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As filed with the Securities and Exchange Commission on August 29, 1997
REGISTRATION NO. 333-29067
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
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 65-0776789
(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)
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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. / /
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 are backed by: (i) retail installment sales contracts secured
by new and used automobiles and light trucks ("Installment Contracts"); and
(ii) certain other collateral described herein.
The Installment Contracts will be purchased with the net proceeds from
the sale of the Notes. Purchasers of Notes must look to the Installment
Contracts and related motor vehicle collateral as the primary source of
payment on the Notes.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING
DEFAULT OF THE INSTALLMENT CONTRACTS.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE NOTES.
DEBT SECURITIES OFFERED WITH A HIGH INTEREST RATE OR YIELD GENERALLY
INVOLVE MORE RISK THAN MANY OTHER MEDIUM TERM DEBT INSTRUMENTS WITH LOWER
INTEREST OR YIELD. NO PROVISION HAS BEEN MADE BY THE COMPANY TO ESTABLISH A
SINKING FUND TO PAY THE INTEREST ON THE NOTES OR TO REPAY THE PRINCIPAL.
THESE ARE SPECULATIVE SECURITIES. NO PUBLIC MARKET IS EXPECTED TO DEVELOP
FOR THESE SECURITIES. INVESTORS SHOULD EXPECT TO RETAIN OWNERSHIP OF THE
NOTES AND BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR THE ENTIRE TERM 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 by Centennial
Capital Management as placement agent. The Company has agreed to indemnify
all participating dealers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. 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 deduction of a 4% investment banking and marketing fee payable to
Banc Services Corporation and before deducting expenses of approximately
$200,000 to $300,000 payable by the Company. See "Use of Proceeds," and
"Plan of Distribution."
The Notes are being offered on a "best efforts" basis on behalf of the
Company by Centennial Capital Management and other licensed soliciting
broker-dealers that are members of the National Association of Securities
Dealers, Inc., who have been or may be engaged by the Company. All proceeds
from the sale of Notes will be 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 [120 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
such event no expenses will be deducted from the escrowed funds. 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. Any subsequent sales
proceeds from the Notes will be immediately available for use by the Company.
The Company reserves the right to reject any subscription in whole or in part.
The offering will terminate on [24 months after the effective date],
unless sooner terminated by the Company.
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 new and 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, a Florida 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 SAC. 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 between $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. The Company has entered into an arrangement with Lake
Financial Services, Inc. ("Lake Financial") pursuant to which Lake Financial
will sell up to $1.0 to $1.5 million of Installment Contracts per month to
the Company. Lake Financial commenced operations in 1988 in the automobile
finance business. Lake Financial targets "B" and "C" Non-prime consumers and
produces 250 to 300 contracts per month with an average amount financed of
$15,000 per contract. In addition, from time to time, the Company intends to
negotiate non-exclusive purchase arrangements with other intermediaries and
originators, including independent financing companies and, to a lesser
extent, individual Dealers. See "Risk Factors - Availability of Installment
Contracts."
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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.
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 for
reimbursement of the expenses associated with this
offering, initial operating expenses and for the purchase of
Installment Contracts. See "Use of Proceeds." Approximately
$1.12 million of the initial net proceeds will be used to
purchase performing Installment Contracts from an affiliate
of the Company. See "Risk Factors - Purchase of Installment
Contracts From Sentinel Acceptance."
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 [120 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 Centennial Capital Management
and other licensed soliciting broker-dealers that are
members of the National Association of Securities Dealers,
Inc., and are qualified to offer and sell the
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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 [120 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. The
Company's general partner and sole limited partner began operations in 1995
and have limited capital, liquidity and experience.
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 could adversely affect the Company and affect the
Company's ability to pay 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. The Company has entered into
an arrangement with Lake Financial pursuant to which Lake Financial will sell
up to $1.0 to $1.5 million of Installment Contracts per month to the Company.
However, this arrangement may be terminated at anytime by either party upon
60 days notice. While management has numerous relationships with Installment
Contract originators, except with respect to Lake Services the Company does
not have formalized arrangements with a network of automobile dealers,
financial intermediary or any other originator from which Installment
Contracts will be purchased or through which Installment Contracts will be
originated by the Company. If the Lake Financial agreement is terminated,
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.
Recently, some companies in the auto finance industry have experienced
higher than expected default rates on automobile finance paper from borrowers
who are categorized as "C" or below Non-prime Consumers. These developments
have resulted in the deterioration of the financial condition of some
companies operating in the subprime automobile finance industry.
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. SAC will also provide management,
marketing servicing, 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.
The Company will pay SAC for administration, marketing and servicing
provided to the Company, which fees shall consist of the following: (a) one
time boarding fee of $10.00 per Installment Contract; (b) one time
administrative fee of $100.00 per Installment Contract; (c) one time
marketing fee of $150.00 per Installment Contract; and (d) monthly service
fee of $15.00 per Installment Contract. Assuming the Company receives the
minimum proceeds from the sale of the Notes, SAC will receive an aggregate of
approximately $90,000, $80,000, and $80,000 in the first three years,
respectively, for administrative, marketing and servicing fees provided to
the Company. If the Company receives the maximum proceeds from the sale of
the Notes, SAC will receive an aggregate of approximately $485,500, $342,000
and $415,000 in the first three years respectively for administrative,
marketing and servicing fees provided to the Company. Management believes
that the terms of the services provided by SAC are similar to the
terms that would be available from a third party in an arms-length
transaction. See "Business - Operating Expenses," "- Servicing" and "Certain
Transactions - Payments to SAC."
PURCHASE OF INSTALLMENT CONTRACTS FROM SENTINEL ACCEPTANCE. The Company
intends to purchase approximately $1.4 million principal amount of
Installment Contracts from Sentinel Acceptance ("Sentinel Acceptance
Portfolio") for an aggregate purchase price of approximately $1.12 million
from the initial net proceeds of this offering. The purchase price was not
determined through an arms-length negotiation. The approximate $1.12 million
will be used by Sentinel Acceptance to reduce its outstanding indebtedness
owed to two third party lenders and 900 Capital Services, Inc. ("900
Capital"). 900 Capital owns 66.66% of the outstanding capital stock of SAC
and owns 40% of the equity interest of Sentinel Acceptance. The Purchase
price paid to Sentinel Acceptance for its Installment Contracts may be less
than the value an unaffiliated third party would pay in an arm's-length
transaction. The Company has not sought an independent third party valuation
of the Sentinel Acceptance Portfolio. See "- Conflicts of Interests." The
Sentinel Acceptance Portfolio consists of performing loans made to borrowers
with "B" Credit. The Company's opportunity to recoup the purchase price for
the Sentinel Acceptance Portfolio will depend on the success, if any, of its
collection efforts on, or its ability to enforce its remedies under such
Installment Contracts. There can be no assurance that the Company will
collect sufficient proceeds from the Sentinel Acceptance Portfolio or realize
sufficient proceeds through enforcement of its remedies thereunder in order
to compensate the Company for the purchase price paid to Sentinel Acceptance.
The failure of the Company to timely collect sufficient proceeds from the
Seninel Acceptance Portfolio or to realize on its remedies thereunder equal
to the purchase price paid to Sentinel Acceptance would have a material
adverse effect on the Company's ability to make interest payments in a timely
manner on the Notes or repay the principal amount on maturity. See
"Business-Business Strategy and Purchase of Installment Contracts-Sentinel
Acceptance Portfolio."
Sentinel Acceptance Portfolio may not be sucured by a lien on the
Financed Vehicle because the lien in favor of Sentinel Acceptance as the
assignee of the debt is not noted on the Financed Vehicle certificate of
title in the ordinary course of business, but remains instead in the name of
the originating dealer. If the Company were required to assert its rights to
the Financed Vehicle, there is a risk that the original dealer may fail to
cooperate in transferring title to the Company in which case the Company may
not be able to recover all proceeds from the sale of the Financed Vehicle,
but the Company may have recourse against the dealer.
