the Holder of this Note on the Note Register as of
the first day of the month in which such Payment Date occurs (the "Record
Date") without requiring that this Note be submitted for notation of payment.
Checks returned undelivered will be held by the Company or its designee for
payment to the person entitled thereto. Payment of the outstanding principal
of and accrued interest on this Note at the Stated Maturity or of the
Redemption Price (as hereinafter defined) payable on any Redemption Date (as
hereinafter defined) as of which this Note or any portion hereof has been
called for redemption shall be made upon presentation of this Note to the
Paying Agent appointed by the Company for such purpose.
The payment of principal and accrued interest on the Notes, when due,
is backed by the Trust Estate, which consists of, among other things, a first
security interest in specific motor vehicle retail installment contracts and
the funds in the Master Collections Accounts, the Master Operating Account, and
the Note Redemption Account (as such terms are defined in the Indenture).
If an Event of Default shall occur and be continuing with respect to
the Notes, the Notes, and all principal and unpaid accrued interest, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Notes will be redeemed beginning after January 1, 2001, and, at
the option of the Company, may be redeemed or partially redeemed any time
during the term of the Notes on any Payment Date (the "Redemption Date"), at a
redemption price of 100% of the principal amount being redeemed (the
"Redemption Price"), together with accrued and unpaid interest on the unpaid
principal amount thereof to the date fixed for redemption. Notice
A-1
<PAGE> 56
of such redemption shall be mailed by the Company not later than the twentieth
day, and not earlier than the sixtieth day, before the date fixed for
redemption to the Holders of the Notes so to be redeemed.
If provision is made for the redemption and payment of this Note or
any portion, this Note or such portion shall thereupon cease to bear interest
from and after the Redemption Date. In the event of redemption of any Note in
part only, a new Note or Notes for the unredeemed portion thereof shall be
issued in the name of the registered holder thereof upon surrender thereof.
The transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer to the
transfer agent designated by the Company, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and such
transfer agent duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount will be issued to the
designated transferee or transferees.
Prior to the due presentment for registration of transfer of this
Note, 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 thereof for
all purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
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 Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of Notes representing more
than 50% of the principal amount of all Notes at the time outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, 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 the
Holder of this Note shall be conclusive and binding upon such Holder and upon
all future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits
the Trustee to amend or waive certain terms and conditions set forth in the
Indenture without the consent of Holders of the Note issued thereunder.
The term "Company" as used in this Note includes any successor to the
Company under the Indenture.
The Notes are exchangeable for a like aggregate principal amount of a
different authorized denomination, as requested by the Holder.
This Note shall be construed in accordance with, and governed by, the
laws of the State of Texas applicable to agreements made and to be performed
therein.
IN WITNESS WHEREOF, U.S. Automobile Acceptance SNP-III, Inc. has
caused this instrument to be duly executed under its corporate seal.
Dated: __________________________
U.S. AUTOMOBILE ACCEPTANCE SNP-III,
INC., a Texas Corporation
By: _________________________________
Authorized Officer
[SEAL]
Attest: _________________________
Authorized Officer
A-2
<PAGE> 57
EXHIBIT B
INDENTURE OF TRUST
This Indenture of Trust is dated as of the 14th day of November,
1996, by and between U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC. (the "Company"),
and Texas Commerce Bank National Association, Dallas, Texas, (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's Asset-Backed
Promissory Notes due on December 31, 2001.
NOW, THEREFORE, for valuable consideration, the receipt, adequacy, and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Collateral" means the collateral as described in the Security
Documents.
"Company" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Contracts" means retail installment sales contracts backed by liens
on used automobiles and light trucks to be purchased by the Company from used
automobile dealerships.
"Default" means any event which is, or after notice or lapse of time
or both would be, an Event of Default.
"Financed Vehicles" means the used automobiles and light trucks which
are security for the Contracts.
"Holder" or "Noteholders" means the person in whose name a Note is
registered on the Registrar's books.
"Indenture" means this Indenture of Trust, as amended or supplemented
from time to time.
"Master Collections Accounts" means the bank accounts into which all
proceeds from the collection of the Contracts are to be deposited.
"Master Operating Account" means the operating account to be
maintained by the Company into which the amounts in the Master Collections
Accounts attributable to the Contracts will be directly transferred.
"Note Redemption Account" the interest-bearing account into which the
Company will deposit the net collection proceeds from the Contracts after
January 1, 2001, for payment on the Notes.
"Notes" means the Asset-Backed Promissory Notes of the Company issued
pursuant to this Indenture.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, or the Secretary of the Company.
"Officer's Certificate" means a certificate signed by an Officer or by
an Assistant Treasurer or Assistant Secretary of the Company.
"Payment Date" means the fifteenth (15th) day of each month beginning
with the first full calendar month following the issuance of a Note, and upon
maturity, that payments of interest and/or principal shall be made.
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"Redemption Date" means such Payment Date, after January 1, 2001, that
the Notes may be redeemed at the option of the Company.
"Redemption Price" means the price, equal to 100% of the principal
amount to be redeemed, to paid to Noteholders upon redemption of the Notes.
"SEC" means the Securities and Exchange Commission.
"Security Documents" means the Security Agreement which provides that
the Collateral is pledged as security for the Notes.
"Servicer" means U.S. Automobile Acceptance Corporation, a Texas
corporation, with which the Company has contracted to provide purchasing and
collecting services, or any substitute servicer with which the Company may
contract.
"Servicing Agreement" means the agreement between the Company and the
Servicer pursuant to which the Contracts will be serviced on behalf of the
Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77
aaa, et seq.) as in effect on the date of this Indenture.
"Trust Estate" means all of the Company's right, title and interest in
(a) the Contracts, together with all payments and instruments received with
respect thereto, (b) the Servicing Agreement, (c) the Master Collections
Accounts, the Master Operating Account, the Note Redemption Account and all
funds (including investments) therein, (d) all repossessed or returned Financed
Vehicles, and (e) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing into cash or other liquid property.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"Bankruptcy Law" 5.01
"Legal Holiday" 7.10
"Paying Agent" 2.03
"Registrar" 2.03
"Receiver" 5.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture Securities" means the Notes.
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"Indenture Security Holder" means a Noteholder.
"Indenture to be Qualified" means this Indenture.
"Indenture Trustee" or "Institutional Trustee" means the Trustee.
"Obligor" on the Indenture Securities means the Company.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute, or defined by SEC rule have
the meanings assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles;
(c) "or" is not exclusive; and
(d) words in the singular include the plural and in the plural
include the singular.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Notes shall be substantially in the form of Exhibit "A" to this
Indenture. The Notes may have notations, legends, or endorsements required by
law or usage. The Company shall approve the form of the Notes and any
notation, legend, or endorsement on them. Each Note shall be dated the date of
its issuance.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer shall sign and authenticate the Notes. Execution of the
Notes is permitted by the manual or facsimile signature of the obligor and
authentication may be made by manual signature. The signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.
If an Officer who signed a Note no longer holds that office at a later date,
the Note shall be valid nevertheless.
The aggregate principal amount of Notes outstanding at any time may
not exceed $24,000,000. Note denominations of $1,000 or any multiple thereof
are authorized.
SECTION 2.03. REGISTRATION AND PAYMENT
Texas Commerce Bank National Association, or the successor Trustee,
shall act as Registrar and Paying Agent for purposes of registration or
transfer of the Notes and for payment of interest and principal on the Notes.
The Registrar shall keep a register of the Notes and of their transfer and
exchange. Notes shall be presented to the Paying Agent for payment.
SECTION 2.04. NOTEHOLDER LISTS.
The Trustee shall preserve the most recent list provided to it by the
Registrar of the names and addresses of Noteholders. At the end of each month
during the offering to the end of each six months after the close of the
offering, the Registrar shall furnish to the Trustee and at such other times as
the Trustee may request in writing a
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list in such form and as of such date of the names and addresses of
Noteholders. The Trustee may conclusively rely on such list.
SECTION 2.05. REGISTRATION, TRANSFER, AND EXCHANGE.
When a Note is presented to the Registrar or a Co-registrar with a
request to register transfer, the Registrar shall register the transfer as
requested. To permit transfer and exchanges of the type provided for in
Section 6.05, an Officer shall authenticate Notes at the Registrar's request.
The Company may charge a reasonable fee for any transfer, but not for any
exchange pursuant to Section 6.05.
ARTICLE 3
TRUSTEE
SECTION 3.01. ACCEPTANCE OF TRUST.
The Trustee hereby accepts the appointment as Trustee under the terms
and conditions hereof.
SECTION 3.02. DUTIES OF TRUSTEE.
(a) Upon the occurrence of an Event of Default, the Trustee shall
obtain and hold the Collateral under the Security Documents in trust for the
benefit of the Noteholders and exercise any rights granted to it under the
Security Documents.
(b) If an Event of Default has occurred and is continuing, the
Trustee shall exercise its rights and powers and use the same degree of care
and skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. Except during the continuance
of an Event of Default, the Trustee shall perform only those duties that are
specifically set forth in this Indenture and no others.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that the Trustee shall not be liable for any error of
judgment made in good faith unless it is proved that the Trustee was negligent
in ascertaining the pertinent facts.
(d) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any
loss, liability, or expense.
(e) The Trustee shall not be liable for interest on any money
received by it except as otherwise agreed with the Company.
(f) The Trustee is authorized and directed to enter into the
Security Agreements on behalf of the Noteholders solely in its capacity as
Trustee under the Indenture.
SECTION 3.03. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on the Officer's Certificate or
opinion. The Trustee may consult with counsel and any advice or opinion of
counsel shall be full and complete protection in respect of any action taken or
not taken by it hereunder in reliance upon such advice or opinion of counsel.
(c) The Trustee may act through agents and attorneys and shall not
be responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
SECTION 3.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture, the Security Documents or the Notes. The recitals contained
herein and in the Notes shall be taken as statements of the Company and the
Trustee assumes no responsibility for their correctness. The Trustee shall not
be accountable for the Company's use of the proceeds from the Notes, and it
shall not be responsible for any statement in the Notes or in any prospectus
used in the sale of the Notes.
SECTION 3.05. INDIVIDUAL RIGHTS OF TRUSTEE, ETC.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar, or
Co- registrar may do the same with like rights.
SECTION 3.06. REPORTS BY TRUSTEE TO HOLDERS.
If required under the provisions of TIA Section 313(a), within 60 days
after each December 31st beginning with the December 31st following the date of
this Indenture, the Trustee shall provide to the Noteholders specified in TIA
Section 313(c) a brief report dated as of such December 31st that complies with
TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b).
Within the time period provided for in TIA Section 313(b), the Trustee shall
provide to those Noteholders specified in TIA Section 313(c) the brief reports
required by TIA Section 313(b).
SECTION 3.07. COMPENSATION AND INDEMNITY.
The Company agrees:
(a) to pay the Trustee from time to time, in its capacity as
Trustee, Registrar and Paying Agent, reasonable compensation for all services
rendered by it hereunder, including extraordinary services such as default
administration (which compensation shall not be limited by a provision of law
in regard to the compensation of the trustee of an express trust);
(b) to reimburse the Trustee, in its capacity as Trustee,
Registrar and Paying Agent, upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee (including the
reasonable compensation, disbursements and expenses of its agents and counsel),
except any such expenses or disbursements as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Trustee, in its capacity as Trustee,
Registrar and Paying Agent, for, and to hold it harmless against any loss,
cost, liability, claim or expense incurred without negligence or bad faith on
its part related to or arising out of the acceptance of and administration of
the duties of the Trustee, in its capacity as Trustee, Registrar and Paying
Agent, hereunder, including, without limitation, the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The Company shall
reimburse the Trustee upon its request for any legal expenses in connection
with the foregoing.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Notes on all money or property of the
Company. The obligations of the Company in this Section shall survive the
discharge of this Indenture or resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default, the expenses and the compensation for
services are intended to constitute expenses of administration under any
Bankruptcy Law.
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SECTION 3.08. REPLACEMENT OF TRUSTEE.
