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As filed with the Securities and Exchange Commission on June 12, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SENTINEL FINANCING, LTD., L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 6153 [Applied For]
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION CLASSIFICATION
OR ORGANIZATION) CODE NUMBER)
210 North University Drive, Suite 800, Coral Springs, Florida 33071;
(954) 796-9915
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------------------------
IVAN HOSER
Sentinel Acceptance Corporation
General Partner
210 North University Drive, Suite 800
Coral Springs, Florida 33071
(954) 796-9915
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------------------
Copies to:
MARK A. BONENFANT
Buchalter, Nemer, Fields & Younger
a Professional Corporation
601 South Figueroa Street, Suite 2400
Los Angeles, CA 90017-5704
(213) 891-0700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER UNIT OFFERING PRICE FEE
12% Secured Notes due 2002 $ 15,000,000 100% $ 15,000,000 $4,545.45
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO
DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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SENTINEL FINANCING LTD., L.P.
CROSS REFERENCE SHEET
Item No. And Caption Location or Caption in Prospectus
-------------------- ---------------------------------
1. Forepart of the Registration Statement Cover Page of the Registration
and Outside Front Cover of the Statement; Outside Front Cover Page
Prospectus . . . . . . . . . . . . . . of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Outside
Pages of Prospectus. . . . . . . . . . Back Cover Page; Available
Information
3. Summary Information, Risk Factors
and Ratio of Earnings to Prospectus Summary; Risk Factors;
Fixed Charges. . . . . . . . . . . . . The Company
4. Use of Proceeds. . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price. . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . Outside Front Cover Page; Plan of
Distribution
9. Legal Proceedings. . . . . . . . . . . Litigation
10. Directors, Executive Officers,
Promoters and Control Persons. . . . . Management
11. Security Ownership of Certain
Beneficial Owners. . . . . . . . . . . Principal Security Holders
12. Descriptions of Securities . . . . . . Summary of Offering; Description
of Notes
13. Interest of Named Experts
and Counsel. . . . . . . . . . . . . . Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities. . . . . . . . . . . . . . Not Applicable
15. Organization Within Last Five Years. . Business
16. Description of Business. . . . . . . . Business
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17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . Management's Discussion and
Analysis of Financial Condition and
Results of Operation
18. Description of Property. . . . . . . . Business
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . Risk Factors; Management; Certain
Transactions
20. Market For Common Equity and Related
Stockholder Matters. . . . . . . . . . Not Applicable
21. Executive Compensation . . . . . . . . Management
22. Financial Statements . . . . . . . . . Financial Statements
23. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . Not Applicable
<PAGE>
Subject to Completion, Dated ___________, 1997
PROSPECTUS
$15,000,000
Sentinel Financing Ltd., L.P.
12% Secured Notes
Due 2002
Minimum Offering: $1,000,000
Sentinel Financing Ltd., L.P., a Florida limited partnership (the
"Company"), which is a newly organized, single purpose entity, is hereby
offering $15,000,000 aggregate principal amount of 12% Secured Notes due 2002
(the "Notes"). The general partner of the Company is Sentinel Acceptance
Corporation.
The Notes will bear interest at the rate of 12% per annum, payable monthly
on the 15th day of each month commencing ______________, 1997. The Notes will
mature on _____________, 2002, and are subject to redemption at the option of
the Company, in whole or part, at any time at a redemption price equal to the
outstanding principal amount plus accrued interest thereon, without premium or
penalty. The Company will not be required to make any mandatory redemption or
sinking fund payment with respect to the Notes prior to maturity. Notes may be
purchased in multiples of $1,000, subject to a minimum purchase requirement of
$2,000.
The Notes will be secured by: (i) retail installment sales contracts
secured by used automobiles and light trucks; (ii) certain other collateral
described herein.
The Notes are being offered on a best efforts, $1,000,000 minimum offering
basis. All proceeds from the sale of Notes will be immediately deposited in an
escrow account at Bank of Montreal Trust Company (the "Escrow Account"), and no
funds will be released to the Company therefrom unless and until the Company has
sold $1,000,000 in aggregate principal amount of the Notes (the "Minimum
Offering"). Upon sale of the Minimum Offering, the Notes shall be released to
purchasers of the Notes (the "Noteholders") bearing an issue date equal to the
date the purchase price therefor was deposited into the Escrow Account. If the
Minimum Offering is not sold by [90 days after the effective date], 1997, all
monies received will be refunded to investors, together with any net investment
earnings thereon from the investment of such monies by the Escrow Account. In
the event of any such return of funds, the investors shall not be entitled to
receive the stated interest rate on the Notes. Subscribers for the Notes shall
have no right to withdraw any funds from the Escrow Account.
SEE "RISK FACTORS" COMMENCING ON PAGE __ FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS THE COMMISSION OR
ANY STATE SECURITIES AGENCY PASSED ON THE
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ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Underwriting Discounts Proceeds to
Price to Public and Commissions(1) Company(2)
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Per Note 100% 7.5% 92.5%
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Total Minimum $ 1,000,000 $ 75,000 $ 925,000
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Total Maximum $ 15,000,000 $ 1,125,000 $13,875,000
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(1) The Notes are being offered on a best-efforts basis through licensed
participating dealers. The Company has agreed to indemnify all participating
dealers against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See Underwriting. Does not include 4% investment
banking and marketing fee payable to Banc Services Corporation. The Company may
also reimburse participating dealers for actual due diligence expenses in an
amount up to .5% of the principal aggregate amount of Notes sold and may pay
participating dealers a non-accountable expense allowance not to exceed .5% of
the principal aggregate amount of Notes sold. See Plan of Distribution.
(2) Before deducting expenses of approximately $200,000 to $300,000 payable
by the Company. See "Use of Proceeds."
The offering of Notes will continue until the earlier to occur of (i) the
sale of all Notes offered hereby, (ii) termination thereof by the Company in
its sole discretion or (iii) [24 months after the effective date]. Investors
must satisfy certain minimum suitability standards prior to purchasing any
Notes. See "Suitability Standards."
The Notes are being offered subject to prior sale, withdrawal, cancellation
or modification of the offer, including its structure, terms and conditions,
without notice. The Company reserves the right, in its sole discretion, to
reject, in whole or in part, any offer to purchase the Notes. See "Plan of
Distribution."
The date of this Prospectus is ___________________________________, 1997
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SUITABILITY STANDARDS
Notes will only be sold to a person who makes the required minimum purchase
and represents in writing that such person: (i) has annual gross income of at
least $30,000 and a net worth of at least $30,000 (exclusive of home, home
furnishings and automobiles); or (ii) has a net worth of at least $75,000
(exclusive of home, home furnishings and automobiles); or (iii) is purchasing in
a fiduciary capacity for a person who (or an entity which) satisfies either of
the foregoing clauses (i) or (ii). In the case of sales to fiduciary accounts,
the suitability standards must be satisfied by the beneficiary; however, where
the fiduciary is the donor of funds used for the investment, the fiduciary and
not the beneficiary must meet the foregoing standards.
All participating dealers will make reasonable inquiry to assure compliance
with these suitability standards, and the Company will not accept subscriptions
from any person who does not represent in the Subscription Agreement filed as an
exhibit to the Registration Statement of which this Prospectus is a part
("Subscription Agreement") that he or she meets such standards. These
suitability standards are established due to the illiquidity of the Notes and
other risk factors associated with an investment in the Notes. See "Risk
Factors."
No transfers will be permitted of less than the minimum permitted purchase,
nor may an investor transfer, fractionalize or subdivide notes so as to retain
less than such minimum purchase.
[END INSIDE FRONT COVER]
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Sentinel Financing, Ltd., L.P., a Florida limited partnership (the
"Company"), is a newly formed single purpose company organized to specialize
and engage in the purchase, collection and servicing of retail installment
contracts ("Installment Contracts") originated by independent automobile
dealers ("Dealers"). The Company will acquire directly and through
intermediaries Installment Contracts originated by Dealers in connection with
their sale of used automobiles and light duty trucks ("Financed Vehicles") to
borrowers with limited credit histories or past credit problems ("Non-prime
Consumers"). The Company's general partner is Sentinel Acceptance
Corporation ("SAC"), and its sole limited partner is Sentinel Acceptance
Ltd., L.P., a Florida limited partnership ("Sentinel Acceptance"). Management
services will be provided to the Company by Sentinel Acceptance . SAC is
also the general partner of Sentinel Acceptance.
The automobile finance industry is the second largest consumer finance
market in the United States and is estimated by analysts to have been a $400
billion market in terms of outstanding credit at the end of 1996. The vast
majority of automobile financing is provided by captive finance subsidiaries of
major auto manufacturers, banks and credit unions for new cars purchased by "A"
credit consumers ("Prime Consumers"). These lenders tend to avoid or do not
consistently serve the Non-prime Consumer market, where primarily used
automobiles are purchased and financed by borrowers with "B," "C" or "D" credit.
The Non-prime Consumer market is estimated to constitute 20% of the auto finance
market and expected to grow annually to $60 and $75 billion and is serviced
primarily by independent finance companies such as the Company. The Company
believes that the Non-prime Consumer market for used cars is growing due, in
part, to (i) demographic and economic trends, (ii) the extension of the average
useful life of automobiles and (iii) the increasing number of late-model used
automobiles being offered for sale, including former rental cars and vehicles
coming off-lease.
The Company intends to supply additional capital to the Non-prime Consumer
market. On the basis of its personal relationships it has negotiated
non-exclusive oral purchase arrangements with multiple originators, including
independent financing companies and, to a lesser extent, individual Dealers.
The Company intends to negotiate written arrangements with originators upon
completion of this Offering which are competitive while protecting the Company
against the risk of default under the Installment Contracts to the extent
possible.
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THE OFFERING
SECURITIES OFFERED 15,000,000 aggregate principal amount of 12% Secured Notes
due 2002 (the "Notes").
MATURITY _________________, 2002
INTEREST RATE
AND DATES The Notes will bear interest at the rate of 12% per annum
(the "Note Rate"). Interest will accrue from the date of
issuance, payable monthly on the 15th day of each month
commencing on _____________, 1997. [90 days from the
effective date]
OPTIONAL
REDEMPTION The Notes will be redeemable at the option of the Company,
in whole or in part, at any time at a redemption price equal
to the outstanding principal amount plus accrued interest
thereon, without premium or penalty.
COLLATERAL The Notes will be secured by a security interest in (i) all
Installment Contracts, acquired with the net proceeds of
this Offering, and (ii) certain other collateral described
herein.
SINKING FUND None
USE OF PROCEEDS Net proceeds from the offering will be used to purchase
Installment Contracts.
MINIMUM OFFERING The minimum aggregate principal amount of Notes to be sold
pursuant to this Offering is $1,000,000 (the "Minimum
Offering"). All monies received from investors prior to the
date on which the Minimum Offering has been sold (the
"Release Date"), will immediately be deposited in an escrow
account (the "Escrow Account") at Bank of Montreal Trust
Company (the "Escrow Agent"). On the Release Date all
monies in the Escrow Account shall be released to the
Company and the Notes shall be released to purchasers of the
Notes ("Noteholders") bearing an issue date as of the date
the purchase price of each Note was deposited into the
Escrow Account. If the Release Date does not occur on or
prior to [90 days from the effective date], 1997, all monies
in the Escrow Account shall be returned to investors,
together with any net investment earnings thereon and the
investors will not be entitled to the Note Rate. The monies
held in the Escrow Account will be invested by the Escrow
Agent in U.S. government securities, the yield on which is
expected to be substantially lower than the Note Rate.
INDENTURE AND
TRUSTEE The Notes will be issued pursuant to an Indenture of Trust
entered into between the Company and
_________________________, as trustee (the "Trustee").
The Notes will be offered and sold on a "best efforts" basis
on behalf of the Company by licensed soliciting
broker-dealers that are members of the National Association
of Securities Dealers, Inc., and are qualified to offer and
sell the
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Notes in a particular state, who have been or may hereafter
be engaged by the Company. Investor funds will be held in a
subscription escrow account until the minimum of $1,000,000
in principal amount of the Notes (the "Minimum Subscription
Amount") are sold. If the Minimum Subscription Amount is
not reached on or before [90 days after effective date], the
offering will be terminated, and the escrowed funds, will be
promptly returned to the subscribing investors by the escrow
agent. Upon receipt of the Minimum Subscription Amount, the
escrowed funds will be released to the Company. See "Plan
of Distribution."
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RISK FACTORS
A PURCHASE OF THE NOTES INVOLVES VARIOUS RISK FACTORS, INCLUDING, BUT NOT
LIMITED TO, THE RISKS SET FORTH BELOW. PROSPECTIVE INVESTORS SHOULD CONSIDER
THESE RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE THE NOTES.
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 Installment Contracts that secure the Notes. While the Notes
remain outstanding, the Company will not engage in any business other than the
purchase, collection and servicing of the Installment Contracts.
CREDITWORTHINESS OF CONTRACT OBLIGORS. Substantially all of the
Installment Contracts to be purchased by the Company will be Non-prime Consumer
credits. The Non-prime Consumer finance market is comprised of borrowers who
are unable to obtain traditional financing through a bank or a captive finance
company due to either incomplete or imperfect credit histories. Consequently,
the incidence of delinquency or default is expected to be significantly higher
for Non-prime Consumer credits than in the case of Prime Consumer credits. For
these reasons, such Installment Contracts bear interest at rates significantly
higher than in the case of Prime Consumer credits, but also involve a higher
probability of default and greater servicing costs. The Company's profitability
depends, in part, upon its ability to properly evaluate the creditworthiness of
Non-prime Consumers and efficiently service its Installment Contracts. There
can be no assurance that the discounts negotiated by the Company for Installment
Contracts will accurately reflect the underlying credit risks. Furthermore, as
competition within the industry increases, the Company's ability to negotiate
discounts will be limited even if delinquency rates increase. If the discounts
are inadequate, loan losses may exceed the proceeds of the performing loans,
thus impairing the Company's ability to service the Notes.
ECONOMIC FACTORS AFFECTING DELINQUENCIES. A purchasers' ability to remit
payments as required by the terms of the Installment Contracts is in most cases
dependent on their continued employment, and a job loss will usually result in
defaults on their consumer debts. A prolonged economic recession resulting in
widespread unemployment could cause a significant rise in delinquencies and
charge-offs, which would adversely affect the Company and Noteholders.
AVAILABILITY OF INSTALLMENT CONTRACTS. The Company's ability to implement
its growth strategy depends on its ability to purchase Installment Contracts
meeting its underwriting standards. While management has numerous relationships
with Installment Contract originators, the Company does not have formalized
written arrangements with a network of automobile dealers or other originators
from which Installment Contracts will be purchased or through which Installment
Contracts will be originated by the Company. There is no assurance that the
Company will be able to find additional Installment Contracts to purchase at
prices or on terms acceptable to the Company, or at all. Unfavorable changes in
the economic or competitive environment, or other occurrences resulting in the
erosion of the Company's present and prospective originator base could adversely
affect the Company's operations and impair its ability to achieve continual
expansion. If the Company is unable to purchase suitable Installment Contracts
or experiences delays in purchasing such Installment Contracts, the Company's
expected net interest margin may be reduced, perhaps significantly, which could
materially adversely affect the Company's income and ability to service the
Notes.
COMPETITION AND MARKET CONDITIONS. The Non-prime Consumer automobile
finance market is very fragmented and highly competitive. The Company believes
that there are numerous non-traditional consumer finance sources serving this
market. Furthermore, during the past several years,
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a number of companies have completed initial public offerings of common stock,
the proceeds from which were to be used (at least in part) to fund expansion and
to support increased purchases of Installment Contracts. Traditional automobile
financing sources include commercial banks, savings and loans, credit unions,
captive finance companies of automobile manufacturers and other consumer
lenders, many of which have significantly greater resources than the Company and
may be able to offer more attractive Installment Contract purchase terms to
Dealers. To the extent that traditional and non-traditional lenders
significantly expand their activities in this market, the Company's ability to
execute its business and growth strategy may be adversely affected. The
Company's business is also affected by certain demographic, economic and
industry trends. For example, these trends include increased sales of used
vehicles, the rising price of new vehicles compared to U.S. median family income
and the overall level of interest rates in general. The Company believes that
recent trends favor increased growth in the portion of the automobile finance
industry which serves Non-prime Consumers. However, a reversal of any of these
trends could have a material adverse affect on the Company's operations,
profitability and growth.
CONFLICTS OF INTEREST. SAC is the general partner of the Company. SAC is
also the general partner of Sentinel Acceptance and provides management
services to Sentinel Acceptance. Consequently, there will be conflicts of
interest with respect to the allocation of SAC's management time between
Sentinel Acceptance and the Company. Sentinel Acceptance will also provide
management and administrative services to the Company. There may therefore be
conflicts of interest with respect to the allocation of services, overhead
expenses and functions between the activities of SAC, Sentinel Acceptance and
the Company. There can be no assurance that any particular conflict may be
resolved in a manner that does not adversely affect Noteholders. A
significant part of Sentinel Acceptance business is automobile financing. A
potential conflict of interest exists with respect to determining whether
Installment Contracts will be purchased by Sentinel Acceptance or the Company.
To lessen this conflict of interest, Sentinel Acceptance has agreed that it
will not purchase any Installment Contract until the Company has expended all
of its available net proceeds from this Offering for the purchase of
Installment Contracts. In addition, up to 50% of the net proceeds (not to
exceed $2.5 million) of this Offering will be used to purchase Installment
Contracts from Sentinel Acceptance. The discount from the principal and
interest of the Installment Contracts to be purchased will be approximately
45%. Although an opinion on the value of the purchased Installment Contracts
was not obtained by the Company, management believes that the terms of the
purchase are substantially similar to the terms that would be available from
an unaffiliated third party in an arms-length transaction. Sentinel
Acceptance has also contracted to service the Company's Installment Contracts.
Management believes that the terms of the service agreement are substantially
similar to the terms that would be available from a third party in an
arms-length transaction.
SECURITY FOR NOTES. The Notes are secured by the Installment Contracts
acquired with the net proceeds of this Offering. Although the Noteholders have
been granted a security interest in the Installment Contracts as security for
the Notes, under certain limited circumstances, their security position may
become unperfected. If such security interest were not perfected, the
Noteholders would not have a priority claim on the collateral and would, in
effect, be treated as unsecured creditors of the Company. Upon an event of
default under the Notes, if the Noteholders did not have a priority claim on the
collateral through perfection of their security interest, or if they lose a
priority position on the collateral, their ability to sell the collateral and
use the proceeds to pay the Notes would be adversely affected as other creditors
would have an equal, or in some cases, superior, claim to the collateral, and
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the Noteholders could suffer a partial or total loss of principal and unpaid
interest on the Notes. See "Security Interests in Financed Vehicles."
Statutory liens for repairs or unpaid taxes may have priority over even 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 an
Installment Contract. No notice may necessarily be given to the Company in the
event such a lien arises or confiscation occurs.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay the ability of the Company to enforce its
rights under the Installment Contracts or to repossess and to 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 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.
PARTNERSHIP DISTRIBUTIONS. Under the terms of the Company's Partnership
Agreement, the partners of the Company are entitled to quarterly distributions
from Cash Available for Distribution. Cash Available for Distribution means the
remaining cash and other assets available for distribution to the partners after
payment or satisfaction of the following: (a) all partnership liabilities for
ordinary and necessary expenses then due and owing to the persons other than the
partners, (b) all payments currently due towards interest on the Notes, (c) the
current cost of acquiring assets, and (d) such reserves as may be determined by
the general partner to be reasonably necessary for the operation of the
Partnership business. The Partnership Agreement provides that distributions of
Cash Available For Distribution cannot be made unless at the fiscal quarter or
fiscal year end, as applicable, the Company's net receivables as reflected on
the Company's balance sheet for such fiscal quarter or fiscal year end
immediately preceding the fiscal quarter in which the distribution is to be made
exceeds 110% of the principal amount of Notes issued and outstanding. These
distributions to partners will reduce the amount of future Installment Contracts
that may be acquired and will reduce cash reserves available for future payments
with respect to the Notes in the event that future cash flow from the
Installment Contracts is insufficient to make Note payments.
EXTENSIVE REGULATORY REQUIREMENTS. The Company's business is subject to
extensive supervision and regulation under federal, state and local laws and
regulations which, among other things, require the Company to obtain and
maintain certain licenses and qualifications, limit interest rates, fees and
other charges associated with the Installment Contracts purchased by the
Company, require specified disclosures by Dealers to consumers and limit its
right to repossess and sell collateral. An adverse change in, modification to
or clarification of any of these laws or regulations, or judicial
interpretations as to whether and in what manner such laws or regulations apply
to Installment Contracts purchased or originated by the Company, could result in
potential liability related to Installment Contracts previously purchased and
could have a material adverse effect on the Company's financial condition and
results of operations. In addition, due to the consumer-oriented nature of the
industry in which the Company operates and uncertainties with respect to the
application of various laws and
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regulations in certain circumstances, industry participants frequently are named
as defendants in litigation involving alleged violations of federal and state
consumer lending or other similar laws and regulations.
The Company is subject to numerous federal laws, including the Truth in
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act
and the rules and regulations promulgated thereunder, and certain rules of the
Federal Trade Commission ("FTC"). These laws require the Company to provide
certain disclosures to loan applicants, prohibit misleading advertising and
protect against discriminatory financing or unfair credit practices. The Truth
in Lending Act and Regulation Z promulgated thereunder require disclosure of,
among other things, the terms of repayment, the final maturity, the amount
financed, the total finance charge and the annual percentage rate charged on
each retail installment contract. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants (including retail
installment contract obligors) on the basis of race, color, sex, age or marital
status. Under the Equal Credit Opportunity Act, creditors are required to make
certain disclosures regarding consumer rights and must advise consumers whose
credit applications are not approved of the reasons for the objection. The Fair
Credit Reporting Act requires the Company to provide certain information to
consumers whose credit applications are not approved on the basis of a report
obtained from a consumer reporting agency. The rules of the FTC limit the types
of property a creditor may accept as collateral to secure a consumer loan and
its holder in due course rules provide for the preservation of the consumer's
claim and defenses when a consumer obligation is assigned to a subject holder.
With respect to used vehicles specifically, the FTC's Rules on Sale of Used
Vehicles requires that all sellers of used vehicles prepare, complete and
display a Buyer's Guide which explains any applicable warranty coverage for such
vehicles. The Credit Practices Rules of the FTC impose additional restrictions
on loan provisions and credit practices.
Several states and the federal government have enacted "lemon laws" and
similar statutes concerning protections for purchasers of automobiles. The
application of these statutes may give rise to a claim or defense by an obligor
against a Dealer from or through whom such obligor purchased such vehicle.
These statutes apply to Installment Contracts purchased by the Company as well
as to Installment Contracts originated by the Company in connection with the
sale of used vehicles. The Company may be required to cancel Installment
Contracts with an obligor who successfully asserts such a claim or defense, and
while the Company would have a claim against the Dealer if the subject
Installment Contracts had been purchased by the Company, there can be no
assurance that the Company will be made whole in every case in which the obligor
successfully asserts such rights. The number and amounts of Installment
Contracts with respect to which obligors have asserted such claims or defenses
have been immaterial. Any adverse change in these laws or regulations, or in
the judicial or administrative interpretations thereof, could have a material
adverse effect on the business of the Company.
ABSENCE OF PUBLIC MARKET FOR THE NOTES AND LIMITED TRANSFERABILITY OF THE
NOTES. There is no established trading market for the Notes. The Company does
not intend to list the Notes on any national securities exchange or to seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. Noteholders have no right to cause the Company to
redeem, repurchase or prepay their Notes. In addition, the Notes are subject to
certain restrictions on their transfer. Accordingly, Noteholders will not be
able to liquidate their investment in the Notes in the event of an emergency or
for any other reason and the Notes will not be readily accepted as collateral
for loans. The Notes should be purchased only by persons who have no need for
liquidity in their investment. See "Transferability of Notes."
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LIMITED SOURCES FOR REPAYMENT OF THE NOTES. There is no sinking fund for
repayment of the Notes. Generally, the Company expects to use proceeds of the
Installment Contracts not used for operating expenses for the purchase of
additional Installment Contracts, to the extent Installment Contracts are
available on terms acceptable to the Company. As a result, in order to repay
the Notes at maturity, the Company will be obligated to refinance the Notes,
sell the Installment Contracts, incur additional debt, obtain additional equity
investments or engage in some combination of the foregoing. The Company has no
commitments from any source to fund the repayment of the Notes, and there is no
assurance that the Company will be successful in obtaining the funds necessary
for repayment of the Notes on terms acceptable to the Company or at all. If
sufficient funds are not available from any of such sources, the Company may be
unable to repay all or part of the interest or principal on the Notes.
PREPAYMENT. The Notes may be prepaid, at the option of the Company, in
whole or in part, at any time without any prepayment premium or penalty. A
Noteholder whose Note is prepaid may not have the ability to locate a suitable
replacement investment in anticipation of prepayment. In addition, if the
Notes are prepaid, by refinancing or otherwise, because of a decrease in
interest rates generally, a Noteholder may not be able to reinvest the
proceeds of the Note at the same effective yield.
NO RATING. The Notes will not be rated by any rating agency.
NO AMORTIZATION. The Notes do not provide for the amortization of any of
the principal amount prior to maturity. Accordingly, the Notes involve greater
risk than similar, fully amortizing debt instruments.
NO INTEREST IN THE COMPANY. A Noteholder will not acquire or obtain any
partnership or other equity interest in the Company by a purchase of Notes.
Noteholders have no ability to vote on Company matters or to otherwise influence
management of the Company.
SIZE OF OFFERING. In the event the Company sells less than the $15,000,000
aggregate principal amount of Notes offered hereby, there will be a smaller
portfolio of Installment Contracts as collateral, Noteholders will bear a
higher proportionate share of organizational and issuance costs thereby
reducing the net proceeds available for purchase of Installment Contracts, and
Noteholders may have an increased risk of loss. See "Uses of Proceeds."
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USE OF PROCEEDS
The following table sets forth the estimated application by the Company of
the anticipated proceeds of the sale of Notes.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- -------
($1,000,000) ($15,000,000)
Use of Proceeds
- ---------------
Amount Percent Amount Percent
---------- ------- ----------- -------
<S> <C> <C> <C> <C>
Purchase of Installment Contracts $ 645,000 64.5% $12,525,000 81.5%
Estimated Initial Expenses Related to
Purchase of Installment Contracts(1) 30,000 3.0% 450,000 3.0%
Sales Commissions and
Concession(2) 75,000 7.5% 1,125,000 7.5%
Due Diligence Reimbursement and
Non-Accountable Expense
Allowance(3) 10,000 1.0% 150,000 1.0%
Investment Banking and Marketing
Fee(4) 40,000 4.0% 600,000 4.0%
Other Offering Expenses(5) 200,000 20.0% 300,000 2.0%
Total Use of Proceeds $1,000,000 100% $15,000,000 100%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
(1) Until the Company generates cash flow in excess of operating expenses
including interest payments due under the Notes, offering proceeds may be used
to pay certain operating expenses.
(2) The Company will pay the participating dealers a selling commission of up
to 7.5% of the sale price for each Note sold. See "Plan of Distribution."
(3) Includes reimbursement for actual due diligence expenses which may be paid
to the participating dealers in an amount of up to .5% of the principal amount
of each Note and payments which may be made to participating dealers by the
Company as a non-accountable expense allowance not to exceed .5% of the
principal amount of each Note. See "Plan of Distribution."
(4) An investment banking and marketing fee will be paid to Banc Services
Corporation for services including advising the Company with respect to this
Offering.
(5) Includes legal, accounting, printing, registration and qualification fees,
and trustee and escrow fees and other offering costs.
Prior to the purchase of Installment Contracts net proceeds not otherwise
expended as described above will be invested in short term, interest-bearing
securities.
To the extent the maximum amount of proceeds is not raised the Company
intends to prioritize the use of proceeds first through the payment of all
expenses, reimbursements and commissions related to this Offering, and then to
the purchase (and payment of expenses associated therewith) of Installment
Contracts.