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, their security position may become unperfected under
certain limited circumstances. 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 "Certain Legal Aspects of the Installment
Contracts - Security Interests in Financed Vehicles" and "Description of the
Notes - Security."
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 and
servicing assets (including administrative, marketing and servicing fees
payable to SAC), and (d) such reserves as may be determined by SAC 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.
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. 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. 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, 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. In addition, the performance
of individual Installment Contracts securing the Notes will have a greater
effect on the ability of the Company to pay the Notes than if a large portion
of the offered Notes are sold. See "Use 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 MIDPOINT MAXIMUM
------- -------- -------
($1,000,000) ($7,500,000) ($15,000,000)
USE OF PROCEEDS
- ---------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Purchase of Installment Contracts $ -- % $5,088,000 67.84% $11,505,000 76.7%
from Unaffiliated Third Parties
Purchase of Installment Contracts 610,000 50 1,120,000 15.0 1,120,000 7.5
from Sentinel Acceptance
Estimated Initial Expenses Related to 15,000 1.5 75,000 1.0 200,000 3.0
Purchase of Installment Contracts(1)
Sales Commissions and
Concession(2) 75,000 7.5% 562,500 7.5% 1,125,000 7.5%
Due Diligence Reimbursement and 10,000 1.0% 75,000 1.0 150,000 1.0%
Non-Accountable Expense
Allowance(3)
Investment Banking and Marketing Fee(4) 40,000 4.0% 300,000 4.0 600,000 4.0%
Other Offering Expenses(5) 250,000 25.0% 275,000 3.66 350,000 2.3%
Total Use of Proceeds $1,000,000 100% $7,500,000 100% $15,000,000 100%
---------- ------- ----------- ----- ----------- ----
---------- ------- ----------- ----- ----------- ----
</TABLE>
(1) Assuming the respective minimum amount, midpoint amount or maximum amount,
whichever is the case, is sold within six months after the offering
commences. Approximate amounts to be paid to SAC for administrative, marketing
and servicing fees for the first three months following the release of proceeds
to the Company after which time the Company expects such fees to be paid from
operations.
(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, the preparation of this prospectus, and assistance with the
selling efforts for the Notes.
(5) Includes legal, accounting, printing, registration and qualification fees,
and trustee and escrow fees and other offering costs. These costs have or
will be incurred by SAC and will be reimbursed by the Company following the
offering.
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
apply the balance of the proceeds toward the purchase of the Sentinel
Acceptance Portfolio. See "Risk Factors - Conflicts of Interest-," "-Purchase
of Installment Contracts From Sentinel Acceptance" and "Business-Business
Strategy and Purchase of Installment Contracts-Sentinel Acceptance Portfolio
Acquisition."
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13
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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 for
reimbursement of the expenses associated with this offering, initial
operating expenses and for purchase the Installment Contracts. Approximately
$1.12 million of the initial net proceeds will be used to purchase performing
Installment Contracts from Sentinel Acceptance. See "Risk Factors - Purchase
of Installment Contracts From Sentinel Acceptance," and "Business - Business
Strategy and Purchase of 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 repayment 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 Florida limited partnership formed in August 1997 as a
single purpose entity organized to engage in the purchase, collection and
service of Installment Contracts originated principally by independent
Dealers who sell new and 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 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, management believes that 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 "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, management believes that its business is
seasonal. Sales are strongest in the second quarter when consumers receive
tax refunds, 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.
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
average approximately 19.5%. 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. 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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<PAGE>
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.
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 AND PURCHASE OF INSTALLMENT CONTRACTS
The Company intends to supply additional capital to the Non-prime
Consumer market. The Company has entered into an arrangement with Lake
Financial pursuant to which Lake Financial will sell up to $1.0 to $1.5
million of Installment Contracts per month to the Company. Lake Financial
commenced operations in 1988 in the automobile finance business. Lake
Financial targets "B" and "C" Non-prime consumers and produces 250 to 300
contracts per month with an average amount financed of $15,000 per contract.
In addition, from time to time, the Company intends to negotiate
non-exclusive purchase arrangements with other intermediaries and
originators, including independent financing companies and, to a lesser
extent, individual Dealers. See "Risk Factors - Availability of Installment
Contracts".
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RISK MANAGEMENT. The Company intends to manage the default risks posed
by its Non-prime Consumer financing through the structure of the purchase
transaction and the subsequent servicing, and collection procedures, for
example the Company intends to:
- - establish an allowance for losses on the date of purchase of 10% to
15% on all Installment Contracts, in addition to the purchase discount
- - maintain a dealer approval process
- - maintain policies and procedures for all credit approval, servicing and
collection procedures
- - enter into 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:
- A tangible 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. Except with respect to Installment
Contracts purchased from Lake Financial which generally will be purchased at
par, the Company will endeavor to purchase Installment Contracts from other
intermediaries or originators at 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'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-signers 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 from the face
amount of the loan will generally range between par 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.
SENTINEL ACCEPTANCE PORTFOLIO ACQUISITION. The Company intends to
purchase approximately $1.4 million principal amount of Installment Contracts
from Sentinel Acceptance for an aggregate purchase price of approximately
$1.12 million from the initial net proceeds of this offering. (Sentinel
Acceptance Portfolio"). The purchase price was not determined through an
arms-length negotiation. The approximate $1.12 million will be used by
Sentinel Acceptance to reduce its outstanding indebtedness owed to two third
party lenders and 900 Capital. 900 Capital owns 66.66% of the outstanding
capital stock of SAC and owns 40% of the equity interests of Sentinel
Acceptance. The purchase price paid to Sentinel Acceptance for its
Installment Contracts may be less than, the value an unaffiliated third party
would pay in an arm's length transaction. The Company has not sought an
independent third party valuation of the Sentinel Acceptance Installment
Contracts.
The Sentinel Acceptance Portfolio consists of loans made to borrowers
with "B" credit. The Company's opportunity to recoup the purchase price for
the Sentinel Acceptance Portfolio will depend on the success, if any, of its
collection efforts on, or its ability to enforce its remedies under such
Installment Contracts. There can be no assurance that the Company will collect
sufficient proceeds from the Sentinel Acceptance Portfolio or realize
sufficient proceeds through enforcement of its remedies thereunder in order
to compensate the Company for the purchase price paid to Sentinel Acceptance.
The failure of the Company to timely collect sufficient proceeds from the
Sentinel Acceptance Portfolio or realize on the exercise of its remedies
thereunder equal to the purchase price paid to Sentinel Acceptance would have
a material adverse effect on the Company's ability to made interest payments
in a timely manner on the Notes or repay the principal amount on maturity.
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The following table sets forth certain information concerning collection
and delinquency for the Sentinel Acceptance Portfolio as of August 12, 1997.
As of August 12, 1997
---------------------
Number of contracts ........................... 395
Principal balance outstanding ................. $1,446,659
Accrued unpaid interest outstanding ........... $ 275,529
Delinquent balances, including interest
0-30 Days .............................. $ 839,351
31-60 Days ............................. 0
61-90 Days ............................. 0
91 Days or more ........................ 0
Repossessions (dollar amount) ................. 0
Repossessions (number of contracts) ........... 0
THIRD PARTY PORTFOLIO ACQUISITIONS. 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.
Portfolio acquisitions by the Company will involve a 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.
- 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. SAC will provide management, marketing 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
SAC, (the "Servicer") will undertake the collection process for all
accounts 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, and (vi) pursuing deficiencies in
Installment Contracts.
At the time of a purchase of a Financed Vehicle, the automobile dealer or
intermediary 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 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 the
Servicer will mail a past due notice. A second notice will be mailed if
payment has not been received within 10 days of the due date. When an account
becomes 15 days past due the Servicer will make customary efforts to contact
the borrower by telephone and in writing. The Servicer will continue its
efforts to obtain payment from a borrower whose payment has not been made
until 30 days have elapsed from the due date at which time the account is
turned over to a repossession firm.