The Trustee, in its capacity as Trustee, Registrar and Paying Agent,
may resign by so notifying the Company. The Holders of a majority in principal
amount of the Notes may remove the Trustee, in its capacity as Trustee,
Registrar and Paying Agent, by so notifying the removed Trustee and may appoint
a successor Trustee, Registrar, and/or Paying Agent with the Company's consent.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 3.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee
or its property;
(d) the Trustee otherwise becomes incapable of acting; or
(e) the Trustee is sold or otherwise liquidates.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee, Registrar or Paying Agent for any reason, the Company shall
promptly appoint a successor Trustee, Registrar or Paying Agent.
A successor Trustee, Registrar or Paying Agent shall deliver a written
acceptance of its appointment to the retiring Trustee, Registrar or Paying
Agent and to the Company. Immediately after that, the retiring Trustee,
Registrar or Paying Agent shall transfer all property held by it as Trustee,
Registrar or Paying Agent to the successor Trustee, Registrar or Paying Agent,
the resignation or removal of the retiring Trustee, Registrar or Paying Agent
shall become effective, and the successor Trustee, Registrar or Paying Agent
shall have the rights, powers, and duties of the Trustee, Registrar or Paying
Agent under this Indenture. A successor Trustee, Registrar or Paying Agent
shall give notice of its succession to each Noteholder as provided in Section
7.02.
If a successor Trustee, Registrar or Paying Agent does not take office
within 60 days after the retiring Trustee, Registrar or Paying Agent resigns or
is removed, the retiring Trustee, Registrar or Paying Agent, the Company, or
the Holders of a majority in principal amount of the Notes may petition any
court of competent jurisdiction for the appointment of a successor Trustee,
Registrar or Paying Agent.
If the Trustee, Registrar or Paying Agent fails to comply with Section
3.10, any Noteholder may petition any court of competent jurisdiction for the
removal of the Trustee, Registrar or Paying Agent and the appointment of a
successor Trustee, Registrar or Paying Agent.
SECTION 3.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving, or transferee corporation upon approval
of the Company shall be the successor Trustee, Registrar and Paying Agent. The
Company shall notify the Trustee whether such approval will be granted within
30 days after the Company receives written notice of such consolidation,
merger, conversion, or transfer of corporate trust business by the Trustee.
SECTION 3.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall have a combined
capital and surplus of at least $150,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA
Section 310(b).
SECTION 3.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
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SECTION 3.13 CO-TRUSTEE.
At any time for the purpose of meeting any legal requirements of any
jurisdiction, including in case of the exercise of any rights or remedies of
the Trustee upon an Event of Default hereunder, the Company and the Trustee
acting jointly shall have the power to appoint an additional institution or
individual as a separate or co-trustee and to vest in such separate or
co-trustee such powers, duties, obligations and rights as the Trustee and the
Company may consider necessary or desirable. If the Company shall not join in
such appointment within fifteen days after receipt of a request of the Trustee
to do so, or if an Event of Default shall have occurred and be continuing, the
Trustee alone shall have the power to make such appointment.
Upon the appointment of a separate or co-trustee, all rights, powers,
duties and obligations conferred or imposed upon the Trustee may be exercised
and performed by the Trustee and such separate or co-trustee jointly except to
the extent that under any law in any jurisdiction in which any act or acts are
to be performed the Trustee shall not be permitted or qualified to perform such
act or acts in which event such act or acts shall be exercised and performed by
the separate or co-trustee at the written direction of the Trustee.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
(a) The Paying Agent shall cause the Paying Agent to promptly pay
the principal of and interest on the Notes on the dates and in the manner
provided in the Notes; provided, however, that the Paying Agent shall be
required to pay the Notes only from and to the extent of the moneys transferred
by the Company to the Paying Agent pursuant to Sections 4.01(b) and 4.01(c).
(b) To facilitate payment of the Notes, the Company shall transfer
to the Paying Agent at least one (1) business day prior to the Payment Date or
Redemption Date for the Notes sufficient money to make the required principal
and interest payments.
(c) Redemption of the Notes may occur at the option of the Company
on any Payment Date and may be in whole or from time to time in part. Any
redemption of Notes will be at 100% of the principal amount thereof being
redeemed, together with Interest accrued to the redemption date, without any
premium or penalty. Notice will be mailed to all Noteholders setting forth (i)
the Redemption Date, (ii) the Redemption Price, (iii) the name and address of
the Paying Agent, (iv) a statement that the Notes must be delivered to the
Paying Agent, and (v) a statement that interest on the Notes, or portion
thereof being redeemed, ceases to accrue on and after the Redemption Date. In
the case of notice to the holder of any Note to be redeemed in part, a new Note
or Notes in principal amount equal to the unredeemed portion of such Note will
be issued. In the event of partial redemption of the Notes, the Notes to be
redeemed in whole or in part will be selected on a random basis, by lot.
SECTION 4.02. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate stating whether or
not the signers know of any Default by the Company in performing its covenants
under the Indenture. If they do know of such Default, the Officer's
Certificate shall describe the Default.
SECTION 4.03. SEC REPORTS.
The Company shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe). The Company also
shall comply with the other provisions of TIA Section 314(a).
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ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT.
Subject to the limitations set forth in this Article 5, an Event of
Default occurs if and when:
(1) the Company fails to cause the interest payments on the Notes
to be paid when due;
(2) the Company fails to cause the principal of any Notes to be
paid when due;
(3) the Company fails to comply with any of its other agreements
in the Notes, the Security Documents, or this Indenture and
the Default continues for the period and after the notice
specified below;
(4) the Company, pursuant to or within the meaning of any
Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against
it in any involuntary case,
(c) consents to the appointment of a Receiver of it or
for any substantial part of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) fails generally to pay its debts as they become due;
or
(5) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company in an involuntary
case,
(b) appoints a Receiver of the Company or for any
substantial part of its property, or
(c) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90
days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. The term "Receiver"
means any receiver, trustee, assignee, liquidator, or similar official under
any Bankruptcy Law.
A default under section 5.01 (3) is not an Event of Default until the
Trustee or the Holders of at least a majority in principal amount of the Notes
notify the Company of the default and the Company does not cure the default
within 90 days after receipt of the notice. The notice must specify the
default, demand that it be remedied, and state that the notice is a "Notice of
Default."
SECTION 5.02. ACCELERATION.
If an Event of Default occurs and is continuing as provided in Section
5.01, the Trustee may, at the direction of Holders of at least twenty-five
percent (25%) in principal amount of the Notes by written notice to the
Company, declare the principal of and accrued interest on all the Notes to be
due and payable immediately. After a declaration such principal and interest
shall be due and payable immediately.
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SECTION 5.03. OTHER REMEDIES; LIMITATION.
Subject to the provisions of the preceding paragraph, if an Event of
Default occurs and is continuing, as provided in Section 5.01, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal and interest on the Notes or to enforce the performance of
any provision of the Notes, the Security Documents or this Indenture.
Notwithstanding anything to the contrary in this Agreement, the
Trustee is required to proceed against and liquidate all Collateral before
looking to any other assets of the Debtor.
SECTION 5.04. POSTPONEMENT OF INTEREST PAYMENT; WAIVER OR DEFAULT.
The Holders of not less than seventy-five percent (75%) of the Notes
at the time outstanding may consent on behalf of the Holders of all such Notes
to the postponement of any interest payment for a period not exceeding three
years from its due date. The Holders of a majority of the Notes may consent to
the waiver of any past Default and its consequences, except a Default in
payment of principal and interest or any other waiver prohibited under Section
6.02.
SECTION 5.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Notes may 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 it. The
Trustee, however, may refuse to follow any direction that conflicts with law or
this Indenture, that is unduly prejudicial to the rights of other Noteholders,
or that may subject the Trustee to personal liability.
SECTION 5.06. LIMITATION ON SUITS.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over the other
Noteholder.
A Noteholder may not institute any suit if and to the extent that the
institution or prosecution thereof or the entry of judgment therein would,
under applicable law, result in the surrender, impairment, waiver, or loss of
the lien of the Indenture upon any property subject to such lien.
SECTION 5.07. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, in its capacity as Trustee,
Registrar and Paying Agent, for amounts due
under Section 3.07;
Second: to the payment of Allowed Expenses as defined
in the registration statement (except in an
Event of Default, payments of Allowed
Expenses to affiliates will be subordinated
to the payment of principal and Interest to
Noteholders);
Third: to Noteholders for amounts due and unpaid on
the Notes for interest, then principal,
ratably, without preference or priority of
any kind, according to the amounts due and
payable on the Notes for principal and
interest; and
Fourth: to the Company as a payment of amounts in
excess of Trustee fees and costs, allowed
expenses, and interest and principal due on
the Notes.
The Trustee may fix a record date and payment date for any payment to
Noteholders.
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ARTICLE 6
AMENDMENTS, SUPPLEMENTS, AND WAIVERS
SECTION 6.01. WITHOUT CONSENT OF HOLDERS.
The Company may amend or supplement this Indenture or the Notes
without notice to or consent of any Noteholder to cure any ambiguity, omission,
defect, or inconsistency, or to make any change that does not adversely affect
the rights of any Noteholder.
SECTION 6.02. WITH CONSENT OF HOLDERS.
The Company may amend or supplement this Indenture, the Security
Documents, or the Notes without notice to any Noteholder but with the written
consent of the Holders of not less than a majority in principal amount of the
Notes. The Holders of a majority in principal amount of the Notes may waive
compliance by the Company with any provision of this Indenture, the Security
Documents, or the Notes without notice to any Noteholder. Without the consent
of each Noteholder affected, however, an amendment, supplement, or waiver,
except the waiver pursuant to Section 5.04, may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver,
(2) reduce the rate or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the fixed maturity of any
Note;
(4) make any Note payable in money other than that stated in the
Note; or
(5) waive a default on payment of principal or of interest on any
Note.
(6) impair the right to institute suite to enforce payments due on
any Note on or after the respective due dates.
SECTION 6.03. COMPLIANCE WITH TRUST INDENTURE ACT
The terms hereof provide that it will comply with provisions of the
TIA. Every amendment to or supplement of this Indenture, the Security
Documents, or the Notes shall comply with the TIA as then in effect.
SECTION 6.04. REVOCATION AND EFFECT OF CONSENTS.
A consent to an amendment, supplement, or waiver by a Holder of a Note
shall bind the Holder and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's Note, even if
notation of the consent is not made on any Note. Any such Holder or subsequent
Holder, however, may revoke the consent as to his Note or portion of the Note.
The Trustee must receive the notice of revocation before the date the
amendment, supplement or waiver becomes effective.
After an amendment, supplement, or waiver becomes effective, it shall
bind every Noteholder unless it makes a change described in Sections 6.02(2)
through (5). In that case the amendment, supplement, or waiver shall bind each
Holder of a Note who has consented to it and every subsequent Holder of a Note
or portion of a Note that evidences the same debt as the consenting Holder's
Note.
SECTION 6.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement, or waiver changes the terms of a Note,
the Company may require the Holder of the Note to deliver it to the Company.
The Company may place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Company so
determines, the Company in exchange for the Note shall issue and the Company
shall authenticate a new Note that reflects the changed terms.
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SECTION 6.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, supplement, or waiver authorized
pursuant to this Article if the amendment, supplement, or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it.
The Trustee may rely upon an Officer's Certificate and an opinion of
counsel as conclusive evidence that any amendment, supplement or waiver
complies with the provisions of this Indenture.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
SECTION 7.02. NOTICES.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed as follows:
If to the Company: U.S. Automobile Acceptance SNP-III, Inc.
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
If to the Trustee: Texas Commerce Bank National Association
2200 Ross Avenue
Dallas, Texas 75201
Attn: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to Noteholders shall be sufficiently given
if mailed by first-class mail to each Registered Noteholder.
Any notice or communication mailed to a Noteholder shall be mailed to
him at his address as it appears on the lists or registration books of the
Registrar and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to give notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed, it is duly given, whether or not the
Noteholder receives or reads it.