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Up to 50% of net proceeds (not to exceed $2.5 million) will be applied to the
purchase of Installment Contracts from Sentinel Acceptance. The discount of
the purchase price from the principal and interest of the Installment
Contracts purchased will be approximately 45%. See "Business - Purchase of
Installment Contracts," and "Risk Factors - Conflicts of Interest."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of the date of this Prospectus, the Company has had no operating
history. The net proceeds of the sale of the Notes will be employed to purchase
the Installment Contracts. While the Notes remain outstanding, the Company will
not engage in any business other than the purchase, collection and servicing of
the Installment Contracts (including repossession and resale of the vehicle
collateral).
The Company's use of the net collection proceeds from the Installment
Contracts will be restricted to payments on the Notes and to payments of
expenses and purchases of additional Installment Contracts. At such time as
the Company's net receivables exceed 110% of the principal amount of the Notes
then outstanding the Company's partnership agreement permits distributions to
the Company's partners. See "Certain Transactions - Partnership
Distributions."
CAPITAL RESOURCES AND LIQUIDITY.
The Company's primary sources of funds for repayment of the Notes will be
proceeds from the Installment 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 Installment Contracts and
any income from reinvestment of such proceeds. 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. In order to repay the Notes at maturity, the
Company will be obligated to refinance the Notes, sell the Installment
Contracts, incur additional debt, obtain additional equity investments or engage
in some combination of the foregoing. The Company has no commitments from any
source to fund the repayment of the Notes and there is no assurance that the
Company will be successful in offering the funds necessary for repayment of the
Notes on terms acceptable to the Company or at all. If sufficient funds are not
available from any of such sources, the Company may be unable to repay all or
part of the principal on the Notes.
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BUSINESS
INTRODUCTION
The Company is a newly formed single purpose entity organized to engage in
the purchase, collection and service of Installment Contracts originated
principally by independent Dealers who sell used automobiles and light duty
trucks to Non-prime Consumers.
THE AUTOMOTIVE FINANCE INDUSTRY
INDUSTRY CHARACTERISTICS AND TRENDS. The automobile financing industry
estimated by analysts at $400 billion in 1996 is the second largest consumer
debt market nationwide. The industry originated in the early part of this
century when automobile manufacturers created financing subsidiaries in response
to the hesitancy of banks to enter the new and potentially risky market of
providing credit to consumers to purchase mass produced automobiles. Banks
eventually competed with these captive subsidiaries, and in the deregulated
environment of the early 1980s, savings and loans also entered the market.
Financing subsidiaries and Banks did not completely service the market, however,
as the captive subsidiaries focused on stimulating demand for the manufacturers'
new vehicles, and depositary institutions were generally positioned to serve
low-risk borrowers without the necessary collection efforts and charge-offs
associated with higher risk, Non-prime Consumers. Financing sources for
Non-prime Consumers were further restricted during the tightening credit
standards imposed by the late 1980s de-regulation of the banking industry and
the almost simultaneous decline in the earnings of automobile manufacturers
resulting in lower credit ratings and higher cost of capital for their captive
subsidiaries.
The Company believes that purchasers of automobiles are more frequently
considering used rather than new automobiles to satisfy their transportation
needs. Increases in the average useful life of automobiles, the number of
late-model used automobiles and the number of late-model used automobiles
available for sale (including those coming off-lease and former rental cars),
have led industry analysts to believe that the market for retail sales of used
automobiles will expand further.
THE NON-PRIME MARKET. The Non-prime Consumer credit segment of the
automotive finance market is comprised of individuals who are unable to obtain
traditional financing through traditional sources such as a bank or a captive
finance company due to either incomplete or imperfect credit histories. The
Company believes that the Non-prime Consumer portion of the automotive finance
market is between $60 billion and $75 billion.
Despite the opportunities perceived by the Company in the Non-prime
Consumer market, many traditional financing sources, such as banks, savings and
loans, credit unions, captive finance companies and leasing companies do not
consistently provide financing to, or have from time to time withdrawn from,
this market. The Company believes that market conditions, increased regulatory
oversight and capital requirements imposed by governmental agencies have limited
the activities of many banks and savings and loans in this market. In addition,
the Company believes that captive finance arms of major automotive manufacturers
focus their marketing efforts on this segment when inventory control and/or
production scheduling requirements of their parent organizations dictate a need
to focus on this market, and then exit the market once these sale volumes are
satisfied. Moreover, the focus of these captive finance companies remains on
new car financing. Further, many financial organizations electing to remain in
the automotive finance business have migrated toward higher credit quality
customers to
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reduce their processing and collection costs. As a result of these
conditions, the Non-prime Consumer automotive finance market is highly
fragmented, and primarily serviced by smaller finance organizations that
solicit business when and as their capital resources permit. Due to such a
lack of a major, consistent financing source, a number of competitors,
including well capitalized public companies, have entered this market in
recent years. See "Business--Competition."
While financing sources for the Non-prime Consumer market were eroding in
the 1980s, the demand for non-prime used automobile financing increased.
Dealers shifting to the used car market found themselves lacking the means as
well as the training, time and financial skills to operate a financing
operation. Furthermore, the Dealers' incentive to sell a vehicle at the highest
price is directly at odds with a financing entity's desire to maximize the
potential for loan repayment. Growth, if any, could be the result of several
primary market stimuli, including aggressive marketing by non-prime lenders,
larger numbers of automobiles subject to expiring leases, longer vehicle life,
growing inability of consumers to afford new vehicles, and Dealers' preference
for the relatively high margins realized on used vehicles. Because the
automobile finance industry is heavily dependent on the sale of used
automobiles, its business is seasonal. Sales are strongest in the second
quarter when consumers receive tax returns, and weakest during the winter
holidays as consumers are spending their disposable income on gifts. New
vehicle sales are strong during the end of the model year when dealers offer
close-out prices.
Captive subsidiaries of automobile manufacturers control only approximately
5% of the Non-prime Consumer market. However, the participation of the captive
subsidiaries in the market is cyclical and has recently been expanding. While
independent financing entities dominate the remaining portion of the Non-prime
Consumer market, the industry is highly fragmented. The biggest participant had
less than a 1.5% market share in 1994. The 15 publicly traded Non-prime
Consumer companies in 1995 represented approximately 25% of Non-prime Consumer
originations in the last quarter of the year. The fragmentation of the industry
is partially a result of the participants' focusing on that portion of the
market that matches their different strategies to minimize risk for maximum
return. The participants offer various combinations of credit focus,
underwriting criteria, point of sale (franchised or independent dealers) and
type of financing (including leasing).
Industry analysts report that most Non-prime Consumer lenders purchase
automobile installment sale contracts through agreements with Dealers or other
lenders without direct contact with the borrower. The terms of contracts
purchased range from one to five years and average up to approximately 36
months. Annual interest rates on the installment contracts range from 15% to
35% and average approximately 22%. Most Non-prime Consumer lenders service the
contracts they purchase.
As competition among Non-prime Consumer lenders increases, Dealers are
gaining bargaining power within the industry. Most Dealers have relationships
with at least five Non-prime Consumer lenders, permitting them to offer credit
applications to various companies to find the most rapid and profitable
acceptance. Therefore, successful lenders or their originators must have close
relationships with Dealers and provide prompt and consistent approval of
applications. The larger publicly held lenders have relationships with more
than half of these 10,000 Dealers. Additionally, relationships with franchised
Dealers as opposed to independent Dealers are important because franchised
Dealers are larger, tend to attract consumers who believe that they can afford a
new car but choose a used car due to perceived value, and attract higher quality
operators who meet the franchisor's criteria. In this environment, skilled
personnel with experience in the industry are critical to maintain relationships
that discourage adverse credit selection, to evaluate Dealer integrity, to
properly price loans based on risks
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assumed and to ensure adequacy of loss reserves. See "Risk Factors - Limited
Assets and Operating History."
CONSUMER CREDIT CHARACTERISTICS. The Company believes that gradations
exist with respect to the credit profiles of customers of automobile financing
according to the following generalized criteria:
- An "A" credit consumer is a Prime Consumer who has a long credit
history with no defaults, has been employed in the same job for a
period of at least 18 months, and can easily finance a new car
purchase through a bank, a captive finance subsidiary of an automobile
manufacturer or an independent finance company that focuses on Prime
Consumer credit.
- A "B" credit consumer is a Non-prime Consumer who may have had some
slight credit problems in his or her past or may not have been
employed at his or her current job for 18 months. To finance a new or
late-model used car, the "B" credit borrower may not qualify for a
loan from a captive finance subsidiary, but may have success borrowing
from a bank and can access credit through an independent finance
company.
- A "C" credit consumer is a Non-prime Consumer who may have an
inconsistent employment record or more significant or unresolved
problems with credit in the past. To finance a late-model or older
used car purchase, this borrower will generally not be able to obtain
a loan from a captive finance subsidiary or a bank, and will have to
access an independent finance company that lends into this market
category.
- A "D" credit consumer is a Non-prime Consumer who has an unfavorable
employment history and serious credit problems, such as a personal
bankruptcy. This borrower's only choice is to finance his or her used
car purchase through an independent finance company that is active in
this market segment.
While such gradations are by nature inexact, the Company will primarily
target Non-prime Consumers who fall into the "B" and "C" categories, except
for certain Installment Contracts purchased from Sentinel Acceptance which may
include seasonal performing "C" and "D" financing paper. See "Risk
Factors-Conflicts of Interest," and "Business--Portfolio Acquisitions."
The default rates during the life of non-prime credits range from 5% to
40%. Finance companies that acquire non-prime credits require higher yields to
compensate for the risks of default and collection expenses assumed.
The Company believes that low-grade finance paper can be re-sold to other
finance organizations at a higher grade after the consumer has made regular
payments for at least six months.
BUSINESS STRATEGY
The Company intends to supply additional capital to the Non-prime Consumer
market. Through its personal relationships it has negotiated non-exclusive oral
purchase arrangements with multiple originators, including independent financing
companies and, to a lesser extent, individual Dealers. The Company intends to
negotiate written arrangements with originators upon completion of this Offering
which are competitive while protecting the Company against the risk of default
under the Installment Contracts to the extent possible.
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PURCHASE OF INSTALLMENT CONTRACTS
Management of the Company has worked with various originators in the past,
and, the Company has also established two specific relationships, first with an
established originator of B and C credits in the Northeast, and second, with a
network of 140 automobile dealerships.
RISK MANAGEMENT. The Company intends to manage the default risks posed by
its Non-prime Consumer financing through the structure of the transaction and
the subsequent servicing, and collection procedures, for example:
- - establishment of an allowance for losses on the date of purchase of 10% to
15% on all Installment Contracts, in addition to the purchase discount
- - dealer approval process
- - policies and procedures for all credit approval, servicing and collection
procedures
- - agreements with qualified third parties to handle all repossessions and
remarketing
DEALER APPROVAL CRITERIA. No credit applications will be accepted from any
Dealer that has not been approved by the Company. Approval will generally be
granted to automobile dealers who meet the following criteria:
- An effective net worth of $100,000 (exclusive of goodwill or other
intangible assets), or a parent or affiliate which meets the net worth
criterion and guarantees the performance of the obligation of the
automobile dealer under the purchase agreements, replacement
guarantees or other forms of dealer recourse.
- A minimum of three years of successful operation as an automobile
dealer, as evidenced by financial statements or prior tax returns.
(Unless the owner of the Dealer has substantial personal net worth,
and provides a personal guarantee).
- Possess acceptable accounts payable history.
- Experienced contract loss rates during the immediately preceding year
acceptable to the Company.
- Possess acceptable personal credit history (owner and spouse).
- Possess acceptable floor plan references (if applicable).
- Verifiable banking references.
- Possess acceptable mortgage or landlord references.
- Satisfactory onsite premises inspection.
- Possess a current DMV automobile dealer license.
- Is able to obtain signed inter-creditor agreements from various
lenders in order to provide the Company UCC security interest in
financed collateral.
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CERTAIN CONTRACT PURCHASE CRITERIA. The Company will endeavor to purchase
Installment Contracts at substantial discounts to their aggregate remaining
unpaid principal balances and at prices which are below the average wholesale
value of the Financed Vehicles. In addition, the Company will seek to obtain
Installment Contracts whose maturities are less than the remaining useful lives
of the Financed Vehicles and which require substantial down payments. The
Company anticipates purchasing Installment Contracts on a "package" basis
involving several Installment Contacts at one time.
With respect to the credit information to be supplied by borrowers on the
Installment Contracts, the Company has established certain credit criteria to be
satisfied by each borrower. The Company primarily targets Non-prime Consumers
who are "B" or "C" credit consumers. The Company's review will generally take
into account such matters as the individual's stability of residence, employment
history, bank information, credit history, income, discretionary income, ability
to pay, and debt ratio. In order to satisfy these criteria, a borrower, among
other things, must be able to provide verifiable personal references, must have
a valid driver's license issued by his state of residence, must have been a
resident of such state for a minimum of six months, and must be at least 18
years of age and have no co-signors on the Installment Contract except immediate
family members. In order to verify the foregoing information, the Company will
be required to obtain from the Dealer a copy of the credit application executed
by the borrower which contains the necessary information, to verify by telephone
or otherwise the borrower's addresses, employment and personal references and to
obtain a credit report from a credit reporting agency or from the Dealer.
Although borrowers under the Installment Contracts are anticipated to be
somewhat less creditworthy than typical purchasers of automobiles from new car
dealers, the Company has established certain general criteria to be used as a
guide to purchasing Installment Contracts. These criteria are as indicated
below; however, at the discretion of the Company actual purchase of packages
and individual Installment Contracts may vary substantially from this guide:
(i) the Company expects the purchase discount will generally range between 5%
and 25% depending on the creditworthiness of each individual buyer and the
Dealer, and the overall credit quality of the package of Installment Contracts
purchased; (ii) Installment Contracts will usually have an original term of 48
months or less; (iii) at least one payment will have been made by the borrower
on the Installment Contract; (iv) the age of each Financed Vehicle may not
exceed those listed in the appropriate National Auto Research Market Guides,
which are modified periodically; (v) the borrowers on the Installment
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; (vi) the
interest rate on the Installment Contracts will not violate any applicable
usury laws; and (vii) no Installment Contract may be more than one installment
in arrears at the time of the purchase.
PORTFOLIO ACQUISITIONS. The Company intends to use up to 50% of the net
proceeds of this Offering (not to exceed $2.5 million) to purchase
Installment Contracts from Sentinel Acceptance. The Company will purchase
the contracts at a discount of approximately 45% from the amount of principal
and interest. The Installment Contracts purchased from Sentinel Acceptance
will generally consist of seasonal performing "C" and "D" financing paper.
The terms of the purchase were not determined on an arms-length basis and a
valuation opinion was not obtained by the Company. Management believes that
the terms of the purchase are substantially similar to the terms that would
be acceptable to an unaffiliated third party purchasing the Installment
Contracts.
The Company may also acquire other existing Installment Contract portfolios
for investment. These portfolio acquisitions would normally be in the range of
$50,000 to $5 million. The Sentinel
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Acceptance portfolio purchase and any other portfolio acquisition by the Company
will involve a thorough financial and documentary review including the
following:
- All Installment Contracts contained in each portfolio under
consideration for acquisition will be reviewed for completeness and
accuracy of documentation.
- All payment histories will be reviewed and verified.
- Underlying vehicles will be evaluated and the purchase prices will be
verified.
- Audits will be performed on each portfolio acquisition by the Company.
- Uniform Commercial Code lien searches will be performed on all
Installment Contracts acquired. All third party liens will be
required to be removed prior to or upon the Company's acquisition of
the portfolio.
Upon satisfactory completion of the above procedures, the portfolio may be
purchased. The Company may require additional personal and/or corporate
guarantees from the vendor of the portfolio. In some cases, the Company may
require that the Installment Contracts and underlying vehicles be purchased with
full recourse to the sellers of the portfolio should any underlying Installment
Contract obligor default.
OPERATING EXPENSES
In addition to interest on the Notes, the Company believes that its
expenses will include but are not limited to expenses and fees for Installment
Contract servicing, custodian fees, purchase and administration fees,
trustees' fees, bank fees and charges, legal fees, title and transfer fees,
account fees, Installment Contract purchase fees, insurance, repossession,
repair and liquidation expenses, enforcement of Dealer Installment Contract
replacement guarantees and/or other Dealer recourse arrangements, federal,
state and local taxes, out-of-pocket expenses incurred in connection with any
resale of Installment Contracts and other general and administrative expenses.
Sentinel Acceptance will provide management and administrative services to the
Company. The fees for such services consist of the following:
- One time boarding fee $10.00 per Installment Contract
- Monthly service fee $15.00 per Installment Contract
- One time administrative fee $100.00 per Installment Contract
- One time marketing fee $150.00 per Installment Contract
SERVICING
Sentinel Acceptance, (the "Servicer") will undertake the collection process
for all accounts 45 days contractually delinquent, and subsequently undertake
all repossession functions. The Servicer will service all Installment Contracts
purchased with the proceeds of this Offering. The Company's servicing
activities include (i) monitoring Installment Contracts and collateral, (ii)
accounting for and posting all payments received, (iii) responding to customer
inquiries, (iv) taking all action to maintain the security interest granted in
the Financed Vehicle, (v) investigating delinquencies and communicating with
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the borrowers to obtain timely payment, (vi) pursuing deficiencies in
Installment Contracts, and (vii) when necessary, contracting with third parties
to repossess and dispose of Financed Vehicles.
At the time of a purchase of a Financed Vehicle, the automobile dealer
which is selling the Installment Contract to the Company notifies the
purchaser that the Installment Contract will be acquired by the Company and
directs the purchaser to make payments to the Company. The Servicer mails to
the Financed Vehicle owner a welcome letter and coupon book advising the owner
of the purchase of the Installment Contract and where and how to make
payments. The Servicer will also undertake the collection process for all
accounts five days contractually delinquent, and subsequently all repossession
functions. The Servicer will receive copies of all Installment Contracts
purchased with the proceeds of this Offering.
The servicing and collection activities incorporate numerous pro-active
procedures and systems to minimize Installment Contract losses. For example,
the customer will be informed of their responsibilities and obligations with
respect to the Installment Contract upon the purchase of the Installment
Contract by the Company, the necessity of paying on time and of maintaining
insurance coverage, and the related benefits of building a stronger credit
background for future purchases. The customer will also be informed of the
Company's delinquency and repossession policies. The Servicer will utilize
monthly billing statements to bill customers for their monthly payment
obligations. If an account becomes delinquent by more than 5 days, a computer
generated notice will be sent to the borrower. If there is no response by the
10th day of delinquency, another computer generated notice will be sent to the
borrower. On the 15th day of delinquency, this account will be assigned to the
asset management group of the Servicer, which initiates the collection process
by phone and follows the account to conclusion.
The Company's repossession policy will be administered on a case-by-case
basis. For example if a customer's payment is delinquent, the Company's policy
is to work with the customer to permit the customer to keep the Financed
Vehicle, while a suitable solution to the delinquency problem can be arranged
between the customer and the Servicer. However, should a customer become
seriously delinquent or be dealing in bad faith, the Company will repossess the
customer's Financed Vehicle. Repossessions will be handled by independent
repossession firms engaged by the Servicer. It is presently anticipated that
repossessed vehicles will generally be resold by the Servicer through wholesale
automobile networks or auctions which are attended principally by Dealers or
through an established network of Dealers who will sell repossessed vehicles for
the Servicer on a retail basis.
COMPETITION
The Non-prime Consumer credit market consists of many national, regional
and local competitors with various strategies to approach industry risks.
Although fragmented, the market is becoming increasingly competitive due to its
profitability and relative ease of entry. In the past years, a number of
companies have completed initial public offerings of common stock, the proceeds
from which were used, at least in part, to fund expansion and support increased
purchases of Installment Contracts. Existing and potential competitors include
well-established financial institutions, such as banks, savings and loans, small
loan companies, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these financial organizations do
not consistently solicit business in the Non-prime Consumer credit market. The
Company believes that captive finance companies generally focus on new car
financing, and direct their marketing efforts to the Non-prime Consumer market
only when inventory control and/or production scheduling requirements of their
parent organizations dictate a need to enhance sales volumes and then exit the
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market once such sales volumes are satisfied. Increased regulatory oversight
and capital requirements imposed by market conditions and governmental agencies
have limited the activities of many banks and savings and loans in the Non-prime
Consumer credit market. In many cases, those organizations electing to remain
in the automobile finance business have migrated toward higher credit quality
customers to allow reductions in their overhead cost structures. As a result,
the Non-prime Consumer credit market is primarily serviced by smaller finance
organizations that solicit business when and as their capital resources permit.
Like the Company, several of its competitors specifically target "B" and "C"
credit borrowers. Industry sources indicate that no one competitor or group of
competitors has a dominant presence in the Non-prime Consumer market segment of
"B" and "C" credit consumers to be targeted by the Company. The Company's
strategy is designed to leverage management's relationships with originators to
capitalize on the fragmentation in this market. Some industry analysts expect
competition to continue to increase in the industry as Non-prime Consumer
borrowers become more conscious of financing alternatives such as direct
Non-prime Consumer lenders and seek more favorable loan terms or leases.
REGULATION
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. The states in which the
Company does business govern the Company's operations. Most states in which the
Company purchases Installment Contracts limit the interest rate, fees and other
charges that may be imposed by, or prescribe certain other terms of, the
Installment Contracts that the Company purchases. In addition, the Company is
not currently required to be licensed or registered to conduct its finance
operations in the majority of the states in which the Company currently
purchases Installment Contracts. Several of these sates' laws subject the
Company to periodic examination by state regulatory authorities. The state
licenses are revocable for cause. The Company believes that it substantially
complies with applicable regulations. In order for the Company to expand its
operations into other states, it will be required to comply with the laws of
such states. There can be no assurance that the Company can comply with the
laws of these additional states or obtain appropriate licenses or permits.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in automobile financing. Some of the federal laws and regulations include the
Truth-in-Lending Act and Regulation Z promulgated thereunder, the Equal Credit
Opportunity Act, the FTC, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve
Board's Regulation B and Z and the Soldiers' and Sailors' Civil Relief Act.
In addition, the FTC has adopted a holder-in-due-course rule which has the
effect of subjecting persons that finance consumer credit transactions (and
certain related lenders and their assignees) to all claims and defenses which
the purchaser could assert against the seller of the goods and services. With
respect to used automobiles specifically, the FTC's Rules on Sale of Used
Vehicles requires that all sellers of used automobiles prepare, complete and
display a Buyer's Guide which explains the warranty coverage for such
automobiles. The Credit Practices Rules of the FTC impose additional
restrictions on sales contract provisions and credit practices.
Certain states in which the Company operates have adopted motor vehicle
retail installment sales acts or variations thereof. Oklahoma has adopted the
Uniform Consumer Credit Code, subject to certain variations, and Texas has
adopted the Texas Credit Code. These laws and similar laws in the other states
in which the company purchases Installment Contracts regulate, among other
things, the interest
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rate, fees and other charges and terms and conditions of motor vehicle retail
installment loans. These laws also impose restrictions on consumer transactions
and require disclosures in addition to those required under federal law. These
requirements impose specific statutory liabilities upon creditors who fail to
comply. The laws of certain states grant to the purchasers of vehicles certain
rights of rescission under so-called "lemon laws." Under such statutes,
purchasers of motor vehicles may be able to seek recoveries from, or assert
defenses against, the Company.
In the event of default by a borrower, the Company has all the remedies of
a secured party under the Uniform Commercial Code ("UCC"), except where
specifically limited by other state laws. See "Risk Factors - Security for
Notes," and "Certain Legal Aspects of Installment Contracts."
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Additionally, the Company requires
Dealers to warrant that they comply with all applicable credit and repossession
laws and to indemnify the Company for any violation of such laws. Adverse
changes in the laws or regulations could have a material adverse effect on the
Company's business. Because the Company generally charges the highest finance
charges permitted by law, reductions in statutory maximum rates could directly
impair the Company's profitability.
FACILITIES
The Company's executive offices are located at 210 North University Drive,
Suite 800, Coral Springs, Florida 33071. This space is shared with Sentinel
Acceptance under a five year lease for 3,725 square feet that expires in 2002.
The Company has no obligations under the lease and pays no rent. Administration
fees paid to Sentinel Acceptance include the use of the premises.
EMPLOYEES
The Company will not employ any full time employees. Services will be
provided to the Company by Sentinel.
LITIGATION
The Company is not a party to any legal proceedings.
CERTAIN LEGAL ASPECTS OF THE INSTALLMENT CONTRACTS
GENERAL
The Installment Contracts are "chattel paper" as defined in 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 Florida.
Upon any purchase of Installment Contracts by the Company, the Installment
Contracts and related title documents for the Financed Vehicles will be
delivered to the Custodian (as defined) and 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 the Company's security interest in the Installment Contracts and all
proceeds therefrom.
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SECURITY INTERESTS IN FINANCED VEHICLES
Under the UCC as adopted in most states, retail installment sale contracts
such as the Installment 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 such vehicle is
located. In many states, a security interest in a Financed Vehicle is perfected
by notation of the secured party's lien on the vehicle's certificate of title
and registration of such lien with the appropriate state agency such as the
department of motor vehicles. In other states, a security interest in a
Financed Vehicle is perfected by filing a financing statement with the Secretary
of State or other designated filing agency.
Upon the purchase of the Installment Contracts, the originating Dealers
will be required to assign the Installment 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 certifications
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 or, in
states where a filing is required, that proper financing statements have been
filed to perfect the security interest of the Company in the Financed Vehicles.
Under the laws of many states, liens for repairs performed on a Financed
Vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. Certain state and federal laws permit the confiscation of
Financed 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 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 an Installment 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 Financed Vehicle in another state. 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 error or fraud, notice of
surrender of the certificate of title because the Company will be listed as a
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 Financed Vehicle, re-registration could defeat perfection. In
the ordinary course of servicing the Installment Contracts, the Company will
take steps to effect such re-perfection upon receipt of notice of
re-registration or other information from the borrower as to relocation.
Similarly, when an borrower under an Installment 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 Installment Contract before release of the lien.
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REPOSSESSION
In the event of default by a borrower under an Installment Contract, the
holder of the Installment 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 borrower under an Installment Contract voluntarily surrenders a
Financed Vehicle, self-help repossession, by an individual independent
repossession specialist engaged by a subcontract servicer or the Company, is the
method presently anticipated to be employed when a borrower defaults. Self-help
repossession would not be used where the Company has other recourse rights,
under a dealer agreement or otherwise, against the originating Dealer or some
other party, in which case, the Company likely would exercise such right prior
to effecting a repossession. Self-help repossession is accomplished by retaking
possession of the Financed Vehicle. If the borrower objects or raises a defense
to repossession, or if the applicable state law so requires, a court order must
be obtained from the appropriate state court and the Financed Vehicle may only
be repossessed in accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the borrower under an Installment Contract, some
jurisdictions require that the borrower be notified of the default and be given
a time period within which the borrower 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 borrower 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 borrower waives his rights after default, the borrower
has the right to redeem the collateral prior to actual sale by paying the
secured party the unpaid installments due on the Installment 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.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The Company will apply the proceeds of resale of the repossessed Financed
Vehicles first to reimburse itself for its expenses of resale and repossession
and then to the satisfaction of the obligations of the borrower on the
Installment 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 Installment Contract obligations, some states allow a deficiency
judgment to be sought, subject to satisfaction of statutory procedural
requirements by the secured party and certain limitations as to the initial sale
price of the Financed Vehicle. Virtually all states limit or eliminate
deficiency rights if the resale of the repossessed Financed Vehicle is not done
in a commercially reasonable manner. A deficiency judgment is a personal
judgment against the borrower for the difference between the amount of the
obligations of the borrower and the net proceeds from resale. A defaulting
borrower on an Installment Contract typically lacks capital or income following
the repossession of the borrower's Financed Vehicle. Therefore, the Company may
determine in its discretion that pursuit of a deficiency judgment is not an
appropriate or economically viable remedy or may settle a judgment that it
obtained.
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Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay the ability of the Company to repossess and
resell the Financed Vehicle or enforce a deficiency judgment. In addition,
courts have applied general equitable principles to secured parties seeking
repossession or liquidation involving deficiency judgments. In the event that
deficiency judgements 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.
Occasionally, after resale of a Financed Vehicle and payment of all
expenses and obligations, there is a surplus of funds. In that case, certain
state laws require the secured party to remit the surplus to any holder of a
lien with respect to a Financed Vehicle, or, if no such lienholder exists, the
UCC requires the secured party to remit the surplus to the former owner of the
Financed Vehicle.