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. The Company
believes that 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 state's 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. The Company has no current plans to
expand its business into any jurisdiction where it is not now licensed, or
would be required to be licensed to do business. 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 the Installment Contracts."
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. 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 four full time employees of SAC.
LITIGATION
The Company is not a party to any legal proceedings.
SENTINEL ACCEPTANCE
Sentinel Acceptance is a Florida limited partnership formed in September
1995, which commenced operations in October 1995. The general partner of
Sentinel Acceptance is SAC. Sentinel Acceptance is engaged in the automobile
finance business. The Company primarily purchases automobile finance paper
originated principally by independent Dealers who sell used automobile and
light trucks to Non-prime Consumers. Sentinel Acceptance historically has
targeted Non-prime Consumers who fall into "C" and "D" Consumer credit
categories. The Company's offices are located at 210 North University Drive,
Suite 800, Coral Springs, Florida.
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. The balance sheet of SAC as for the year ended 1996 and
for the seven months ended July 31, 1997 is included elsewhere in this
prospectus. SAC 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
Dean Kayes 44 Executive Vice President and Director of SAC
Suzanne Tikkannen 42 Financial Vice President and Director of SAC
Jonathon W. Hollandsworth 40 Senior Vice President of SAC
Jon M. Whitney 38 Senior Credit Analyst of SAC
Murray Wolkove 38 Asset Management Administrator of SAC
Kimberly Loeffler 31 Asset Management Office Supervisor of SAC
IVAN HOSER has been President of SAC since its incorporation. Mr. Hoser
manages the day-to-day operations of the Company. From May 1994 until May
1995, he held the position of Broker Development Manager for GIC Leasing,
Inc., a member of the Pegasus Network for Colonial Pacific Leasing, and a
subsidiary of Pitney Bowes. In 1990, he was appointed Executive Vice
President of Devon Equipment Leasing, Inc.("Devon"), a subsidiary of Colonial
Commercial Corp. Devon specialized in automobile and equipment loans. From
1981 to 1990, Mr. Hoser was a consultant to the automobile and equipment
leasing industries.
JONATHON W. HOLLANDSWORTH has been the Senior Vice President for SAC
since October, 1996. Mr. Hollandsworth provides risk management services for
the Company. 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. During this period he held such positions as
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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JON M. WHITNEY has been the Senior Credit Manager of SAC since its
inception. Mr. Whitney acts as Credit Manager for the Company and is
responsible for the approval and denial of applications for credit received
from originators. Prior to joining SAC, 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 SAC. Mr.
Wolkove manages the servicing and collection services provided to the
Company. 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 SAC
since its inception. Ms. Loeffler will provide office administration
services for the Company. Prior to joining SAC, she was account and loan
representative for Capital Bank for eleven years where her responsibilities
included preparation of loan documentation and closings.
DEAN KAYES became an Executive Vice President and Director of SAC in
August 1997. Mr. Kayes joined 900 Capital in January 1997 as Senior staff
counsel. Prior to joining 900 Capital Mr. Kayes had been in the private
practice of law from 1989 through 1996.
SUZANNE TIKKANNEN became the Financial Vice President and Director of
SAC in August 1997. Ms. Tikkannen is also the Corporate Controller of Condor
Investment Corp., a California corporation, a management services company.
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 pay salaries to any individual. SAC has
contracted to manage the Company and to service the Company's Installment
Contracts. The Company will pay SAC for administration, marketing and general
services provided to the Company, which fees shall consist of the following:
(a) one time boarding fee of $10.00 per Installment Contract; (b) one time
administrative fee of $100.00 per Installment Contract; (c) one time
marketing fee of $150.00 per Installment Contract; and (d) monthly service
fee of $15.00 per Installment Contract. Assuming the Company receives the
minimum proceeds from the sale of the Notes, SAC will receive an aggregate
of approximately $90,000, $80,000, and $80,000 in the first three years
respectively for administrative, marketing and servicing fees provided to the
Company. If the Company receives the maximum proceeds from the sale of the
Notes, SAC will receive an aggregate of approximately $485,500, $342,000 and
$415,000 in the first three years respectively for administrative, marketing
and servicing fees provided to the Company. Management believes that the
terms of the services provided by SAC are similar to the terms that would be
available from a third party in an arms-length transaction. See "Risk Factors
- - Conflict of Interests," "Business - Operating Expenses" and "- Servicing."
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 July 31, 1997,
the outstanding principal balance on the Line of Credit was approximately $1.9
million. Sentinel Acceptance intends to use the proceeds from the sale of the
Sentinel Acceptance Portfolio to repay two unaffiliated third party lenders
approximately $950,000, which repayment is guaranteed by 900 Capital, and
then to repay approximately $200,000 to $500,000 of the outstanding
indebtedness owed to 900 Capital. For a discussion of the sale of the
Sentinel Acceptance Portfolio see "Risk Factors-Purchase of Installment
Contracts From Sentinel Acceptance," "Use of Proceeds" and "Business-Business
Strategy and Purchase of Installment Contracts-Sentinel Acceptance Portfolio."
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 and servicing assets (including administrative,
marketing and servicing fees payable to SAC), 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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PAYMENTS TO SAC
SAC has contracted to manage the Company and to service the Company's
Installment Contacts. The Company will pay SAC for administration, marketing
and general services provided to the Company, which fees shall consist of the
following: (a) one time boarding fee of $10.00 per Installment Contract; (b)
one time administrative fee of $100.00 per Installment Contract: (c) one time
marketing fee of $150.00 per Installment Contract; and (d) monthly service
fee of $15.00 per Installment Contract. Assuming the Company receives the
minimum proceeds from the sale of the Notes, SAC will receive an aggregate of
approximately $90,000, $80,000, and $80,000 in the first three years
respectively for administrative, marketing and servicing fees provided to the
Company. If the Company receives the maximum proceeds from the sale of the
Notes, SAC will receive an aggregate of approximately $485,500, $342,000 and
$415,000 in the first three years respectively for administrative, marketing
and servicing fees provided to the Company. Management believes that the
terms of the services provided by SAC are similar to the terms that would be
available from a third pary in an arms-length transaction. See "Risk Factors
- - Conflict of Interests," "Business - Operating Expenses" and "-Servicing."
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 executive officers, and (iii) all directors and executives of
the SAC 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%
900 Capital 6,666,666 66.7%
Services Inc.(2)
601 Gateway Boulevard
Suite 260
South San Francisco,
California 94080
Dean Kayes - -
Suzanne Tikkannen - -
Jonathan W. Hollandsworth - -
All directors and executive
officers as a group (5 persons) 3,333.333 33.3%
(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. Unless otherwise indicated the address for
the Shareholder is the same as the Company's principal executive offices.
(2) The Capital Stock of 900 Capital Services, Inc. is owned by Ronald Anson,
as trustee of his family trust (27.5%), Jack Garrett (22.5%) and Condor
Investment Corp. (50%).
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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. The
Indenture is subject to the provisions of the Trust Indenture Act of 1939
("TIA") which imposes certain various persons and, in the event of a
disagreement between the TIA and the Indenture, the TIA provisions control.
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 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 CSC Logic
Division of Computer Sciences Corporation (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,
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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.
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
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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 Company. 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 Company.
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, the Company 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 Company 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 Company were taxable as a corporation for federal income tax
purposes, the Company would be subject to corporate income tax on its taxable
income. The Company'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
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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 Noteholder 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
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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 Company 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
asserts 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 Company 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 Company 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.