SECTION 7.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Within five business days after the receipt by the Trustee of a
written application by any three or more Noteholders stating that the
applicants desire to communicate with other Noteholders with respect to their
rights under this Indenture or under the Notes, and accompanied by a copy of
the form of proxy or other communication which such applicants propose to
transmit, and by reasonable proof that each such applicant has owned a Note for
a period of at least six months preceding the date of such application, the
Trustee shall, at its election, either (1) afford to such applicants access to
all information so furnished to or received by the Trustee, or (2) inform such
applicants as to the approximate number of Noteholders according to the most
recent information so furnished to or received by the Trustee, and as to the
approximate cost of mailing to such Noteholders the form of proxy or
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other communication, if any, specified in such application. If the Trustee
shall elect not to afford to such applicants access to such information, the
Trustee shall, upon the written request of such applicants, mail to all such
Noteholders copies of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the
Trustee of the material to be mailed and of payment or provision for payment,
of the reasonable expenses of such mailing, unless within five days after such
tender, the Trustee shall mail to such applicants, and file with the SEC
together with a copy of the material to be mailed, a written statement to the
effect that, in the opinion of Trustee, such mailing would be contrary to the
best interests of the Noteholders or would be in violation of applicable law.
Such written statement shall specify the basis of such opinion. After
opportunity for bearing upon the objections specified in the written statement
so filed, the SEC may, and if demanded by the Trustee or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the SEC shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the SEC shall find, after notice and
opportunity for hearing, that all objections so sustained have been met, and
shall enter an order so declaring, the Trustee shall mail copies of such
material to all such Noteholders with reasonable promptness after the entry of
such order and the renewal of such tender.
SECTION 7.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application to take any action under this
Indenture, the Company shall furnish to the Trustee an Officer's Certificate
stating that, in the opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with.
SECTION 7.05. CERTIFICATES OF FAIR VALUE.
The Company shall furnish to the Trustee a certificate or opinion of
an appraiser or other expert as to the fair value of any property or securities
to be released from the lien of the Security Documents, which certificate or
opinion shall state that in the opinion of the person making the same the
proposed release will not impair the security under the Security Documents in
contravention of the provisions thereof, and requiring further that such
certificate or opinion shall be made by an independent appraiser, or other
expert, if the fair value of such property or securities and of all other
property or securities released since the commencement of the then current
calendar year, as set forth in the certificates or opinions required by this
Section 7.06, is 40% or more of the aggregate principal amount of the Notes at
the time outstanding; but such a certificate or opinion of an independent
appraiser or other expert shall not be required in the case of any release of
property or securities, if the fair value thereof as set forth in the
certificate or opinion required by this paragraph is less than $25,000 or less
than 1% of the aggregate principal amount of the Notes at the time outstanding.
Any such certificate or opinion may be made by an officer or employee
of the Company who is duly authorized to make such certificate or opinion by
the Company from time to time except in cases in which this Section requires
that such certificate or opinion be made by an independent person, in which
case, the certificate or opinion shall be made by an independent appraiser, or
other expert selected or approved by the Trustee in the exercise of reasonable
care. The Trustee shall not be liable for any such expense or for the actions
or omissions of such independent appraiser or other expert.
SECTION 7.06. STATEMENTS REQUIRED IN CERTIFICATE AND OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenants in this Indenture shall include:
(1) a statement the person making such certificate has read such
covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such
certificate or opinion are based;
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(3) 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
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 7.07. WHEN TREASURY SECURITIES DISREGARDED.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, or consent, Notes owned by the
Company or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be disregarded,
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 the Trustee knows are so owned shall be disregarded. Also, subject to
the foregoing, only Notes outstanding at the time shall be considered in any
such determination.
SECTION 7.08. ACTION BY NOTEHOLDERS.
Whenever in this Indenture it is provided that the Holders of a
specified percentage in aggregate principal amount of the Notes may take any
action (including the making of any demand or request, the giving of any
notice, consent, or waiver, or the taking of any other action), the fact that
at the time of taking any such action the Holders of such specified percentage
have joined therein may be evidenced by any instrument or any number of
instruments of similar tenor executed by Noteholders in person or by agent or
proxy appointed in writing.
SECTION 7.09. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday, or a day
on which banking institutions are not required to be open. If a payment date
is a Legal Holiday at a place of payment, payment may be made at that place on
the next succeeding day that is not a Legal Holiday.
SECTION 7.10. GOVERNING LAW.
This Indenture, the Security Documents, and the Notes shall be
governed by the laws of the State of Texas provided the duties and
responsibilities of the Trustee shall be construed under the laws of the
jurisdiction of its organization or incorporation applied without giving effect
to any conflicts-of-law principles.
SECTION 7.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan,
or debt agreement of the Company. Any such indenture, loan, or debt agreement
may not be used to interpret this Indenture.
SECTION 7.12. NO RECOURSE AGAINST OTHERS.
All liability of any director, officer, employee, or stockholder, as
such, of the Company is waived and released.
SECTION 7.13. SUCCESSORS.
All agreements of the Company in this Indenture, the Security
Documents, and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 7.14. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
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IN WITNESS WHEREOF, the parties have signed this Indenture as of the
day and year first above written.
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.,
a Texas Corporation
By: ___________________________________
Its: ___________________________________
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ___________________________________
Its: ___________________________________
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Exhibit A
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
11% ASSET-BACKED PROMISSORY NOTE DUE DECEMBER 31, 2001
$______________ No. ________________
U.S. Automobile Acceptance SNP-III, Inc., a Texas corporation (herein
referred to as the "Company"), for value received, hereby promises to pay to
_______________________________________________________________________ or
registered assigns, the principal sum of _____________________________ Dollars
on December 31, 2001 (the "Stated Maturity" of such principal), and to pay
interest (computed on the basis of the unpaid portion of said principal sum
outstanding from time to time from the date of issue), until the principal
amount of this Note is paid in full at the rate of eleven percent (11%) per
annum, which interest shall be due and payable upon the fifteenth day of each
calendar month (for such interest accruing during the prior month or months)
commencing with the first calendar month after the issuance hereof and upon the
Stated Maturity (each a "Payment Date"). Interest is calculated on the basis
of a 365-day year but is paid in 12 equal monthly installments, regardless of
the number of days in each month.
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 11% Asset-Backed Promissory Notes Due December 31, 2001
(herein called the "Notes"), all issued and to be issued under an Indenture
(herein called the "Indenture"), between the Company and Texas Commerce Bank
National Association (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
thereunder of the Company, the Trustee and the Holders of the Notes.
The principal of and interest on this Note are payable in such
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made with respect
to this Note shall be applied first to interest due and payable on this Note as
provided above and then to the unpaid principal of this Note. Any installment
of interest which is not paid when and as due shall bear interest, at the
lesser of fourteen percent (14%) or the maximum amount allowed by law, from the
date due to the date of payment thereof.
Monthly payment of interest shall be made by check mailed to the
person whose name appears as the Holder of this Note on the Note Register as of
the first day of the month in which such Payment Date occurs (the "Record
Date") without requiring that this Note be submitted for notation of payment.
Checks returned undelivered will be held by the Company or its designee for
payment to the person entitled thereto. Payment of the outstanding principal
of and accrued interest on this Note at the Stated Maturity or of the
Redemption Price (as hereinafter defined) payable on any Redemption Date (as
hereinafter defined) as of which this Note or any portion hereof has been
called for redemption shall be made upon presentation of this Note to the
Paying Agent appointed by the Company for such purpose.
The payment of principal and accrued interest on the Notes, when due,
is backed by the Trust Estate, which consists of, among other things, a first
security interest in specific motor vehicle retail installment contracts and
the funds in the Master Collections Accounts, the Master Operating Account, and
the Note Redemption Account (as such terms are defined in the Indenture).
If an Event of Default shall occur and be continuing with respect to
the Notes, the Notes, and all principal and unpaid accrued interest, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Notes will be redeemed beginning after January 1, 2001, and, at
the option of the Company, may be redeemed or partially redeemed any time
during the term of the Notes on any Payment Date (the "Redemption Date"), at a
redemption price of 100% of the principal amount being redeemed (the
"Redemption Price"), together
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with accrued and unpaid interest on the unpaid principal amount thereof to the
date fixed for redemption. Notice of such redemption shall be mailed by the
Company not later than the twentieth day, and not earlier than the sixtieth
day, before the date fixed for redemption to the Holders of the Notes so to be
redeemed.
If provision is made for the redemption and payment of this Note or
any portion, this Note or such portion shall thereupon cease to bear interest
from and after the Redemption Date. In the event of redemption of any Note in
part only, a new Note or Notes for the unredeemed portion thereof shall be
issued in the name of the registered holder thereof upon surrender thereof.
The transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer to the
transfer agent designated by the Company, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and such
transfer agent duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount will be issued to the
designated transferee or transferees.
Prior to the due presentment for registration of transfer of this
Note, 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 thereof for
all purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
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 Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of Notes representing more
than 50% of the principal amount of all Notes at the time outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, 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 the
Holder of this Note shall be conclusive and binding upon such Holder and upon
all future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits
the Trustee to amend or waive certain terms and conditions set forth in the
Indenture without the consent of Holders of the Note issued thereunder.
The term "Company" as used in this Note includes any successor to the
Company under the Indenture.
The Notes are exchangeable for a like aggregate principal amount of a
different authorized denomination, as requested by the Holder.
This Note shall be construed in accordance with, and governed by, the
laws of the State of Texas applicable to agreements made and to be performed
therein.
IN WITNESS WHEREOF, U.S. Automobile Acceptance SNP-III, Inc. has
caused this instrument to be duly executed under its corporate seal.
Dated: November 14, 1996
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.,
a Texas Corporation
By: /s/ Michael R. Marshall
-----------------------------------
Authorized Officer
[SEAL]
Attest: /s/ Michael R. Marshall
--------------------------------
Authorized Officer
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EXHIBIT C
SECURITY AGREEMENT
This SECURITY AGREEMENT (hereinafter called this "Agreement") is made
November 14 , 1996, by and between U.S. AUTOMOBILE ACCEPTANCE SNP-III,
INC., a Texas corporation, located at 1120 N.W. 63rd, Suite G-106, Oklahoma
City, Oklahoma 73116 (hereinafter called "Debtor") and Texas Commerce Bank
National Association, as Trustee on behalf of those persons listed on Schedule
A (which persons and the Trustee are hereinafter collectively called
"Trustee").
In consideration of the covenants and conditions stated in this
Agreement the parties agree as follows:
1. INDEBTEDNESS SECURED.
This Agreement and the Security Interest secure the payment of
certain Asset-Backed Promissory Notes issued and executed by Debtor, pursuant
to the Indenture of Trust (the "Indenture") dated November 14, 1996, by and
between Debtor and Texas Commerce Bank National Association and made payable to
the holders of such Asset-Backed Promissory Notes in the aggregate principal
sum of up to $24,000,000 (hereinafter collectively called the "Note"), together
with all other indebtedness of every kind or nature owing by Debtor to Trustee,
whether now existing or hereafter incurred, direct or indirect, absolute or
contingent, and whether the indebtedness is from time to time reduced and
thereafter increased or entirely extinguished and thereafter reincurred, and
including any sums advanced and any costs and expenses incurred by Trustee
pursuant to this Agreement, the Note or any other note or evidence of
indebtedness (all of such is herein sometimes referred to as the
"Indebtedness").
2. SECURITY INTEREST.
For value received, Debtor hereby grants to Trustee a security
interest (the "Security Interest') in and to all of the following: (i) any and
all retail motor vehicle installment sale contracts (the "Contracts") acquired
with the funds constituting the Indebtedness or with funds received from the
repayment of said Contracts or the Replacement Contracts (the "Replacement
Contracts"), which Contracts or Replacement Contracts are originated in
connection with the financing of new and used automobiles and light-duty trucks
(the "Vehicles"), including all rights to receive payments thereunder and
security interests in and instruments of title to the Vehicles, whether now
owned or hereafter acquired; (ii) all funds in the Debtor bank accounts styled
Master Collections Accounts, Master Operating Account and Note Redemption
Account; (iii) all proceeds of an offering pursuant to the Registration
Statement of Debtor filed with the Securities and Exchange Commission (the
"Registration Statement"); and (iv) all products thereof and all cash and
noncash proceeds of any of the foregoing, in any form, including, without
limitation, proceeds of insurance policies from the loss thereof, all titles to
the Vehicles and all assignment of liens, all Contracts, Vehicle Titles,
assignments, dealer recourse agreements, other documents and instruments in the
possession of the Debtor, and any documents or instruments in the possession,
custody and control of any Contract Servicer or any independent Custodian (all
of the foregoing hereinafter called the "Collateral"); provided, however, that
the security interest granted hereunder is subject to the conditions and
limitations set forth in the Registration Statement.