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MANAGEMENT
SAC is the general partner of the Company. SAC is also the general
partner of Sentinel Acceptance, a Florida limited partnership engaged in the
commercial finance business. SAC was incorporated under the laws of Florida
in 1995. The limited partners of Sentinel Acceptance are also the
stockholders of SAC. Sentinel Acceptance is the sole limited partner of the
Company. The financial statements of SAC as of the years ended December 31,
1995 and 1996 and for the three months ended March 31, 1997 are included
elsewhere in this prospectus. Sentinel Acceptance provides certain
management and administrative services to the Company. The Company's
management therefore consists of the officers and directors of SAC and
certain personnel of Sentinel Acceptance as follows:
NAME AGE POSITION
Ivan Hoser 53 President and Director of SAC
Melvin I. Gilbert 51 Executive Vice President and Director of SAC
Jonathon W. Hollandsworth 40 Senior Vice President of SAC
Tina Marie Asti 35 Chief Financial Officer of SAC
Jon M. Whitney 38 Senior Credit Analyst of Sentinel Acceptance
Murray Wolkove 38 Asset Management Administrator of Sentinel
Acceptance
Kimberly Loeffler 31 Asset Management Office Supervisor of
Sentinel Acceptance
IVAN HOSER has been President of SAC since its incorporation. From May 1994
until May 1995, he took on the position of Broker Development Manager for GIC
Leasing, Inc., a member of the Pegasus Network for Colonial Pacific Leasing, a
subsidiary of Pitney Bowes. In 1990, he was appointed Executive Vice President
of Devon Equipment Leasing, Inc., a subsidiary of a 30-year-old public company
Colonial Commercial Corp. The subsidiary was a small-ticket consumer and
commercial lender, specializing in automobile and equipment loans. From 1981 to
1990, Mr. Hoser was a consultant to the automobile and equipment leasing
industries.
MELVIN I. GILBERT has been the Executive Vice President and a Director of
SAC since its incorporation in September 1995. Since March 1996, he has also
been the Executive Vice President of CFC Investments, LLC a financial services
company based in South San Francisco, California. From March 1993 until March
1996, he served as the Executive Vice President of TAI Financial Services, Inc.,
a Boca Raton, Florida based financial services company. Between 1992 and 1993,
Mr. Gilbert was an independent business consultant.
JONATHON W. HOLLANDSWORTH has been the Senior Vice President for SAC since
October, 1996. Prior to joining SAC he had over twelve years experience with
commercial banks, including holding various positions with Bank of America and
Security Pacific Bank including division manager - consumer lending division,
sales and marketing, department manager - portfolio risks, credit operations,
and unit manager - quality control, consumer underwriting, loan processing.
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TINA MARIE ASTI became the Chief Financial Officer of SAC in June 1997.
Prior to joining SAC, she was a controller with Ladbroke Corporation, a position
she held since 1994. Between 1990 and 1994 she was employed by Ladbroke
Corporation as an accounting manager.
JON M. WHITNEY has been the Senior Credit Manager of Sentinel Acceptance
since its inception. Prior to this position, Mr. Whitney was senior credit
analyst for GIC Leasing between March 1994 and May 1995. Between 1990 and March
1994, he worked with Mr. Hoser as credit manager for Devon. Prior to that
position, Mr. Whitney served as finance manager with the largest Porsche dealer
in the U.S., situated in Ft. Lauderdale, Florida.
MURRAY. A. WOLKOVE is the Asset Management Administrator of Sentinel
Acceptance. Before joining SAC, he worked for three years in commercial
collections for a Ft. Lauderdale based group. Between 1991 and 1993, he was
regional manager for Lendco, a nationwide lessor of new and used cars dealing
with franchise and used car dealers where he developed his region from inception
to a network of over 200 dealers. Prior thereto, he was employed for eight
years by Miller Leasing, an independent lessor in Ft. Lauderdale, Florida
reaching the position of business manager with responsibility for handling the
dealers and the funding process.
KIMBERLY LOEFFLER has been the Asset Management Office Supervisor of
Sentinel Acceptance since its inception. Prior to joining SAC, she was account
and loan representative for Capital Bank for eleven years. Her responsibilities
included preparation of loan documentation and closings.
INVOLVEMENT IN LEGAL PROCEEDINGS
In October 1992, Mr. Hoser filed a petition under the Federal bankruptcy
laws. In 1988, acting as a broker, he arranged a loan to start a new company.
The lender, a personal friend of Mr. Hoser asked if he could be a consultant
to the company and if he could be one of two signatories on the checking
account of that Company. Six months later the checking account was reduced to
a one signature account. Mr. Hoser was never employed by the company. The
company failed in 1990 and ceased operations. Subsequently, Mr. Hoser was
levied upon by the internal revenue service because without his knowledge, the
company had not paid payroll taxes for almost two years and that as a
signatory on the company's checking account, he was liable for the outstanding
taxes. The levy and the subsequent garnishment caused Mr. Hoser and his wife
to file personal bankruptcy, which was discharged in December 1992.
EXECUTIVE COMPENSATION
The Company does not directly pay salaries to any individual or the General
Partner.
CERTAIN TRANSACTIONS
900 CAPITAL SERVICES, INC.
Sentinel Acceptance has a $3,000,000 line of credit ("Line of Credit") with
900 Capital Services, Inc. ("900 Capital"), a stockholder of SAC, and a limited
partner of Sentinel Acceptance and the
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Company. Interest is payable on the daily outstanding balance at a rate of
15% per annum. Payments of interest are due on a monthly basis. Sentinel
Acceptance must also pay a loan service fee on the Line of Credit equal to
1.25% per month on the outstanding principal balance. The Line of Credit is
secured by all of the assets of Sentinel Acceptance. As of December 31, 1996,
the outstanding principal balance on the Line of Credit was $1,884,000. Up to
50% of the net proceeds of this Offering (not to exceed $2.5 million) will be
used to purchase Installment Contracts from Sentinel Acceptance. The discount
from the principal and interest of the Installment Contracts purchased will be
approximately 45%. Although an opinion on the value of the purchased
Installment Contracts was not obtained, management believes that the terms of
the purchase are substantially similar to the terms that are available from an
unaffiliated third party in an arms-length transaction. The Company is
advised that Sentinel Acceptance intends to use the proceeds from the sale of
its Installment Contracts to repay the outstanding indebtedness owed to 900
Capital.
PARTNERSHIP DISTRIBUTIONS.
Under the terms of the Company's Partnership Agreement, the partners of
the Company are entitled to quarterly distributions from Cash Available for
Distribution. Cash Available for Distribution means the remaining cash and
other assets available for distribution to the partners after payment or
satisfaction of the following: (a) all partnership liabilities for ordinary and
necessary expenses then due and owing to the persons other than the partners,
(b) all payments currently due towards interest on the Notes, (c) the current
cost of acquiring assets, and (d) such reserves as may be determined by the
general partner to be reasonably necessary for the operation of the Company's
business. The Partnership Agreement provides that distributions of Cash
Available for Distribution cannot be made unless at the fiscal quarter or fiscal
year end, as applicable, the Company's net receivables as reflected on the
Company's balance sheet for such fiscal quarter or fiscal year end immediately
preceding the fiscal quarter in which the distribution is to be made exceeds
110% of the principal amount of Notes issued and outstanding. These
distributions to partners will reduce the amount of future Installment Contracts
that may be acquired and will reduce cash reserves available for future payments
with respect to the Notes in the event that future cash flow from the
Installment Contracts is insufficient to make Note payments.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of the date of this Prospectus
with respect to the beneficial ownership of the outstanding shares of the common
stock of SAC, the general partner of the Company by (i) each beneficial owner of
more than 5% of the common stock, (ii) each of SAC's directors and Named
Officers, and (iii) all directors and Named Officers of the Company as a group.
Because the Notes do not constitute and are not convertible into equity of SAC
the percentage of ownership set forth below will not vary as a result of this
Offering.
Percent of
----------
Name of Beneficial Owner Number of Shares (1) Outstanding Shares
- ------------------------ -------------------- ------------------
Ivan Hoser 3,333.333 33.3%
210 North University Drive
Suite 800
Coral Springs, Florida 33071
Melvin I. Gilbert 3,333.333 33.3%
601 Gateway Boulevard
Suite 220
South San Francisco,
California 94080
900 Capital Services, Inc. 3,333.333 33.3%
601 Gateway Boulevard
Suite 260
South San Francisco,
California 94080
Jon Whitney 0 0%
All directors and executive
officers as a group (2 persons) 6,666,666 66.6%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC" or "Commission") and generally
includes voting or investment power with respect to securities. In
accordance with SEC rules, shares which may be acquired upon exercise of
stock options which are currently exercisable or which become exercisable
within 60 days of the date of the table are deemed beneficially owned by
the optionee. Subject to community property laws where applicable, the
persons or entities named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
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DESCRIPTION OF THE NOTES
The Notes are general obligations of the Company and will be issued
pursuant to an Indenture of Trust, dated as of _________________, 1997 (the
"Indenture") by and between the Company and Trustee. Set forth below is a
summary of certain provisions of the Notes, Security Agreement, Custodian
Agreement and Trust Indenture. A form of the Notes is attached hereto as
Exhibit A, a form of the Security Agreement is attached hereto as Exhibit B, a
form of the Custodian Agreement is attached hereto as Exhibit C and a form of
the Indenture is attached hereto as Exhibit D. This summary is qualified in its
entirety by the terms and conditions of such documents. Prospective Noteholders
are encouraged to read these documents in their entirety. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned to them
in the Indenture wherever particular provisions of the Indenture are referred to
in this summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
GENERAL
The Notes are secured general obligations of the Company, limited in
aggregate principal amount to $15,000,000. The Notes are issuable only in fully
registered form, without coupons, in denominations of $1,000 subject to a
minimum purchase requirement of $2,000.
The Notes will mature on _______, 2002. The Notes will bear interest at
12% per annum from the date of issuance, payable monthly on the 15th day of each
month commencing on ________________ 1997, to the persons in whose names such
Notes are registered at the close of business on the record date next preceding
the interest payment date. Interest on the Notes will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. To the extent
lawful, any installment of interest on the Notes which is not paid when due will
accrue interest at the lesser of 18%, compounded quarterly, or the highest
lawful rate of interest from the due date until paid.
Principal of, and interest on the Notes will be payable, at the Company's
office. At the option of the Company, payment of principal and interest may be
made by check mailed to the Noteholders at the addresses set forth upon the
registry books of the Company.
There is no public market for the Notes and no market is expected to
develop in the future. The Notes should be purchased only by persons who have
no need for liquidity and can bear the economic risk of ownership for the entire
term of the Notes.
REDEMPTION
The Notes will be redeemable for cash at any time at the option of the
Company, in whole or in part, upon not less than 30 days nor more than 60 days
notice to each Noteholder at the redemption price of 100% of the principal
amount thereof plus accrued and unpaid interest to the date of redemption,
without prepayment premium or penalty. Notice will be mailed to all Noteholders
setting forth (i) the redemption date, (ii) the redemption price including the
amount of accrued and unpaid interest to be paid upon such redemption, (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 pro rata basis, or in
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such other manner as the Company deems appropriate and fair. The Notes may be
redeemed in multiples of $1,000 only.
SECURITY
The Notes are secured by a security interest granted to the Trustee (the
"Security Interest") pursuant to the Security Agreement in and to all of the
following (i) all Installment Contracts acquired with the proceeds of this
Offering; (ii) all Installment Contracts acquired with net collection proceeds
of Installment Contracts described in the foregoing clause (i) ("Replacement
Contracts"); (iii) Financed Vehicles; and (iv) the funds held from time to time
in the Master Account described below.
The Company has established a "Master Account" at a financial institution
into which all payments made on or with respect to the Installment Contracts
will be deposited. The Servicer will be required under its Service Agreement to
promptly remit payments collected by it to the Master Account, including any
proceeds from resales of returned or repossessed Financed Vehicles, net of
liquidation expenses, and any recoveries from insurance claims on Financed
Vehicles. Although the funds in the Master Account will not be restricted in
any way, the Company intends to cause the funds contained in the Master Account
to be withdrawn or applied only for the following purposes: FIRST, to the
payment of all Permitted Expenses (as defined herein) of the Company, including
any amounts due to the Trustee for its fees and expenses; SECOND, to the payment
of interest due on the outstanding Notes; THIRD, to the purchase of Replacement
Contracts; and FOURTH, to the payment of Partnership Distributions (as defined
herein). "Permitted Expenses" means operating expenses including servicing
fees, custodian fees, trustee fees, bank fees and charges, legal fees, title and
transfer fees, account fees, Installment Contract purchase fees, insurance,
repossession, repair and liquidation expenses, enforcement of dealer recourse
arrangements, federal, state and local taxes, out of pocket expenses incurred in
connection with the resale of Installment Contracts and other general and
administrative expenses. "Partnership Distributions" means distributions to the
Company's partners in accordance with the Partnership Agreement. Under the
terms of the Partnership Agreement, distributions of Cash Available for
Distribution (as defined in the Partnership Agreement) may be made at the end of
any fiscal quarter or fiscal year end provided however, that no Event of Default
(as defined in the Indenture) is in effect and the Company's net receivables as
set forth on the Company's balance sheet for such fiscal quarter or fiscal year
end exceeds 110% of the principal amount of the Notes outstanding. See "Risk
Factors - Partnership Distributions."
The sole sources of payment of interest on the Notes will be cash flow
generated by the Installment Contracts which are security for the Notes, capital
contributions or loans from the Company's partners, or operational borrowings
obtained from third party lenders. The sole sources of repayment of principal
and accrued interest on the Notes at the end of their term will be a refinancing
of the Notes, a sale of the Installment Contracts which are pledged as security
for the Notes, any funds in the Master Account or loans or capital contributions
from the Company's partners. The Company's partners and affiliates are under no
obligation to make capital contributions or loans to the Company and there is no
present intention or potential for any such loan or capital contribution. The
Company has no commitment to obtain loans from third party lenders and there is
no assurance that such loans could be obtained. If sufficient funds are not
available from any of such sources, the Company may be unable to repay all or
part of the interest or principal on the Notes.
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CUSTODIAN AGREEMENT
The Company has entered into a Custodian Agreement with
________________________ (the "Custodian"), pursuant to which the Custodian
agrees to hold all original Installment Contracts and certain additional
documents relating to the Installment Contracts for the benefit of the Trustee.
Under the Custodian Agreement, the Custodian's duties are limited solely to
receiving the Installment Contracts and related documents from the Company,
keeping them as specified in the Custodian Agreement and releasing them to the
Company upon receipt of an affidavit signed and sworn to by a duly authorized
officer of the Company that (a) the Company has received or anticipates
receiving within five (5) business days payment in full from the obligor under
the Installment Contract, (b) the Company needs the Financed Vehicle title to
repossess a Financed Vehicle after default on an Installment Contract, or any
administrative event for which release for mailing to any state is required
under statute, rule, regulation or practice such as change in the name of a
Financed Vehicle owner due to marriage or divorce, change of address of a
Financed Vehicle owner, or notation of a subordinate lien on the title. Upon a
release of a Financed Vehicle title pursuant to the above, the Company or its
agent shall promptly return the Financed Vehicle title to the Custodian upon
receipt of the reissued Financed Vehicle title after the changes have been made
by the appropriate state agency. Upon an Event of Default under the Notes or
Security Agreement, the Custodian shall, upon request of the Trustee, promptly
deliver to the Trustee all Collateral held by the Custodian.
The Custodian Agreement provides that 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 under the Custodian
Agreement, nor as to the identity, authority or right of any person executing
the same; and the Custodian's duties under the Custodian Agreement shall be
limited to the safekeeping of such agreements, monies, instruments or other
documents received by it thereunder, and for the disposition of the same in
accordance therewith.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) failure by the Company to
pay any installment of interest on the Notes when the same becomes due and
payable; (ii) the failure by the Company to pay all or any part of the principal
on the Notes when and as the same becomes due and payable at maturity, upon
redemption, by acceleration or otherwise; (iii) the failure of the Company to
observe or perform any other covenant or agreement contained in the Notes, the
Indenture, the Security Agreement or the Custodian Agreement and, subject to
certain exceptions, the continuance of such failure for a period of 90 days
after written notice is given to the Company by the Trustee or by the holders of
at least a majority in aggregate principal amount of the Notes outstanding; and
(iv) certain events of bankruptcy, insolvency or reorganization in respect of
the Company.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal and interest on the
Notes or to enforce the performance of any provision of the Notes, the
Security Agreement, the Custodian Agreement or the Indenture. If an Event of
Default occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least a majority in principal amount of the then outstanding
Securities by notice to the Company and Trustee,
33
<PAGE>
may declare the unpaid principal of and any accrued interest on all
outstanding Securities to be due and payable immediately, except that in the
case of an Event of Default arising from an insolvency the Notes become due
and payable immediately without any further action.
The holders of a majority in principal amount of the outstanding Notes by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences except a continuing Default or Event of Default in the payment of
the principal of or interest on any Note. The holders of not less than 75% of
the principal amount of the then outstanding Notes may consent on behalf of the
holders of all Notes to the postponement of any interest payment for a period
not exceeding three years from its due date. This is an exception to the rights
of each Noteholder provided under Section 316(b) of the Trust Indenture Act of
1939 ("TIA").
The holders of a majority in aggregate 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 upon the
Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with any law or the Indenture, that is unduly prejudicial to the
rights of other Noteholders, or that would involve the Trustee in personal
liability. The Trustee may take any other action deemed proper which is not
inconsistent with such direction.
A Noteholder may not use the Indenture to prejudice the rights of another
Noteholder or to obtain a preference or priority over another Noteholder.
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
the Indenture, the Trustee shall provide to the Noteholders specified in TIA
Section 313 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). A copy
of each report at the time of its mailing to Noteholders shall be filed with the
Commission.
The Company is obligated to indemnify the Trustee against any loss or
liability incurred by it, except to the extent arising from the Trustee's
negligence or bad faith.
The Trustee may resign by so notifying the Company. The holders of a
majority in aggregate principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company. The Company may remove
the Trustee under certain circumstances involving the Trustee's inability or
failure to perform, whereupon the Company must promptly appoint a successor
Trustee.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes. The
following summary is intended as an explanatory discussion of the possible
effects of certain federal income tax consequences to Noteholders generally, but
does not purport to furnish information in the level of detail or with the
attention to a Noteholder's specific tax circumstances that would be provided by
a Noteholder's own tax advisor. For example, it does not discuss the tax
treatment of Noteholders who are insurance companies, regulated investment
companies or dealers in securities. In addition, the discussion regarding the
Notes is limited to the federal income tax consequences of the initial
Noteholders and not a purchaser in the secondary market. This summary is also
generally limited to investors who will hold the Notes as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue
34
<PAGE>
Code of 1986, as amended (the "Code"). Prospective investors should note that
no rulings have been or will be sought from the Internal Revenue Service
("IRS") with respect to any of the federal income tax consequences discussed
below. Thus, the IRS may disagree with all or a part of the discussion below.
Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences
to them of the purchase, ownership and disposition of the Notes.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder and judicial or ruling authority,
all of which are subject to change, which change may be retroactive. There is a
risk to Noteholders that the IRS may determine that the Notes are not debt, but
equity for Federal income tax purposes. In that event, Noteholders would be
deemed to be partners in the Partnership. The federal income tax consequences
to Noteholders will vary significantly depending on whether they are treated as
creditors of or deemed to be partners in the Partnership.
TAX CHARACTERIZATION OF THE COMPANY AS A PARTNERSHIP
The Company's Partnership Agreement specifies that the Company will elect
partnership classification in accordance with the Check-the-Box federal income
tax regulations. As a result, Sentinel is intended to be treated as a
partnership for federal income tax purposes. This treatment assumes that the
terms of the Partnership Agreement, the Notes and related documents will be
complied with, and that the Partnership and the Notes will not have certain
characteristics necessary for a partnership to be classified as a publicly
traded partnership, taxable as a corporation.
If the Partnership were taxable as a corporation for federal income tax
purposes, the Partnership would be subject to corporate income tax on its
taxable income. The Partnership's taxable income would include all its income
on the Installment Contracts, and would not be reduced by its interest expense
on the Notes in the event that the Notes are not respected as debt for federal
income tax purposes (see discussion in the following paragraph). Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and lead to other potentially significant negative tax consequences
for the Noteholders.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Company will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal, state and local income and franchise tax purposes. The discussion
below assumes that the Notes will be classified as debt for federal income tax
purposes.
The discussion below assumes further that all payments on the Notes are
denominated in U.S. dollars. Moreover, the discussion assumes that the interest
formula for the Notes meets the requirements for "qualified stated interest"
under Treasury regulations (the "OID regulations") relating to original issue
discount ("OID"), and that any OID on the Notes (I.E., any excess of the
principal amount of the Notes over their issue price) does not exceed a DE
MINIMIS amount (I.E., 1/4% of their principal amount multiplied by the number of
full years included in their term), all within the meaning of the OID
regulations.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will
35
<PAGE>
be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under
the OID regulations, a holder of a Note issued with a DE MINIMIS amount of OID
must include such OID in income, on a pro rata basis, as principal payments
are made on the Note. A purchaser who buys a Note for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of bond premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be a capital gain or loss if the Note was held
as a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used by a corporate taxpayer only to offset capital gains, and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who
is a nonresident alien, foreign corporation or other non-United States person
(a "foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent
shareholder" of or a "controlled foreign corporation" related to the Company
within the meaning of the Code and (ii) fulfills certain certification
requirements. Under such requirements, the beneficial owner of the Notes must
certify, under penalty of perjury, on Form W-8 or a similar form, that it is
not a "United States person" and must provide its name and address. For this
purpose, "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or
an estate or trust the income of which is includable in gross income for
United States federal income tax purposes, regardless of its source. If a
Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the foreign person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 or more
aggregate days in the taxable year or in the year being tested plus 1/3rd of the
number of such days in the prior year and 1/6th of the number of days in the
year prior to that.
BACKUP WITHHOLDING. Each Noteholder (other than an exempt holder such as
a corporation, tax exempt organization, qualified pension and profit sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide,
under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer
36
<PAGE>
identification number and a statement that the holder is not subject to backup
withholding. Should a nonexempt Noteholder fail to provide the required
certification, the Partnership will be required to withhold 31 percent of the
amount otherwise payable to the holder, and remit the withheld amount to the
IRS as a credit against the holder's federal income tax liability.
Noteholders should consult with their tax advisors as to their eligibility for
exemption from backup withholding and the procedure for obtaining the
exemption.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES. If the IRS successfully
asserted that the Notes did not represent debt for federal income tax purposes,
the Notes might be treated as equity interests in the Partnership. If so
treated, the Partnership might be taxable as a publicly traded partnership that
would be taxable as a corporation for federal income tax purposes. Treatment of
the Notes as equity interests in such a publicly traded partnership could have
adverse tax consequences to the Partnership and the Noteholders. For example,
interest paid with respect to the Notes would be treated as dividends and would
not be deductible by the Company. The resulting increase in the Company's
taxable income could increase the Company's tax burden and correspondingly
reduce the cash available to the Company for payments of interest and principal
on the Notes.
The determination whether the Notes will be treated as debt or equity would
be based upon all the facts and circumstances. Courts and commentators have
offered a number of criteria by which to judge the true nature of an investment
which is in form a debt: (1) whether there is an unconditional promise on the
part of the issuer to pay a sum certain on demand or at a fixed maturity date
that is in the reasonably foreseeable future; (2) whether holders of the
instruments possess the right to enforce the payment of principal and interest;
(3) whether the rights of the holders of the instruments are subordinate to
rights of general creditors; (4) whether the instruments give the holders the
right to participate in the management of the issuer; (5) whether the issuer is
thinly capitalized; (6) whether there is identity between holders of the
instrument and stockholders of the issuer; (7) the label placed upon the
instruments by the parties; and (8) whether the instruments are intended to be
treated as debt or equity for non-tax purposes.
Based on the foregoing factors, the Notes should be treated as debt for
Federal income tax purposes. However, given the Partnership's limited initial
equity capital, there can be no assurances given that the IRS will not attempt
to treat the Notes as equity for Federal income tax purposes.
PARTNERSHIP TAXATION AND TERMINATION. As a partnership, the Company will
not be subject to Federal income tax. The Partnership will keep complete and
accurate books for financial reporting and tax purposes. Such books will be
maintained on an accrual basis, and the Partnership's fiscal year will be the
calendar year. The Company will file a partnership information return (IRS Form
1065) with the IRS for each taxable year.
Under Section 708 of the Code, the Company will be deemed to terminate for
federal income tax purposes if 50% or more of the capital and profit interests
in the Company are sold or exchanged within a 12-month period. If such a
termination occurs, under current Treasury regulations the Partnership will be
considered to distribute its assets to the partners, who would then be treated
as recontributing those assets to the Company, as a new partnership. Proposed
Treasury regulations would modify this treatment. Under the proposed
regulations, the Company would be deemed to transfer all of its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership. Immediately thereafter, the Company would be deemed to have
distributed interests in the new partnership to the partners in liquidation of
the Company, either for the continuation of the business or for its dissolution
and winding up.
37
<PAGE>
STATE AND LOCAL TAX CONSEQUENCES
The above discussion does not address the tax treatment of the Company,
Notes, or Noteholders under any state or local tax laws. Prospective investors
are urged to consult with their own tax advisors regarding the state and local
tax treatment of the Company as well as any state and local tax consequences to
them of purchasing, holding and disposing of Notes issued by the Partnership.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code (each a "Benefit Plan"), from engaging in
certain transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of Notes should
carefully review with its legal and other advisors whether the assets of the
Partnership would be considered plan assets, and whether the purchase or holding
of the Notes could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined Section 3(33) of
ERISA) are not subject to the fiduciary and prohibited transaction provisions
under ERISA or the Code discussed herein, but governmental plans may be subject
to comparable restrictions under applicable state law.
PLAN OF DISTRIBUTION
The Notes are being offered on a "best-efforts" $1,000,000 Minimum
Offering/$15,000,000 Maximum Offering basis through Participating Dealers
("Participating Dealers") who are members of the National Association of
Securities Dealers Inc. (the "NASD"). The Company has agreed to indemnify all
Participating Dealers against certain liabilities, including liabilities under
the Securities Act of 1933. Investor funds will be held in escrow at Bank of
Montreal until a minimum of $1,000,000 of Notes are sold (the "Minimum
Offering"). In the event the Minimum Offering is not subscribed on or before
__________________, the offering will be terminated and the escrowed funds, plus
any net interest earned thereon, will be promptly returned to the Investors by
the Escrow Agent. Upon the subscription by investors for the Minimum Offering,
the escrowed funds, including interest thereon, will
38
<PAGE>
be released to the Company. Any subsequent sales proceeds from Notes will be
immediately available for use by the Company. The Company will pay the
Participating Dealers a selling commission of up to 7.5% of the sales price of
all Notes sold. In addition, an investment banking and marketing fee of 4% of
the sale price of each Note sold will be paid to Banc Services Corporation. The
Company will also reimburse Participating Dealers for due diligence expenses an
amount up to .5% of the sale price of each Note sold and pay Participating
Dealers an amount up to .5% of the sale price of each Note sold as a
non-accountable expense allowance. No Participating Dealers are affiliated with
the Company.
There is no lead underwriter for this offering. Participating Dealers
will execute Selling Agency Agreements with the Company; however, such
Participating Dealers will be under no obligation to sell any or all of the
Notes offered hereby. The staff of the Securities and Exchange Commission has
taken the position that any broker/dealer that sells Notes in the offering may
be deemed an underwriter as defined in Section 2(11) of the Securities Act of
1933, as amended. The Company has currently entered into Selling Agency
Agreements ("Selling Agency Agreements") with the following Participating
Dealers. The Company reserves the right to enter into Selling Agency
Agreements with other Participating Dealers after the commencement of this
offering.
The Notes are being offered subject to prior sale, withdrawal, cancellation
or modification of the offer, including its structure, terms and conditions,
without notice. The Company reserves the right, in its sole discretion, to
reject, in whole or in part, any offer to purchase the Notes.