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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 Company is offering up to $15,000,000 in aggregate principal amount
of the Notes. The Notes are being offered on a "best-efforts" basis on behalf
of the Company by Centennial Capital Management and other licensed soliciting
borker-dealers ("Participating Dealers") who are members of the National
Association of Securities Dealers Inc. (the "NASD") and that are qualified to
offer and sell the Notes in a particular state, as have been or may hereafter
be engaged by the Company. The Company has agreed to 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
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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 Dealer
is affiliated 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 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
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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 balance sheet of SAC as of December 31, 1997 and the seven months
ended July 31, 1997 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
reports appearing elsewhere herein, and are included in reliance upon such
reports 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. 333-29067,
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
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FINANCIAL STATEMENTS
INDEX
PAGE
----
INDEPENDENT AUDITOR'S REPORT............................................... 43
SENTINEL ACCEPTANCE CORPORATION
BALANCE SHEET, December 31, 1996 and July 31, 1997..................... 44
NOTES TO BALANCE SHEET................................................... 47-49
- -INDEPENDENT AUDITOR'S REPORT.............................................. 48
SENTINEL FINANCING LTD., L.P.
BALANCE SHEET, August 6, 1997.......................................... 49
NOTES TO BALANCE SHEET................................................... 50-51
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. This balance sheet is responsibility of
the Company's management. Our responsibility is to express an opinion on
this balance sheet 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 balance sheet presents fairly, in all material
respects, the financial position of Sentinel Acceptance Corporation at
December 31, 1996, in conformity with generally accepted accounting
principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
May 28, 1997
42
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SENTINEL ACCEPTANCE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND JULY 31, 1997
<TABLE>
<CAPTION>
December 31, July 31, 1997
------------ -------------
1996 (Unaudited)
-------- ----------
<S> <C> <C>
ASSETS
Current asset:
Cash $ 481 $ 577
Investment in Partnership 205,124 197,266
-------- --------
Total assets $205,605 $197,843
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liability:
Payroll taxes payable $ 10,276 $ 8,652
-------- --------
Commitments
Shareholders' equity:
Preferred stock, $1 par value;
110,000 shares authorized,
issued and outstanding 110,000 110,000
Common stock, $1 par value;
10,000 shares authorized,
issued and outstanding 10,000 10,000
Additional paid-in capital 93,400 93,400
Accumulated deficit (18,071) (24,209)
-------- --------
Total shareholders' equity 195,329 189,191
-------- --------
Total liabilities and
shareholders' equity $205,605 $197,843
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
Investors in the notes are not acquiring any financial interests
or liability of the Corporation whose balance sheet appears above.
43
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44
<PAGE>
45
<PAGE>
46
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
(INFORMATION PERTAINING TO JULY 31, 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
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.
Investors in the notes are not acquiring any financial interest or liability
of the Corporation whose notes to the Balance Sheet appear above.
47
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SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
(INFORMATION PERTAINING TO JULY 31, 1997 IS UNAUDITED)
NOTE 1. - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 expenses as incurred. At December 31,
1996 and March 31, 1997, there were no receivables for management.
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
1996 Company share of partnership loss 7,805
---------
Balance - December 31, 1996 205,124
Company share of loss for the seven months
ended July 31, 1997 7,858
---------
Balance - July 31, 1997 (unaudited) $ 197,266
---------
---------
Investors in the notes are not acquiring any financial interest or liability
of the Corporation whose notes to the Balance Sheet appear above.
48
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
(INFORMATION PERTAINING TO JULY 31, 1997 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. The
distribution to the Company's equity accounts was as follows:
Preferred stock $ 110,000
Common stock 10,000
Additional paid-in capital 93,400
$ 213,400
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.
Investors in the notes are not acquiring any financial interest or liability
of the Corporation whose notes to the Balance Sheet appear above.
49
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INDEPENDENT AUDITOR'S REPORT
To the Partners
Sentinel Financing Ltd., L.P.
Coral Spring, Florida
We have audited the balance sheet of Sentinel Financing LTD., L.P. as of
August 6, 1997. This balance sheet is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement 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 balance sheet is 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 balance sheet referred to above presents fairly, in
all material respects, the financial position of Sentinel Financing LTD.,
L.P. as of August 6, 1997, in conformity with generally accepted accounting
principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
August 6, 1997
50
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SENTINEL FINANCING LTD., L.P.
BALANCE SHEET
AUGUST 6, 1997
ASSETS
CASH $5,000
EQUITY
PARTNERSHIP EQUITY $5,000
51
<PAGE>
SENTINEL FINANCING LTD., L.P
NOTES TO BALANCE SHEET
AUGUST 6, 1997
NOTE 1. - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
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 Contract") originated by independent automobile
dealers ("Dealers"). The Company intends to acquire directly and through
intermediates Installment Contracts originated by Dealers in connection with
their sale of new and 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of August 6,
1997, 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 or liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses in the future.
Actual amounts could differ from those estimates.
NOTE 2. - DEBT OFFERING
The Company is offering $15,000,000 aggregate principal amount of 12%
secured Notes due 2002. The Notes will bear interest at the rate of 12% per
annum, payable monthly on the 15th day of each month. The Notes will mature
in five years, 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 move any outstanding redemption as
sinking fund payment with respect to the Notes prior to maturity. Notes may
be purchased in multiples of $1,000 subject to a minimum requirement of
$2,000. The Notes will be secured by retail installment sales contracts
renewed by used automobiles and light trucks. The Notes are being offered on
a best efforts, $1,000,000 minimum offering basis.
52
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SENTINEL FINANCING LTD., L.P
NOTES TO BALANCE SHEET
AUGUST 6, 1997
NOTE 3. - RELATED PARTY TRANSACTIONS
A related entity (Sentinel Acceptance, the limited partner) has incurred
$157,880 for costs of the debt offering on behalf of the affiliate. If the
offering is successful, the advances will be reimbursed and deferred issuance
costs will be charged (Note 1). If the offering is unsuccessful, these
advances will be charged to the operations of the affiliate.
NOTE 4. - EQUITY CONTRIBUTION
On August 6, 1997, the Company received equity contributions from its
partners as follows:
Sentinel Acceptance Corporation $4,950
Sentinel Acceptance Ltd., L.P. 50
$5,000
53
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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
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12. NO RECOURSE AGAINST OTHERS. No partner, officer, employee or
affiliate of the Company shall 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
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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;
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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.
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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
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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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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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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:__________________________________
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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
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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
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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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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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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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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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Secured Party:
[____________________], as Trustee
By:_______________________________
As:_______________________________
Custodian:
By:_______________________________
Its:______________________________
As:_______________________________
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EXHIBIT D
INDENTURE
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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
E-1
<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, 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 14
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 29, 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . 30, 31
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . 31, 32
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . 34, 35
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 38, 39
TRANSFERABILITY OF NOTES . . . . . . . . . . . . . . . . . . . . . . 39, 40
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 41
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 41
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 40, 41
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 41, 41
EXHIBIT A - Form of Secured Note
(Face of Security). . . . . . . . . . . . . . . . . . . A-1
(Back 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 - SENTINEL FINANCING LTD., L.P.
SUBSCRIPTION AGREEMENT - SECURED NOTES. . . . . . . . . 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 24. 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 25. 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 26. RECENT SALES OF UNREGISTERED SECURITIES.
In August, 1997, the Company issued limited partnership interests
to Sentinel Acceptance in connection with the formation of the Company.
This sale was made to a sophisticated investor 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 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
See Exhibit Index following the Signatures page which is incorporated
herein by reference.
II-1
<PAGE>
(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 27. 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.
II-2
<PAGE>
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 28th day of August, 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 August 28, 1997
Acceptance Corporation
/s/ Dean Kayes
- --------------------------
Dean Kayes Director of Sentinel Acceptance August 28, 1997
Corporation
/s/ Suzanne Tikkannen
- --------------------------
Suzanne Tikkannen Director of Sentinel Acceptance August 28, 1997
Corporation
<PAGE>
EXHIBIT INDEX
TO
SENTINEL FINANCING LTD., L.P.
REGISTRATION STATEMENT ON FORM SB-2
Exhibit Seq.
No. Description Page No.