3. REPRESENTATION AND WARRANTIES OF DEBTOR.
Debtor represents and warrants and, so long as any portion of
the Indebtedness remains unpaid, shall be deemed continuously to represent and
warrant that:
3.1. Debtor is the owner of the Collateral free and clear
of all security interests or other encumbrances and claims of any kind or
nature in favor of any third persons, and Trustee has a first, perfected
security interest in all of the Collateral;
3.2. Debtor is authorized to enter into this Agreement and
into the transactions contemplated hereby and evidenced by the Note;
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3.3. The Collateral is used or bought for use solely in
business operations, and all of the relevant Collateral will remain personal
property regardless of the manner in which any of it may be affixed to real
property.
3.4 Upon an Event of Default on the Notes or in this
Security Agreement, as described in section 6 hereof, Debtor shall cause any
Contract Servicer or independent Custodian to deliver to the Trustee all
Collateral in the possession of such Contract Servicer or independent
Custodian.
4. COVENANTS OF DEBTOR.
Debtor covenants that so long as any Indebtedness remains unpaid,
Debtor:
4.1. Will defend the Collateral against the claims and
demands of all other parties, except purchasers of inventory in the ordinary
course of business;
4.2. Will keep the Collateral free and clear from all
security interests, liens and other encumbrances and claims of any kind or
nature in favor of any third persons, except the Security Interest; and Debtor
will not pledge the Collateral as security for any debts or obligations other
than the Notes;
4.3. Will maintain in accordance with reasonable
accounting practices, consistently applied, accurate and complete records
concerning the Collateral; and will, upon request made from time to time,
permit the Trustee or its agents to inspect the Collateral and the Debtor's
records concerning the Collateral;
4.4. Upon an uncured Event of Default and upon request by
the Trustee will deliver to the Trustee or its agents, any instruments,
documents of title and chattel paper representing or relating to the Collateral
or any part thereof, and all schedules, invoices, shipping, or delivery
receipts, together with the endorsements or assignments;
4.5. Will notify the Trustee in writing at least fifteen
(15) days in advance of any change in the Debtor's address specified on the
first page of this Agreement, of any change in the location or of any
additional locations at which the Collateral is kept of any change in the
address at which records concerning the Collateral are kept and of any change
in the location of the Debtor's residence, chief executive office or principal
place of business;
4.6. Will execute and deliver to the Trustee such
financing statements and other documents and take such other action, to
perfect, protect or continue the perfection of the Security Interest and effect
the purposes of this Agreement;
4.7. Will pay or cause to be paid when due all taxes,
assessments and other charges of every kind and nature which may be levied or
assessed upon or against the transaction contemplated hereby or the Collateral;
4.8. Will not make any distributions to shareholders or
payments to affiliates except as set forth in the Registration Statement;
4.9. Will use the Collateral only for the purposes set
forth in the Registration Statement and will not commingle the Collateral
constituting cash with funds of any person or entity other than Debtor;
4.10. Upon an uncured Event of Default and upon request by
the Trustee, will deliver any Collateral in the form of funds in Debtor's bank
account to the Trustee and will surrender control of said accounts to the
Trustee;
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5. VERIFICATION OF COLLATERAL.
Trustee shall have the right to verify the existence of the Collateral
in any manner and through any medium which Trustee may consider appropriate,
and Debtor shall furnish such assistance and information and perform such acts
as Trustee may require in connection therewith.
6. DEFAULT.
6.1. Events of Default. Subject to the following
limitations, an Event of Default occurs if
a. the Debtor fails to make a payment of
interest on any Note when the same becomes
due and payable;
b. the Debtor fails to make a payment of the
principal of any Note when the same becomes
due and payable;
c. the Debtor fails to comply with any of its
other agreements in the Notes, this Agreement
or the Indenture of Trust and the default
continues for the period and after the notice
specified below;
d. the Debtor pursuant to or within the meaning
of any Bankruptcy Law:
(1) commences a voluntary case,
(2) consents to the entry of an order
for relief against it in any
involuntary case,
(3) consents to the appointment of a
Receiver of it or for any
substantial part of its property,
(4) makes a general assignment for the
benefit of its creditors, or
(5) fails generally to pay its debts as
they become due; or
e. a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law
that:
(1) is for relief against the Debtor in
an involuntary case,
(2) appoints a Receiver of the Debtor or
for any substantial part of its
property, or
(3) orders the liquidation of the
Debtor, and the order or decree
remains unstayed and in effect for
90 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. The term "Receiver"
means any receiver, trustee, assignee, liquidator, or similar official under
any Bankruptcy Law.
A default under section 6.1.c is not an Event of Default until the
Trustee or the Noteholders holding at least a majority in principal amount of
the Notes notifies the Debtor of the default and the Debtor does not cure the
default within 90 days after receipt of the notice. The notice must specify
the default, demand that it be remedied, and state that the notice is a "Notice
of Default."
6.2. Rights and Remedies Upon Default. If an Event of
Default occurs and is continuing the Trustee, by written notice to the Debtor,
may declare the principal of and accrued interest on all the Notes to be
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due and payable immediately. After a declaration such principal and interest
shall be due and payable immediately. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal and interest on the Notes or to
enforce the performance of any provision of the Notes or this Agreement.
Notwithstanding anything to the contrary in this Agreement, the
Trustee is required to proceed against and liquidate all Collateral before
looking to any other assets of the Debtor.
6.3. Notice. Debtor agrees that any notice by Trustee of
any sale, lease or other disposition of the Collateral or any other intended
action hereunder, whether required by the Uniform Commercial Code or otherwise,
shall constitute reasonable notice to Debtor if the notice is mailed by regular
or certified mail, postage prepaid, at least ten (10) days before the date of
any public sale, lease or other disposition of the Collateral, or the time
after which any private sale, lease or other disposition of the Collateral is
to take place, to Debtor's address as specified in this Agreement or to any
other address which Debtor has notified Trustee in writing as the address to
which notices shall be given to Debtor.
6.4. Costs. Debtor shall pay all costs and expenses
incurred by Trustee in enforcing this Agreement, realizing upon any Collateral
and collecting any Indebtedness. Costs and expenses will include but not be
limited to all reasonable attorneys' and paralegals' fees and expenses.
6.5. Deficiency. In the event that the proceeds of the
Collateral are insufficient to satisfy the entire unpaid Indebtedness, Debtor
will be responsible for the deficiency and shall pay the same upon demand.
Trustee will account to Debtor for any proceeds of the Collateral in excess of
the Indebtedness and the costs and expenses referred to in Section 6.4.
7. MISCELLANEOUS.
7.1. Perfection of Security Interest. Debtor shall take
any and all steps necessary to perfect the security interest granted to Trustee
hereby. If Debtor fails to take any such step, Trustee may, at Debtor's
expense, file at any time, any financing statement or statements relating to
the Collateral (with or without Debtor's signature thereon), and to take any
other action deemed necessary or appropriate by Trustee to perfect and to
continue perfection of the Security Interest. A photocopy of this Agreement is
sufficient as a financing statement and may be filed as such if Trustee so
elects.
7.2. Continuing Agreement. This Agreement is a continuing
agreement with respect to the subject matter hereof and shall remain in full
force and effect until all of the Indebtedness now or hereafter contracted for
or created or existing and any extensions or renewals of the Indebtedness
together with all interest thereon has been paid in full.
7.3. Right to Proceeds. In the event of a continuing
Event of Default, the Trustee may demand, collect, and sue for all proceeds of
the Collateral (either in Debtor's or Trustee's name at the latter's option)
with the right to enforce, compromise, settle, or satisfy any claim. Debtor
hereby irrevocably appoints Trustee as Debtor's attorney-in-fact to endorse, by
writing or stamp, Debtor's name on all checks, commercial paper, and other
instruments pertaining to the proceeds. Such appointment is binding and
coupled with an interest. Debtor also authorizes Trustee to collect and apply
against the Indebtedness any refund of insurance premiums or any insurance
proceeds payable on account of the loss of or damage to any of the Collateral
and hereby irrevocably appoints Trustee as Debtor's attorney- in-fact to
endorse, by writing or stamp, any check or draft representing such proceeds or
refund.
7.4. Non-Waiver. No delay or omission by Trustee in
exercising any right or remedy hereunder or with respect to any Indebtedness
shall operate as a waiver of that or any other right or remedy, and no single
or partial exercise of any right or remedy shall preclude Trustee from any
other or future exercise of the right or remedy or the exercise of any other
right or remedy. Trustee may agree to a cure of any default by Debtor in any
reasonable manner without waiving any other prior or subsequent default by
Debtor.
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7.5. Third Parties. Trustee shall have no obligation to
take, and Debtor shall have the sole responsibility for taking, any steps to
preserve rights against all prior parties to any document of title, general
intangible, instrument or chattel paper in Trustee's possession as Collateral
or proceeds of the Collateral.
7.6. Assignments. Debtor's rights and obligations under
this Agreement are not assignable in whole or in part by operation of law or
otherwise. Trustee may not assign its rights and obligations under this
Agreement, in whole or in part, without notice to or consent of Debtor.
7.7. Definitions; Multiple Parties; Section Headings. The
term "person" when referred to herein shall mean an individual, partnership,
corporation or any other legal entity. If more than one Debtor executes this
Agreement, the term "Debtor" includes each of the Debtors as well as all of
them, and their obligations under this Agreement shall be joint and several.
Whenever the context so requires, the neuter gender includes the feminine and
masculine and the singular number includes the plural. Unless otherwise
defined herein or the context requires otherwise, terms used herein shall have
the same meaning as defined in the Uniform Commercial Code as enacted by the
State of Texas. Section headings are used herein for convenience only and do
not alter or limit the meaning of the language contained in each section.
7.8. Amendment; Waiver. This Agreement may not be
modified or amended nor shall any provision of it be waived except by a written
instrument signed by Debtor and by Trustee.
7.9. Choice of Law; Waiver of Jury Trial. This Agreement
has been delivered in the State of Texas and shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State of
Texas. Debtor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on
the judgment or in any other manner provided by law. Nothing in this paragraph
shall affect or impair Trustee's right to serve legal process in any manner
permitted by law, or Trustee's right to bring any action or proceeding against
Debtor, or the property of Debtor, in the courts of any other jurisdiction.
7.10. Expenses. Debtor shall pay all costs and expenses
relating to this Agreement and the Indebtedness, including but not limited to,
filing and recording fees, documentary stamps including, without limitation,
and Trustee's attorney's fees and expenses.
7.11. Notice. Except as otherwise provided herein, any
notice required hereunder shall be in writing and shall be deemed to have been
validly served, given or delivered upon deposit in the United States certified
or registered mails, with proper postage prepaid, addressed to the party to be
notified as follows:
a. If to Debtor at: U.S. Automobile Acceptance
SNP-III, Inc.
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
b. If to Trustee at: Texas Commerce Bank National
Association
2200 Ross Avenue
Dallas, TX 75201
Attention: Corporate Trust
Department
or to such other address as each party may designate for itself by like notice.
7.12. Severability. If any provision of this Agreement is
prohibited by, or is unlawful or unenforceable under, any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof, provided, however, that any such prohibition in any jurisdiction shall
not invalidate such provision in any other jurisdiction.
7.13. Reliance by Trustee. All covenants, agreements,
representations and warranties made herein by Debtor shall, notwithstanding any
investigation by Trustee, be deemed to be material to and to have been relied
upon by Trustee.
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7.14. Entire Agreement. This Agreement, the Note and the
other instruments, agreements and documents contemplated hereby contain the
entire security agreement between Trustee and Debtor with respect to the
subject matter hereof and supersedes and cancels any prior understanding and
agreement between Trustee and Debtor with respect thereto.