The Company intends to sell the Notes in this offering only in the states
in which the offering is qualified. An offer to purchase may only be made and
the purchase of the Notes may only be negotiated and consummated in such states.
The Subscription Agreement for the Notes must be executed, and the Notes may
only be delivered in such states. Resale or transfer of the Notes may be
restricted under state law. See "Risk Factors - Absence of Public Market For
the Notes and Limited Transferability of the Notes", and "Transferability of
Notes."
If the Company does not terminate the offering earlier, which it may in its
sole discretion, the offering of Notes will continue until the Company sells
$15,000,000 in aggregate principal amount of the Notes, provided that the
offering period for the Notes will expire no later than 24 months after the date
of this Prospectus.
The Participating Dealers have agreed in accordance with the provisions of
SEC Rule 15c2-4 to cause all funds received for the sale of a Note to be
promptly deposited with the Escrow Agent upon the receipt of the executed
Subscription Agreement and related funds by the Participating Dealer by or
before noon of the next business day following the sale of said Notes.
The Notes purchased from the Company will be issued as soon as practicable
after the sale thereof (or, if later, upon sale of the Minimum Offering).
TRANSFERABILITY OF NOTES
The Notes will be registered with the Commission and the states of Florida
and Georgia. The Notes may be registered or exempt form registration in other
states. No public or other market for the Notes exists and no market is
expected to develop in the future. No transfers will be permitted of less than
the Minimum Purchase, nor may an investor transfer, fractionalize or subdivide
Notes so as to retain less than such Minimum Purchase. Accordingly, the Notes
should be purchased only as an
39
<PAGE>
investment to be held to the end of the term of the Notes because Noteholders
may not be able to liquidate their investment in the event of an emergency or
for any other reason.
LEGAL MATTERS
The validity of the Notes offered here will be passed upon by Buchalter,
Nemer, Fields & Younger, a Professional Corporation.
EXPERTS
The financial statements of SAC at December 31, 1995 and 1996 and for each
of the two years in the period ended December 31, 1996, and the balance sheet of
the Company as of December 31, 1996 and 1995 appearing in this Prospectus and
Registration Statement have been audited by Millward & Co. CPAs, independent
auditors, as stated in their report appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form SB-2. File No. 333-________,
under the Securities Act of 1933 with respect to the Notes offered hereby. As
used herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendment thereto. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Notes, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily completed and
in each instance, reference is made to the copy of such contract or documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington D.C. 20549 and at certain regional offices of the
Commission located at 75 Park Place, 14th Floor, New York, New York 1007 and
Northwest Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1025, Washington D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that filed electronically with the
Commission.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file reports with the Commission. The Company
intends to furnish to Noteholders annual reports containing audited financial
statements of the Company audited by its independent accountants and quarterly
reports containing unaudited condensed financial statements for each of the
first three quarters of the fiscal year.
40
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996
INDEX
PAGE
INDEPENDENT AUDITOR'S REPORT................................................ 42
FINANCIAL STATEMENTS:
BALANCE SHEET.......................................................... 43
STATEMENT OF OPERATIONS................................................ 44
STATEMENT OF CASH FLOWS................................................ 45
STATEMENT OF SHAREHOLDERS' EQUITY...................................... 46
NOTES TO FINANCIAL STATEMENTS............................................ 47-49
41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Sentinel Acceptance Corporation
Coral Springs, Florida
We have audited the accompanying balance sheet of Sentinel Acceptance
Corporation as of December 31, 1996 and 1995 and the related statements of
operations and shareholders' equity and cash flows for the year ended December
31, 1996 and for the period from inception (September 5, 1995) through December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sentinel Acceptance
Corporation at December 31, 1996 and 1995, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the period from
inception (September 5, 1995) through December 31, 1995, in conformity with
generally accepted accounting principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
May 28, 1997
42
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
December 31, March 31, 1997
---------------------------- --------------
1996 1995 (Unaudited)
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
Current asset:
Cash $ 481 $ 5,868 $ 6,296
Investment in Partnership 205,124 212,929 200,504
-------- -------- --------
Total assets $205,605 $218,797 $206,800
-------- -------- --------
-------- -------- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liability:
Payroll taxes payable $ 10,276 $ 6,618 $ 19,389
-------- -------- --------
Commitments
Shareholders' equity:
Preferred stock, $1 par value;
110,000 shares authorized,
issued and outstanding 110,000 110,000 110,000
Common stock, $1 par value;
10,000 shares authorized,
issued and outstanding 10,000 10,000 10,000
Additional paid-in capital 93,400 93,400 93,400
Accumulated deficit (18,071) (1,221) (25,989)
-------- -------- --------
Total shareholders' equity 195,329 212,179 187,411
-------- -------- --------
Total liabilities and
shareholders' equity $205,605 $218,797 $206,800
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
December 31, March 31,
---------------------- --------------------------
1996 1995* 1997 1996
-------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Management fees - partnership $413,965 $71,700 $154,875 $70,000
-------- ------- -------- -------
Costs and expenses:
Salaries and payroll costs 410,885 67,820 154,653 68,220
Other costs 12,125 4,630 3,520 3,612
Equity adjustments for
operating loss of investee 7,805 471 4,620 1,951
-------- ------- -------- -------
430,815 72,921 162,793 73,783
-------- ------- -------- -------
Net (loss) $(16,850) $(1,221) $ (7,918) $(3,783)
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
* From inception (September 5, 1995) to December 31, 1995
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months
December 31, Ended March 31,
----------------------- -----------------------
1996 1995* 1997 1996
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Operation activities:
Net (loss) $(16,850) $(1,221) $(7,918) $(3,783)
-------- -------- -------- --------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Equity adjustment for operating loss of
investee 7,805 471 4,620 1,951
Increase in payroll taxes payable 3,658 6,618 9,113 (2,276)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities and net increase (decrease)
in cash (5,387) 5,868 5,815 (4,108)
Cash - beginning of period 5,868 - 481 5,868
-------- -------- -------- --------
Cash - end of period $ 481 $ 5,868 $ 6,296 $ 1,760
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
* From inception (September 5, 1995) to December 31, 1995
A shareholder's equity contribution in 1995 of $213,400 is represented by the
Shareholder's investments in partnership.
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- ---------------------
Additional Accumulated
Shares Amount Shares Amount Paid-in Capital Deficit Total
-------- -------- -------- -------- ----------------- ------------ ---------
1995
- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contribution of
partnership investment 110,000 $110,000 10,000 $10,000 $93,400 $ - $213,400
Net (loss) 1995 - - - - - (1,221) (1,221)
------- ------- ------ ------ ------ ------- -------
Balance - December 31, 1995 110,000 110,000 10,000 10,000 93,400 (1,221) 212,179
Net (loss) 1996 - - - - - (16,850) (16,850)
------- ------- ------ ------ ------ ------- --------
Balance - December 31, 1996 110,000 110,000 10,000 10,000 93,400 (18,071) 195,329
Net (loss) - unaudited
for the three months ended
March 31, 1997 - - - - - (6,938) (6,938)
------- ------- ------ ------ ------ ------ -------
Balance - March 31, 1997
(unaudited) 110,000 $110,000 10,000 $10,000 $93,400 $(25,009) $188,391
------- ------- ------ ------ ------ ------ -------
------- ------- ------ ------ ------ ------ -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1997 IS UNAUDITED)
NOTE 1. - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sentinel Acceptance Corporation (the "Company") was organized pursuant to
the laws of the State of Florida on September 5, 1995. The Company's principal
asset is an investment in a limited partnership whose primary business is to
engage in the purchase, collection and securing of retail installment contracts
in the non-prime consumer market originated by independent automobile dealers.
INVESTMENT IN PARTNERSHIP
Investment in partnership is accounted for using the equity method, under
which the Company's share of earnings or loss of this partnership is reflected
as income or (loss) with an adjustment to the Company's investment in the
partnership.
INCOME TAXES
Income taxes are accounted for under the asset and liability method of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities or a change in tax rate is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced to
estimated amounts to be realized by the use of a valuation allowance.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents. As of December 31, 1996, the Company did not have any cash
equivalents.
ACCOUNTING 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
47
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
RECENT PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"), "Accounting for Transfers of Servicing of Financial Assets
and Extinguishment of Liabilities." SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on a financial-components approach that focuses on control.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
prospectively applied. The Company believes that the adoption of SFAS 125 will
have no impact on its financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS
MANAGEMENT FEES
The Company charges the Partnership a management fee on a monthly basis for
reimbursement of certain operating assets as incurred. For the year ended
December 31, 1996 and the period ended December 31, 1995, the Company recognized
approximately $413,965 and $71,700 in management fee income, respectively, which
has been included in income on the statement of operations.
INVESTMENT IN PARTNERSHIP
The Company has an investment in a partnership that is accounted for using
the equity method. During 1995 the Company invested $213,400 in a Partnership
in exchange for a 1% interest in the Partnership. The principal business
activity of the Company is investing in a limited partnership whose primary
business is described in Note 1 - "Organization". The following represents the
Company's investment activity:
1995 Investment $ 213,400
1995 Company share of partnership loss 471
---------
Balance - December 31, 1995 212,929
1996 Company share of partnership loss 7,805
---------
Balance - December 31, 1996 205,124
Company share of loss for the three months
ended March 31, 1997 4,620
---------
Balance - March 31, 1997 (unaudited) $ 200,504
---------
---------
48
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 3 - SHAREHOLDERS' EQUITY
In 1995, the Company issued 10,000 common shares of its $1.00 par value
stock and 110,000 shares of its $1.00 preferred stock in exchange for the
shareholders providing cash of $213,400 to a limited partnership which
represents the Company's investment in the limited partnership.
NOTE 4 - INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $18,071 that expire through 2011. Such net operating losses are
available to offset future taxable income, if any. As the utilization of such
operating losses for tax purposes is not assured, the deferred tax asset has
been fully reserved through the recording of a 100% valuation allowance. Should
a cumulative change in the ownership of more than 50% occur within a three-year
period, there could be an annual limitation on the use of the net operating loss
carryforward.
49
<PAGE>
EXHIBIT A
FORM OF SECURED NOTE
(FACE OF SECURITY)
No. $
SENTINEL FINANCING, LTD., L.P.
promises to pay to
or registered assigns,
the principal sum of Dollars on __________
12% SECURED FIXED RATE NOTES
DUE ___________, 2002
Interest payment Dates:
Record Dates:
Dated:
By
By
(SEAL)
Authenticated to be one of the
Notes described in the Indenture
referred to herein:
By
Authorized Signature
A-1
<PAGE>
(Back of Security)
12% Secured Fixed Rate Notes due _____________, 2002
1. INTEREST. SENTINEL FINANCING, LTD., L.P., a Florida limited
partnership (the Company"), promises to pay interest on the principal amount of
this Security at a rate of 12% per annum from the date of issuance, payable
monthly on the 15th day of each month commencing on ____________, 1997, to the
Persons in whose names such Notes are registered at the close of business on the
Record Date next preceding the Interest Payment Date. Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months. To the
extent lawful, any installment of interest on the Notes which is not paid when
due shall accrue interest at the lesser of 18% compounded quarterly, or the
highest lawful rate of interest from the due date until paid.
2. METHOD OF PAYMENT. Principal of, and interest on the Securities
will be payable, at the Company's office. The Company will pay principal and
interest in money of the United States that is legal tender for payment of
public and private debts. At the option of the Company, payment of principal
and interest may be made by check mailed to the Holder at the address set forth
in the registry books of the Company.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Securityholder. The Company or any
Subsidiaries of the Company may act in any such capacity.
4. INDENTURE. The Company issued the Securities under an Indenture
dated as of , 1997 (the "Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the Indenture.
The Securities are subject to, and qualified by, all such terms, certain of
which are summarized herein, and Securityholders are referred to the Indenture
and such Act for a statement of such terms. The Securities are secured
obligations of the Company limited to $15,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION. All or any part of the Securities may be
redeemed by the Company, in whole or part, at any time or some of them from time
to time, upon not less than 30 or more than 60 days' notice at a redemption
price equal to 100% of the principal amount plus accrued interest to the
Redemption Date.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. On and after the Redemption Date interest ceases to accrue
on Securities or portions of them called for redemption. In the event of a
partial redemption of the Notes, the Notes will be redeemed in whole or part
will be selected on a pro rata basis or in such other manner as the Company
deems appropriate and fair.
If this Security is redeemed subsequent to a record date with
respect to any interest payment date specified above and on or prior to such
interest payment date, then any accrued
A-2
<PAGE>
interest will be paid to the Person in whose name this Security is registered at
the close of business on such record date.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
8. PERSONS DEEMED OWNERS. The registered holder of a Security may
be treated as its owner for all purposes.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended with the consent of the holders of at
least a majority in principal amount of the then outstanding Securities.
Without the consent of any Securityholder, the Indenture or the securities may
be amended to cure any ambiguity, defect or inconsistency, to comply with the
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, to add covenants of the Company for the benefit of the Holders,
to provide guarantors of the Securities, to evidence succession of another
Person to the Company, to provide for uncertificated Securities in addition to
certificated Securities or to make any change that does not adversely affect the
rights of any Securityholder.
10. DEFAULTS AND REMEDIES. An Event of Default occurs if: the
Company fails to pay any payment of interest on any Security when the same
becomes due and payable; the Company receives written notice from payment of the
principal of any Security when the same becomes due and payable at maturity,
upon redemption or otherwise; and certain events of bankruptcy or insolvency. If
an Event of Default occurs and is continuing, the Trustee or the holders of at
least a majority in principal amount of the then outstanding Securities may
declare all the Securities to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency all outstanding securities become due and payable immediately without
further action or notice. Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Trustee is only
deemed to have knowledge of a default or Event of Default under certain
circumstances set forth in the Indenture. The Company must furnish an annual
compliance certificate to the Trustee.
11. SECURITY. The due and punctual payment of interest and principal
of the Securities when and as the same shall be due and payable, whether at
maturity, by acceleration, or otherwise, and the interest on the overdue
principal of the Securities and payment and performance of all other obligations
of the Company to Holders or the Trustee under the Indenture and the Securities
shall be secured as provided in the Security Documents.
A-3
<PAGE>
12. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
13. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
14. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
15. INDENTURE CONTROLS. Nothing contained herein shall in any way be
construed to impose any duties upon the Trustee beyond those contained in the
Indenture. All immunities, indemnities, exceptions from liability and other
provisions of the Indenture insofar as they relate to the Trustee shall apply to
this Security and are incorporated herein.
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Request may be made to:
SENTINEL FINANCING, LTD., L.P.
210 North University Drive, Suite 800
Coral Springs, Florida 33071
A-4
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________
___________________________________________agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
Date:__________ Your Signature:
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee.
A-5
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This SECURITY AGREEMENT (hereinafter called this "Agreement") is made as of
___________, 1997, by and between Sentinel Financing Ltd., L.P., a Florida
limited partnership, located at 210 North University Drive, Suite 800, Coral
Springs, Florida 33071 (hereinafter called "Debtor") and [name/address] (the
"Trustee"), as Trustee (the "Secured Party").
W I T N E S S E T H:
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 (as defined below) secure the
payment of certain Notes issued and executed by Debtor, pursuant to the
Indenture of Trust (the "Indenture") dated ___________, 1997, by and between
Debtor and Trustee, and made payable to the holders of such notes in the
aggregate principal sum of up to $15,000,000 (hereinafter collectively called
the "Notes"), together with all other indebtedness of every kind or nature owed
by Debtor to Secured Party pursuant to the Indenture or this Agreement, 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 Secured Party 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 Secured Party 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 (the "Replacement Contracts") or 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 following bank account of the Company
_____________________________________ (the "Master Account"); (iii) all net
proceeds of the issuance and sale of the Notes; and (iv) all products thereof
and all cash and non-cash 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 assignments of liens, all Contracts,
Vehicle titles, assignments or other documents and instruments deposited with
and in the possession, custody and control of the Custodian as described in
paragraph 4.5 hereof (all of the foregoing hereinafter called the "Collateral");
provided, however, that the Collateral may be released to Debtor as set forth in
the agreement dated the date hereof, among the Debtor, ________________, as
custodian ("Custodian"), and the Trustee ("Custodian Agreement").
B-1
<PAGE>
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 other than the rights of the purchasers of the
Vehicles under the Contracts and Replacement Contracts, ("Vehicle Purchasers"),
and Secured Party 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 Notes;
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 Debtor has established the Master Account.
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 the rights of Vehicle Purchasers.
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 other than Vehicle Purchasers, and other than the
Security Interest; and Debtor will not pledge the Collateral as security for any
debts or obligations other than the Notes;
4.3 Will not pledge, transfer, assign, deliver, or otherwise dispose
of any Collateral or any interest therein, except that until the occurrence of
an Event of Default (as defined in paragraph 7.1 of this Agreement), it may so
dispose of the Collateral so long as the proceeds thereof are applied to:
a. Make payments of principal and/or interest on the Notes; or
b. Pay operating expenses, including servicing fees, custodian
fees, trustee's fees, bank fees and charges, legal fees, title and transfer
fees, account fees, contract purchase fees, insurance, repossession, repair and
liquidation expenses, enforcement dealer recourse arrangements, federal, state
and local taxes, out-of-pocket expenses incurred in connection with any resale
of Contracts, and other general and administrative expenses incurred in the
ordinary course of business ("Permitted Expenses");
c. Distributions to the Debtor's partners in accordance with
the Limited Partnership Agreement among Sentinel Acceptance Corporation, as
general partner, and the persons named as limited partners therein, dated
___________________, 1997; provided, however, that no distribution may be made
pursuant to this subsection if at the time of such distribution the "Net
B-2
<PAGE>
Receivables" as reflected on the Debtor's balance sheet for the most recent
completed fiscal quarter or year end, as applicable, do not exceed 110% of the
principal amount of Notes then outstanding ("Partner Distributions").
4.4 Will keep in accordance with generally accepted accounting
principles, consistently applied, accurate and complete records concerning the
Collateral; will mark such records and, upon request of the Secured Party made
from time to time, the Collateral to give notice of the Security Interest; and
will, upon request made from time to time, permit the Secured Party or its
agents to inspect the Collateral and the Debtor's records concerning the
Collateral and to audit and make abstracts of such records or any of the
Debtor's books, ledgers, reports, correspondence and other records;
4.5 Upon demand will deliver to the Custodian for the Secured Party
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 any endorsements or assignments thereof and all
other documents representing or relating to purchases or other acquisitions,
sales or other dispositions of the Collateral and the proceeds thereof and any
and all other schedules, documents, and statements in accordance with the terms
of the Custodian Agreement;
4.6 Will notify the Secured Party in writing at least thirty (30)
days in advance of any change in the Debtor's address specified on the first
page of this Agreement, of any change (other than change in the location of
Vehicles in the ordinary course of the use thereof by the purchasers thereof) 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;
4.7 Will execute and deliver to the Secured Party such financing
statements and other documents requested by the Secured Party, subject to the
limitations set forth herein, to perfect, protect or continue the perfection of
the Security Interest and to effect the purposes of this Agreement;
4.8 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;
4.9 Will deliver the Contracts and Replacement Contracts to the
Custodian pursuant to that certain Custodian Agreement between the Company,
Custodian and Trustee on behalf of the Secured Party of even date herewith,
within five (5) business days of the acquisition of the Contract or Replacement
Contract, as applicable, by delivery to custodian of original executed Contracts
and Replacement Contracts and related assignments, contracts and other documents
evidencing any rights of Debtor with respect thereto;
4.10 Will not make any distributions to partners or payments to
affiliates except as herein provided;
4.11 Will deposit and retain all funds which constitute the Collateral
in the Master Account, will withdraw funds therefrom only for the conduct of
Debtor's business as permitted hereby with respect to the servicing of Contracts
and Replacement Contracts and the requisition of Replacement Contracts, and for
the payment of Permitted Expenses and Partner Distributions, and will not
commingle any other funds with funds in said account;
B-3
<PAGE>
4.12 Will execute and deliver to the Custodian the Collateral
Assignments attached hereto as Exhibits 1 and 2 as required by the Secured
Party.
5. VERIFICATION OF COLLATERAL.
Secured Party shall have the right to verify the existence of the
Collateral in any manner and through any medium which Secured Party may consider
appropriate and which will not interfere with the conduct of Debtor's business,
and Debtor shall furnish such assistance and information and perform such acts
as Secured Party may require in connection therewith.
6. FUTURE ADVANCES.
It is agreed that any additional loans or advances by the Secured
Party secured hereby to or for the benefit of Debtor, whether such loans or
advances are obligatory or are made at the option of Secured Party or otherwise,
at any time within twenty (20) years from the date of this Agreement, with
interest thereon at the rate agreed upon at the time of each such loan or
advance, shall be equally secured with and have the same priority as the
original indebtedness and be subject to all of the terms and provisions of this
Agreement, whether or not such additional loan or advance is evidenced by the
Notes or any other promissory note of Debtor and whether or not identified by a
recital that it is secured by this Agreement; provided, however, that Debtor
hereby understands and agrees that this future advance provision does not in any
way obligate Secured Party or any other person to make any additional loans or
advances to Debtor.
7. DEFAULT.
7.1 EVENTS OF DEFAULT. An Event of Default shall occur under this
Agreement upon any Event of Default as defined by Section 6.1 of the Indenture.
7.2 RIGHTS AND REMEDIES UPON DEFAULT. If an Event of Default occurs
and is continuing Secured Party, by written notice to the Debtor, may 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, Secured Party 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.
7.3 NOTICE. Debtor agrees that any notice by Secured Party of the
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 on or
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 Secured Party in writing as the address to
which notices shall be given to Debtor.
7.4 COSTS. Debtor shall pay all costs and expenses incurred by
Secured Party 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' fees and expenses.
B-4
<PAGE>
7.5 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. Secured
Party will account to Debtor for any proceeds of the Collateral in excess of the
Indebtedness and the costs and expenses referred to in Section 7.4.
8. MISCELLANEOUS.
8.1 PERFECTION OF SECURITY INTEREST. Debtor authorizes Secured Party
at Debtor's expense to file 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 Secured Party to perfect and to
continue perfection of the Security Interest. Debtor hereby irrevocably
appoints Secured Party as its attorney-in-fact to execute financing statements
in Debtor's name and to perform all other acts which Secured Party deems
necessary or appropriate to perfect and protect the Security Interest. Such
appointment is binding and coupled with an interest. Upon request of Secured
Party before or after the occurrence of an Event of Default but subject to the
rights of Vehicle Purchasers, Debtor agrees to give Secured Party possession of
any Collateral, possession of which is, in Secured Party's opinion, necessary or
desirable to perfect or continue perfection or priority of the Security
Interest. A photocopy of this Agreement is sufficient as a financing statement
and may be filed as such if Secured Party so elects.
8.2 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.
8.3 RIGHT TO PROCEEDS. Upon the occurrence of an Event of Default
and in the course of the exercise of remedies as permitted hereby, Secured Party
may demand, collect, and sue for all proceeds of the Collateral (either in
Debtor's or Secured Party's name at the latter's option) with the right to
enforce, compromise, settle, or satisfy any claim. Debtor hereby irrevocably
appoints Secured Party 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 Secured Party 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 Secured Party as Debtor's attorney-in-fact to endorse, by
writing or stamp, any check or draft representing such proceeds or refund. Such
appointment is binding and coupled with an interest. Upon the occurrence of an
Event of Default and in the course of the exercise of remedies as permitted
hereby, Secured Party may notify any party obligated to pay proceeds of the
Collateral of the existence of the Security Interest and may also direct them to
pay all such proceeds to Secured Party.
8.4 PROPERTY IN SECURED PARTY'S POSSESSION. As further security for
the repayment of the Indebtedness, Debtor grants to Secured Party a security
interest in all property of Debtor which is or may hereafter be in Secured
Party's possession in any capacity, including all monies owed or to be owed by
Secured Party to Debtor; and with respect to all of such property, Secured Party
shall have the same rights as it has with respect to the Collateral.
8.5 SET-OFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable, Secured Party may
B-5
<PAGE>
set off against the Indebtedness all monies then owed to Debtor by Secured Party
in any capacity whether due or not.
8.6 FAILURE TO PERFORM; REIMBURSEMENT. Upon Debtor's failure to
perform any of its duties hereunder, Secured Party may, but it shall not be
obligated to, perform any of such duties and Debtor shall forthwith upon demand
reimburse Secured Party for any expense incurred by Secured Party in doing so
with interest thereof at a rate equal to the lesser of the per annum rate of
interest specified in the Notes plus two percentage points or the maximum rate
permitted by applicable law.
8.7 NON-WAIVER. No delay or omission by Secured Party 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 Secured Party from any other or
future exercise of the right or remedy or the exercise of any other right or
remedy. Secured Party may agree to a cure of any default by Debtor in any
reasonable manner without waiving any other prior or subsequent default by
Debtor.
8.8 THIRD PARTIES. Secured Party 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 Secured Party's possession as Collateral or
proceeds of the Collateral.
8.9 WAIVER OF NOTICE OF DISHONOR AND PROTEST, ETC. Debtor waives
dishonor, protest, presentment, demand for payment, notice of dishonor and
notice of protest of any instrument at any time held by Secured Party with
respect of which Debtor is in any way liable and waives notice of any other
action by Secured Party.
8.10 ASSIGNMENTS. Debtor's rights and obligations under this
Agreement are not assignable in whole or in part by operation of law or
otherwise. Secured Party may assign its rights and obligations under this
Agreement, in whole or in part, without notice to or consent of Debtor and all
of such rights shall be enforceable by Secured Party's successors and assigns.
8.11 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
Florida. Section headings are used herein for convenience only and do not alter
or limit the meaning of the language contained in each section.
8.12 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 Secured Party.
8.13 CHOICE OF LAW; WAIVER OF JURY TRIAL. This Agreement has been
delivered in the State of Florida 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 Florida.
Debtor and Secured Party hereby waive any right to a trial by jury in any action
to
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<PAGE>
enforce or defend any matter arising from or related to (i) this Agreement; (ii)
any Note; or (iii) any documents or agreements evidencing or relating to this
Agreement or any Note. 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 Secured Party's right to serve legal process in
any manner permitted by law, or Secured Party's right to bring any action or
proceeding against Debtor, or the property of Debtor, in the courts of any other
jurisdiction.
8.14 EXPENSES. Debtor shall pay all costs and expenses relating to
this Agreement and the Indebtedness, including but no limited to, filing and
recording fees, documentary stamps including, without limitation, Florida
documentary stamps (if any), intangible tax (if any), and Secured Party's
attorney's fees and expenses.
8.15 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 Secured Party at:
_______________________
_______________________
_______________________
b. If to Debtor at:
Sentinel Financing Ltd., L.P.
210 North University Drive, Suite 800
Coral Springs, Florida 33071
or to such other address as each party may designate for itself by like notice.
8.16 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.
8.17 RELIANCE BY SECURED PARTY. All covenants, agreements,
representations and warranties made herein by Debtor shall, notwithstanding any
investigation by Secured Party, be deemed to be material to and to have been
relied upon by Secured Party.
8.18 ENTIRE AGREEMENT. This Agreement, the Notes and the other
instruments, agreements and documents contemplated hereby contain the entire
agreement between Secured Party and Debtor with respect to the subject matter
hereof and supersedes and cancels any prior understanding and agreement between
Secured Party and Debtor with respect thereto.
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<PAGE>
8.19 BINDING EFFECT. Subject to the provisions of paragraph 8.10,
this Agreement shall be binding upon their heirs, personal representatives,
successors and assigns of Debtor and shall inure to the benefit of the
successors and assigns of Secured Party.
8.20 TIME. Time is of the essence in this Agreement.
8.21 ATTORNEYS' 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.
8.22 CAPACITY. The Secured Party 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 Secured Party hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By: __________________________
Ivan Hoser, President
[Trustee]
By: _________________________________
Its:__________________________________
B-8
<PAGE>
EXHIBIT 1
COLLATERAL ASSIGNMENT
SENTINEL FINANCING LTD., L.P., a Florida limited partnership ("Assignor")
hereby collaterally assigns to [____________________], as Trustee ("Assignee")
the Contract attached hereto (the "Contract"). This Collateral Assignment shall
become absolute upon the occurrence of an Event of Default as defined in the
Security Agreement and the exercise of Secured Party's rights and remedies
thereunder with respect to the Contract, in which event Assignee shall become
the owner of the Contract and shall be entitled to exercise all of the remedies
provided in the Security Agreement with respect to such Contract.