- ------- ----------- --------
1.1* Form of Placement Agent Agreement
3.1* Limited Partnership Agreement of Registrant
4.1* Security Agreement (included as Exhibit B 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* Portfolio Service Agreement between Sentinel Acceptance Ltd., L.P. and
Registrant
10.2* Custodian Agreement (included as Exhibit C to Prospectus)
23.1(a) Consent of Independent Accountants
23.1(b) Consent of Independent Accountants
23.2** Consent of Buchalter, Nemer, Field & Younger (included in
Exhibit 5.1)
25.1** Form T-1 Statement of Eligibility of Trustee
_______________
* Previously Filed.
** To be filed by amendment.
<PAGE>
SENTINEL FINANCING LTD., L.P.
$15,000,000 of 12% Secured Notes Due 2002
(Par Value $1,000 Per Note)
Agency Agreement
August 15, 1997
Centennial Capital Management
999 Peachtree Street, NE
Atlanta, Georgia 30309
Dear Sirs:
Sentinel Financing Ltd., L.P., a Florida limited partner (the "Company"), hereby
confirms its agreement with Centennial Capital Management (the "Agent"), as
follows:
1. GENERAL. The Company proposes to offer on a "best efforts basis", up to
15,000,000 Notes (the "Maximum number of Notes") at a price of $1,000 per
Note in an offering to the public (the "Offering").
On terms and conditions specified in this Agency Agreement (The "Agreement"),
the Agent, for the compensation specified below, will provide the services
specified in this Agreement to assist the Company in the Offering.
2. THE OFFERING.
2.1 SERVICES TO BE RENDERED. In consideration of the payment of the fees
set forth in Section 2.3 hereof, the Agent agrees to offer the Notes
to the investing public in Georgia, Florida and any other state or
states where the Company deems it appropriate to qualify the Offering.
2.2 NON-EXCLUSIVE ENGAGEMENT. The Company reserves the right to hire such
other broker-dealers to assist in the sale of the Notes as the
Company, in its sole discretion, deems necessary or advisable.
2.3 COMPENSATION. The Company agrees to pay to the Agent for the Agent's
services in connection with the Offering, a fee equal to a 7.5%
underwriting discount, a 4% investment banking and marketing fee to
the Agent's affiliate, Banc Services Corporation. The Company may
also reimburse the Agent for actual due diligence expenses in an
amount up to .5% of the principal aggregate amount of Notes sold and
may pay the Agent a non-accountable expense allowance not to exceed
.5% of the principal aggregate amount of Notes sold. No payments will
be made until the Minimum Offering amount of $1,000,000 has been sold.
2.4 PAYMENT OF EXPENSES. The Company will pay all of its expenses in
connection with the Offering including, but not limited to, the
Company's attorneys' fees, expenses for auditing and accounting
services, advertising fees, all securities registration and NASD
filling fees, postage, and document reproduction expenses, and the
engraving, issuance, transfer and delivery of the Notes.
2.5 BLUE SKY. To the extent required by applicable state law, the Agent
may need to obtain or confirm exemptions, qualification or
registration of the Notes under applicable state securities
1
<PAGE>
laws and NASD policies. The cost of such legal work and related
filing fees will be paid by the Company and will depend upon the
states in which the Company wishes to make sales.
2.6 SALE AND DELIVERY OF THE NOTES. 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 [120 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. 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 suitability standards prior to purchasing any Notes. The
Offering may be terminated prior to the expiration of the Offering
Period by the Company. Throughout the Offering Period, the Company
will review the offers to purchase received and will have the right to
reject any such offers.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, the Agent that:
(a) The prospectus, including any amendments or supplements thereto (the
"Prospectus") when made available to prospective purchasers throughout
the Offering Period, will comply in all material respects with federal
statutes, regulations ad policy statements applicable thereto,
including, without limitation, the applicable rules, regulations and
policy statements of the Securities and Exchange Commission (the
"SEC"). At all times during the Offering Period, the Prospectus will
contain all information including financial statements that are
required to be included therein in accordance with applicable
regulations (including interpretations thereof), and policy statements
of the SEC and the Prospectus will not include any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided,
however, that no representations or warranties are made to the Agent
with respect to statements or omissions made in reliance upon, or in
conformity with, written information furnished to the Company with
respect to the Agent, by the Agent, or on its behalf expressly for use
in the Prospectus.
(b) The Company is, and at all times during the Offering Period will be, a
limited partner duly incorporated and organized and is, and will be,
validly existing and in good standing under the laws of the State of
Florida. The Company has, and at all times during the Offering Period
will have, full power and authority to own or lease all of its
properties and conduct all of its business as described in the
Prospectus.
(c) The Company is, and at all times during the Offering Period will be,
duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction where the ownership or leasing of its
properties or the conduct of its business required such qualification.
(d) The financial statements contained in the Prospectus present fairly
and accurately the financial position of the Company as the respective
dates thereof, all in conformity with
2
<PAGE>
generally accepted accounting principles applied on a consistent
basis throughout the entire periods involved.
(e) At all times during the Offering Period except as set forth in or
contemplated by the Prospectus: (i) the Company will not have
incurred and will not incur any material liabilities or obligations,
direct or contingent, except for liabilities or obligations entered
into in the ordinary course of business, and will not have entered
into and will not enter into any material transactions; and (ii) there
will have been no, and there will be no, material adverse change, or
any development relating to the Company which the Company has cause to
believe would involve a prospective material adverse change in or
affecting the business, business prospects, general affairs,
management, financial position, net worth, results of operations, or
properties of the Company, or the value of the assets of the Company.
(f) Except as set forth in or contemplated by the Prospectus, to the best
of its knowledge, the Company does not have and will not have during
the Offering Period any material contingent liabilities or
obligations.
(g) There are no actions, suits or proceedings pending or, to the best of
its knowledge, threatened against or affecting the Company or its
business, business prospects, financial condition, results of
operations or properties, or against or affecting any of its principal
officers, before or by any federal or state court, commission,
regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling or decision or
finding would materially and adversely affect the business, business
prospects, financial condition, results of operations, or properties
of the Company.
(h) At all times during the offering Period, the Company will have title
to all properties and assets described in the Prospectus as being
owned by the Company, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or which are not material to the business of the Company.
At all times during the Offering Period, the Company will have valid,
existing and enforceable leases to the properties and equipment
described in the Prospectus as being leased by the Company, with such
exceptions as are not material and do not materially interfere with
the uses made, and proposed to be made, of such properties by the
Company.
(i) The Company has filed all federal and state income tax returns which
are required to be filed by it and has paid all taxes shown on such
returns and on all assessments received by it to the extent such taxes
have become due. To the best of its knowledge, all taxes with respect
to which the Company is obligated have been paid or adequate accruals
have been established to cover any such unpaid taxes.
(j) The Company is not, and at all times during the Offering Period will
not be, in violation of the limited partnership under which it has
been organized ("Partnership Agreement") or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement
or other agreement or instrument to which the Company is a party or by
which it or any of its properties is bound, and the Company is not,
and at all times during the Offering Period will not be, in violation
of any law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or
foreign, of which it has knowledge. Neither the Company, nor any
employee or agent thereof, has made any payment of funds of the
Company or received or retained any funds in violation of any law,
rule or regulation which payment, receipt or retention of funds is not
fully disclosed in the Prospectus.
3
<PAGE>
(k) At all times during the Offering Period, there will be no document or
contract of the character required to be described in the Prospectus
which is not described as required, and the descriptions in the
Prospectus are accurate and complete and fairly present the
information required to be shown.