7.15. Binding Effect Subject to the assigned provisions of
this section of the agreement, this Agreement shall be binding upon the heirs,
personal representatives, successors and assigns of Debtor and shall inure to
the benefit of the successors and assigns of Trustee.
7.16. Time. Time is of the essence in this Agreement.
7.17. Attorney's Fees. The parties hereby agree that in
the event any of the terms and conditions contained in this Agreement,
including the indemnification provisions contained herein, must be enforced by
reason of any past, existing or future delinquency of payment, of failure of
observance or of performance by any of the parties hereto, in each such
instance, the defaulting party shall be liable for reasonable collection and/or
legal fees, trial and appellate levels, any expenses and legal fees incurred,
including time spent in supervision of paralegal work and paralegal time, and
any other expenses and costs incurred in connection with the enforcement of any
available remedy.
7.18. Capacity. The Trustee as Trustee is entering into
this Agreement solely in its capacity as Trustee under the Indenture and shall
be entitled to the privileges, immunities and protections afforded it
thereunder in any actions taken by it as Trustee hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
DEBTOR:
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
By: /s/
------------------------------------
Its:
-----------------------------------
TRUSTEE: ON BEHALF OF SECURED PARTIES
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/
------------------------------------
Its:
-----------------------------------
C-6
<PAGE> 79
SCHEDULE A
COLLECTIVE LIST OF PERSONS
CONSTITUTING THE SECURED PARTY
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EXHIBIT D
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT is made and entered into as of this 14th day
of November, 1996, between U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC., a Texas
corporation (the "Debtor"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION as
Trustee (the "Secured Party") and U.S. AUTOMOBILE ACCEPTANCE CORPORATION, a
Texas corporation (the "Custodian").
R E C I T A L S:
A. The Debtor has duly authorized the offer and sale of
Asset-Backed Promissory Notes (the "Notes") in the aggregate principal sum of
up to $24,000,000 due on or before December 31, 2001, which Notes are backed by
certain Collateral as set forth in a Security Agreement between the Debtor and
Secured Party.
B. In order to perfect its security interest in the Collateral as
granted under the Security Agreement, Secured Party has requested and Debtor
has agreed to deposit the Collateral with the Custodian subject to the terms
and conditions of this Agreement.
1 . The above recitals are true and correct and are incorporated
herein by reference. All capitalized terms shall have the same meaning as in
the Security Agreement between Debtor and Secured Party of even date herewith.
2. Debtor or its Agent will deposit with Custodian the
Collateral. The Custodian will have possession, custody and control of the
Collateral on behalf of the Secured Party and shall maintain the Collateral in
its possession. The Custodian will have no responsibility for Collateral it
does not receive.
3. The Custodian will release to the Debtor each Contract and
related documents including the Vehicle Title constituting the Collateral upon
receipt of an affidavit signed and sworn to by a duly authorized officer of
Debtor that (a) Debtor has received payment in full from the obligor under the
Contract, (b) Debtor needs the contract and related documents to effect a
contract exchange or settlement under the terms of a dealer recourse agreement,
(c) Debtor needs the Vehicle Title to repossess a Vehicle after default on a
Contract, or (d) any administrative event for which release for mailing to the
State is required under statute, rule, regulation or practice such as change in
name of Vehicle owner due to marriage or divorce, change of address Vehicle
owner, or notation of a subordinate lien on the Title. Upon a release of a
Vehicle Title pursuant to 3(b) and (d) above, the Debtor or its Agent shall
promptly return the Vehicle Title or new exchanged title to the Custodian upon
receipt of the title after the changes have been made by the appropriate state
agency. Upon an Event of Default on the Notes or in the Security Agreement,
Custodian shall deliver to the Trustee as representative of Secured Party all
Collateral promptly upon request of the Secured Party. The custodian shall
maintain a surety bond with terms and in the amount as determined by the
Debtor. The costs of such bond shall be paid or reimbursed by the Debtor.
4. The Custodian undertakes to perform only such duties as are
expressly set forth herein, and no implied duties or obligations shall be read
into this Agreement against the Custodian.
5. The Custodian may without investigation act in reliance upon
any writing or instrument or signature which it, in good faith, believes to be
genuine, may assume without investigation the validity and accuracy of any
statement or assertion contained in such a writing or instrument, and may
assume without investigation that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has
been duly authorized to do so. The Custodian shall not be liable in any manner
for the sufficiency or correctness as to form, manner and execution, or
validity of any instrument deposited into this escrow, nor as to the identity,
authority or right of any person executing the same; and its duties hereunder
shall be limited to the safekeeping of such agreements, monies, instruments or
other documents received by it as such escrow holder, and for the disposition
of the same in accordance with the written instrument accepted by it in the
escrow or written instructions received by it.
6. The Debtor hereby agrees to indemnify the Custodian and hold
it harmless from any and all claims, liabilities, losses, actions, suits or
proceedings at law or in equity, or any other expenses, fees or charges of any
character or nature, which it may incur or with which it may be threatened by
reason of its acting as Custodian, against any and all expenses, including
attorneys' fees and the cost of defending any action, suit or proceeding or
resisting any
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claim. The Custodian shall be vested with a lien on all property deposited
hereunder for indemnification, for attorneys' fees or charges of any character
or nature, which may be incurred by said Custodian by reason of disputes
arising between the makers of this escrow as to the correct interpretation of
this Agreement and instructions given to the Custodian hereunder, or otherwise,
with the right of said Custodian, regardless of the instructions aforesaid to
hold the said property until and unless said additional expenses, fees and
charges shall be fully paid.
7. If the parties be in disagreement about the interpretation of
this Custodian Agreement or about the rights and obligations or the propriety
or any action contemplated by the Custodian hereunder, the Custodian may, in
its sole discretion, file an action in interpleader to resolve the said
disagreement. The Custodian shall be indemnified for all costs, including
reasonable attorneys' fees, in connection with the aforesaid interpleader
action, and shall be fully protected in suspending all or a part of its
activities under this Agreement until a final judgment in the interpleader
action is received.
8. The Custodian may consult with counsel of its own choice and
shall have full and complete authorization and protection for any action taken
or suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Custodian shall otherwise not be liable for any mistakes of
fact or error of judgment or for any acts or omissions of any kind unless
caused by its willful misconduct or gross negligence.
9. The Custodian may resign upon thirty days' written notice to
the parties in this Agreement. If a successor Custodian is not appointed
within a thirty-day period, the Custodian may petition a court of competent
jurisdiction and name a successor.
10. The Debtor shall pay the Custodian such fees and compensation,
if any, as shall be mutually agreed.
11. The warranties, representations, covenants and agreements set
forth herein shall be continuous and shall survive the termination of this
Agreement or any part hereof.
12. This Agreement contains the entire understanding between the
parties hereto with respect to the transactions contemplated hereby, and this
Agreement supersedes in all respects all written or oral understandings and
agreements heretofore existing between the parties hereto.
13. This Agreement may not be modified or amended except by an
instrument in writing duly executed by the parties hereto. No waiver of
compliance with any provision or condition hereof and no consent provided for
herein shall be effective unless evidenced by an instrument in writing duly
executed by the party hereto sought to be charged with such waiver or consent.
14. Notices and requests required or permitted hereunder shall be
deemed to be delivered hereunder if mailed with postage prepaid or delivered,
in writing.
15. This Agreement may be executed in one or more counterparts,
and all such counterparts shall constitute one and the same instrument
16. Captions used herein are for convenience only and are not a
part of this Agreement and shall not be used in construing it.
17. The parties to this Agreement acknowledge that the performance
of their respective obligations hereunder is essential to the consummation of
the transactions contemplated by this Agreement. Each of them further
acknowledges that no party will have an adequate remedy at law if any other
party will have an adequate remedy at law if any other party fails to perform
its or their obligations hereunder. In such event, each party shall have the
right, in addition to any other rights or remedies it may have, to compel
specific performance of this Agreement.
18. The Company shall reimburse the Custodian for any expenses in
connection with this Agreement and the transactions contemplated hereby,
including the fees and expenses of its counsel, certified public accountants
and other experts.
19. This Agreement shall not be assignable by any of the parties
to this Agreement without the prior written consent of all other parties to
this Agreement.
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20. The parties to this Agreement agreed that jurisdiction and
venue shall properly lie in Dallas County, Texas, with respect to any legal
proceedings arising from this Agreement. Such jurisdiction and venue is merely
permissive; and jurisdiction and venue also shall continue to lie in any court
where jurisdiction and venue are found to be proper. The parties further agree
that the mailing of any process shall constitute valid and lawful process
against them.
21. This Agreement has been negotiated and prepared and shall be
performed in the State of Texas, and the validity, construction and enforcement
of, and the remedies under, this Agreement shall be governed in accordance with
the laws of the State of Texas (except that if any choice of law provision
under Texas law would result in the application of the law of a state or
jurisdiction other than the State of Texas, such provision shall not apply).
22. The invalidity or unenforceability of any particular provision
hereof shall not affect the remaining provisions of this Agreement, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
23. The rights and obligations of the parties hereunder shall
inure to the benefit of, and be binding and enforceable upon the respective
successors, assigns and transferees of either party.
24. This Custodian Agreement shall terminate and the Custodian
discharged of all responsibility hereunder at such time as the Custodian shall
receive a written affidavit signed and sworn to by a duly authorized officer of
Debtor that the Notes have been repaid in full or the Custodian has delivered
all Collateral to the Trustee as provided in paragraph 3.
25. Upon the occurrence of an Event of Default under the Notes or
the Security Documents, Custodian shall deliver to the Trustee all Collateral
in Custodian's possession.
IN WITNESS WHEREOF, the parties hereto have executed this Custodian
Agreement on the day and year first above written.
DEBTOR:
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.,
a Texas Corporation
By: /s/
---------------------------------------
Its:
--------------------------------------
SECURED PARTY:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/
---------------------------------------
Its:
--------------------------------------
CUSTODIAN:
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
a Texas corporation
By: /s/
---------------------------------------
Its:
--------------------------------------
D-3
<PAGE> 83
EXHIBIT E
SERVICING AGREEMENT
THIS SERVICING AGREEMENT, dated as of November 14, 1996, between U.S.
Automobile Acceptance Corporation, a Texas corporation, in its capacity as
Contract Servicer ("Servicer") of certain used motor vehicle promissory notes
("Contracts") of U.S. Automobile Acceptance SNP-III, Inc., a Texas corporation
("Company"), herein enter into this Servicing Agreement as follows.
WITNESSETH:
WHEREAS, it is contemplated that following any purchase of designated
Automobile Finance Contracts (the "Contracts"), the Servicer will assist the
Company to collect the sums due thereon from the Obligors on the Purchased
Contracts so transferred and account to Company therefor as provided herein;
and
WHEREAS, Company has requested the Servicer to undertake to assist the
Company with the collection and servicing responsibilities with respect to any
and all of the Contracts;
NOW, THEREFORE, the parties agree as follows:
(1) Appointment of and Acceptance by the Servicer of Servicing
Obligations.
A. The Servicer, on behalf of Company, shall during the
term of this Agreement assist the Company to manage, administer and collect
each of the Contracts and shall exercise discretionary powers involved in such
management, administration and collection, and shall bear all costs and
expenses incurred in connection therewith, that may be necessary or advisable
in carrying out the Agreement. In the management, administration and
collection of the Contracts, the Servicer shall use at least the same care and
apply the same policies that a prudent man would exercise under the
circumstances if he owned the Contracts.
B. The Servicer shall have full power and authority to
do those things in connection with such servicing, administration and
collection activities which it may deem necessary or desirable in order to
maximize receipts collected from Obligors or enforce dealer recourse
agreements, and foreclose and sell vehicles related to defaulted Contracts, if
necessary. Without limiting the generality of the foregoing, the Servicer is
hereby authorized and empowered to execute and deliver, on behalf of Company,
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments. The Servicer shall not
commence any legal action against an Obligor in the name of Company without the
prior written consent of Company. Company shall furnish the Servicer with any
powers of attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.