This Collateral Assignment shall be governed and construed in accordance
with the laws of the State of Florida and the provisions of the Security
Agreement, which is incorporated herein.
As used herein, all capitalized terms shall have the same meaning as in the
Assignor's Prospectus dated ___________, 1997.
IN WITNESS WHEREOF, the Assignor has placed its hand and seal as of this
____ day of ________, 1997.
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By: __________________________
Ivan Hoser, President
B-9
<PAGE>
EXHIBIT 2
COLLATERAL ASSIGNMENT
SENTINEL FINANCING LTD., L.P., a Florida limited partnership ("Assignor")
hereby collaterally assigns to [_________________________], as Trustee
("Assignee") the collateral as set forth in the Security Agreement between
Assignor and Assignee of even date herewith (the "Collateral"). This Collateral
Assignment shall become absolute upon the occurrence of an Event of Default as
defined in the Security Agreement and the exercise of Secured Party's rights and
remedies thereunder with respect to the Collateral, in which event Assignee
shall become the owner of the Collateral and shall be entitled to exercise all
of the remedies provided in the Security Agreement with respect to such
Collateral.
This Collateral Assignment shall be governed and construed in accordance
with the laws of the State of Florida and the provisions of the Security
Agreement, which is incorporated herein.
As used herein, all capitalized terms shall have the same meaning as in the
Assignor's Prospectus dated ___________, 1997.
IN WITNESS WHEREOF, the Assignor has placed its hand and seal as of the
____ day of ________, 1997.
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By: __________________________
Ivan Hoser, President
B-10
<PAGE>
EXHIBIT C
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT is made and entered into as of this _____ day of
_________________, 1997, between SENTINEL FINANCING LTD., L.P., a Florida
limited partnership (the "Debtor"), [ ], as Trustee (the
"Secured Party") and [_______________________] (the "Custodian").
R E C I T A L S
A. The debtor has duly authorized the offer and sale of secured Notes
(the "Notes") in the aggregate principal amount of up to $15,000,000 due on
_______________, 2002, which Notes are secured by certain Collateral as set
forth in a Security Agreement between the Debtor and the Secured Party dated
______________, 1997.
B. In order to perfect the Secured Party's security interest in the
Collateral as granted under the Security Agreement, Debtor has agreed to deposit
certain of the Collateral with the Custodian subject to the terms and conditions
of this Agreement.
AGREEMENT
In consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Security Agreement.
2. Debtor or its Agent will deposit with Custodian all original, executed
Contracts and related assignments, contracts and other documents evidencing any
rights of the Debtor in respect thereof (the "Deposited Collateral") within five
(5) business days of the acquisitions of the Contract or Replacement Contract by
delivery to Custodian of all such items, organized by obligor and by Vehicle,
together with a listing thereof, and Custodian shall execute and deliver to
Debtor a receipt therefor. As and when a Replacement Contract is created,
Debtor shall deliver to Custodian the Replacement Contract and all of the
related documents, including the related Vehicle certificate of title, within
five (5) business days of the acquisition of the Replacement Contract, together
with a listing thereof, and Custodian shall execute and deliver to Debtor a
receipt therefor. The Custodian will have sole possession, custody and control
of the Deposited Collateral on behalf of the Secured Party and shall maintain in
its sole possession the Deposited Collateral to which Custodian and its agents
will have sole access. Custodian shall keep, maintain and safeguard the
Deposited Collateral using all due care and prudence as is commercially
customary and reasonable conduct of a collateral bailee, including, without
limitation, arranging for and maintaining the safekeeping of the Deposited
Collateral against fire, water, and other hazard damage and against theft,
disclosure and other unauthorized use and access. The Custodian will have no
responsibility for Deposited Collateral it does not receive.
3. The Custodian will release to the Debtor each Contract and related
documents including any Vehicle certificates of title constituting the Deposited
Collateral upon receipt of an affidavit signed
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<PAGE>
and sworn to by a duly authorized officer of Debtor that (a) Debtor has received
or anticipates receiving within five (5) business days payment in full from the
obligor under the Contract, (b) Debtor has sold or within two (2) business days
will sell the Contract and related documents at a price which Debtor believes in
good faith is not less than the fair value thereof, (c) Debtor requires
possession of the Contract and related documents to effect a Contract exchange
pursuant to any dealer or other recourse agreements, (d) Debtor requires
possession of the Vehicle certificate of title to repossess a Vehicle after
default on a Contract, or (e) any administrative event for which release for
mailing to any state is required under statute, rule, regulation or practice
such as change in name of Vehicle owner due to a marriage or divorce, change of
address Vehicle owner, or notation of a subordinate lien on the certificate of
title. Upon a release of a Vehicle certificate of title pursuant to clauses (b)
or (d) of the preceding sentence, the Debtor or its agent shall promptly return
the Vehicle certificate of title or new exchanged certificate of title to the
Custodian upon receipt of the reissued or exchanged Vehicle certificate of
title. Upon or after any Event of Default under the Notes or Security
Agreement, the Custodian shall, upon request of the Secured Party, promptly
deliver to the Secured Party all Deposited Collateral.
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 hereunder, nor as to the identity, authority or right of
any person executing the same; and the Custodian's duties hereunder shall be
limited to the safekeeping of such agreements, monies, instruments or other
documents received by it hereunder, and for the disposition of the same in
accordance herewith.
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 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 any
dispute as to the correct interpretation of this Agreement or any instructions
given to the Custodian hereunder, and the Custodian shall have the right to hold
such property until and unless such additional expenses, fees and charges shall
be fully paid.
7. In the event of a disagreement by the parties as to the interpretation
of this Agreement or as to the rights and obligations or the propriety of any
action contemplated by the Custodian hereunder, the Custodian may, in its sole
discretion, file an action in interpleader to resolve such disagreement. The
Custodian shall be indemnified by Debtor for all costs, including reasonable
attorneys' fees, in connection with any such 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.
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<PAGE>
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 negligence.
9. The Custodian may resign upon thirty days written notice to the
parties to this Agreement. If a successor Custodian is not appointed within a
thirty-day period, the Custodian may petition a court of competent jurisdiction
to name a successor Custodian.
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, addressed to the addresses set forth below the signatures of the
parties hereto, to such other address as to which a party provides notice
pursuant hereto.
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 Custodian and Debtor shall pay their own expenses in connection
with this Agreement and the transactions contemplated hereby, including the fees
and expenses of their 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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<PAGE>
20. This Agreement shall be governed in accordance with the internal laws
of the State of Florida, without regard to conflict of laws provisions.
21. 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.
22. 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 any party.
23. This Agreement shall terminate and the Custodian shall be discharged
of all responsibility hereunder at such time as the Custodian shall receive
notice from the Secured Party that the Notes have been repaid in full or the
Custodian has delivered all Deposited Collateral to the Secured Party as
provided in paragraph 3 and the Secured Party has notified the Custodian that no
further Collateral is to be delivered to or accepted by the Custodian hereunder.
24. The Secured Party is not liable for any acts or omissions of the
Custodian in acting hereunder.
25. The Secured Party 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
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Custodian
Agreement on the day and year first above written.
Debtor:
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By: __________________________
Ivan Hoser, President
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<PAGE>
Secured Party:
[____________________], as Trustee
By:_______________________________
As:_______________________________
Custodian:
By:_______________________________
Its:______________________________
As:_______________________________
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<PAGE>
EXHIBIT D
INDENTURE
D-1
<PAGE>
EXHIBIT E
SENTINEL FINANCING, LTD., L.P.
SUBSCRIPTION AGREEMENT - SECURED NOTES
The Investor named below, by payment of the purchase price for such Secured
Notes, by the delivery of a check payable to SENTINEL FINANCING LTD., L.P. -
Escrow Account/_______________ hereby subscribes for the amount of Secured Notes
indicated below (minimum purchase of $2,000) of Sentinel Financing Ltd., L.P.
The Secured 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 Secured Notes being subscribed for hereby.
<TABLE>
<S><C>
A. INVESTMENT: 1. Amount of Secured Notes Purchased $__________
2. Initial Purchase [ ] Additional Purchase [ ] Date of Investor's check __________
B. REGISTRATION: Mr. Mr.
Mrs. Mrs.
1. Registered Owner: Ms. __________________________ Co-Owner: Ms. _________________________________________
2. Mailing Address:__________________________________ City, State & Zip: _______________________________________
3. Residence Address (if different from above): ________________________________________________________________
4. Birth Date: _____/_____/_____ 5. Birth Date Co-Owner: _____/_____/_____
6. Please indicate Citizenship Status: 7. Social Security #: _____/_____/_____
U.S. Citizen [ ] Other [ ] Co-Owner SS#: _____/_____/_____
8. Telephone #: (H) (_____) _______________ Corporate or Custodial:
(O) (_____) _______________ 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 DATE: ALL LINES MUST BE COMPLETED. ANY MISSING SIGNATURES MAY DELAY PROCESSING OF
THIS ORDER.
Broker-Dealer NASD Firm Name: ____________________ Date:_________________________________________________
Main Office Address: ________________________________________________________________________________________
City, State & Zip:________________________________ Telephone Number:_____________________________________
Print or Type Name of Broker-Dealer, Principal or other Authorized Signator: ________________________________
Authorized Signature: _______________________________________________________________________________________
Print or Type Name of Registered Representative: ____________________________________________________________
Signature: __________________________________________________________________________________________________
Branch Office Address: ______________________________________________________________________________________
City, State & Zip:________________________________ Telephone Number:_____________________________________
</TABLE>
- --------------------------------------------------------------------------------
MAIL TO: Sentinel Financing Ltd., L.P., 210 North University Drive, Suite
800, Coral Springs, Florida 33071,
Attention: Ivan Hoser, President
Telephone: (954) 796-9915 FAX: (954) 796-8825
- --------------------------------------------------------------------------------
ALL CHECKS FROM INVESTORS MUST BE TRANSMITTED TO THE ESCROW AGENT
BY NOON OF THE NEXT BUSINESS DAY FOLLOWING RECEIPT
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the company. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, the notes
in any jurisdiction to any person to whom it is unlawful to make such an offer
or solicitation in such jurisdiction. Neither delivery of this Prospectus nor
any sale made hereunder at any time implies that information contained herein is
correct as of any time subsequent to the date hereof.
____________
TABLE OF CONTENTS
PAGE
SUITABILITY STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 14
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . 30
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . 31
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . 34
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 38
TRANSFERABILITY OF NOTES . . . . . . . . . . . . . . . . . . . . . . . 39
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 41
EXHIBIT A - Form of Secured Note (Face of Security). . . . . . . . . A-1
ASSIGNMENT FORM . . . . . . . . . . . . . . . . . . . . . A-5
EXHIBIT B - SECURITY AGREEMENT. . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C - CUSTODIAN AGREEMENT . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D - INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E - SUBSCRIPTION AGREEMENT. . . . . . . . . . . . . . . . . . E-1
__________________________
UNTIL THE TERMINATION OF THIS OFFERING, AND IN ANY EVENT UNTIL 90 DAYS AFTER THE
DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES TO WHICH THIS PROSPECTUS RELATES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$15,000,000 (MAXIMUM)
$ 1,000,000 (MINIMUM)
SENTINEL FINANCING,
LTD., L.P.
12% SECURED NOTES DUE 2002
_____________
PROSPECTUS
_____________
______________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses (other than
underwriting discounts) to be borne by the Registrant in connection with the
issuance and distribution of the securities offered hereby:
TOTAL
SEC filing fee . . . . . . . . . . . . . . . . . . . . . . . $4,546
Blue Sky fees and expenses, including legal fees . . . . . . $5,000
Printing and engraving . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses. . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . *
Trustee and Custodian's fees . . . . . . . . . . . . . . . . *
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . *
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
_____________________
*To be completed by Amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's general partner, its affiliates, shareholders, employees and
agents are indemnified by the Company from and against any and all losses,
liabilities, costs and damages by reason of the management of the Company's
affairs except for conduct that arises from (i) fraud, gross negligence,
gross misconduct or criminal acts; (ii) breach of the Company's Partnership
Agreement; or (iii) a matter unrelated to such partner's management of the
Company's affairs.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On _______________, 1997, the Company issued limited partnership interests
to three purchasers in connection with the formation of the Company. These
sales were made to sophisticated investors and without a general
solicitation. The Company believes this transaction was exempt from the
registration provisions of the Securities Act of 1933, as amended pursuant
to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
See Exhibit Index following the Signatures page which is incorporated
herein by reference.
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(b) FINANCIAL STATEMENT SCHEDULES.
Schedules have been omitted because they are not applicable or are not
required or the information required to be set forth herein is included in the
Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Coral
Springs, Florida on this 10th day of June, 1997
SENTINEL FINANCING LTD., L.P.
By: Sentinel Acceptance Corporation
General Partner
By: /s/ Ivan Hoser
---------------------------
Ivan Hoser
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registration Statement has been signed by the following persons in
the capacities indicated on the dates indicated.
/s/ Ivan Hoser
- --------------------------
Ivan Hoser President and Director of Sentinel June 10, 1997
Acceptance Corporation
/s/ Melvin I. Gilbert
- --------------------------
Melvin I. Gilbert Executive Vice President and June 10, 1997
Director of Sentinel Acceptance
Corporation
<PAGE>
EXHIBIT INDEX
TO
SENTINEL FINANCING LTD., L.P.
REGISTRATION STATEMENT ON FORM SB-2
Exhibit Seq.
No. Description Page No.
- ------- ----------- --------
1.1* Proposed form of Selling Agent Agreement
3.1 Limited Partnership Agreement of Registrant
4.1 Security Agreement (included as Exhibit B to Prospectus)
4.2 Custodian Agreement (included as Exhibit C to Prospectus)
4.3 Indenture of Trust between the Company and Trustee
4.4 Subscription Agreement (included as Exhibit E to Prospectus)
4.5 Escrow Agreement
5.1* Opinion re: Legality
10.1* Service Agreement between Sentinel Acceptance Ltd., L.P. and
Registrant
23.1 Consent of Independent Auditor
23.2* Consent of Buchalter, Nemer, Field & Younger (included in
Exhibit 5.1)
25.1* Form T-1 Statement of Eligibility of Trustee
_______________
* To be filed by amendment.
<PAGE>
SENTINEL FINANCING LTD., L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT ("Agreement") is entered
into by and among SENTINEL ACCEPTANCE CORPORATION, a Florida Corporation (the
"General Partner"), and SENTINEL ACCEPTANCE LTD., L.P., A FLORIDA LIMITED
PARTNERSHIP ("Limited Partner"). (The Limited Partner and General Partner
collectively are referred to as "Partner" or "Partners.")
W I T N E S S E T H:
1. FORMATION. The General Partner and the Limited Partner
hereby form a Limited Partnership (the "Partnership" or the "Limited
Partnership") under the Uniform Limited Partnership Act of the State of Florida
("Florida Act"). The Partnership intends to be treated as a partnership for
federal income tax purposes under the default classification rules set forth in
Treasury Regulation Section 301.7701-3(a). The business of the Limited
Partnership shall be conducted under the name "SENTINEL FINANCING LTD., L.P."
2. PLACE OF BUSINESS. The principal place of business of the
partnership shall be at 210 No. University Drive, Suite 800, Coral Springs,
Florida 33071 or at such other place as the General Partner from time to time
shall designate in writing. The Partnership may also maintain such other
offices at such other places as the General Partner may deem advisable. The
address of the General Partner is the principal place of business of the
Partnership. The General Partner may change its address at any time from time
to time.
3. TERM OF THE PARTNERSHIP. The term of the Partnership shall
commence with the filing of the Certificate of Limited Partnership in accordance
with the Florida Act until December 31, 2014, unless sooner terminated.
4. PURPOSE AND BUSINESS OF PARTNERSHIP. The Partnership is a
single purpose business entity formed for the sole purpose of issuing up to an
aggregate of $15,000,000 principal amount of 12% Secured Notes due 2002, the
proceeds of which shall be used for the purchase, collection and servicing of
financing contracts originated by automobile dealers. The Partnership shall be
empowered to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the
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furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership.
5. PARTNERS' DISTRIBUTIVE SHARE. Unless otherwise stated in
this Partnership Agreement, all items of income, gain, loss deduction or credit
shall be allocated as follows:
5.1 ALLOCATIONS TO LIMITED PARTNERS. Unless otherwise
specifically allocated in this agreement, the Limited Partner's distributive
share of all items of income, gain, loss, deduction or credit shall be 99%.
5.2 ALLOCATIONS TO GENERAL PARTNER. The General
Partner's distributive share of all items of income, gain, loss, deduction or
credit not otherwise specifically allocated in this Agreement shall be one
percent (1%).
6. CAPITAL CONTRIBUTIONS.
6.1 GENERAL PARTNER. The General Partner shall
contribute its services, skill and expertise in the acquisition and
management of the Partnership business; in addition the General Partner shall
contribute $40.00. From time to time, as necessary, the General Partner shall
contribute to the Partnership property or other consideration in such form as
permitted under the Florida Act such that its total capital contribution as
General Partner shall remain equal to at least 1% of the total capital
contribution (as defined in Section 6.2, and based on amounts credited to
Capital Accounts) to the Partnership.
6.2 THE LIMITED PARTNER. The Limited Partner's
capital contribution shall be $4,000.00.
6.3 NO RETURN OF CAPITAL CONTRIBUTIONS. No Partner
shall have the right to demand or receive the return of a capital contribution
or Capital Account (as defined in Section 7.1) to the Partnership, or to receive
any distribution from the Partnership except as otherwise provided in this
Agreement, or pursuant to the Florida Act.
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7. CAPITAL ACCOUNTS.
7.1 MAINTENANCE OF CAPITAL ACCOUNTS. The General
Partner shall maintain an individual Capital Account for each Partner in
accordance with Section 704(b) of the Internal Revenue Code. The Capital Account
of each Partner will reflect the amount of such Partner's initial contribution
to the capital of the Partnership, and shall be increased by (i) any additional
capital contributions to the Partnership, (ii) net profits allocated to the
Partner, and (iii) the Partner's share of all Partnership income or profits, if
any, not otherwise taken into account in this Section 7.1 and shall be decreased
by (x) any distributions made to the Partner by the Partnership, (y) net losses
allocated to the Partner, and (z) the Partner's share of all other Partnership
losses, if any, not otherwise taken into account under this Section 7.1.
8. CASH DISTRIBUTIONS BY THE PARTNERSHIP.
8.1 CASH AVAILABLE FOR DISTRIBUTION. Cash Available For
Distribution (as defined in Section 8.2) may be distributed from time to time
quarterly or at the end of any fiscal year to the Partners at the discretion of
the General Partner; provided, however, that no distribution of Cash Available
For Distribution may be made unless at the fiscal quarter or fiscal year end, as
applicable, the Partnership's net receivables as reflected on the Company's
balance sheet for such fiscal quarter or fiscal year end immediately
preceding the fiscal quarter in which the distribution is to be made exceeds
110% of the principal amount of the Notes issued and outstanding. Cash
Available For Distribution shall be distributed one percent (1%) to the General
Partner and ninety-nine percent (99%) to the Limited Partner, and among the
Limited Partners, in accordance with their distributive share as provided in
Section 5.1.
8.2 CASH AVAILABLE FOR DISTRIBUTION means the remaining
cash and other assets available for distribution to the Partners after payment
or satisfaction of the following: (a) all Partnership liabilities for ordinary
and necessary expenses then due and owing to the persons other than the
Partners; (b) all payments currently due on the Notes; (c) the current cost of
acquiring assets; and (d) such reserves as may be determined by the General
Partner to be reasonably necessary for the operation of the Partnership
business.
9. ALLOCATION OF INCOME AND LOSS.
9.1 ORDINARY ALLOCATIONS OF INCOME AND LOSS.
(a) LOSS. Subject to the provisions of Section
9.2, losses shall be allocated as follows: The General Partner shall be
allocated 1% of all loss items, and the Limited Partner shall be allocated
items of loss in accordance with its distributive share allocations in
Section 5, above. Partnership net losses allocated to any Partner pursuant to
this Agreement shall not exceed the maximum amount of net losses that can be so
allocated without causing the Capital Account of such Partner to
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have a deficit Capital Account balance determined with the reductions specified
in Treasury Regulation Section 1.704-l(b)(2)(ii)(d)(4), (5) and (6) which
exceeds the sum of (i) the amount of such deficit the Partner is obligated to
restore, and (ii) the amount of such deficit the Partner is deemed to be
obligated to restore pursuant to the penultimate sentence of Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5).
(b) INCOME. Except as provided in Section 9.02
hereof, income shall be allocated in accordance with the distributive share
allocations to the Limited Partner and General Partner set forth in Section 5.
These allocations are intended to provide the General Partner with a material
interest in the Partnership as defined in Rev. Proc. 89-12.
(c) DETERMINATION OF NET INCOME AND NET LOSSES.
Net income and net losses shall be determined in accordance with the
Partnership's books and records.
9.2 COMPLIANCE WITH SECTION 704(b) REQUIREMENTS.
(a) QUALIFIED INCOME OFFSET. Notwithstanding any
other provision of this Agreement, except Section 9.2(b) hereof, in the event
any Partner unexpectedly receives an adjustment allocation or distribution
described in Treasury Regulation Section 1.704(b)(2)(ii)(d)(4), (5) or (6) which
results in such Partner having a deficit Capital Account balance (after giving
effect to Treasury Regulation Sections 1.704-l(b)(2)(ii)(d)(4), (5) and (6)), or
otherwise has a deficit Capital Account balance which exceeds the sum of (i) the
amount of such deficit the Partner is obligated to restore, and (ii) the amount
of such deficit the Partner is deemed to be obligated to restore pursuant to the
penultimate sentence of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2
(i)(5), such Partner shall be specially allocated items of Partnership Income in
an amount and manner sufficient to eliminate, to the extent required by the
Regulations, the deficit in such Partner's Capital Account as quickly as
possible. Any special allocation made under this Section 9.2(a) shall be taken
into account for purposes of determining subsequent allocations of income and
loss, so that the total allocations will, to the extent possible, equal the
allocations that would have been made if this Section 9.2(a) had not previously
applied.
(b) MINIMUM GAIN. Notwithstanding any other
provision of this Agreement, if there is a net decrease in the Partnership's
minimum gain (as such term is defined in Treasury Regulation Section 1.704-2(d))
during any fiscal year, each Partner shall be specially allocated items of
Partnership income for such year (and subsequent years if necessary) in an
amount and in the manner set forth in Treasury Regulation Section 1.704-2(g)(2)
and otherwise in accordance with Treasury Regulation Section 1.704-2(f). This
Section 9.2(b) is intended to comply with the minimum gain chargeback
requirements of Treasury Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith. Any special allocations made under this Section 9.2(b)
shall be taken into account for purposes of determining subsequent
4
<PAGE>
allocations of income and loss so that the total allocations will, to the extent
possible, equal the allocations that would have been made if this Section 9.2(b)
had not previously applied.
(c) PARTNER NONRECOURSE DEDUCTION. Any item of
Partner Nonrecourse Deduction (as hereinafter defined) with respect to a Partner
Nonrecourse Debt (as hereinafter defined) shall be allocated to the Partner who
bears the economic risk of loss of the Partner Nonrecourse Debt in accordance
with Treasury Regulation Section 1.704-2(i). The term "Partner Nonrecourse
Deduction" has the meaning provided in Treasury Regulation Section
1.704-2(i)(2). The term "Partner Nonrecourse Debt" has the meaning provided in
Regulation Section 1.704-2(b)(4). Subject to Section 9.2(b) hereof, but
notwithstanding any other provision of this Agreement, in the event that there
is a net decrease in minimum gain attributable to partner nonrecourse debt
(hereinafter referred to as "Partner Nonrecourse Minimum Gain") during any
fiscal year of the Partnership, then, each Partner with a share of Partner
Nonrecourse Minimum Gain at the beginning of such year shall be allocated items
of Partnership Income for such year (and subsequent years if necessary) in
proportion to, and to the extent of, an amount equal to such Partner's share
(determined in a manner consistent with Treasury Regulation Section
1.704-2(g)(2)) of the net decrease in Partner Nonrecourse Minimum Gain. Any
special allocations made under this Section 9.2(c) shall be taken into account
for purposes of determining subsequent allocations of income and loss so that
the total allocations will, to the extent possible, equal the allocations which
would have been made if this Section 9.2(c) had not previously applied.
10. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.
10.1 CONTROL AND LIMITED LIABILITY.
(a) No Limited Partner shall take part in the
management or control of Partnership business or transact any business on behalf
of the Partnership and shall have no power to sign for or bind the Partnership.
(b) If a Limited Partner receives the return of
any part of his capital contribution without violation of the Partnership
Agreement, he is liable to the Partnership for the period of one (1) year
thereafter for the amount of the returned capital contribution, but only to the
extent necessary to discharge the Partnership's liabilities to creditors who
extended credit to the Partnership during the period the capital contribution
was held by the Partnership.
(c) No Limited Partner shall be liable for any
debt or obligation of the Partnership in excess of such Limited Partners'
capital contribution. However, if a Limited Partner acts in such a way that
persons who transact business with the Partnership reasonably believe, based
upon the Limited Partners' conduct, that the Limited Partner is a General
Partner, then such Limited Partner shall be held liable
5
<PAGE>
in obligations only to those persons who reasonably believe the Limited Partner
to be the General Partner.
10.2 LIMITED DISTRIBUTIONS. No salaries shall be paid to
any Limited Partner, nor shall any Limited Partner have a drawing account. No
Limited Partner shall be entitled to the return of his capital contribution,
except to the extent that distributions made pursuant to this Agreement may be
considered as such by law and except upon termination of the Partnership as
provided in this Agreement. No Limited Partner shall be entitled to receive
interest on his capital contribution.
10.3 WITHDRAWAL OF LIMITED PARTNERS. Except as otherwise
provided by this Agreement, no Limited Partner will be entitled to withdraw any
of his capital contributions or withdraw or retire from the Partnership prior to
the dissolution and liquidation of the Partnership. An individual Limited
Partner may withdraw upon reaching the age of 65 retirement ("Retirement"). Any
voluntary withdrawal at Retirement by a Limited Partner shall be effective upon
such Limited Partner providing to the General Partner in writing notice of such
Partner's withdrawal 60 days before the date of such Partner's planned
withdrawal date. Subject to Section 10.5, the withdrawal of a Limited Partner
for Retirement, shall not dissolve the Partnership, so long as such withdrawal
or transfer does not violate the provisions set forth in Section 11 of this
Agreement.
10.4 DEATH, ETC., OF LIMITED PARTNER.
(a) The death, incompetency, insolvency or
bankruptcy of an individual Limited Partner shall not dissolve or terminate
the Partnership, except as provided in Section 10.5. In the event of such
death, incompetency or bankruptcy, the executor, administrator, guardian,
trustee or other personal representative (the "representative") of the
deceased, incompetent or bankrupt Partner shall be deemed to be the assignee
of such Limited Partners' interest ("Interest") and may become a substitute
limited partner upon the terms and conditions set forth in Section 11.1. The
estate, representative, heirs, and distributees, as the case may be, of such
a deceased, incompetent or bankrupt Limited Partner shall be liable for all
of his liabilities and obligations to the Partnership.
(b) Any person who acquires in any manner
whatsoever any interest in the Partnership, irrespective of whether such person
has accepted and adopted in writing the terms and provisions of this Agreement,
shall be deemed by the acceptance of the benefits of the acquisition thereof to
have agreed to be subject to and to be bound by all the obligations of this
Agreement that any predecessor in interest of such person was subject to and
bound by all the obligations of this Agreement that any predecessor in interest
of such person was subject to or bound by.
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11. ASSIGNMENT BY PARTNERS.
11.1 GENERALLY. Provided that such action is in
compliance with applicable state or federal securities laws and any other
applicable laws and other agreements to which the Partnership is a party or by
which the Partnership or any Partnership property may be bound or subject, and
upon approval by the General Partner, and the remaining Limited Partners, a
Limited Partner may assign, hypothecate, or transfer all or part of his
partnership interest ("Interest"), to become effective as of the first day of
the calendar month following the month in which such assignment, hypothecation,
or transfer is executed. Such assignment, hypothecation, or transfer shall not
release the Limited Partner transferring an Interest from the obligations under
this Agreement, nor shall it constitute the transferee a substitute Limited
Partner; such transaction shall be an economic assignment as defined herein.