(l) No statement, representation, warranty or covenant made by the Company
in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Agent was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(m) The Company has full right, power and authority to enter into this
Agreement and this Agreement has been duly authorized, executed and
delivered by the Company and will be, upon acceptance by the Agent, a
valid and binding agreement of the Company enforceable in accordance
with its terms. The performance of this Agreement and the
consummation of the transactions contemplated herein will not result
in a breach or violation of any of the terms or provision of, or
constitute a default under the Partnership, any obligation, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence or indebtedness or in any contract, indenture, mortgage, loan
agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties is bound, or any
law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or
foreign, and will not result in the creation or imposition of any
lien, charge claim or encumbrance upon any property or asset of the
Company. No consent, approval, authorization or order of any
government, governmental instrumentality or court is required in
connection with the execution of this Agreement or the consummation of
the transactions contemplated by this Agreement except such as may be
required by the NASD or by state regulatory authorities under state
securities or blue sky laws in connection with the distribution of the
Notes or in connection with the Agent's services hereunder.
(n) For purposes of the Agent's obligation to file certain documents and
make certain representations to the NASD in connection with the
Offering: (i) except with respect to partnership interest issued in
connection with the Company's organization in August, 1997, the
Company has not placed any securities within the last eighteen months;
(ii) there have been no material dealings within the last twelve
months between the Company and any NASD member or any person related
to or associated with any such member; (iii) except as contemplated by
this Agreement, no financial or management consulting contracts are
outstanding with any other person; (iv) there has been no intermediary
between the Agent and the Company in connection with the Offering and
no person is being compensated in any manner for providing such
service.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE AGENT. The Agent
represents and warrants to, and agrees with the Company that:
(a) The Agent and all of its agents and representative have or will have
all required licenses and registrations to perform the Agent's
obligations under this Agreement, and such licenses and registrations
will remain in effect during the term of this Agreement.
(b) Any and all information furnished to the Company by the Agent in
writing expressly for use in the Prospectus will not contain any
untrue statement of material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) All checks and funds received by the Agent with respect to the
subscription price from prospective purchasers in the Offering shall
be made payable to the escrow agent and transmitted directly to the
escrow agent by noon of the next business day after receipt by the
4
<PAGE>
Agent until the minimum offering of $1,000,000 has been obtained. If
the Offering is terminated prior to the end of the Offering Period by
the Company, then subscription funds received after any such
termination shall be promptly returned to the prospective purchasers.
(d) The Agent will deliver to the Company the original copies of all
subscription documents of prospective purchasers received by the Agent
in the Offering, and the Agent will promptly inform the Company of any
facts which come to the Agent's attention which would cause a
reasonable person to believe that such subscription documents contain
any material misstatement or omission.
5. COVENANTS OF THE COMPANY. The Company further agrees with and covenants to
the Agent as follows:
(a) To comply with the "Blue Sky" and other securities laws and
regulations of each state in which subscriptions are solicited in the
Offering and to assist the Agent in any necessary registration or
filings that may be required of the Agent with respect to the
Offering, in the states mutually agreed upon by the Agent and the
Company, with any costs of such registrations or filings incurred by
the Agent to be borne by the Company at its sole expense. The Company
will advise the Agent promptly of the issuance by any state regulatory
authority of any stop order or other order suspending the
registrations or exemptions therefrom of the Prospectus or of the
institution of any proceedings for that purpose, will use its best
efforts to prevent the issuance of any stop order or other such order,
and should a stop order or other such order be issued, to obtain as
soon as possible the lifting thereof.
(b) To furnish the Agent with such numbers of printed copies of the
Prospectus, with all amendments, supplements and exhibits thereto,
together with subscription materials, as the Agent may reasonable
request, and similarly, to furnish the Agent and others designated by
the Agent with as many copies of additional sales literature or other
materials approved by the Company for use in connection with the
Offering as the Agent may reasonably request.
(c) Promptly to furnish such information and execute and file such
documents as may be necessary for the Company to offer and sell the
Notes in full compliance with applicable state and federal statutes,
regulations and policy statements.
(d) To advise the Agent promptly if any event known to the Company shall
have occurred as a result of which the Prospectus in its then current
form (including any amendments or supplements thereto) would include
an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(e) To utilize or furnish no sales literature in connection with the
Offering, other than the Prospectus, unless such other sales
literature has been approved by the SEC and the NASD, if necessary,
and furnished to the Agent at least ten (10) days prior to its first
use and the Agent has failed to object to the contents of, or the
proposed use of, such other sales literature.
6. CONDITIONS OF THE AGENT'S OBLIGATIONS. The Agent's obligation to effect
the transactions contemplated by this Agreement shall be subject to the
continuing accuracy throughout the Offering Period of the representations,
warranties and agreements of the Company, the performance by the Company of
all of its obligations under this Agreement, and the following further
terms and conditions:
(a) At the Effective Date, the Agent shall have received the favorable
opinion of Buchalter, Nemer, Fields & Younger, counsel for the
Company, dated as of the Effective Date, to the effect that:
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(i) Company was duly organized as a limited partnership, and is
existing and in good standing, under the laws of the State
of Florida.
(ii) Company has the power to execute and deliver this Agreement,
to perform its obligations hereunder, to conduct its
business.
(iii) Company has authorized the execution and delivery of this
Agreement and all performance by Company hereunder and has
duly executed and delivered this Agreement.
(iv) The execution and delivery by Company of this Agreement do
not, and if Company were now to perform its obligation under
this Agreement such performance would not, result in any:
(1) violation of the Partnership; (2) violation of any
existing federal or state constitution, statute, regulation,
rule, order, or law to which Company is subject; (3) breach
of or default under any material agreements; (4) creation or
imposition of a contractual lien or security interest in, on
or against the Assets under any material agreements; or (5)
violation of any judicial or administrative decree, writ,
judgment or order to which, to our knowledge, Company is
subject.
(v) The Agreement is enforceable against Company except as may
be limited by (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or
affecting the right of creditor, (ii) or the effect of
Sentinel principles of equity, enforceability of any
indemnification provisions.
(vi) No consent, approval, authorization or order of any
government, governmental instrumentality or court is
required in connection with the consummation of the
transactions contemplated by this Agreement except such as
may be required by the SEC, the NASD, or by state regulatory
authorities under state securities or blue sky laws in
connection with the sale of the Notes by the Agent.
(vii) The Notes conform in all material respects to the
description thereof contained in the Prospectus.
(viii) The Notes to be delivered are in due and proper form.
(b) On the Effective Date, the Agent shall have received from the
President, the general partner, of the Company a letter dated as of
the Effective Date, in form and substance satisfactory to the Agent in
all respects, concerning the accuracy, to his best knowledge and
belief, of the financial information included in the Prospectus.
(c) At the Effective Date, there shall be furnished to the Agent a
certificate, dated as of the Effective Date, signed by the President
and Secretary of the general partner of the Company (collectively the
"Officers") in form and substance satisfactory to the Agent (the
"Certificate") to the effect that, to their best knowledge and belief:
(i) The Officers of the Company have carefully examined the
Prospectus, and as of the date of such Certificate, the
statements in the Prospectus are true and correct, and the
Prospectus does not misstate or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not untrue or misleading.
(ii) The conditions to the performance of the Agent's obligations
under this Agreement have been complied with.
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<PAGE>
(iii) Each of the representations and warranties of the Company
contained in this Agreement was when originally made and is
as of the date of such Certificate true and correct.
(iv) No order from any regulatory body has been issued and no
proceedings have been instituted, or to the knowledge of
such Officers contemplated, to prevent the consummation of
the Offering.
7. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless the Agent, its officers,
directors, counsel, representatives and persons who control the Agent
within the meaning of the Securities Exchange Act of 1934, from and
against all losses, claims, damages and liabilities, joint and
several, to which any of the aforesaid parties, including the Agent
(collectively, the "Agent Parties"), may become subject, under federal
or state securities laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon: (i) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus, or in any Blue Sky
application or other document executed by the Company or on its behalf
for the purpose of qualifying any or all of the Stock for sale under
the securities laws of any jurisdiction, or based upon written
information furnished by the Company under the securities laws thereof
(any such application, document, or omission to state in the
Prospectus, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The Company will further reimburse the Agent Parties, and each and
every one of them, for any legal or other expenses reasonably incurred
by any one or more of the Agent Parties in connection with
investigating and defending such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any
case to the extent that the subject loss, claim, damage or liability
arises out of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Agent specifically for use in the preparation of the subject
Prospectus, Blue Sky Application, or any amendment or supplement
thereto. The indemnity provided for in this Section 7(a) will be in
addition to any liability which the Company may otherwise have.