(2) Term. This Agreement shall commence as of the date first
written above and shall continue so long as the Company has any outstanding
Contracts that remain to be collected, absent an Event of Default.
(3) Compensation. In exchange for the services provided to
Company as described and governed herein, Servicer shall receive before the
tenth day of the month following a month in which such services are provided, a
Servicing Fee equal to twenty-one and 50/100 dollars ($21.50) per month times
the aggregate number of Contracts serviced by Servicer during the previous
month. Such aggregate number of Contracts shall equal the sum of all Contracts
identified on Contracts Schedules to periodically be added as exhibits to this
Agreement. Monthly compensation shall be limited to a maximum of $85,000 in
any month. In addition, the Contract Servicing Fee will be adjusted, if
necessary, so that the total annual Allowed Expenses do not exceed $12,000 in
the event only the Minimum Subscription Amount is sold (as such terms are
defined in the Company's Prospectus). The Servicer's monthly per Contract
Servicing fee shall be increased each year by the pro rata annually published
Consumer Price Index inflation factor.
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Additionally, any third-party expenditures pursuant to
collection of defaulted Contracts, repossession and sale of foreclosed vehicle,
and enforcement of dealer recourse agreements shall be paid by the Company as
reimbursement to the Servicer within ten (10) days after receipt of invoice
from Servicer.
(4) Representations and Warranties of the Servicer. The Servicer
represents and warrants to Company that:
A. Organization and Good Standing. The Servicer is a
corporation duly organized, existing and in good standing under the laws of
Texas, and has full corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently contemplated, and to execute, deliver and perform
its obligations under this Agreement.
B. Due Qualification. The Servicer is duly qualified to
do business in the State of Texas and each other state where such qualification
is required in order to service the Contracts as required by this Agreement and
has obtained all necessary licenses, approvals or consents as are required
under applicable law to perform its duties hereunder.
C. Due Authorization. The execution, delivery and
performance of this Agreement has been duly authorized by the Servicer by all
necessary corporate action on the part of the Servicer.
D. Binding Obligation. This Agreement constitutes a
legal, valid and binding obligation of the Servicer, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights in
general and such enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity).
E. No Violation. The execution and delivery of this
Agreement by the Servicer, and the performance of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof applicable to the
Servicer, will not conflict with, violate, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any requirement of law applicable to
the Servicer or any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which the Servicer is a party or by which it is bound.
(5) Covenants of the Servicer. The Servicer covenants that:
A. From and after the date hereof until such time as
this Agreement terminates, Servicer, shall at its own expense, direct all
Obligors on the Contracts and all Subcontract Servicers to remit all
collections and payments directly to, or otherwise cause all payments on the
Contracts to be deposited in, the Company's Master Collections Accounts.
Servicer shall have no ownership in or authority to amend, modify, change or
terminate the Master Collections Accounts. Servicer agrees and covenants that
it will utilize remittance instructions directing all payments be remitted
directly to the Master Collections Accounts, and Servicer additionally agrees
that all cash, checks, notes, drafts or other items which it receives
attributable to the Contracts including proceeds from dealer recourse
agreements, from resale of repossessed Financed Vehicles and recoveries on
insurance claims, shall be deposited in the Master Collections Accounts within
two business days of receipt.
B. Operations. The Servicer shall collect the Contracts
in an orderly and efficient manner consistent with good business practices and
in accordance with all applicable federal, state and local laws and
regulations.
C. Records. So long as Company has not given notice of
termination pursuant to Section 9, the Servicer shall (i) if required by
Company hold in trust and safely keep all Purchased Contract Closing Documents
and such other documents as may be required for the enforcement of the
Contracts; (ii) keep such accounts and other records as will enable Company to
determine the status of the Contracts; (iii) keep such books and records at its
offices or the offices of its subcontractors, identified in Section 3 herein;
and (iv) permit Company and its representatives at any time to inspect, audit,
check and make abstracts from Servicer's accounts, records, correspondence and
other papers pertaining to the Contracts. Servicer shall maintain its
respective records with
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respect to the Contracts in a manner such that the Servicer can produce a
computer file containing a listing (by Obligor) of all Contracts, together with
the account balance of such accounts and the payment history related thereto.
The Servicer shall provide Company with monthly reports updating the
information relating to account balances and activity and certifying the
amounts collected on the Contracts during the preceding month.
D. Continuation Statements. The Servicer shall execute
and file documents which shall create a first priority security interest in
favor of Company in each Financed Vehicle, including registration of the
Certificates of Title in the name of Company, and/or any other documents
requested by Company or which may be required by law to preserve fully and
protect the interest of Company in and to the Contracts.
E. Principal Executive Office. The Servicer shall not,
without providing thirty days' notice to Company, and without filing such
amendments to any previously filed financing statements as Company may require,
(i) change the county where its principal executive office or the offices where
the records relating to the Contracts are kept, or (ii) change its name,
identity or corporate structure in any manner which would, could or might make
any financing statement or continuation statement filed by Company or the
Servicer or any provision hereof seriously misleading within the meaning any
applicable enactment of the Uniform Commercial Code.
F. No Impairment. The Servicer will duly fulfill all
obligations on its part to be fulfilled under or in connection with each
Contracts and will do nothing to materially impair the rights of Company in the
Contracts.
G. Compliance with Law. The Servicer will comply, in
all material respects, with all acts, rules, regulations, orders, decrees and
directions of any governmental authority applicable to the Contracts or any
part thereof; provided, however, that the Servicer may contest any act
regulation, order, decree or direction in any reasonable manner which shall not
materially and adversely affect the rights of Company in the Contracts. The
Servicer will comply, in all material respects, with any obligation of a holder
of a Purchased Contract to the Obligor thereof arising under such Purchased
Contract or under applicable laws.
H. Security Interest. The Servicer will not sell,
pledge, assign or transfer to any other person, or grant, create, incur, assume
or suffer to exist any lien on any Contracts, or the books or records relating,
to any Contracts, or any interest therein: the Servicer will immediately
notify Company of the existence of any lien on any Contracts: the Servicer
shall defend the right, title and interest of Company in, to and under the
Contracts, whether now existing or hereafter transferred to Company, against
all claims of third parties claiming through or under the Servicer.
(6) Maintenance or Internal Control and Procedures. Servicer
shall, at all times during the term of this Agreement, follow internal control
procedures consistent with loan servicing industry standards and, at the
request of Company, will supply same in written form for review purposes.
(7) Computer. Servicer shall, at all times during the term of
this Agreement, utilize in the operation of its business the industry standard
computer software and contract information maintenance system, such system to
be approved by Company.
(8) Servicer Events or Default. The occurrence and continuation
of any one of the following events shall be a "Servicer Event of Default" under
this Agreement.
A. Failure on the part of the Servicer (i) to
immediately remit collections on the Contracts to the Master Collections
Accounts or (ii) remit payments to the Company or the Trustee under the
Indenture, when due and continuance of such failure for ten Business Days;
B. An involuntary case is commenced or filed against the
Servicer under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency or similar
law, or for the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or of any
substantial part of its property, or for the winding up of the affairs of,
liquidation, dissolution, or reorganization of the Servicer;
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<PAGE> 86
C. An order for relief shall be entered in a case under
title 11 of the United States Code in which the Servicer is a debtor, or the
Servicer shall become insolvent or admit in writing its inability to pay its
debts as they come due, or the commencement by the Servicer of a voluntary case
under the federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency or similar law, or
the consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
the making by the Servicer of an assignment for the benefit of creditors or the
failure by the Servicer generally to pay its debts as such debts become due or
the taking of corporate action by the Servicer in furtherance of any of the
foregoing; or
D. Failure by Servicer to service and collect amounts
due from Obligors under Contracts and/or to adequately enforce dealer recourse
agreements as required by this Agreement.
(9) Remedies.
A. If a Servicer Event of Default shall have occurred,
Company may, by notice given in writing to the Servicer, terminate all of the
rights and obligations of the Servicer under this Agreement. Notwithstanding
any termination of the rights and obligations of the Servicer, the Servicer
shall remain responsible for any acts or omissions to act by it as Servicer
prior to such termination.
B. Company is hereby authorized and empowered (upon the
failure of the Servicer to cooperate) to execute and deliver, on behalf of the
Servicer as attorney-in-fact or otherwise, all documents and other instruments
upon the failure of the Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of a transfer of servicing rights to a
successor servicer.
C. The Servicer agrees to cooperate with Company and any
successor servicer in effecting the termination of the responsibilities and
rights of the Servicer to conduct servicing hereunder, including, without
limitation, the transfer to such successor servicer of all authority of the
Servicer to service the Contracts provided for under this Agreement, including,
without limitation, all authority over all collections which shall on the date
of transfer be held by the Servicer for deposit or which shall thereafter be
received with respect to the Contracts.
D. The Servicer shall promptly transfer its records
relating to the Contracts to a successor servicer in such form as such
successor servicer may reasonably request and shall promptly transfer to such
successor servicer all other records, correspondence and documents necessary
for the continued servicing of the Contracts in the manner and at such times as
the successor servicer shall reasonably request. To the extent that compliance
with this Section shall require the Servicer to disclose to such successor
servicer information of any kind which the Servicer reasonably deems to be
confidential, such successor servicer shall be required to enter into such
customary licensing and confidentiality agreements as the Servicer shall
reasonably deem necessary to protect its interest.
(10) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Upon approval by the Company, the Servicer may contract with
industry-qualified third parties for the performance of any or all of its
obligations arising hereunder but no such contract shall relive Servicer from
liability for its performance hereunder.
(11) Company Event of Default Servicer's Remedies. In the event
that Company should fail to pay any fees or compensation due under this
Agreement, within ten (10) days of the date they are due, or are submitted for
payment, whichever is less, or shall fail to perform any of its duties or to
observe or perform any other term, covenant, condition or agreement provided
within this Agreement, said failure shall constitute an event of default by the
Company. In the event of such default, Purchaser shall have the option of
terminating this Agreement in addition to all remedies available in equity or
law.
(12) Modifications and Waivers. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor shall
any single or partial exercise of any
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right, power or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege hereunder. All
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties hereto may otherwise have at law or in
equity. No waiver shall be valid in the absence of the written and signed
consent of the party against which enforcement of such is sought.
(13) Notice. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telegraphic or telecopy
communication) and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, or if telegraphed when delivered
to the telegraph company, or if telecopied when transmitted, or otherwise when
delivered in person to the address and a receipt given for, in all such
instances addressed to the respective party, at such address as the addressee
may, by written notice received by the other party hereto, designate as the
appropriate address for purposes of notice hereunder.
(14) Amendment. This Agreement may be amended, supplemented or
modified only with the written consent of the parties hereto.
(15) Choice of Law. THIS AGREEMENT, AND THE VALIDITY AND
ENFORCEMENT HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF OKLAHOMA.
(16) Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, the legality, validity and enforceability of
the remaining provisions of this Agreement shall not be affected thereby, and
in lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
of such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
(17) Entire Agreement. This instrument embodies the entire
agreement between the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof
(18) Counterparts. This Agreement may be executed in one or more
counterparts, each of which for all purposes is to be deemed an original.
(19) Survival. All covenants, agreements, undertakings,
indemnities, representations and warranties made herein shall survive both the
execution and the termination hereof and shall not be affected by any
investigation made by any party.
(20) Further Assurances. Servicer shall furnish to Company at the
request of the Company such additional information concerning the Contracts as
Company may from time to time reasonably request in order to establish
compliance with the terms and conditions of this Agreement, and shall execute,
acknowledge and deliver, or cause to be executed, acknowledged or delivered,
such supplements hereto and such further instruments as may reasonably be
required or appropriate and permitted by law to further express the intention,
or to facilitate the performance of, this Agreement.