The assignee may become a Limited Partner when the assignee delivers to the
General Partner: (i) a counterpart of this Agreement executed by the assignee
whereby the assignee evidences the intention to become a Limited Partner, and to
be bound by the provisions of this Agreement; and (ii) an opinion of legal
counsel acceptable to the General Partner that the proposed transfer does not
violate applicable state or federal securities laws and any other applicable
laws. In any event, any release of any Limited Partner transferring an Interest
under this Agreement shall be subject to the provisions of Sections 620.117 and
620.136 of the Florida Act.
11.2 LIMITATIONS. Except as provided in this Agreement,
no assignment, hypothecation, or transfer of all or any part of any Interest
(including, without limitation, any rights to income or other attributes of any
Interest) shall be made by any of the Partners and the Partnership will not
recognize any such attempt. No additional interests in Partnership capital and
profits will be issued by the Partnership, if, in the opinion of counsel to the
Partnership, when added to the total of all interests in Partnership capital and
profits sold, exchanged, or issued within a period of twelve consecutive months
prior thereto, such sale, exchange, or issuance could result in the
Partnership's not being taxed as a Partnership, or the Partnership's being
terminated for tax purposes under the Internal Revenue Code.
11.3 ECONOMIC ASSIGNMENT. An assignee who does not
become a substitute Limited Partner as provided in Section 11.1 has no right to
require any information or accounting for Partnership transactions, to inspect
the Partnership books, to seek judicial dissolution, to receive allocations and
distributions the assignor may otherwise have received, or to exercise any
voting or consensual rights, all of which shall be recognized by the Partnership
as rights solely of the assignor.
11.4 PAYMENT AFTER ASSIGNMENT. The Partnership shall,
after the effective date of any assignment, hypothecation, or transfer in
accordance with Section 11.1, make all further allocations and distributions in
respect of the Interest so assigned, to the assignee from the date such Interest
is transferred on the books of the Partnership after compliance with the
foregoing provisions.
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11.5 ACCOUNTABILITY TO ASSIGNEES. No assignment,
hypothecation, or transfer to more than one party, including assignment,
hypothecation, or transfer of less than all of a Limited Partners' rights
hereunder, shall require the Partnership to account to more than one party. The
assignees or transferees shall designate in writing one party to act as their
representative in all Partnership matters.
11.6 ALLOCATION. In the event of an assignment of an
Interest in accordance with Section 11.1, allocation of items of Partnership
income, gain, loss, deduction, and credit between the assignor and the assignee
shall be based on the number of days in the particular year during which each
such Limited Partnership Interest is held according to Partnership records, or
on any other basis deemed reasonable by the General Partner consistent with
applicable United States Treasury Regulations. Each Limited Partner shall be
entitled to such allocation of income, gain, loss, deduction, and credit in
computing taxable income or tax liability to the exclusion of any other party.
12. RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER.
12.1 MATERIAL DECISIONS. The General Partner shall have
full, exclusive and complete power and authority to make all material decisions
regarding the Partnership. Such material decisions shall include, but not be
limited to the following:
(a) Ratification of any agreement committing any
of the Partnership's assets;
(b) Ratification of any contract the duration of
which exceeds nine (9) months;
(c) Ratification of any material deviation in the
Partnership's credit policies;
(d) Ratification of any material deviation in
collection/enforcement policies;
(e) Ratification of any material modification in
the dealer manuals;
(f) Ratification of any material deviation in the
structure of the marketing goals and any marketing representative agreement of
the Partnership;
(g) Ratification of a compensation package for
any employee of the Partnership;
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(h) Determination of Cash Available For
Distribution;
(i) Determination of employment of professionals
to assist in the business of the Partnership, including, but not limited to,
attorneys, accountants, auditors, and bookkeepers; and
(j) Selection of a servicer and ratification of
any servicing agreement.
12.2 GENERAL. In accordance and in addition to the
above, the General Partner shall have full, exclusive, and complete power and
authority to manage, control, administer, and operate the business and affairs
of the Partnership and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate. The scope of such power and
authority shall encompass all matters in any way connected with such business or
incidental thereto, including without limitation, the power and authority:
(a) To purchase or otherwise acquire personal
property or lease real property deemed necessary or desirable to conduct the
business of the Partnership.
(b) To borrow money; to conduct the business
activities of the Partnership; from time to time, without limitation as to
amount, to draw, make, and issue promissory notes and other such instruments and
evidences of indebtedness, and to secure the payment of the sums so borrowed; to
mortgage, pledge, or assign in trust all or any part of the Partnership
properties or the proceeds and revenues therefrom; and to engage in other
financial arrangements deemed necessary or desirable.
(c) To enter into any joint venture, general
partnership, or limited partnership agreement or other contractual arrangement
for sharing of profits in furtherance of any of the other activities specified
in this Agreement.
(d) To acquire, maintain, develop, operate,
manage, and defend the Partnership assets, and to do any and all other things
necessary or desirable in the conduct of Partnership business.
(e) To manage the Partnership and render such
services as are necessary or desirable, including investigation and evaluation
of investment opportunities for the Partnership; negotiation with sellers of
Interests or other persons, including any Partner, from whom such investments
are to be acquired; and the negotiation with operators and others, including any
Partner, in connection therewith; negotiation with sellers of products or
services offered to the Partnership; negotiation with purchasers of assets owned
by the Partnership; and general supervision of the properties and operations of
the Partnership; to incur obligations or make payments on
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behalf of the Partnership in the name of the Partnership; advance any funds to
or on behalf of the Partnership, in which case the General Partner shall be
entitled to reimbursement by the Partnership.
(f) To enter into agency or independent
contractor agreements providing for the operation and management of Partnership
assets, and Partnership affairs; employ suitable agents, custodians, counsel,
accountants, contractors, architects, and engineers, but no such employment
shall absolve the General Partner from its responsibilities and obligations to
manage and control the business and assets of the Partnership.
(g) To sell, assign, convey, or otherwise dispose
of in the ordinary course of business, for such consideration and upon such
terms and conditions as the General Partner may determine, any part of the
Partnership assets, any interest therein, or any interest payable therefrom and,
in connection therewith, to execute and deliver such deeds, assignments, and
conveyances containing such warranties as the General Partner may determine
appropriate.
(h) To pay property taxes, all local, state, and
federal governmental charges and other amounts, charges, and assessments
necessary or appropriate to the maintenance or operation of any Partnership
properties.
(i) To make such classifications, determinations,
and allocations as the General Partner may deem advisable, for tax purposes and
otherwise, subject to the terms and provisions of this Agreement.
(j) To incur, on behalf of the Partnership,
expenses in causing to be rendered by third parties certain necessary services
for, to, or on behalf of the Partnership.
(k) To take such other action and perform such
other acts as may be necessary or desirable for the conduct of Partnership
business or to effect any powers accorded to any General Partner under this
Agreement or by law.
12.3 TAX DESIGNATION. The General Partner is designated
the Partnership's Tax Matters Partner pursuant to Internal Revenue Code Section
6231(7) for purposes of filing federal partnership tax returns, partnership
audits, and administrative and judicial proceedings involving tax matters of the
Partnership.
12.4 ACTIVITIES OF ANY GENERAL PARTNER AND AFFILIATE OF
ANY GENERAL PARTNER IN CONNECTION WITH THE PARTNERSHIP.
(a) The Limited Partners understand that the
General Partner and any affiliate of the General Partner, are and in the future
may be, interested directly or indirectly in various other businesses and
undertakings not included in the
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Partnership. The Limited Partners understand that the conduct of the business
of the Partnership may involve business dealings with such other businesses or
undertakings. The Limited Partners hereby agree that the creation of the
Partnership and the assumption by the General Partner of its duties hereunder
shall be without prejudice to the rights of the General Partner (or the rights
of any affiliates of the General Partner) to engage in such other interests
and activities and to receive and enjoy profits or compensation from them;
provided that any involvement in such other businesses or undertakings may
involve any activity which would in any way be deemed an activity in the same
line of business or trade as any and all business activities to be undertaken
by the Partnership. The Limited Partners waive any rights they might
otherwise have to share or participate in such other interests or activities
of the General Partner or any affiliates of the General Partner. The General
Partner does and will in the future engage in other business ventures,
including, but not limited to, the operation and management of Partnership
assets and neither the Partnership nor the Limited Partners will be entitled
to the income or profits derived from it. In this connection, it is
understood and agreed by the Limited Partners that the General Partner is and
may continue to be engaged in businesses other than the Partnership, and that
the General Partner must necessarily divide the time thereof between the
Partnership and other businesses, both prior and future, and that the General
Partner may, during the life of the Partnership, acquire additional assets and
not offer the same to the Partnership.
(b) The Limited Partners hereby acknowledge and
consent to the entering into of any agreement or other arrangement for the
furnishing to or by the Partnership of goods or services with any individual,
corporation, partnership, joint venture, association, firm, or other entity that
is an affiliate of the General Partner, and any such arrangements shall not in
itself constitute a breach by the General Partner of a fiduciary duty to the
Partnership, as long as any such arrangements are beneficial and prudent and
enhance the Limited Partners' interest.
(c) The Limited Partners also recognize that all
Limited Partners may be interested directly or indirectly in various other
businesses and undertakings not included in the Partnership which are deemed to
be activities in the same line of business or trade as any and all business
activities to be undertaken by the Partnership.
12.5 AUTHORITY. No person, firm, or corporation dealing
with the Partnership shall be required to inquire into the authority of the
General Partner to take any action or make any decision.
12.6 GENERAL PARTNER COMPENSATION. The General Partner
agrees that it shall not receive any compensation from the Partnership for its
services.
12.7 LIABILITY. Neither the General Partner nor any of
its affiliates, shareholders, employees and agents shall have any liability to
any Limited Partner or the Partnership for any loss or damage, mistake or error
in judgment,
11
<PAGE>
incurred by reason of any act or omission performed or omitted in good faith
either on behalf of the Partnership or in furtherance of the interests of the
Partnership in a manner reasonably believed to be within the scope of authority
conferred by this Agreement, provided such acts or omissions do not constitute
fraud, gross negligence or gross misconduct or the breach of a fiduciary duty
with respect to such acts or omissions.
12.8 INDEMNIFICATION. The General Partner, its
affiliates, shareholders, employees and agents shall be indemnified and held
harmless by the Partnership from and against any and all losses, liabilities,
costs, expenses or damages arising from any and all claims, demands, actions,
suits or proceedings, civil, administrative or investigative, in which the
General Partner, or its affiliates, shareholders, employees and agents may be
involved, as a party or otherwise, by reason of the management of the affairs of
the Partnership, whether or not the General Partner continues to be such at the
time any such liability or expense is paid or incurred. Neither the General
Partner nor any of its affiliates, shareholders, employees and agents shall be
entitled to indemnification hereunder for any conduct arising from (i) fraud,
gross negligence, gross misconduct or criminal acts; (ii) the breach of this
Agreement by the General Partner; or (iii) a matter unrelated to such General
Partner's management of the Partnership's affairs. The rights of
indemnification provided in this Section will be in addition to any rights to
which the General Partner, or such other persons, may otherwise be entitled by
contract or as a matter of law, and shall extend to each of its successors and
assigns. In particular, and without limitation of the foregoing, the General
Partner, and its affiliates, shareholders, employees and agents, shall be
entitled to indemnification by the Partnership against reasonable expenses,
including attorney's fees, actually and necessarily incurred by any of them in
connection with the defense of any action, to which it or any of them may be
made a party, or the right of the Partnership to procure a judgment in favor of
the Partnership, to the fullest extent permitted under the provisions of the
Florida Act or any other applicable statute. Such indemnification shall be
limited to the assets of the Partnership.
13. INCOME TAX ELECTIONS.
13.1 INCOME TAX ELECTION. The General Partner shall make
such federal income tax elections as it deems in the interest of the
Partnership.
13.2 ELECTION UPON TRANSFER, DEATH OR DISTRIBUTION. In
the event of the transfer of an Interest, or upon the death of an individual
Limited Partner, or in the event of the distribution of Partnership properties
to any party, the Partnership may, upon the request of any Partner and in the
complete discretion of the General Partner, file an election in accordance with
applicable United States Treasury Regulations to cause the basis of the
Partnership properties to be adjusted for federal income tax purposes as
provided in Sections 734 and 743 of the Internal Revenue Code.
12
<PAGE>
14. AMENDMENT OF PARTNERSHIP AGREEMENT.
14.1 AMENDMENTS REQUIRING CONSENT. Except as otherwise
provided in this Section 14, this Agreement may be amended by the General
Partner and a majority of the Limited Partners as determined in accordance
with the allocation of distributive shares as set forth in Section 5. This
Agreement, shall not be amended without the Requisite Vote (as defined in
Section 14.4), if the effect of such amendment would be to (i) change or amend
Section 4; (ii) increase the liability of the Partners; (iii) change the
contributions required of Partners; (iv) change the rights and interests in
profits and losses of the Partnership; (v) change the rights of Partners upon
liquidation; (vi) amend allocations under Sections 8 or 9; or (vii) amend this
Section 14.
14.2 AMENDMENTS NOT REQUIRING CONSENT. The General
Partner may, without prior consent from any Limited Partner, amend any provision
of this Agreement from time to time to (i) add to the Agreement any further
covenants, restrictions, deletions, or provisions for the protection of the
Partners; (ii) to cure an ambiguity or to correct or supplement any provisions
contained herein; or (iii) to make such other provision in regard to matters or
questions arising under this Agreement, which will not adversely affect the
interests of the Partners.
14.3 PROHIBITED AMENDMENTS. No amendment to this
Agreement shall be effective if, in the opinion of counsel to the Partnership,
such amendment could result in the Partnership's not being taxed as a
partnership, or the Partnership's being terminated for tax purposes.
14.4 DEFINITION OF REQUISITE VOTE. For purposes of this
Agreement, the term "Requisite Vote" shall mean two-thirds of the Limited
Partners as determined in accordance with the allocation of their distributive
shares as set forth in Section 5.1.
15. DURATION, TERMINATION AND WINDING UP
15.1 GENERAL. The Partnership shall terminate upon the
occurrence of any of the following events:
(a) The withdrawal of the General Partner, unless
there exists another General Partner and such General Partner wishes to carry on
the business of the Partnership; however, such dissolution may be avoided if,
within 90 days after such General Partner's withdrawal, all remaining Partners
agree in writing to continue the business of the Limited Partnership and appoint
one or more additional General Partners;
(b) The dissolution of the General Partner,
(except a technical dissolution as a consequence of the transfer of all of the
assets and liabilities
13
<PAGE>
of the General Partner to a successor entity in which the General Partner or its
principals retain an interest, or a merger, consolidation, or other
reorganization of the General Partner, all of which events expressly will not
cause dissolution of the Partnership); provided, however, such dissolution of
the Partnership may be avoided if steps are taken by the remaining Partners as
described in the above subparagraph (a);
(c) The filing of a petition in bankruptcy
against the General Partner if such petition is not dismissed within 60 days of
the date of filing;
(d) The expiration of the fixed term of the
Partnership at 11:59 p.m. on December 31, 2014 unless otherwise extended;
(e) The disposition of all Partnership property;
or
(f) The written consent of all Partners,
delivered to the General Partner.
15.2 EFFECTIVENESS OF TERMINATION. Termination shall be
effective on the date on which the event occurs giving rise to the termination,
but the Partnership shall not wind up until the assets have been distributed
pursuant to this Agreement.
15.3 ALLOCATIONS UPON TERMINATION. Upon the termination
of the Partnership:
(a) Partnership properties, or any portion of
them, may be sold at the election of the General Partner if a price deemed
reasonable by the General Partner may be obtained.
(b) The fair market value of any Partnership
properties that are not sold shall be determined, and the gain or loss that
would have resulted had each such Partnership property been sold for its fair
market value shall be computed.
(c) Gain or loss realized on actual sales of
Partnership property and the gain or loss that would have been realized on sales
of unsold Partnership property computed as provided in (b) above, shall be
allocated for federal income tax purposes among the Partners as provided in
Section 9.1 hereof and reflected in the Capital Accounts as provided in Section
7.1 hereof.
(d) The Partnership properties, or the proceeds
therefrom in the event of a sale of all or a portion of them, shall be
distributed as provided below in Section 15.4.
14
<PAGE>
Partnership properties distributed upon termination
of the Partnership shall remain subject to such agreements, if any, then in
effect with respect to such partnership properties.
15.4 DISTRIBUTIONS UPON TERMINATION. The proceeds of
such sales, as well as other cash and any unsold Partnership properties, upon
termination of the Partnership shall be used as follows:
(a) First, to pay or provide for all amounts
owing by the Partnership to creditors, including any Partner, but not any amount
owed to a Partner solely in the capacity of a Partner, to the extent permitted
by law in satisfaction of the liabilities of the Partnership whether by payment
or by establishment of reserves for such payment.
(b) Second, to the setting up of any reserves
that the General Partner may deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Partnership or of any General
Partner arising out of or in connection with the Partnership. Such reserves
shall be paid over to any attorney of the State of Florida, or trust company,
selected by the General Partner, as escrowee, to be held for a period of not
longer than three years, for the purpose of disbursing such reserves in payment
of any of the aforementioned contingencies, and at the expiration of such
period, to distribute the balance remaining, as provided in this provision.
(c) Third, upon liquidation of the Partnership
(or any Partner's Interest) liquidating distributions shall, in all cases, be
made in accordance with the positive Capital Account balances of the Partners,
as determined after taking into account all Capital Account adjustments for the
taxable year during which such liquidation occurs (other than those made
pursuant to this sentence), by the end of such taxable year (or, if later,
within 90 days after the date of such liquidation), and in the same manner as
provided in Section 9.2.
(d) Fourth, if the General Partner has a deficit
balance in his Capital Account after allocation of gain or loss among the
Partners as specified in Section 15.4 and after the payments and liquidating
distributions specified above in this section have been made, the General
Partner shall pay to the Partnership an amount equal to the amount of the
deficit balance in his or her Capital Account by the end of the taxable year in
which the liquidation occurs, and the Partnership shall use that deficit Capital
Account balance payment first to pay amounts, if any, still owed to the
Partnership's creditors and then to distribute the balance, if any, of the
deficit Capital Account balance payment in repayment of any remaining positive
balances in other Partners' Capital Accounts.
(e) Fifth, any net remaining profits shall be
distributed to the Limited Partners and the General Partner in accordance with
their distributive shares as set forth in Sections 5.1 and 5.2.
15
<PAGE>
15.5 WINDING UP. The winding up of Partnership affairs
and liquidation and distribution of its assets shall be conducted exclusively by
the General Partner or, if the General Partner is unable or unwilling to act, by
a trustee named by the Requisite Vote of the Partners (the "Trustee"). The
General Partner or the Trustee is hereby authorized to do any and all acts and
things authorized by law to effect such dissolution, liquidation, and
distribution of the assets of the Partnership.
16. REPRESENTATIONS WARRANTIES AND COVENANTS OF THE PARTNERS.
Each Limited Partner, if an individual, represents upon
becoming a Limited Partner that he or she (a) is 21 years of age or over and a
United States citizen; (b) is either (i) an accredited investor (as defined in
Rule 501 of Regulation D of the federal Securities and Exchange Commission under
the Securities Act of 1933, as amended) or (ii) alone or with purchaser
Representative(s) (as defined in Rule 501 of Regulation D of the federal
Securities and Exchange Commission under the Securities Act of 1933, as amended)
has such knowledge and experience in financial and business matters that he or
she is capable of evaluating the merits and risks of investing in the
Partnership; (c) is the sole party in interest in his or her Interest under this
Agreement and as such is vested with all legal and equitable rights in such
Interest; (d) is making this purchase solely for his or her own account without
any present intention or agreement of assigning, selling, or transferring any
portion to any other person; and (e) can bear the economic risk of investment in
the Partnership (including the possible loss of the entire amount) without
impairing the ability to provide for himself or herself and his or her family
and that he or she understands that he or she must continue to bear the economic
risk of the investment for an indefinite period of time. Each Limited Partner,
if a partnership, trust, or corporation, represents upon becoming a Limited
Partner that it or its controlling persons are authorized and duly qualified to
invest in Interests in the Partnership and makes the same representations set
forth in (a), (b), (c), and (d) above and that its becoming a Limited Partner
would not result in the transactions contemplated hereunder being prohibited
transactions under the Internal Revenue Code.
17. FURTHER ASSURANCES AND POWER OF ATTORNEY.
17.1 GENERAL. Each Limited Partner, upon executing and
delivering to the General Partner a counterpart of this Agreement, irrevocably
constitutes and appoints the General Partner, with full power of substitution,
as his or her true and lawful attorney in name, place, and stead for the
following purposes:
(a) To sign, swear to, and acknowledge
(i) Certificates and Agreements of Limited Partnership and all amendments to
them required by law with respect to the formation of the Partnership; (ii) all
instruments that effect a change or modification of the Partnership in
accordance with the provisions of this Agreement; (iii) all conveyances or other
instruments and documents necessary to effect the dissolution and liquidation of
the Partnership and the distribution of Partnership
16
<PAGE>
properties upon dissolution; (iv) all instruments required in order to comply
with applicable tax laws; and (v) all instruments required in order to implement
the authority of the General Partner under this Agreement; and
(b) To execute, acknowledge, swear to, and file
any and all notices, reports, returns, or other documents permitted or required
by the United States Treasury Department or any rule or regulation issued
thereby in connection with the admission of any additional or substitute
Partner.
17.2 FURTHER ASSURANCES. Each Limited Partner hereby
agrees to execute and deliver to the General Partner within ten days after
receipt of the General Partner's written request such other and further
statements of interest and holdings, designations, powers of attorney, and other
instruments as the General Partner deems necessary or desirable to comply with
the requirements of law or administrative rule for the formation and operation
of this Partnership.
17.3 IRREVOCABILITY OF POWER. The foregoing grants of
authority are hereby declared to be irrevocable, and a power coupled with an
interest, and shall survive the death of the Partner.
17.4 CONFLICTS BETWEEN EXERCISE OF POWER AND THIS
AGREEMENT. In the event of any conflict between the provisions of this
Agreement and any document executed or filed by the General Partner pursuant to
exercise of the Power of Attorney granted herein, this Agreement shall govern.
18. MISCELLANEOUS.
18.1 COUNTERPARTS. This Agreement may be executed in as
many counterparts as shall be deemed necessary by the General Partner, and when
so executed, each such counterpart shall be as fully valid and binding on all
parties as every other such counterpart.
18.2 HEADINGS. The headings in this Agreement are
inserted for convenience and identification only and are in no way intended to
limit the scope, extent, or intent of this Agreement or any provision of it.
18.3 SEVERABILITY. If any provision of this Agreement or
the application of such provision to any person or circumstance is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remaining terms and provisions of it.
18.4 GOVERNING LAW AND VENUE. This Agreement and the
application or interpretation of it shall be governed exclusively by its terms
and by the laws of Florida without regard to its conflicts of laws provisions.
Each of the parties agrees to submit to the jurisdiction of the state and
federal courts in Palm Beach
17
<PAGE>
County, Florida, in any action, claim, or other proceeding arising out of any
dispute in connection with this Agreement.
18.5 CUMULATIVE REMEDIES. The rights and remedies
provided by this Agreement are cumulative, and the exercise of one right or
remedy by any party shall not preclude or waive its right to use any or all
other remedies.
Such rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance, or otherwise.
18.6 SUCCESSOR AS GENERAL PARTNER. In the event of a
merger, consolidation, or reorganization of a General Partner that is not a
natural person, any successor shall be deemed to be the General Partner for all
purposes and effects and shall succeed to and enjoy all rights and benefits
conferred and bear all obligations and burdens imposed upon the predecessor
General Partner.
18.7 BOOKS AND RECORDS. The Partnership's books and
records shall be maintained by the General Partner at the General Partner's
office, or such other place as the General Partner may designate by written
notice to the partners and by complying with the requirements of law at the time
of such change. Each Limited Partner shall have access to the Partnership's
books and records during regular business hours and may copy such records at his
or her own expense. The books and records shall be kept in accordance with
generally accepted accounting practices for federal income tax purposes applied
on a consistent basis by the Partnership and shall reflect all Partnership
transactions. The Partnership shall maintain its accounts on an accrual basis
and shall adopt such Partnership tax year as the General Partner may determine.
18.8 FINANCIAL REPORTS. Financial statements shall be
prepared by the Partnership on an accrual basis in accordance with generally
accepted accounting principles and shall be transmitted to each of the Partners
within 30 days after the close of each month. Each Partner has the right to
have the books of the Partnership audited at his or her own expense.
18
<PAGE>
18.9 PRONOUNS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person, persons, entity or entities may require.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of this _____ day of ________________, 1997.
GENERAL PARTNER:
SENTINEL ACCEPTANCE CORPORATION
By:
-------------------------------------
Title:
----------------------------------
LIMITED PARTNER:
SENTINEL ACCEPTANCE LTD., L.P.
By: Sentinel Acceptance Corporation
General Partner
By:
-------------------------------------
Title:
----------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
SENTINEL FINANCING, LTD., L.P.