(b) The Agent will indemnify and hold harmless the Company, its officers,
directors, counsel, representatives and persons who control the
Company within the meaning of the Securities Exchange Act of 1934,
from and against all losses, claims, damages and liabilities, joint
and several, to which any of the aforesaid parties, including the
Company (collectively, the "Company Parties"), may become subject,
under federal or state securities laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon: (i) any untrue statement of material
fact contained in the Prospects, any Blue Sky Application, or any
amendment or supplement thereto; (ii) the omission to state in the
Prospectus, any Blue Sky Application, or any amendment or supplement
to any of the foregoing, a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided,
in the case of Sections (7)(b)(i) and (7)(b)(ii) to the extent, but
only to the extent, that such untrue statement or omission was made in
reliance upon or in conformity with written information furnished to
the Company by the Agent specifically for use with reference to the
Agent in preparation of the Prospectus, any Blue Sky Application, or
any supplement or amendment thereto; or (iii) arising out of any
misrepresentation by the Agent in this Agreement or any breach of
warranty by the Agent with respect to this Agreement. The Agent will
further reimburse the Company Parties for legal or other expenses
reasonably incurred by the Company Parties in connection with
investigating or defending any loss, claim, damage, liability or
action under this Section (7)(b). The
7
<PAGE>
indemnification provided for in this Section (7)(b) shall be in
addition to any liability which the Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under Sections (7)(a)
or (7)(b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such Section, notify the
indemnifying party in writing of the commencement of the action; but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise
and under such Section. In case any such action shall be brought
against any indemnified person, then it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent it shall wish,
jointly with any other indemnifying party similarly notified, the
indemnifying party may assume the defense thereof, with counsel
satisfactory to such indemnified party (who may also be counsel to the
indemnifying party only if the representation of both parties does not
constitute a conflict) and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such
indemnified party under such Section for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation.
8. SURVIVAL CLAUSE. The respective indemnities, agreements (including,
without limitation, the agreements set forth in Section 7 hereof),
representations, warranties and other statements of the Company and the
Agent as set forth in this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of the Agent, any officer or director of the
Agent, or counsel therefor, or the Company or any officer or director of
the Company, or counsel therefor, and shall survive any termination of this
Agreement and the receipt of any payment for the Notes.
9. NOTICES. All notices under this Agreement shall be in writing and if sent
to the Agent shall be mailed, delivered or telegraphed to the Agent at the
address first provided above, and if sent to the Company shall be mailed or
delivered to the Company at its present headquarters address, 210 North
University Drive, Suite 800, Coral Springs, Florida 33071, Attention:
President. Any notice shall be deemed to have been given when it is
received by the party to whom it is addressed.
10. GOVERNING LAW. Except to the extent governed by preemptive federal law,
this Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Florida.
11. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
SENTINEL ACCEPTANCE CORPORATION
Ivan Hoser
President
ACCEPTED AND AGREED TO this _____________ day of August, 1997.
CENTENNIAL CAPITAL MANAGEMENT
By:________________________________________
Title:_______________________________________
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<PAGE>
PORTFOLIO SERVICING AGREEMENT
between
SENTINEL ACCEPTANCE CORPORATION
AND
SENTINEL FINANCING LTD., L.P.
EFFECTIVE DATE: ___________, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1.
DEFINITIONS . . . . . . . . . . . . . . . 1
ARTICLE 2.
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 2.1 Appointment and Duties of Servicer. . . . . . . . . . . . . 3
Section 2.2 Intentionally Omitted . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Collection of Receivable Payments: Defaulted Receivables. . 5
Section 2.4 Realization Upon Receivables. . . . . . . . . . . . . . . . 5
Section 2.5 [THIS SECTION RESERVED].. . . . . . . . . . . . . . . . . . 5
Section 2.6 Maintenance of Security Interests in Financed Vehicles
and Receivables . . . . . . . . . . . . . . . . . . . . . 6
Section 2.7 Covenants of Servicer: Notices. . . . . . . . . . . . . . . 6
Section 2.8 Intentionally Omitted . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10 Distribution Date Certificates. . . . . . . . . . . . . . . 7
Section 2.11 Annual Statement as to Compliance . . . . . . . . . . . . . 7
Section 2.12 Financial Statements: Annual Servicing Reports. . . . . . . 7
Section 2.13 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . 8
Section 2.14 Intentionally Omitted . . . . . . . . . . . . . . . . . . . 9
Section 2.15 Delivery of Copies of Documents to the Servicer . . . . . . 9
Section 2.16 Possession of Original Collateral Documents: Servicer
Documents . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.17 Warranties, Representations and Indemnity With
Respect to Documents. . . . . . . . . . . . . . . . . . . 11
Section 2.18 Standard of Care. . . . . . . . . . . . . . . . . . . . . . 11
Section 2.19 Records . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.20 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.21 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.22 Substitution of Collateral. . . . . . . . . . . . . . . . . 12
ARTICLE 3.
LOCKBOX ACCOUNT; COLLECTIONS;
STATEMENTS TO CLIENT
Section 3.1 Lockbox Account . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.2 Collections . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.3 Distributions from the Lockbox Account. . . . . . . . . . . 13
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Servicer. . . . . . . 13
Section 4.2 Representations and Warranties of the Client. . . . . . . . 14
Section 4.3 Survival of Representations and Warranties. . . . . . . . . 15
ARTICLE 5.
DEFAULT, REMEDIES AND LIABILITY
Section 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 15
Section 5.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.3 Liability of the Servicer . . . . . . . . . . . . . . . . . 16
Section 5.4 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 6.
TERMINATION OF AGREEMENT
Section 6.1 Term of Agreement . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 17
Section 6.3 Transfer of Servicing . . . . . . . . . . . . . . . . . . . 17
Section 6.4 Termination of Servicer . . . . . . . . . . . . . . . . . . 17
Section 6.5 Merger or Consolidation of, or Assumption of
the Obligations of, or Resignation of Servicer. . . . . . 18
ARTICLE 7.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.2 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.4 Severability of Provisions. . . . . . . . . . . . . . . . . 19
Section 7.5 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . 19
Section 7.6 No Offset . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.7 Inspection and Audit Rights . . . . . . . . . . . . . . . . 20
Section 7.8 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . 20
Section 7.9 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.10 Decisions and Direction . . . . . . . . . . . . . . . . . . 20
Section 7.11 Assignment and Binding Effect . . . . . . . . . . . . . . . 20
Section 7.12 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.15 Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.16 Confidentiality of Servicer's Proprietary Information . . . 21
Section 7.17 No Solicitation of Employees. . . . . . . . . . . . . . . . 21
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Section 7.18 Relationship of the Parties . . . . . . . . . . . . . . . . 22
EXHIBIT A: NOT USED
EXHIBIT B: LIST OF REPORTS
EXHIBIT C: NOT USED
EXHIBIT D: FORM OF DISTRIBUTION DATE CERTIFICATE
iii
<PAGE>
PORTFOLIO SERVICING AGREEMENT
This Portfolio Servicing Agreement ("Servicing Agreement") is made as of
June 1, 1997 ("Effective Date"), by and between SENTINEL FINANCING LTD., L.P.
("Client") and SENTINEL ACCEPTANCE CORPORATION, a Florida corporation ("SAC,"
or, the "Servicer").