"COMPANY"
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
By: /s/ Michael R. Marshall
----------------------------------------
Its: President
"SERVICER"
U.S. AUTOMOBILE ACCEPTANCE CORPORATION
By: /s/ Michael R. Marshall
----------------------------------------
Its: President
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EXHIBIT TO SERVICING AGREEMENT
SERVICING CRITERIA
At all times during the term of the Servicing Agreement therein,
Servicer shall perform its duties in material accordance with the Servicing
Agreement, and observe the following covenants and criteria (referred to as the
"servicing criteria"):
I. SERVICING ACTIVITY REPORT
1. Servicer shall prepare, and deliver monthly to Company,
Servicing Activity Certificate (the "Certificate'), and the
president of Servicer shall certify as to the authenticity and
accuracy therein, that all Contacts managed by Servicer were
serviced in material accordance with the terms and conditions
of the Servicing Agreement, and that no Servicer Event of
Default as described in the Servicing Agreement has occurred
since the date of the last such Certificate.
2. The Certificate shall contain collection information on each
Contract since the date of the last such Certificate,
including adequately segregated information of all past due
accounts, repossessions, charge-offs, and extensions.
Supporting documents shall be made available to Company on a
demand basis, and such records shall be properly and safely
maintained.
3. The Certificate shall be delivered to Company on or before the
fifteenth day of the month following the month covered
thereunder.
II. COLLECTION POLICY
1. Contracts and all subcontract servicers will be issued advice
or instructions which will specifically request that all
payments be made to Company's Master Collections Accounts.
2. Servicer shall contact any Obligor on a past due Contract
within ten days after the payment due date for the purpose of
pursuing collection and shall adequately update all credit and
collection file records with respect to such activities.
3. Any material extensions, modifications, or acceptances of
partial payments by Obligors, and any related necessary
Contract amendments and/or default waivers by Servicer, shall
be approved by the chief credit officer or president of
Company or its assigns, and all necessary third party charges
and explanations relating thereto shall be documented.
III. FORECLOSURE/REPOSSESSION POLICY
1. The Servicer will take immediate appropriate action to enforce
dealer recourse agreement on behalf of the Company. The
Company will, if necessary, pursue repossession action,
subject to compliance with all state and Federal laws relating
thereto, against the Financed Vehicle underlying any Contract
whose Obligor is (i) four payments past due in the case of
biweekly or semi-monthly Notes, (ii) two payments past due in
the case of monthly notes, and who have failed for (i) sixty
consecutive days to remit any sums against payment obligations
under the respective Contract for biweekly or semi-monthly
Contracts, and (ii) seventy-five days for monthly Contracts.
Nothing contained in this Section shall be construed to limit
Servicer from pursuing repossession or any other collection
technique, subject to related state and Federal laws, sooner
than the time contemplated in (i) and (ii) above if Servicer
in its discretion deems such activity to be prudent and in the
best interests of Servicer, Company, or their assigns.
2. For each chargeoff of any material unpaid amount from an
Obligor under any Contract, Servicer shall document the
reasons for such chargeoff, shall maintain all third-party
related documentation for such chargeoff and shall notify (and
document such notification) customary credit bureaus regarding
the Obligor's deficiency.
E-6
<PAGE> 89
EXHIBIT F
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
SUBSCRIPTION ESCROW AGREEMENT
AGREEMENT made effective as of November 14, 1996, between U.S.
Automobile Acceptance SNP-III, Inc., a Texas corporation (the "Company"), and
Texas Commerce Bank National Association ("Agent").
WHEREAS, Company is offering for subscription up to $24,000,000
principal amount of its 11% Asset-Backed Promissory Notes (the "Notes") on the
terms and conditions set forth in its prospectus (the "Prospectus"), a copy of
which has been furnished to Agent; and
WHEREAS, Company desires for Agent to perform the services of
depository and escrow agent with respect to subscriptions to the Company made
by prospective purchasers of the Notes (the 'Investors');
NOW, THEREFORE, the parties hereto agree as follows:
1. Agent shall deposit all subscription checks and other payments
for the Notes by Investors which it receives into an escrow account maintained
by Agent (the "Escrow Fund"). Checks shall be made payable to the Agent until
the minimum subscriptions of $100,000 have been received by the Agent.
2. The Company reserves the right to reject any subscription.
The Company shall promptly refund the subscription amount which has been
rejected to the Investor unless the subscription amount is on deposit with
Agent, in which case Agent, upon written direction of the Company, shall make
such refund, if any, as soon as Agent has collected funds on such Investor's
check.
3. Prior to the close of business on December 20, 1996 (the
specified "escrow termination date"), Agent shall verify with Company whether
or not the minimum required subscriptions in Notes have been received.
4. If subscriptions for at least $100,000 in Notes (the "Minimum
Subscription Amount") have been received by Agent prior to the close of
business on the escrow termination date, the Company shall within fifteen (15)
business days advise Agent in writing that the offering was successful. Upon
receipt of such written notification, Agent shall terminate this escrow and
release such subscription proceeds plus any interest earned to the Company or
its designee at such time and in such amount as the Company shall specify.
After terminating the escrow in accordance herewith, Agent shall remit any
subscription proceeds received directly to Company. Anything herein to the
contrary notwithstanding, amounts received by the Agent in the form of checks
shall not be deemed to have been received and shall not be available for
distribution until such amounts have been collected by Agent. Amounts received
by Agent in the form of a wire transfer will be deemed to be collected funds on
the day of receipt.
5. If the Minimum Subscription Amount has not been received prior
to the close of business on the escrow termination date, all amounts received
by Agent shall be returned directly by Agent to Investors, as soon thereafter
as such amounts are collected. The Company shall provide Agent with written
directions specifying the name and address of, and the amount to be paid to,
each Investor to whom money is to be returned. Interest earned on the funds
shall be paid to the Company or its designee.
6. Agent shall have no authority or obligation to exercise
discretion as to the investment of the Escrow Fund, but will invest and
reinvest the Escrow Fund as directed by the Company, only in investments
permitted by Rule 15c2-4 under the Securities Exchange Act of 1934.
7. Agent shall be under no duty or responsibility to enforce
collection of any checks delivered to Agent hereunder. Agent shall promptly
notify and return to Company any check or instrument received from Company or
Investor upon which payment is refused, together with the related documents
which were delivered to Agent. If any check or instrument delivered to Agent
under this Agreement is uncollectible and if Agent has distributed funds
represented by such item pursuant to the terms hereof or pursuant to the
direction of the Company,
F-1
<PAGE> 90
Agent shall notify Company and shall deliver the returned check or instrument
to Company and Company shall immediately reimburse Agent for the amount of
funds uncollectible.
8. Agent shall provide all administrative and reporting services
contemplated by this Agreement to effect the purpose stated herein.
9. Agent is not a party to, nor is it bound by, any agreement out
of which this Agreement may arise including, but not limited to, the
Prospectus. Agent is not charged with notice of the existence of any agreement
out of which this Agreement may arise other than the Prospectus. Agent is not
charged with notice of the terms of the Prospectus (other than those recited
herein).
10. Agent may resign by giving ten (10) days prior written notice
to Company hereto by registered or certified mail at the address hereinbelow
set forth, and until a successor Agent is named and accepts its appointment,
Agent shall have no duty save to hold funds uninvested held pursuant hereto.
11. It is understood and agreed further, that Agent shall:
(a) Be protected in acting upon any notice, request,
certificate, approval, consent or other paper believed by it to be genuine and
to be signed by the proper party or parties;
(b) Be authorized to disregard in the sole discretion of
Agent any and all notices and warnings that may be given to it by Company
hereto or by any other person, firm, association, or corporation. Agent may,
with prior notice to Company, affording Company an opportunity to respond,
however, in its discretion obey the order, judgment, decree or levy of any
court, whether with competent jurisdiction or of any agency of the United
States or any political subdivision thereof, or of any agency of the State of
Texas or of any political subdivision thereof, and Agent is hereby authorized,
in its sole discretion, to comply with and obey any such orders, judgments,
decrees or levies. If, however, Agent, in its sole discretion and upon
consultation with counsel, concludes in good faith that it need not comply with
or obey any such orders, judgments, decrees or levies, Agent need not do so.
In any event, Agent shall not be liable by reason of such action or omission to
act to the Company or to any other person, firm, association or corporation,
even if thereafter any such order, decree, judgment or levy be reversed,
modified, annulled, set aside or vacated;
(c) Be entitled to consult with Agent's counsel and,
except for gross negligence or willful misconduct, shall not be liable for any
action taken or omitted by Agent in accordance with the opinion and advice of
such counsel whether such counsel be a member of Agent's house counsel staff or
independent counsel;
(d) Be indemnified by Company against any claim or charge
made against Agent by reason of its acting or failure to act in connection with
any of the transactions contemplated hereby, and against any loss Agent may
sustain in carrying out the terms of this Agreement, except as a result of
Agent's gross negligence or willful misconduct; and
(e) Be entitled to compensation from Company for acting
hereunder in accordance with the fee schedule attached hereto.
12. Each party to this Agreement shall be deemed conclusively to
have given and delivered any notice required to be given or delivered hereunder
if the same is in writing, signed by such party and mailed by registered and
certified mail, postage prepaid, addressed to the other party hereto, at the
address set forth below; provided, however, that the verification required of
Agent by Paragraph 3 above, shall be given orally (by telephone or in person)
by contacting or at or respectively, and then confirmed in writing if Company
so requests. Any written notices required by this Agreement shall be addressed
as follows:
F-2
<PAGE> 91
If to Agent:
Texas Commerce Bank National Association
2200 Ross Avenue
Dallas, TX 75201
If to Company:
U.S. Automobile Acceptance SNP-III-, Inc.
1120 N.W. 63rd, Suite G-106
Oklahoma City, Oklahoma 73116
13. This Agreement expressly and exclusively sets forth the duties
of Agent with respect to any and all matters pertinent hereto and no implied
duties or obligations shall be read into this Agreement against Agent.
14. Unless and until the Escrow is delivered to Company, it is
specifically recognized and agreed that Company shall not have any right, title
or interest in such funds; it being the intention of the parties hereto that
the Escrow Fund shall not be subject to claims against Company or any of its
affiliates unless and until the minimum subscription amount is achieved and
delivery of the funds thereof is made, as aforesaid, and the escrow account
hereunder is ended.
15. This Agreement is being made in and is intended to be
constructed according to the laws of the State of Texas. It shall inure to and
be binding upon the parties hereto, their successors and assigns the terms of
this Agreement shall commence with the date hereof and shall continue until the
offering of the minimum subscription amount is achieved or fails to be achieved
by escrow termination date, and the Escrow Fund is disposed under the provision
of this Agreement.
16. Agent shall deposit all funds received in insured accounts
such that each Investor which deposits funds in insured to the maximum amount
allowed under FDIC regulations, irrespective of the aggregate amount of funds
received from all Investors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by duly authorized representatives as of the
date first above written.
COMPANY:
U.S. Automobile Acceptance SNP-III, Inc.
By: /s/
----------------------------------
Its:
----------------------------------
AGENT:
Texas Commerce Bank National Association
By: /s/
----------------------------------
Its:
----------------------------------
F-3
<PAGE> 92
EXHIBIT G
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
SUBSCRIPTION AGREEMENT - ASSET-BACKED NOTES
The Investor named below, by payment of the purchase price for such
Asset-Backed Notes, by the delivery of a check payable to U.S. AUTOMOBILE
ACCEPTANCE SNP-III, INC.- Escrow Account /Texas Commerce Bank hereby subscribes
for Asset- Backed Notes indicated below (minimum purchase of $2000) of U.S.
Automobile Acceptance SNP-III, Inc. Notes may be purchased in increments of
$1,000. By such payment, the named Investor further acknowledges receipt of
the Prospectus and any Supplement and the Subscription Agreement, the terms of
which govern the investment in the Asset-Backed Notes being subscribed for
hereby.
<TABLE>
<S> <C>
A. INVESTMENT: (1) Amount of Asset-Backed Notes Purchased $
-------------------------
(2) Initial Purchase [ ] Additional Purchase [ ] Date of Investor's check
-------------------------------
B. REGISTRATION: Mr. Mr.
Mrs. Mrs.
(4) Registered Owner: Ms. Co-Owner: Ms.