AND
-------------------------
-------------------------------------
INDENTURE
DATED AS OF , 1997
----------
-------------------------------------
$15,000,000
12% SECURED FIXED RATE NOTES DUE 2002
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitions. . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Incorporation by Reference of Trust Indenture Act. . . . 3
Section 1.4 Rules of Construction. . . . . . . . . . . . . . . . . . 4
ARTICLE 2
THE SECURITIES. . . . . . . . . . . . . . . 4
Section 2.1 Form and Dating. . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Execution and Authentication . . . . . . . . . . . . . . 5
Section 2.3 Registrar and Paying Agent . . . . . . . . . . . . . . . 5
Section 2.4 Paying Agent to Hold Money in Trust . . . . . . . . . . 6
Section 2.5 Securityholder Lists . . . . . . . . . . . . . . . . . . 6
Section 2.6 Transfer and Exchange. . . . . . . . . . . . . . . . . . 6
Section 2.7 Replacement Securities . . . . . . . . . . . . . . . . . 7
Section 2.8 Outstanding Securities . . . . . . . . . . . . . . . . . 7
Section 2.9 Treasury Securities. . . . . . . . . . . . . . . . . . . 7
Section 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . 8
Section 2.11 Cancellation.. . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3
REDEMPTION . . . . . . . . . . . . . . . . 8
Section 3.1 Optional Redemption. . . . . . . . . . . . . . . . . . . 8
Section 3.2 Notices to Trustee . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Selection of Securities to Be Redeemed . . . . . . . . . 9
Section 3.4 Notice of Redemption . . . . . . . . . . . . . . . . . . 9
Section 3.5 Effect of Notice of Redemption . . . . . . . . . . . . . 10
Section 3.6 Deposit of Redemption Price. . . . . . . . . . . . . . . 10
Section 3.7 Securities Redeemed in Part. . . . . . . . . . . . . . . 10
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . 10
Section 4.1 Payment of Principal and Interest. . . . . . . . . . . . 10
Section 4.2 SEC Reports, Financial Reports . . . . . . . . . . . . . 11
Section 4.3 Compliance Certificate . . . . . . . . . . . . . . . . . 11
i
<PAGE>
ARTICLE 5
SECURITY. . . . . . . . . . . . . . . . . 12
Section 5.1 Security Agreement . . . . . . . . . . . . . . . . . . . 12
Section 5.2 Certificate and Opinions . . . . . . . . . . . . . . . . 12
Section 5.3 Authorization of Actions to be Taken by the Trustee
Under the Security Documents . . . . . . . . . . . . . . 12
Section 5.4 Authorization of Receipt of Funds by the Trustee Under
the Security Documents . . . . . . . . . . . . . . . . . 12
Section 5.5 Termination of Security Interests. . . . . . . . . . . . 12
ARTICLE 6
DEFAULTS AND REMEDIES. . . . . . . . . . . . . . 13
Section 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . 14
Section 6.4 Waiver of Past Defaults; Postponement of Interest
Payment. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.5 Control by Majority. . . . . . . . . . . . . . . . . . . 15
Section 6.6 Limitation on Suits. . . . . . . . . . . . . . . . . . . 15
Section 6.7 Rights of Holders to Receive Payment . . . . . . . . . . 16
Section 6.8 Collection Suit by Trustee . . . . . . . . . . . . . . . 16
Section 6.9 Trustee May File Proofs of Claim . . . . . . . . . . . . 16
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . . . 17
ARTICLE 7
TRUSTEE. . . . . . . . . . . . . . . . . 17
Section 7.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . 17
Section 7.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . 18
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . . . 19
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 19
Section 7.5 Notice of Defaults . . . . . . . . . . . . . . . . . . . 20
Section 7.6 Reports by Trustee to Holders. . . . . . . . . . . . . . 20
Section 7.7 Compensation and Indemnity . . . . . . . . . . . . . . . 20
Section 7.8 Replacement of Trustee . . . . . . . . . . . . . . . . . 21
Section 7.9 Successor Trustee by Merger, etc . . . . . . . . . . . . 22
Section 7.10 Eligibility; Disqualification. . . . . . . . . . . . . . 22
Section 7.11 Preferential Collection of Claims Against Company. . . . 22
ARTICLE 8
DISCHARGE OF INDENTURE. . . . . . . . . . . . . . 22
Section 8.1 Termination of Company's Obligations . . . . . . . . . . 22
Section 8.2 Application of Trust Money . . . . . . . . . . . . . . . 23
ii
<PAGE>
Section 8.3 Repayment to Company . . . . . . . . . . . . . . . . . . 23
Section 8.4 Reinstatement. . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 9
AMENDMENTS . . . . . . . . . . . . . . . . 24
Section 9.1 Without Consent of Holders . . . . . . . . . . . . . . . 24
Section 9.2 With Consent of Holders. . . . . . . . . . . . . . . . . 25
Section 9.3 Compliance with Trust Indenture Act. . . . . . . . . . . 26
Section 9.4 Revocation and Effect of Consents. . . . . . . . . . . . 26
Section 9.5 Notation on or Exchange of Securities. . . . . . . . . . 27
Section 9.6 Trustee Protected. . . . . . . . . . . . . . . . . . . . 27
ARTICLE 10
INTENTIONALLY LEFT BLANK. . . . . . . . . . . . . 27
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . 27
Section 11.1 Trust Indenture Act Controls . . . . . . . . . . . . . . 27
Section 11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.3 Communication by Holders with Other Holders. . . . . . . 28
Section 11.4 Certificate and Opinion as to Conditions Precedent . . . 29
Section 11.5 Statements Required in Certificate or Opinion. . . . . . 29
Section 11.6 Rules by Trustee and Agents. . . . . . . . . . . . . . . 29
Section 11.7 No Recourse Against Others . . . . . . . . . . . . . . . 29
Section 11.8 Duplicate Originals. . . . . . . . . . . . . . . . . . . 30
Section 11.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . 30
Section 11.10 No Adverse Interpretation of Other Agreements. . . . . . 30
Section 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.12 Severability . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.13 Table of Contents, Headings, Etc . . . . . . . . . . . . 30
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBIT A (Face of Security). . . . . . . . . . . . . . . . . . . . . . . . 32
(Back of Security). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ASSIGNMENT FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
iii
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
Section 310(a)(1) 7.10
(a)(2) 7.10
11.10
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 7.10
(c) Not Applicable
Section 311(a) 7.11
(b) 7.11
(c) Not Applicable
Section 312(a) 2.5
(b) 11.3
(c) 11.3
Section 313(a) 7.6
11.10
(b)(1) Not Applicable
(b)(2) 7.6
(c) 7.6
(d) 7.6
Section 314(a) 4.2
(b) 5.2
(c)(1) 11.4
(c)(2) 11.4
(c)(3) Not Applicable
(d) 5.2
(e) 11.5
Section 315(a) 7.1
(b) 7.5
(c) 7.1
(d)(1) 7.1
(d)(2) 7.1
(d)(3) 7.1
6.5
(e) 6.11
Section 316(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) Not Applicable
(b) 6.7
Section 317(a)(1) 6.8
(a)(2) 6.9
(b) 2.4
Section 318(a) 11.1
<PAGE>
INDENTURE dated as of ________ , 1997 between Sentinel Financing,
Ltd., L.P., a Florida limited partnership (the "Company"), and
_____________________________, a national banking association as Trustee
("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 12%
Secured Fixed Rate Notes due __________, 2002 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities or by agreement or otherwise.
"AGENT" means any Registrar, Paying Agent, or co-registrar.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"COLLATERAL" has the meaning assigned to it in the Security
Agreement.
"COMPANY" means the party named as such above.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address
of the Trustee specified in Section 11.2 or such other address as the Trustee
may specify by notice to the Company.
"CUSTODIAN AGREEMENT" means the Custodian Agreement among the
Company, as debtor, the Trustee, a secured party and
____________________________, as custodian to hold certain of the Collateral to
perfect secured party's security interest therein.
"DEFAULT" means any event which is, or after notice or passage of
time would be, an Event of Default.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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"HOLDER" or "SECURITYHOLDER" means a Person in whose name a
Security is registered.
"INDENTURE" means this Indenture as amended from time to time.
"INTEREST PAYMENT DATE" means the stated due date of an
installment of interest on the Securities.
"LEGAL HOLIDAY" means a Saturday, Sunday or a day on which
banking institutions in the State of New York or Florida are not required to be
open. If a payment date occurs on a Legal Holiday, such payment date shall
occur the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property or a security interest of any kind (including any conditional sale or
other title retention agreements, any lease in the nature thereof, any option or
other agreement to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"OFFICER" means Ivan Hoser or Melvin Gilbert.
"OFFICERS' CERTIFICATE" means a certificate signed by any two
Officers.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is acceptable to the Trustee. The counsel may be an employee of or counsel
to the Company or the Trustee. See sections 11.4 and 11.5.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"RECORD DATES" means the 5th day of each month.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Securities described above issued under
this Indenture.
"SECURITY AGREEMENT" means the Security Agreement, of even date
hereof, between the Company, as debtor, and the Trustee, as secured party.
"SECURITY DOCUMENTS" means the Security Agreement and the
Custodian Agreement.
"SECURITYHOLDER" or "HOLDER" means a Person in whose name a
Security is registered.
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"SUBSIDIARY" of any specified Person means (i) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person
or by such Person and a Subsidiary or Subsidiaries of such Person or by a
Subsidiary or Subsidiaries of such Person or (ii) any other Person (other than a
corporation) in which such Person or Person and a Subsidiary or Subsidiaries of
such Person or a Subsidiary or Subsidiaries of such Person directly or
indirectly, at the date of determination thereof has at least majority ownership
interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
SECTION 1.2 OTHER DEFINITIONS.
Defined in
Term Section
---- ----------
"Affiliate Transaction" 4.14
"Bankruptcy Law" 6.1
"Custodian" 6.1
"Event of Default" 6.1
"Optional Redemption" 3.1
"Paying Agent" 2.3
"Redemption Date" 3.1
"Redemption Price" 3.1
"Registrar" 2.3
"Transfer Date" 6.1
"U.S. Government Obligations" 8.1
SECTION 1.3 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 Securities;
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"INDENTURE SECURITY HOLDER" means a Securityholder;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
and
"OBLIGOR" on the Securities means the Company.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles;
(3) references to "generally accepted accounting principles"
shall mean generally accepted accounting principles in effect as of the time
when and for the period as to which such accounting principles are to be
applied;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular;
(6) provisions apply to successive events and transactions; and
(7) "herein", "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
Subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.1 FORM AND DATING.
The Securities, and the Trustee's certificate of authentication,
shall be substantially in the form of Exhibit A, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Company shall
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approve the form of the Securities and any notation, legend or endorsement on
them. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and to the
extent applicable the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one
Officer shall attest to the Security for the Company by manual or facsimile
signature. The Company's seal (if it has one) shall be impressed, affixed,
imprinted or reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless and
the Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate or cause to be authenticated
Securities for original issue in the aggregate principal amount of up to
$15,000,000. The Company shall deliver to the Trustee prior to the issuance of
the Securities a written order of the Company signed by two Officers specifying
the amount of Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $15,000,000 except as provided
in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such authenticating
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain in the [where Trustee is located]
[Borough of Manhattan, City of New York, State of New York] and in such other
locations as it shall determine, (i) an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar") and (ii) an
office or agency where Securities may be presented for
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payment ("Paying Agent"). The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may appoint one or more
co-registrars, which shall include any authenticating agent appointed pursuant
to Section 2.2 and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change any
Registrar or Paying Agent without prior notice of any Securityholder. The
Company shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
may act as Registrar or Paying Agent.
The Company shall enter into an appropriate written agency
agreement with any Agent not a party to this Indenture, which agreement shall
implement the provisions of this Indenture that relate to such agent, and shall
furnish a copy of each such agreement to the Trustee.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent will hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities (whether such money
has been paid to it by the Company or any other obligor on the securities), and
such Paying Agent will notify the Trustee in writing of any default by the
Company in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company) shall have no further liability for the money. If the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Securityholders and Trustee all money held by it as Paying
Agent.
SECTION 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders and otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least five
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing a list of the names and addresses of
Securityholders in such form and as of such date as the Trustee may reasonably
require and otherwise comply with TIA Section 312.
SECTION 2.6 TRANSFER AND EXCHANGE.
Where Securities are presented to the Registrar or a co-registrar
with a request to register the transfer or to exchange them for an equal
principal amount of Securities of other authorized denominations, the Registrar
shall register the transfer or make the exchange if its requirements for such
transactions are met. To permit registrations of transfer and exchanges, the
Company shall issue and the Trustee shall authenticate Securities at the
Registrar's or co-registrar's request. No service charge shall be made for any
registration of transfer or exchange
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(except as otherwise expressly permitted herein), but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith.
The Company shall not be required (i) to issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 15 days before the day of any selection of Securities for redemption
under Section 3.3 and ending at the close of business on the day of selection,
or (ii) to register the transfer or exchange of any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 2.7 REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met,
unless either the Company or the Trustee has received actual notice that the
Security to be replaced is held by a bona fide purchaser. If required by the
Trustee or the Company, an indemnity bond must be sufficient in the judgment of
both the Company and the Trustee to protect the Company, the Trustee, any Agent
or any authenticating agent from any loss which any of them may suffer if a
Security is replaced. The Trustee shall not be required to bear the cost of any
indemnity bond. The Company may charge the Holder for its expenses in replacing
a Security.
Every replacement Security is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Securities duly issued hereunder.
SECTION 2.8 OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser. A Security does not cease
to be outstanding because the Company or an Affiliate of the Company holds the
Security.
If Securities are considered paid under Section 4.1, they cease
to be outstanding and interest on them ceases to accrue.
SECTION 2.9 TREASURY SECURITIES.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment, supplement,
waiver or consent, Securities owned
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by the Company or an Affiliate of the Company shall be disregarded, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, amendment, supplement waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded.
SECTION 2.10 TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee or, at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or an Affiliate of the Company), and no one
else shall cancel all Securities surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall dispose of cancelled
Securities at the written direction of the Company. The Company may not issue
new Securities that it has paid or that have been delivered to the Trustee for
cancellation.
ARTICLE 3
REDEMPTION
SECTION 3.1 OPTIONAL REDEMPTION.
The Company shall have the right to redeem ("Optional
Redemption") all or part of the Securities at 100% of the principal amount
outstanding ("Redemption Price") plus accrued and unpaid interest to the date of
redemption (a "Redemption Date") (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date and subject to the provisions set forth in Section
3.5).
SECTION 3.2 NOTICES TO TRUSTEE.
If the Company elects to redeem securities pursuant to an
Optional Redemption, it shall notify the Trustee in writing of the Redemption
Date and the principal amount of Securities to be redeemed and whether it wants
the Trustee to give notice of redemption of the Holders. In the case of any
such redemption, the Company shall deliver to the Trustee an Officer's
Certificate stating that such redemption will comply with the conditions for
such redemption.
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The Company shall give each notice provided for in this Section
3.2 at least 45 days before the Redemption Date (unless a shorter notice period
shall be satisfactory to the Trustee). Any such notice may be cancelled at any
time prior to notice of such redemption being mailed to any Holder and shall
thereby be void and of no effect.
SECTION 3.3 SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant to
an Optional Redemption, the Trustee shall select Securities to be redeemed on a
pro rata basis or in such manner as it deems appropriate and fair. The Trustee
shall make the selection not more than 30 days and not less than 15 days before
the Redemption Date from outstanding Securities not previously called for
redemption. The Trustee shall promptly notify the Company of the Securities or
portions of Securities to be called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
higher than $1,000. Securities and portions of them it selects shall be in
amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
SECTION 3.4 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed to
such Holder's last address as then shown on the registry books of the Registrar.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the redemption price, including the amount of accrued and
unpaid interest to be paid upon such redemption;
(3) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or Securities
in principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to
the Paying Agent at the address specified in such notice to collect the
redemption price;
(6) that interest on Securities called for redemption ceases to
accrue on and after the Redemption Date; and
(7) that notice is being sent pursuant to this Section 3.4.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the price set
forth in the Security plus accrued and unpaid interest to the Redemption Date.
Upon surrender to the Trustee or, if the Trustee is no longer the paying agent,
to the Paying Agent, such Securities called for redemption shall be paid at the
Redemption Price, including interest, if any, accrued and unpaid to the
Redemption Date, provided that if the Redemption Date is on or after a regular
Record Date on or prior to the Interest Payment Date to which such Record Date
relates, the accrued interest shall be payable to the Holder of the redeemed
Securities registered on the relevant Record Date and no additional interest
will be payable to Holders of the redeemed Securities on the Redemption Date;
and provided further, that if a Redemption Date is a Legal Holiday, payment
shall be made on the next succeeding Business Day and no interest shall accrue
for the period from such Redemption Date to such succeeding Business Day.
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.
At least one Business Day prior to the Redemption Date, the
Company shall deposit with the Trustee or with the Paying Agent (other than the
Company) money sufficient to pay the Redemption Price of and accrued interest
on, all Securities to be redeemed on such Redemption Date. The Trustee or the
Paying Agent shall promptly return to the Company any money so deposited which
is not required for that purpose.
SECTION 3.7 SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the
Trustee shall cancel the Security and the Company shall issue and the Trustee
shall authenticate for the Holder at the expense of the Company, a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities on the
dates and in the manner provided in the Securities and this Indenture.
Principal and interest shall be considered paid on the date due if the Paying
Agent (other than the Company) holds on that date money designated for and
sufficient to pay all principal and interest then due pursuant to the terms of
Section 2.4 hereof.
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To the extent lawful, any installment of interest on the Notes
which is not paid when due will accrue interest at the lesser of 18%, compounded
quarterly, or the highest lawful rate of interest from the due date until paid.
SECTION 4.2 SEC REPORTS, FINANCIAL REPORTS.
The Company shall deliver to 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) which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not subject to, or for any reason is not
complying with, the requirements of such Sections 13 or 15(d) of the Exchange
Act, the Company shall file with the Trustee, within 15 days after it would have
been required to file such with SEC, quarterly and annual reports and
information, documents or other reports comparable to that which the Company
would have been required to file with the SEC if it were subject to the
requirements of Section 13 or 15(d) of the Exchange Act. Annual financial
statements shall be certified (without qualification with respect to the Company
as a going concern, qualifications resulting from the scope of the audit, or
qualifications with respect to departures from generally accepted accounting
principles other than departures which are not material and which do not cause
the financial statements to fail to accurately reflect the financial condition
of the Company) by the Company's independent public accountants. All such
financial statements shall be prepared in accordance with generally accepted
accounting principles consistently applied (except for departures with which the
accountants concur and normal year-end adjustments, which in the opinion of the
Company are necessary for fair presentation).
The Company also shall comply with the provisions of TIA Section
314(a).
SECTION 4.3 COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal quarter of the Company, an Officers' Certificate stating
that a review of the activities of the Company during the preceding fiscal
quarter has been made under the supervision of the signing Officers with a view
to determining whether the Company has kept, observed, performed and fulfilled
its obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions hereof (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he may have knowledge) and that to the best of his knowledge no event
has occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Securities are prohibited or if
such event has occurred, a description of the event.
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ARTICLE 5
SECURITY
SECTION 5.1 SECURITY AGREEMENT.
Each Securityholder, by accepting a Security, agrees to all of
the terms and provisions of the Security Documents, as the same may be in effect
or may be amended from time to time. The due and punctual payment of interest
and the principal of the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration, or otherwise, and interest on the
overdue principal of the Securities and payment and performance of all other
obligations of the Company to the Holders or the Trustee under this Indenture
and the Securities, according to the terms hereunder or thereunder, shall be
secured as provided in the Security Documents.
SECTION 5.2 CERTIFICATE AND OPINIONS.
The Company shall cause (a) TIA Section 314(b), relating to
Opinions of Counsel regarding the Lien of the Security Documents and (b) TIA
Section 314(d), relating to the release of Collateral from the Lien of the
Security Documents and Officers' Certificates or other documents regarding fair
value of the Collateral, to be complied with to the extent applicable. Any
certificate or opinion required by TIA Section 314(d) may be made by an Officer
to the extent permitted by TIA Section 314(d).
SECTION 5.3 AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
SECURITY DOCUMENTS.
The Trustee may, in its sole discretion and without the consent
of the Securityholders, take all actions it deems necessary or appropriate in
order to (i) enforce or effect the Security Documents and (ii) collect and
receive any and all amounts payable in respect of the obligations of the Company
hereunder.
SECTION 5.4 AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
SECURITY DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of
Securityholders distributed under the Security Documents and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture.
SECTION 5.5 TERMINATION OF SECURITY INTERESTS.
This Article 5 shall terminate upon delivery of a certificate to
the Custodian under the Security Documents stating that obligations of the
Securities have been paid in full.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company fails to pay any installment of interest on
the Securities when the same becomes due and payable;
(2) the Company fails to pay all or any part of the
principal of any Security when the same becomes due and payable at maturity,
upon redemption, by acceleration or otherwise;
(3) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to the Securities, the Security Documents, or this Indenture.
(4) the Company or any Subsidiary of the Company pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(C) consents to the filing of a petition seeking
reorganization or relief under any applicable Bankruptcy Law, or
to the appointment of a receiver of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing its inability to pay its debts
generally as they become due;
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Subsidiary in an involuntary case,
(B) appoints a Receiver of the Company for all or
substantially all of its property, or
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(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, U.S. 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.
An event described in clause (3) is not an Event of Default until
the Trustee or the Holders of at least majority in principal amount of the then
outstanding Securities notify the Company and Trustee of such Default and the
Company does not cure the Default within 90 days after receipt of the notice.
The notice in either instance must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default." The Trustee shall
not be charged with knowledge of any Default unless actual notice thereof or
written notice thereof shall have been given to the Trustee by the Company, by
the Holder, by the Trustee then acting under any indenture or other instrument
under which a default shall have occurred, by the Paying Agent, or by the
Holders of at least 50% in the aggregate amount of the Securities at the time
outstanding, provided that failure by any such party to notify the Trustee shall
not affect whether there is a Default or Event of Default and provided, further,
that the Company shall immediately notify the Trustee if it receives a notice of
default hereunder.
SECTION 6.2 ACCELERATION.
If an Event of Default occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least a majority in principal amount
of the then outstanding Securities by notice to the Company and the Trustee, may
declare the unpaid principal of and any accrued interest on all the outstanding
Securities to be due and payable immediately. Upon such declaration such
principal and interest shall be due and payable immediately. If an Event of
Default specified in clause (4) or (5) of Section 6.1 occurs, the unpaid
principal of and any accrued interest on the outstanding Securities shall IPSO
FACTO become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Securities by notice to the Trustee may
rescind an acceleration and its consequences if (i) the rescission would not
conflict with any judgment or decree, (ii) existing Events of Default have been
cured or waived except nonpayment of principal or interest that has become due
solely because of the acceleration, (iii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by declaration of acceleration,
has been paid and (iv) all payments due to the Trustee or any predecessor
Trustee under Section 7.7 have been made.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities,
the Security Documents, or this Indenture.
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The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Notwithstanding anything to the contrary in this Agreement, the
Trustee is required to proceed against and liquidate all Collateral under the
Security Documents before proceeding against any other assets of the Company.
SECTION 6.4 WAIVER OF PAST DEFAULTS; POSTPONEMENT OF INTEREST PAYMENT.
The Holders of a majority in principal amount of the then
outstanding Securities by notice to the Trustee may waive an existing Default or
Event of Default and its consequences except a continuing Default or Event of
Default in the payment of the principal of or interest on any Security. The
Holders of not less than 75% in principal amount of the then outstanding
Securities may consent on behalf of the Holders of all such Securities to the
postponement of any interest payment for a period not exceeding three (3) years
from its due date.
SECTION 6.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then
outstanding Securities 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 the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that is unduly prejudicial
to the rights of other Securityholders, or would involve the Trustee in personal
liability. The Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 6.6 LIMITATION ON SUITS.
No Holder of any Security shall have any right to order or direct
the Trustee to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or Trustee, or for any
other remedy hereunder, unless
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of not less than a majority in principal amount
of the then outstanding Securities make a written request to the Trustee
to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
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(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Security to receive payment of principal of and interest on
the Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1 occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company or any other obligor on the Securities for
the whole amount of principal and interest remaining unpaid on the Securities
and interest on overdue principal and, to the extent that payment of such
interest is lawful, overdue interest, in each case at the rate per annum borne
by the Securities and such further amount as shall be sufficient to cover the
cost and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Securityholders allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Securities), its creditors or its
property and, unless prohibited by law, or by applicable regulations, may vote
on behalf of the Holders in the election of a trustee in bankruptcy or other
Person performing similar functions and shall be entitled and empowered to
collect, receive and distribute any monies or other property payable or
deliverable on any claims and any custodian in any judicial proceeding is hereby
authorized by each Securityholder to make any and all payments to the Trustee
or, in the event that the Trustee shall consent, directly to the
Securityholders. To the extent that the payment of any compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7, shall be denied for any reason,
payment shall be secured by a senior claim (to which the Securities shall be
subordinated), and shall be paid out of, any and all distributions, dividends,
monies, securities and other properties that the Holders of the Securities may
be entitled to receive in any proceeding whether in liquidation or under any
plan or reorganization, arrangement or otherwise. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Securityholder any plan or reorganization, arrangement,
adjustment or composition affecting the
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Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10 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 for amounts due under Section 7.7;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the
amounts due and payable on the Securities for principal
and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
ARTICLE 7
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed,
subject to the terms hereof.
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, of
which the Trustee has or is deemed to have notice pursuant to Section 6.1
hereof, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
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(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture, but need not verify the accuracy of the contents thereof.
(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:
(1) This paragraph does not limit the effect of paragraph
(b) of this section.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(d) Whether or not therein expressly provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability except as otherwise provided
in this Indenture. 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.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 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) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both, which shall
conform to Section 11.5. The
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Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(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 conferred upon it by this Indenture, nor for any action
permitted to be taken or omitted hereunder by any Agent.
(e) Unless otherwise specifically provided in the Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
(g) A director, officer, employee or Affiliate of the Trustee
shall be protected by the provisions hereof, including, without limitation, the
immunities and indemnities afforded herein, to the same extent as the Trustee
and shall not have any liability hereunder.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities, it shall not be accountable for
the Company's use of the proceeds from the Securities or any money paid to the
Company or upon the Company's direction under any provision hereof, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
of the Company in the Indenture or any statement in the Securities other than
its certificate of authentication.
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SECTION 7.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Securityholders a notice
of the Default or Event of Default within 90 days after such Default or Event of
Default in payment of principal of, or interest on, any Security the Trustee may
withhold the notice if and so long as the board of directors, executive
committee or a trust committee of directors and/or reasonable offices, of the
Trustee in good faith determine that withholding the notice is in the interest
of the Securityholder.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
If required under the provisions of TIA Section 313(a), within 60
days after each December 31st commencing with the December 31st following the
date of this Indenture, the Trustee shall mail to Securityholders a brief report
dated as of such reporting date that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which the
Securities are listed. The Company shall notify the Trustee when the Securities
are listed on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, advances
and expenses incurred by it. Such expenses may include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss,
liability or expense incurred by it except as set forth in the next paragraph.
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim with counsel approved by the
Trustee (which approval shall not be unreasonably withheld) and the Trustee
shall cooperate in such defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against
any expense or indemnity against any loss or liability incurred by the Trustee
through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. Such obligation shall survive the
satisfaction and discharge of the Indenture.
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When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Indenture and any rejection or termination of this Indenture
under any Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders
of a majority in principal amount of the then outstanding Securities may remove
the Trustee by so notifying the Trustee and the Company. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a custodian or Receiver takes charge of the Trustee or
its property;
(4) the Trustee becomes incapable of acting; or
(5) in the judgment of the Company, comparable services are
available from another entity qualifying under Section 7.10 at a materially
lower cost to the Company.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Securities
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee with respect to expenses
and liabilities incurred by it prior to such replacement.
SECTION 7.9 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, without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee. In case any securities
shall have been authenticated, but not delivered, by the Trustee then in office,
any such successor may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $100,000,000 as set forth in its most recent
published annual report of condition. The Trustee is subject to TIA Section
310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
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.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall cease to be of further effect (except that
the Company's obligations under Sections 7.7 and 8.3 and the Trustee's and
Paying Agent's obligations under Section 8.3 shall survive) when all outstanding
Securities theretofore authenticated and issued have been delivered (other than
destroyed, lost or stolen Securities which have not been replaced or paid) to
the Trustee for cancellation and the Company has paid all sums payable
hereunder.
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In addition, the Company may terminate all of its obligations under this
Indenture, (except the Company's obligations under Sections 7.7, 8.3 and as
noted below) if:
(1) the Securities mature within one year or all of them
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption; and
(2) the Company irrevocably deposits in trust with the
Trustee, or, at the option of the Trustee, with a trustee satisfactory
to the Trustee and the Company under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee, who
otherwise would be qualified to act as Trustee under this Indenture
("Other Trustee") money or U.S. Government Obligations sufficient to
pay principal and interest on the Securities to maturity or
redemption, as the case may be, and to pay all other sums payable by
it hereunder, and delivers to the Trustee an Officers' Certificate
stating that all conditions precedent to satisfaction and discharge of
this Indenture have been complied with, and an Opinion of Counsel to
the same effect. The Company may make the deposit only during the
one-year period.
PROVIDED, HOWEVER, that the Company's obligations in Sections 2.3, 2.4, 2.5,
2.6, 2.7, 4.1, 7.7, 7.8, 8.3 and 8.4 shall survive until the Securities are no
longer outstanding. Thereafter, only the Company's obligations in Sections 7.7
and 8.3 and the Trustee's and Paying Agent's obligations under Section 8.3 shall
survive.
After such irrevocable deposit made pursuant to this Section 8.1,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified above.
"U.S. Government Obligations" means direct obligations of the
United States of America for the payment of which the full faith and credit of
the United States of America is pledged. In order to have money available on a
payment date to pay principal of or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal or interest on or before
such payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
SECTION 8.2 APPLICATION OF TRUST MONEY.
The Trustee or Other Trustee shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to section 8.1. It shall
apply the deposited money and the money from U.S. Government Obligations through
the Paying Agent and in accordance with this Indenture to the payment of
principal of and interest on the Securities.
SECTION 8.3 REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the
Company upon written request any excess money or securities held by them at any
time.
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The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years and six months after the
date upon which such payment shall have become due; provided, however, that the
Company shall have first caused notice of such payment to be mailed to each
Securityholder entitled thereto no less than 30 days prior to such payment.
After payment to the Company, Securityholders entitled to the money must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
SECTION 8.4 REINSTATEMENT.
If the Trustee, Paying Agent or Other Trustee is unable to apply
any money or U.S. Government Obligations in accordance with Section 8.2 by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.1 until such
time as the Trustee, Paying Agent, or Other Trustee is permitted to apply all
such money or U.S. Government Obligations in accordance with Section 8.2;
provided, however, that if the Company makes any payment of interest on or
principal of any security following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such securities to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture or the
Securities without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency or make
any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided such action pursuant to this
clause shall not adversely affect the interests of any Holder in any
respect;
(2) to comply with any requirements of the SEC in
connection with the qualification of this Indenture under the TIA;
(3) to add to the covenants of the Company for the benefit
of the Holders, or to surrender any right or power herein conferred
upon the Company;
(4) to provide for guarantors of the Securities;
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(5) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations
of the Company, herein and in the Securities or in accordance with
Article 5;
(6) to provide for uncertificated Securities in addition to
certificated Securities; or
(7) to make any change that does not adversely affect the
legal rights hereunder of any Securityholder.