---------------------------------------- ----------------------------------------
(5) Mailing Address: City, State & Zip:
---------------------------------------------- ------------------------------------
(6) Residence Address (if different from above):
---------------------------------------------------------------------------
(7) Birth Date: / / (8) Birth Date Co-Owner: / /
---------- ---------- ---------- ---------- ---------- ----------
(9) Please indicate Citizenship Status: (10) Social Security #: / /
---------- ---------- ----------
U.S. Citizen [ ] Other [ ] Co-Owner SS #: / /
---------- ---------- ----------
(11) Telephone #: (H) ( ) Corporate or Custodial:
--------- ------------------
(0) ( ) Taxpayer ID #: - -
--------- ------------------ --------- ------ ---------
C. OWNERSHIP: [ ] Individual Ownership [ ] IRA or Keogh [ ] Joint Tenants with Rights of Survivorship
[ ] Trust/Date of Trust Established Pension/Trust / / (S.E.P.) [ ] Tenants in Common [ ] Tenants by the Entirety
---- ---- ----
[ ] Corporate Ownership [ ] Partnership [ ] Other
--------------------------------------------------------------------
D. SIGNATURES: By signing below, I/we represent that I/we meet the suitability standards set forth in the Prospectus under
"Suitability Standards."
Signatures - Registered Owner: Co-Owner
--------------------------------------- --------------------------------------------
E. Print Names of Custodian or Trustee: Authorized Signature
----------------------------- --------------------------------
Date: Witness Signature
---------------------------------------- -----------------------------------------------------------
F. PAYMENT SHOULD BE SENT TO (IF DIFFERENT THAN REGISTERED OWNER):
Name: c/o
--------------------------------------------------------------------------- --------------------------------------
Address: Account Number:
------------------------------------------------------------------------ --------------------------
City, State & Zip: Telephone Number:
-------------------------------------------------------------- ------------------------
G. BENEFICIAL OWNER(S): All reports and financial statements will normally be sent to the registered owner at the address in
Section B. If reports and financial statements are to be sent to the Beneficial Owner of an IRA or Keogh, insert name of the
Beneficial Owner.
Name of Beneficial Owner Only: Telephone Number:
-------------------------------------------------- ------------------------
Address: City, State & Zip:
------------------------------------------------------------------------ -----------------------
H. BROKER-DEALER/REGISTERED REPRESENTATIVE DATA: ALL LINES MUST BE COMPLETED. ANY MISSING SIGNATURES MAY DELAY PROCESSING OF
THIS ORDER.
Broker-Dealer NASD Firm Name: Date: Telephone Number:
---------------------------------- ---------- -----------------------
Main Office Address: City, State & Zip:
----------------------------------------------------- ------------------------------
Print or Type name of Broker-Dealer, Principal or other Authorized Signator:
------------------------------------------------
Authorized Signature:
-------------------------------------------------------------------------------------------------------
Print or Type Name of Registered Representative: Telephone Number:
--------------------------------- -----------------------
Signature:
------------------------------------------------------------------------------------------------------------------
Branch Office Address: City, State & Zip
----------------------------------------- -----------------------------------------
=============================================================================================================================
MAIL TO: U.S. Automobile Acceptance SNP-III, Inc., 1120 N.W. 63rd, Suite G-106, Oklahoma City, OK 73116
(405) 843-3135 FAX (405) 848-7777
=============================================================================================================================
</TABLE>
ALL CHECKS FROM INVESTORS MUST BE TRANSMITTED TO THE ESCROW AGENT
BY NOON OF THE NEXT BUSINESS DAY FOLLOWING RECEIPT
G-1
<PAGE> 93
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with the offering
described herein, other than those contained in this Prospectus. If given or
made, such other information or representations must not be relied upon as
having been authorized by the Company or by any Underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction. The
delivery of this Prospectus at any time does not imply that the information
herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Summary 3
Risk Factors 7
Capitalization 12
Use of Proceeds 12
Plan of Distribution 13
Description of the Notes 13
Security for the Notes 15
Allowed Expenses and Flow of Contract
Proceeds 16
The Company 18
Purchase and Collection of Contracts 19
Security Ownership of Certain
Beneficial Owners and Management 22
Management 22
Management's Discussion and Analysis
of Financial Condition 25
Indenture of Trust Provisions 26
Certain Legal Aspects of the Contracts 28
Certain Federal Income Tax Considerations 31
Experts 32
Legal Matters 32
Financial Statements 33
Exhibits
Form of 11% Asset-Backed Promissory
Note Due December 31, 2001 A-1
Indenture of Trust B-1
Security Agreement C-1
Custodian Agreement D-1
Servicing Agreement E-1
Subscription Escrow Agreement F-1
Subscription Agreement G-1
</TABLE>
Until termination of this offering, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, are
required to deliver a prospectus.
$24,000,000
11% ASSET-BACKED PROMISSORY NOTES
DUE DECEMBER 31, 2001
U.S.
AUTOMOBILE
ACCEPTANCE
SNP-III,
INC.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company ("Articles")
provide for indemnification of Directors in accordance with the Texas Business
Corporation Act. Article Six of the Articles provides as follows:
A director of the Corporation is not liable to the Corporation
or its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Article Six does
not eliminate or limit the liability of a director for:
(a) a breach of a director's duty of loyalty to the
Corporation or its shareholders;
(b) an act or omission not in good faith or that
involves intentional misconduct or a knowing
violation of the law;
(c) a transaction from which a director received an
improper benefit, whether or not the benefit resulted
from an action taken within the scope of the
director's office;
(d) an act or omission for which the liability of a
director is expressly provided for by statute; or
(e) an act related to an unlawful stock repurchase or
payment of a dividend.
The Broker-Dealer Selling Agreement also provides for
indemnification of the Company, and its officers, directors and employees
against certain liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses, including all allocated general administrative
and overhead expenses, related to the offering or the organization of the
Company will be borne by U.S. Automobile Acceptance Corporation (the "Parent").
The Company will reimburse the Parent for all or a part of such expenses
through a payment by the Company to Parent of a fee of 5% of the gross proceeds
from any sales of the Notes.
The following table sets forth a reasonable itemized statement
of all anticipated out-of-pocket and overhead expenses (subject to future
contingencies) to be incurred in connection with the distribution of the
securities being registered, reflecting the minimum and maximum subscription
amounts.
<TABLE>
<S> <C> <C>
Minimum Maximum
------- -------
SEC Registration Fee $ 8,276 $ 8,276
Printing and Engraving Expenses 5,000 60,000
Legal Fees and Expenses 35,000 80,000
Trustee Fees 15,000 30,000
Escrow Fees 10,000 15,000
Marketing and Due Diligence Expenses 1,500 720,000
Accounting Fees and Expenses 10,000 30,000
Blue Sky Fees and Expenses 10,000 75,000
Miscellaneous 3,724 61,724
-------- ----------
TOTAL $100,000 $1,080,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In June 1996, the Company issued 1,000 shares of Common Stock
to U.S. Automobile Acceptance Corporation, a Texas corporation, at $50.00 per
share, for cash in the amount of $50,000, to commence business.
The issuance of these shares was exempt from registration
under Section 4(2) of the Securities Act of 1933 as a transaction not involving
a public offering. No commissions were paid in connection with this
transaction.
II-1
<PAGE> 95
ITEM 27. EXHIBITS
The following Exhibits are filed as part of the Registration Statement:
<TABLE>
<S> <C>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
3. - Articles of Incorporation
3.2 - By-Laws
4.1* - The Indenture is Exhibit B to the Prospectus.
4.2* - The Form of 11% Asset-Backed Promissory Note is Exhibit A to the Prospectus.
5.1 - Opinion of Amy Waters, Attorney at Law, regarding validity of Notes
8.1 - Opinion of Tyson Hopkins, CPA, regarding tax matters
10.1* - Security Agreement among U.S. Automobile Acceptance SNP-III, Inc., the Noteholder, and Texas Commerce
Bank National Association, as Trustee, is Exhibit C to the Prospectus.
10.2* - Custodian Agreement among U.S. Automobile Acceptance SNP-III, Inc., Texas Commerce Bank National
Association, as Trustee, and U.S. Automobile Acceptance Corporation, a Texas corporation, is Exhibit D
to the Prospectus.
10.3* - Servicing Agreement between U.S. Automobile Acceptance SNP-III, Inc. and U.S. Automobile Acceptance
Corporation is Exhibit E to the Prospectus.
10.4* - Subscription Escrow Agreement is Exhibit F to the Prospectus.
10.5 - Form of Broker-Dealer Selling Agreement
10.6* - Form of Subscription Agreement is Exhibit G to the Prospectus.
10.7 - Form of Guaranty Agreement to be executed by U.S. Automobile Acceptance Corporation in favor of Texas
Commerce Bank National Association, as Trustee
23.1 - Consent of Amy Waters, Attorney at Law (included in her opinion as Exhibit 5.1)
23.2* - Consent of Tyson Hopkins, CPA
- ----------------------------------
</TABLE>
* Filed with this amendment
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement; and
(iii) Include any additional or changed material
information of the plan of distribution, including the names of any
broker-dealers selling 5% or more ($1,200,000) of the Notes.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
II-2
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
the requirements for filing on Form SB-2 and authorizes this post-effective
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waxahachie, State of
Texas, on the 15th day of October, 1997.
U.S. AUTOMOBILE ACCEPTANCE SNP-III, INC.
By: /s/ Michael R. Marshall
-----------------------
Michael R. Marshall, President
________________________________________
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacity and on the date indicated:
SIGNATURE TITLE DATE
/s/ Michael R. Marshall President; Secretary; October 15, 1997
- ------------------------
Michael R. Marshall Treasurer; Sole Director
II-3
<PAGE> 97
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
<S> <C> <C>
3.1 - Articles of Incorporation
3.2 - By-Laws
4.1* - The Indenture is Exhibit B to the Prospectus.
4.2* - The Form of 11% Asset-Backed Promissory Note is Exhibit A to the Prospectus.
5.1 - Opinion of Amy Waters, Attorney at Law, regarding validity of Notes
8.1 - Opinion of Tyson Hopkins, CPA, regarding tax matters
10.1* - Security Agreement among U.S. Automobile Acceptance SNP-III, Inc., the Noteholder, and Texas Commerce
Bank National Association, as Trustee, is Exhibit C to the Prospectus
10.2* - Custodian Agreement among U.S. Automobile Acceptance SNP-III, Inc., Texas Commerce Bank National
Association, as Trustee, and U.S. Automobile Acceptance Corporation is Exhibit D to the Prospectus
10.3* - Servicing Agreement between U.S. Automobile Acceptance SNP-III, Inc. and U.S. Automobile Acceptance
Corporation is Exhibit E to the Prospectus
10.4* - Subscription Escrow Agreement is Exhibit F to the Prospectus
10.5 - Form of Broker-Dealer Selling Agreement
10.6* - Form of Subscription Agreement is Exhibit G to the Prospectus.
10.7 - Form of Guaranty Agreement to be executed by U.S. Automobile Acceptance Corporation in favor of Texas
Commerce Bank National Association, as Trustee
23.1 - Consent of Amy Waters, Attorney at Law (included in her opinion as Exhibit 5.1)
23.2* - Consent of Tyson Hopkins, CPA
</TABLE>
- -------------------------------
* Filed with this amendment
<PAGE> 1
CONSENT OF INDEPENDENT AUDITOR
I consent to the use in the Form SB-2; Registration Statement Under the
Securities Act of 1933, of U.S. Automobile Acceptance SNP-III, Inc. of my
report dated October 13, 1997, on the financial statements as of and for the
period from incorporation on June 7, 1996 through December 31, 1996 and for the
eight months ended August 31, 1997 and to the use of my name appearing under
the heading "Experts" in the Form SB-2.
I consent to the use in the Form SB-2; Registration Statement Under the
Securities Act of 1933, of U.S. Automobile Acceptance SNP-III, Inc. of my
report dated October 13, 1997, on the consolidated financial statements of U.S.
Automobile Acceptance Corporation as of and for the periods ended December 31,
1995, 1996 and August 31, 1997 and to the use of my name appearing under the
heading "Experts" in the Form SB-2.
/s/ TYSON HOPKINS
Tyson Hopkins
Certified Public Accountant
Oklahoma City, Oklahoma
October 15, 1997