The Trustee is hereby authorized, upon receipt by the Trustee of
the documentation described in Section 9.6, to join with the Company in the
execution of any Supplemental Indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
which may be therein contained, but the Trustee shall not be obligated to enter
into such supplemental indenture which in its reasonable opinion affects its own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS.
Subject to Section 6.7, the Company and the Trustee may amend
this Indenture or the Securities with the written consent of the Holders of at
least a majority in principal amount of the then outstanding Securities.
Subject to Sections 6.4 and 6.7, the Holders of a majority in principal amount
of the then outstanding Securities may also waive compliance in a particular
instance by the Company with any provision of this Indenture or the securities.
However, without the consent of each Securityholder affected, an
amendment or waiver under this Section may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment or waiver;
(2) reduce the rate of or change the time for payment of
interest, including default interest, on any Security;
(3) reduce the principal of or change the fixed maturity of
any Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that
stated in the Security;
(5) make any change in Section 6.4, 6.7 or 9.2 (this
sentence);
(6) waive a default in the payment of the principal of, or
interest on, any Security; or
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(7) release any Collateral except by sales and as otherwise
permitted in the Security Documents.
To secure a consent of the Holders under this Section it shall
not be necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to Securityholders a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity or any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2
or Section 9.4 becomes effective, it shall bind each Holder.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment, waiver or supplement to this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of a Security by written notice to the
Company or Person designated by the Company as the Person to whom contents
should be sent if such revocation is received by the Company or such person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented to the amendment supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver which record date shall be the date so fixed by the Company
notwithstanding the provisions of the TIA. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies)
and only those Persons, shall be entitled to consent to such amendment or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be Holders after such record date. No consent shall be valid or effective
for more than 90 days after such record date.
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SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Security thereafter authenticated. The Company in
exchange for all Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment or waiver.
SECTION 9.6 TRUSTEE PROTECTED.
The Trustee shall execute any amendment, waiver or supplemental
authorized pursuant to this Article provided however that the Trustee may, but
shall not be obligated to execute any such amendment, waiver or supplement which
affects the Trustee's own rights, duties, liabilities or immunities under this
Indenture, the Trustee shall be entitled to receive and shall be fully protected
in relying upon, an officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment, waiver or supplemental is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that it
will be valid and binding upon the Company in accordance with its terms.
ARTICLE 10
INTENTIONALLY LEFT BLANK
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 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 11.2 NOTICES.
Any notice or other communication to the Company, Paying Agent,
Registrar, or the Trustee required or permitted hereunder shall be in writing,
and shall be sufficiently given if, made by hand delivery, by telex, by
telecopier or registered or certified mail, postage prepaid, return receipt
requested addressed as follows;
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if to the Company:
Sentinel Financing, Ltd., L.P.
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if to the Trustee:
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Any party by notice to each other party may designate additional
or different addresses as shall be furnished in writing by such party. Any
notice or communication to any party shall be deemed to have been given or made
as of the date so delivered, if personally delivered; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and five Business Days
after mailing if sent by registered or certified mail, postage prepaid (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him or her by first-class mail or other equivalent means at his or her
address as it appears on the registration books of the Registrar and shall be
sufficient given to him or her if so mailed within the time prescribed. Any
notice or communication shall also be mailed to any Person described in TIA
Section 313(c) to the extent required by the TIA.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
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SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements
set forth in section 11.5) 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 met; and
(b) an Opinion of Counsel (which shall include the statements
set forth in Section 11.5) stating that, in the opinion of such counsel, all
such conditions precedent have been met.
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA 14(a)(4) shall comply with the provisions of TIA
Section 314(e) and shall include:
(1) a statement that the Person making such certificate or
opinion 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 or opinions
contained in such certificate or opinion are based;
(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 met; and
(4) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been met; provided,
however, that with respect to matters of fact and opinion of counsel
may rely on an Officers' Certificate.
SECTION 11.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 11.7 NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder, limited partner, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
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SECTION 11.8 DUPLICATE ORIGINALS.
This Indenture may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
The Parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 11.9 GOVERNING LAW.
The internal laws of the State of Florida shall govern and be
used to construe this Indenture and the Securities, without regard to the
conflicts of laws provisions thereof.
SECTION 11.10 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 11.11 SUCCESSORS.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 11.12 SEVERABILITY.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, and Headings of the Articles and Sections
of this Indenture have been inserted for convenience of reference only, are not
to be considered a part hereof, and shall in no way modify or restrict any of
the terms or provisions hereof.
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SIGNATURES
Dated: as of_____________, 1997 SENTINEL FINANCING, LTD., L.P.
(SEAL) By:__________________________________
Its:_________________________________
Attest:
__________________________________
Dated: as of ____________________
[______________________], as Trustee
(SEAL)
By:_____________________________________
Its: Vice President
Attest:
__________________________________
Trust Officer
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EXHIBIT A
(Face of Security)
No. $
SENTINEL FINANCING, LTD., L.P.
promises to pay to
or registered assigns,
the principal sum of Dollars on _________
12% SECURED FIXED RATE NOTES
DUE__________, 2002
Interest payment Dates:
Record Dates:
Dated:
__________________________________________________
By
________________________________________________
By _______________________________________________
(SEAL)
Authenticated to be one of the
Notes described in the Indenture
referred to herein:
By __________________________________
Authorized Signature
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<PAGE>
(Back of Security)
12% Secured Fixed Rate Notes due_____________, 2002
1. INTEREST. SENTINEL FINANCING, LTD., L.P., a Florida limited
partnership (the "Company"), promises to pay interest on the principal amount of
this Security at a rate of 12% per annum from the date of issuance, payable
monthly on the 15th day of each month commencing on ____________, 1997, to the
Persons in whose names such Notes are registered at the close of business on the
Record Date next preceding the Interest Payment Date. Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months. To the
extent lawful, any installment of interest on the Notes which is not paid when
due shall accrue interest at the lesser of 18% compounded quarterly, or the
highest lawful rate of interest from the due date until paid.
2. METHOD OF PAYMENT. Principal of, and interest on the
Securities will be payable, at the Company's office. The Company will pay
principal and interest in money of the United States that is legal tender for
payment of public and private debts. At the option of the Company, payment of
principal and interest may be made by check mailed to the Holder at the address
set forth in the registry books of the Company.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without notice to any Securityholder. The Company or
any Subsidiaries of the Company may act in any such capacity.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of____________, 1997 (the "Indenture") between the Company
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the
date of the Indenture. The Securities are subject to, and qualified by, all
such terms, certain of which are summarized herein, and Securityholders are
referred to the Indenture and such Act for a statement of such terms. The
Securities are secured obligations of the Company limited to $15,000,000 in
aggregate principal amount.
5. OPTIONAL REDEMPTION. All or any part of the Securities may
be redeemed by the Company, in whole or part, at any time or some of them from
time to time, upon not less than 30 or more than 60 days' notice at a redemption
price equal to 100% of the principal amount plus accrued interest to the
Redemption Date.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. On and after the Redemption Date interest ceases to accrue
on Securities or portions of them called for redemption. In the event
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<PAGE>
of a partial redemption of the Notes, the Notes will be redeemed in whole or
part will be selected on a pro rata basis or in such other manner as the Company
deems appropriate and fair.
If this Security is redeemed subsequent to a record date
with respect to any interest payment date specified above and on or prior to
such interest payment date, then any accrued interest will be paid to the Person
in whose name this Security is registered at the close of business on such
record date.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
8. PERSONS DEEMED OWNERS. The registered holder of a Security
may be treated as its owner for all purposes.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended with the consent of the holders of at
least a majority in principal amount of the then outstanding Securities.
Without the consent of any Securityholder, the Indenture or the securities may
be amended to cure any ambiguity, defect or inconsistency, to comply with the
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, to add covenants of the Company for the benefit of the Holders,
to provide guarantors of the Securities, to evidence succession of another
Person to the Company, to provide for uncertificated Securities in addition to
certificated Securities or to make any change that does not adversely affect the
rights of any Securityholder.
10. DEFAULTS AND REMEDIES. An Event of Default occurs if: the
Company fails to pay any payment of interest on any Security when the same
becomes due and payable; the Company receives written notice from payment of the
principal of any Security when the same becomes due and payable at maturity,
upon redemption or otherwise; and certain events of bankruptcy or insolvency. If
an Event of Default occurs and is continuing, the Trustee or the holders of at
least a majority in principal amount of the then outstanding Securities may
declare all the Securities to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency all outstanding securities become due and payable immediately without
further action or notice. Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Trustee is only
deemed
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<PAGE>
to have knowledge of a default or Event of Default under certain circumstances
set forth in the Indenture. The Company must furnish an annual compliance
certificate to the Trustee.
11. SECURITY. The due and punctual payment of interest and
principal of the Securities when and as the same shall be due and payable,
whether at maturity, by acceleration, or otherwise, and the interest on the
overdue principal of the Securities and payment and performance of all other
obligations of the Company to Holders or the Trustee under the Indenture and the
Securities shall be secured as provided in the Security Documents.
12. NO RECOURSE AGAINST OTHERS. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
13. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
14. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
15. INDENTURE CONTROLS. Nothing contained herein shall in any
way be construed to impose any duties upon the Trustee beyond those contained in
the Indenture. All immunities, indemnities, exceptions from liability and other
provisions of the Indenture insofar as they relate to the Trustee shall apply to
this Security and are incorporated herein.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture, which has in it the text of
this Security in larger type. Request may be made to:
SENTINEL FINANCING, LTD., L.P.
210 North University Drive, Suite 800
Coral Springs, Florida 33071
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
____________________________________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: Your Signature:
--------------------- -----------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee.
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<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ____________, 1997 by and between
SENTINEL FINANCING, LTD., L.P., a Florida limited partnership (the "Company")
and [ ] (the "Selling Agent") and BANK OF MONTREAL TRUST COMPANY
(the "Escrow Agent").
WHEREAS, the Company proposes to sell a minimum of $1,000,000 and a
maximum of $15,000,000 principal amount of 12% Secured Fixed Rate Notes due 2002
(the "Notes"), as described in the Company's Registration Statement on Form SB-2
as declared effective by the Securities and Exchange Commission on __________,
1997 ("Registration Statement") in denominations of $1,000;
WHEREAS, the Notes are being offered and sold to investors by the
Selling Agent, pursuant to the Securities Act of 1933, and pursuant to
registration or exemptions from registration under state securities laws;
WHEREAS, the offering of the Notes will terminate on ____________
subject to extension to ________________ in the discretion of the Company (the
"Termination Date") and if acceptable subscriptions to purchase a minimum of
$1,000,000 principal amount of Notes have not been received by the Company on or
before the Termination Date, no Notes will be sold and all payments made by
subscribers will be refunded by the Escrow Agent as provided for herein; and
WHEREAS, with respect to all subscription payments received by
subscribers, the Company proposes to establish an escrow account with the Escrow
Agent at its offices at 77 Water Street, New York, NY 10005.
NOW, THEREFORE, it is agreed as follows:
1. ESTABLISHMENT OF ESCROW. The Escrow Agent hereby agrees to
receive and disburse the proceeds from the offering of the Notes and any
interest earned thereon in accordance herewith.
2. DEPOSIT OF ESCROWED PROPERTY. The Selling Agent, on behalf of
the subscribers of the Notes, shall from time to time, cause to be wired to or
deposited with the Escrow Agent funds or checks of the subscribers delivered in
payment for the Notes (the "Escrowed Property"). Any checks delivered to the
Escrow Agent pursuant to the terms hereof shall be made payable to or endorsed
to the order of ____________________________________________________. Subject
to Section 3, the Escrow Agent upon receipt of such checks shall present such
checks for payment to the drawee-bank under such checks. Any checks not honored
by the drawee-bank thereunder after the first presentment for payment shall be
returned to the Company in the same manner notices are delivered pursuant to
Section 5. Upon receipt of funds or checks from
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<PAGE>
the Selling Agent, the Escrow Agent shall credit such funds and the amount of
such checks to an interest-bearing account (the "Escrow Account") held by the
Escrow Agent. If following the credit of the amount of any check to the Escrow
Account such check is dishonored, the Escrow Agent shall debit the Escrow
Account for the amount of such dishonored check.
3. LIST OF SUBSCRIBERS. The Selling Agent shall furnish or cause to
be furnished to the Escrow Agent, at the time of each deposit of funds or checks
pursuant to Section 2, a list, substantially in the form of EXHIBIT A hereto,
containing the name of, the address of, number of Notes subscribed for by, the
subscription amount delivered to the Escrow Agent on behalf of and the social
security number, if applicable, of, each subscriber whose funds are being
deposited, and to which is attached a completed W-9 form (or, in the case of any
subscriber who is not a United States citizen or resident, a W-8 form) for each
listed subscriber. The Escrow Agent shall notify the Selling Agent and the
Company of any discrepancy between the subscription amounts set forth on any
list delivered pursuant to this Section 3 and the subscription amounts received
by the Escrow Agent. The Escrow Agent is authorized to revise such list to
reflect the actual subscription amounts received and the release of any
subscription amounts pursuant to Section 4. Any provision of this Agreement to
the contrary notwithstanding, if any funds delivered to the Escrow Agent for
deposit are not accompanied by such list with respect to such funds, the Escrow
Agent shall not have any obligation to deposit such funds or invest such funds
until the applicable list has been furnished to the Escrow Agent.
4. WITHDRAWAL OF SUBSCRIPTION AMOUNTS.
(a) If the Escrow Agent shall receive a notice, substantially in
the form of EXHIBIT B hereto (an "Offering Termination Notice"), from the
Company, the Escrow Agent shall, promptly after receipt of such Offering
Termination Notice and the clearance of all checks received by the Escrow Agent
as Escrowed Property, send to each subscriber listed on the list held by the
Escrow Agent pursuant to Section 3 whose total subscription amount shall not
have been released pursuant to paragraph (b) or (c) of this Section 4 in the
manner set forth in paragraph (d) of this Section 4, a check to the order of
such subscriber in the amount of the remaining subscription amount plus any
accrued interest thereon held by the Escrow Agent as set forth on such list held
by the Escrow Agent. The Escrow Agent shall notify the Company and the Selling
Agent in writing promptly after the distribution of such funds to the
subscribers.
(b) In the event that (i) a minimum of $1,000,000 principal
amount of Notes have been subscribed for and funds in respect thereof shall have
been deposited with the Escrow Agent on or before the Termination Date and (ii)
no Offering Termination Notice shall have been delivered to the Escrow Agent,
the Company and the Selling Agent from time to time may deliver to the Escrow
Agent a joint notice, substantially in the form of EXHIBIT C hereto (a "Closing
Notice"), designating the date on which Notes are to be sold and delivered to
the subscribers thereof (a "Closing Date"), which date shall not be earlier than
the clearance of any checks received by the Escrow
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<PAGE>
Agent as Escrowed Property, the proceeds of which are to be distributed on such
Closing Date, and identifying the subscribers and the number of Notes to be sold
to each subscriber on such Closing Date not more than seven (7) business days
prior to such Closing Date. The Escrow Agent after receipt of such Closing
Notice and the clearance of such checks shall, pay to the Company on such
Closing Date, in federal or other immediately available funds and otherwise in
the manner specified by the Company in such Closing Notice, an amount equal to
the aggregate of the purchase price for the Notes purchased by each subscriber
identified in such Closing Notice for the Notes to be sold on such Closing Date
as set forth on the list held by the Escrow Agent pursuant to Section 3 together
with any and all interest on the Escrowed Property, and shall return to each
subscriber a check in the amount of funds delivered by each subscriber in excess
of the purchase price per share (the "Excess Funds"), as more fully set forth on
the Closing Date.
(c) If at any time and from time to time prior to the release of
any subscriber's total subscription amount pursuant to paragraph (a) or (b) of
this Section 4 from escrow, the Company or the Selling Agent shall deliver to
the Escrow Agent a notice, substantially in the form of EXHIBIT D hereto (a
"Subscription Termination Notice"), to the effect that any or all of the
subscriptions of such subscriber have been rejected by the Company (a "Rejected
Subscription"), the Escrow Agent shall, promptly after receipt of such
Subscription Termination Notice and, if such subscriber delivered a check in
payment of its Rejected Subscription, after the clearance of such check, send to
such subscriber, in the manner set forth in paragraph (d) of this Section 4, a
check to the order of such subscriber in the amount of such Rejected
Subscription amount, together with interest earned on such amount, if any.
(d) For the purposes of this Section 4, any check that the
Escrow Agent shall be required to send to any subscriber shall be sent to such
subscriber by first class mail, postage prepaid, at such subscriber's address
furnished to the Escrow Agent pursuant to Section 3.
5. NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be (a) delivered by hand or
(b) sent by mail, registered or certified, with proper postage prepaid, and
addressed as follows:
If to the Company, to:
Sentinel Financing, Ltd., L.P.
210 North University Drive, Suite 800
Coral Springs, Florida 33071
Attention: Ivan Hoser
Phone: (954) 796-9915
Fax: (954) 796-8825
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<PAGE>
If to the Selling Agent, to:
[ ]
______________________
______________________
Attention: __________
Phone: (___) ________
Fax: (___) __________
If to the Escrow Agent, to:
Bank of Montreal Trust Company
77 Water Street
New York, NY 10005
Attention: Amy Roberts
Phone: (212) 701-7650
Fax: (212) 701-7640
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall be effective when deposited in the
mails, except that notices and communications to the Escrow Agent and notices of
changes of address shall not be effective until received.
6. CONCERNING THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by the Company and Selling Agent that:
(a) The Escrow Agent shall not be under any duty to give the
Escrowed Property held by it hereunder any greater degree of care than it gives
its own similar property and shall not be required to invest any funds held
hereunder except as directed by the Company in writing. The parties acknowledge
that the Escrow Agent shall not be responsible for any diminution in escrowed
funds due to losses resulting from investments. Uninvested funds held hereunder
shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth all the duties of
the Escrow Agent with respect to any and all matters pertinent hereto. No
implied duties or obligations shall be read into this Escrow Agreement against
the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(c) The Escrow Agent shall not be liable, except for its own
gross negligence or willful misconduct, and, except with respect to claims based
upon such gross
4
<PAGE>
negligence or willful misconduct that are successfully asserted against the
Escrow Agent, the other parties hereto shall jointly and severally indemnify and
hold harmless the Escrow Agent (and any successor Escrow Agent) from and against
any and all losses, liabilities, claims, actions, damages and expenses,
including reasonable attorneys' fees and disbursements, arising out of and in
connection with this Escrow Agreement. The costs and expenses of enforcing this
right of indemnification shall also be paid by the other parties hereto.
Without limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without limitation
any liability for any delays (not resulting from gross negligence or willful
misconduct) in the investment or reinvestment of the Escrowed Property, or any
loss of interest incident to any such delays.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel
with respect to any matter relating to this Escrow Agreement and shall not be
liable for any action taken or omitted in good faith and in accordance with such
advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only. Any payments
of income from the Escrow Account shall be subject to withholding regulations
then in force with respect to United States taxes. The parties hereto will
provide the Escrow Agent with appropriate W-9 forms for tax I.D., number
certification, or non-resident alien certifications.
This paragraph (f) and paragraph (c) of this Section 6 shall
survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other documents or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any
party as to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited hereunder.
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(i) The Escrow Agent (and any successor escrow agent) at any
time may be discharged from its duties and obligations hereunder by the delivery
to it of notice of termination signed by both the Company and the Selling Agent
or at any time may resign by giving written notice to such effect to the Company
and the Selling Agent. Upon any such termination or resignation, the Escrow
Agent shall deliver the Escrowed Property to any successor escrow agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction if no such successor escrow agent is agreed upon, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Escrow Agreement. The termination or
resignation of the Escrow Agent shall take effect on the earlier of (i) the
appointment of a successor (including a court of competent jurisdiction) or (ii)
the day that is 30 days after the date of delivery: (A) to the Escrow Agent of
the other parties' notice of termination or (B) to the other parties hereto of
the Escrow Agent's written notice of resignation. If at that time the Escrow
Agent has not received a designation of a successor escrow agent, the Escrow
Agent's sole responsibility after that time shall be to keep the Escrowed
Property safe until receipt of a designation of successor escrow agent or a
joint written disposition instruction by the other parties hereto or an
enforceable order of a court of competent jurisdiction.
(j) The Escrow Agent shall have no responsibility for the
contents of any writing of any third party contemplated herein as a means to
resolve disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement among or between the other
parties hereto and/or the subscribers of the Notes resulting in adverse claims
or demands being made in connection with the Escrowed Property, or in the event
that the Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrowed Property
until the Escrow Agent shall have received (i) a final and non-appealable order
of a court of competent jurisdiction directing delivery of the Escrowed Property
or (ii) a written agreement executed by the other parties hereto and consented
to by the subscribers directing delivery of the Escrowed Property, in which
event the Escrow Agent shall disburse the Escrowed Property in accordance with
such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and non-
appealable. The Escrow Agent shall act on such court order and legal opinions
without further question.
(l) As consideration for its agreement to act as Escrow Agent as
herein described, the other parties hereto, jointly and severally, agree to pay
the Escrow Agent fees determined in accordance with the terms set forth on
EXHIBIT E hereto (and made a part of this Escrow Agreement as if herein set
forth). In addition, the other parties hereto, jointly and severally, agree to
reimburse the Escrow Agent for all reasonable expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder (including reasonable fees, expenses and disbursements of its
counsel).
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(m) The other parties hereto irrevocably (i) submit to the
jurisdiction of any Florida state or federal court in any action or proceeding
arising out of or relating to this Escrow Agreement, (ii) agree that all claims
with respect to such action or proceeding shall be heard and determined in such
Florida state or federal court and (iii) waive, to the fullest extent possible,
the defense of any inconvenient forum. The other parties hereby consent to and
grant any such court jurisdiction over the persons of such parties and over the
subject matter of any such dispute and agree that delivery or mailing of process
or other papers in connection with any such action or proceeding in the manner
provided hereinabove, or in such other manner as may be permitted by law, shall
be valid and sufficient service thereof.
(n) No printed or other matter in any language (including,
without limitation, the Registration Statement, notices, reports and promotional
material) which mentions the Escrow Agent's name or the rights, powers, or
duties of the Escrow Agent shall be issued by the other parties hereto or on
such parties' behalf unless the Escrow Agent shall first have given its specific
written consent thereto. The Escrow Agent hereby consents to the use of its
name and the reference to the escrow arrangement in the Registration Statement.
7. MISCELLANEOUS. (a) This Escrow Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
successors and assigns, heirs, administrators and representatives, and the
subscribers of the Notes and shall not be enforceable by or inure to the benefit
of any other third party except as provided in paragraph (i) of Section 6 with
respect to the termination of, or resignation by, the Escrow Agent. No party
may assign any of its rights or obligations under this Escrow Agreement without
the written consent of the other parties.
(b) This Escrow Agreement shall be construed in accordance with
and governed by the internal law of the State of Florida (without reference to
its rules as to conflicts of law).
(c) This Escrow Agreement may only be modified by a writing
signed by all of the parties hereto and consented to by the subscribers of the
Notes adversely affected by such modifications. No waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(d) This Escrow Agreement shall terminate upon the payment
pursuant to Section 4 of all amounts held in the Escrow Account.
(e) The section headings herein are for convenience only and
shall not affect the construction thereof. Unless otherwise indicated,
references to Sections are to Sections contained herein.
(f) This Escrow Agreement may be executed in one or more
counterparts but all such separate counterparts shall constitute but one and the
same
7
<PAGE>
instrument: provided that, although executed in counterparts, the executed
signature pages of each such counterpart may be affixed to a single copy of this
Agreement which shall constitute an original.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed as of the day and year first above written.
SENTINEL FINANCING LTD., L.P.
By: Sentinel Acceptance Corporation
General Partner
By:
--------------------------------
Name:
Title:
BANK OF MONTREAL TRUST COMPANY
By:
-------------------------------------
Name:
Title:
[SELLING AGENT]
8
<PAGE>
EXHIBIT A
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
Deposit Date: Date____________________________________
Investment Date: List Number_____________________________
Batch Number: Page ________________ of _______________
Approved By_____________________________
For Bank use only
JOB#:___________________________
TITLE:______________________________
<TABLE>
<CAPTION>
ORIGINATING BANK AND
NAME DEPOSIT NOTES ADDRESS TAX ID NUMBER FOR BANK USE ONLY FED. REFERENCE #
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TAX CODE
EXEMPT (Y/N)
W-9 (YR) MRA
W-8 (YR)
1000(87)
- ------------------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III TAX CODE
EXEMPT (Y/N)
W-9 (YR) MRA
W-8 (YR)
1000(87)
- ------------------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III TAX CODE
EXEMPT (Y/N)
W-9 (YR) MRA
W-8 (YR)
1000(87)
- ------------------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III TAX CODE
EXEMPT (Y/N)
W-9 (YR) MRA
W-8 (YR)
1000(87)
- ------------------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III TAX CODE
EXEMPT (Y/N)
W-9 (YR) MRA
W-8 (YR)
1000(87)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
EXHIBIT B
[Form of Offering Termination Notice]
77 Water Street
New York, NY 10005
Attention: ______________________
Dear ________________:
Pursuant to Section 4(a) of the Escrow Agreement dated as of ________,
____ (the "Escrow Agreement") among Sentinel Financing, Ltd., L.P. (the
"Company"), [_______________________] and you, the Company hereby notifies you
of the termination of the offering of the Notes (as that term is defined in the
Escrow Agreement) and directs you to make payments to subscribers provided for
in Section 4(a) of the Escrow Agreement.
Very truly yours,
SENTINEL FINANCING, LTD., L.P.
By: Sentinel Acceptance Corporation
General Partner
By:
-------------------------------
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[Form of Closing Notice]
Bank of Montreal Trust Company
77 Water Street
New York, NY 10005
Attention: ______________________
Dear ________________:
Pursuant to Section 4(b) of the Escrow Agreement dated as of ________,
____ (the "Escrow Agreement") among Sentinel Financing, Ltd., L.P. (the
"Company"), [___________________] and you, the Company hereby certifies that it
has received subscriptions for the minimum of $1,000,000 principal amount of
Notes (as that term is defined in the Escrow Agreement) and the Company will
sell and deliver [$________ principal amount] Notes to the subscribers thereof
at a closing to be held on [_______________, ____] (the "Closing Date"). The
names of the subscribers concerned, the number of Notes subscribed for by each
of such subscribers, the related subscription amounts [and the Excess Funds] are
set forth on the schedule annexed hereto.
C-1
<PAGE>
We hereby request that the aggregate subscription amount, other than
the Excess Funds, be paid to us as follows:
[To be inserted].
Very truly yours,
SENTINEL FINANCING, LTD., L.P.
By: Sentinel Acceptance Corporation
General Partner
By:
--------------------------------
Name:
Title:
[__________]
By:
-------------------------------------
Name:
Title:
C-2
<PAGE>
EXHIBIT D
[Form of Subscription Termination Notice]
Bank of Montreal Trust Company
77 Water Street
New York, NY 10005
Attention: ______________________
Dear ________________:
Pursuant to Section 4(c) of the Escrow Agreement dated as of ________,
____ (the "Escrow Agreement") among Sentinel Financing, Ltd., L.P. (the
"Company"), [_______________________] (the "Selling Agent") and you, the
undersigned hereby notifies you that the following subscription(s) have been
rejected.
Number of Subscribed Amount of
Name of Subscriber(s) Notes Rejected Rejected Subscription
- --------------------- -------------------- ---------------------
Very truly yours,
D-1
<PAGE>
EXHIBIT E
Fee Schedule
E-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated April 24, 1997, on our audit of the financial statements of
Sentinel Acceptance Corporation. We also consent to the reference to our firm
under the caption "Experts."
MILLWARD & CO. CPAs
Fort Lauderdale, Florida
June 11, 1997