PRELIMINARY STATEMENT
WHEREAS, Client either currently owns or intends to purchase Receivables
(as defined below); and
WHEREAS, Client desires to enter into an agreement with the Servicer
pursuant to which the Servicer shall manage, administer, service and receive
collections, handle repossessions and all enforcement activities, on certain
motor vehicle retail installment sale contracts and security agreements (the
"Receivables") secured by new or used automobiles and/or light-duty trucks
and all accessions thereto ("Financed Vehicles") as may be identified on one
or more Schedules of Receivable delivered to and accepted by Servicer; and
WHEREAS, the Servicer desires to provide such services to Client; and
NOW THEREFORE, in consideration of the covenants and conditions
contained in this Servicing Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS
Defined Terms. Capitalized and defined terms contained in this
Servicing Agreement without definitions have the following meanings unless
the context otherwise requires, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms and to the
masculine, feminine and neuter genders of such terms.
(a) "Business Day" shall mean any day on which ordinary business
dealings are carried on at Servicer's Coral Springs, Florida offices,
excluding Saturday, Sunday and any day on which the Servicer's offices are
closed because of its regularly scheduled holiday.
(b) Intentionally Omitted.
(c) "Client" means SENTINEL FINANCING LTD., L.P., a Florida limited
partnership.
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(d) "Collateral" means a Financed Vehicle and any other property in
which a lien has been created, or which has been purchased by an Obligor.
(e) "Collection Period" means the calendar month.
(f) Intentionally Omitted.
(g) "Contract Rate" means, with respect to any Receivable, the interest
rate contained in the Receivable.
(h) "Default" means the failure of an Obligor to pay an amount equal to
or greater than the regularly scheduled payments due under the terms of the
Receivable or a violation of any term or condition of the Receivable which is
a basis for a repossession of the Collateral.
(i) "Defaulted Receivable" means any Receivable with respect to which
(i) at least 90% of a Scheduled Payment is 90 days or more delinquent, (ii)
the Servicer has repossessed the related Financed Vehicle (and any applicable
redemption period has expired), or (iii) the Servicer has determined in good
faith that payments under such Receivable are not likely to be made or
resumed.
(j) "Delinquent Receivable" means any Receivable (i) with respect to
which any payment or portion thereof has been due and unpaid from the Obligor
for 90 days or more, (ii) on which any payment or portion thereof is less
than 90 days past due but as to which the Servicer, in the normal course of
performing its duties hereunder, has determined it is unlikely that past due
payments will be brought current through routine efforts by the Servicer or
(iii) with respect to which a Default has occurred and the Servicer
reasonably believes that, as a result of such Default, such Contract may
become a Defaulted Receivable.
(k) "Distribution Date" means the tenth (10th) Business Day of each
month, beginning the first month following the first Collection Period.
(l) "Distribution Date Certificate" means the Certificate substantially
in the form Exhibit D hereto.
(m) "Effective Date" means ___________, 1997.
(n) "Event of Service Default" has the meaning set forth in Section 5.1.
(o) "Financed Vehicle" means a new or used automobile or light-duty
trucks and all accessions thereto comprising the Collateral, securing an
Obligor's indebtedness under a Receivable.
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(p) "Insolvency Proceeding" means (i) the commencement by a person as
debtor of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law, or such person
seeking the appointment of a receiver, trustee, custodian or similar official
for such person or any substantial part of such person's property, or a
decree or order seeking such appointment or (ii) the commencement of any such
case or proceeding against a person or another seeking such an appointment
which (x) is consented to by such party, (y) results in the entry of an order
for relief, such appointment, the issuance of such a protective decree or the
entry of an order having similar effect or (z) is not dismissed within 15
days, or (iii) the making by a person of a general assignment for the benefit
of creditors or (iv) the admission in writing by a person of such person's
inability to pay such person's debts as they become due.
(q) Intentionally Omitted.
(r) "Liquidation Proceeds" means, with respect to any Receivable, all
funds, collections and proceeds collected from whatever source in respect
thereof and related Financed Vehicle (including, but not limited to,
collections, insurance proceeds, dealer recourse and third party originator
recourse) during such Collection Period.
(s) "Lockbox Depository" means Capital Bank and/or such other financial
institution as may be mutually agreed upon by Servicer and Client.
(t) "Obligor" means, with respect to a Receivable, the purchaser of the
Financed Vehicle, each co-purchaser, co-signer and guarantor, or any other
person responsible for payments under the Receivable.
(u) "Receivable" means a security agreement, loan, contract, motor
vehicle retail installment sale contract and/or other document evidencing the
indebtedness of an Obligor to Client.
(v) "Servicer" or "SAC" means SENTINEL ACCEPTANCE CORPORATION, a
Florida corporation.
ARTICLE 2.
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 2.1 APPOINTMENT AND DUTIES OF SERVICER. Client hereby appoints
the Servicer to manage, administer, service and receive collections on the
Receivables as specified herein and to otherwise perform the duties of
servicer. In performing its duties hereunder, the Servicer shall have full
power and authority to do or cause to be done any and all things in
connection with such servicing and administration which it may deem necessary
or desirable, within the terms of this Servicing Agreement. Specifically,
Servicer will provide the following services:
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(a) Boarding Functions:
(i) Maintain Dealer files
(ii) Document review/new loan preparation
(iii) New loan input
(iv) Welcome letters
(v) Review of files to confirm presence of required documents.
(vi) Unless terminated by Client in writing with seven (7) days
advance notice, first payment reminder telephone calls, to be
attempted five (5) days prior to first payment.
(b) File Maintenance/Document Control Functions:
(i) File retention
(ii) Track customer collision insurance
(iii) Paid in full loans
(c) Customer Service Functions
(i) Billing receipts (i.e., monthly statements)
(ii) Customer inquiries
(iii) Research
(iv) Loan maintenance
(v) Document retrieval
(d) Payment Processing Functions:
(i) Coordinate lockbox procedures
(ii) Receive lockbox payments
(iii) Record loan payment information
(iv) ACH transactions
(v) Western Union processing
(vi) NSF referrals
(e) Reporting Functions:
(i) Prepare Servicer's Distribution Date Certificate to Client
(ii) Prepare other reports listed on Exhibit B.
(f) Collection Functions:
(i) Delinquency notices
(ii) Telephone contact with delinquent Obligors
(iii) Skip tracing
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Section 2.2 Intentionally Omitted.
Section 2.3 COLLECTION OF RECEIVABLE PAYMENTS: DEFAULTED RECEIVABLES.
(a) The Servicer shall be responsible for collection of payments called
for under the terms and provisions of the Receivables, as and when the same
shall become due and shall follow collection procedures as it follows with
respect to all comparable automobile receivables that it services for itself
or others and consistent with loan servicing industry standards. The
Servicer may grant extensions, rebates or adjustments on a Receivable, or
modify the original due date of a Receivable (i) if such extensions are
limited to two (2), one (1) month extensions in any consecutive twelve (12)
month period, (ii) six (6) consecutive payments have been made by the Obligor
at the time such extension is made, and (iii) a sufficient amount of interest
due shall have been collected to forward the due date. The Servicer may in
its reasonable discretion waive any late payment charge or any other fees
that may be collected in the ordinary course of servicing a Receivable. In no
event shall the principal balance of a Receivable be reduced, except in
connection with a settlement in the event the Receivable becomes a Defaulted
Receivable (as defined above).
(b) If Servicer shall follow the following collection procedures with
respect to each Receivable. If a scheduled payment due under a Receivable is:
(i) 5 days past due - a past due notice is mailed.
(ii) 10 days past due - a second past due notice is mailed.
(iii) 15 days past due - telephone and written communication is
commenced with the Obligor.
(iv) 30 days past due - a repossession order is issued.
(v) On the day of repossession, a Notice of Sale is mailed to the
Obligor.
(c) The Servicer shall include information regarding Delinquent
Receivables and Defaulted Receivables in the Distribution Date Certificate to
Client.
Section 2.4 REALIZATION UPON RECEIVABLES. Title tracking,
repossession, repair, sale of collateral, filing of insurance claims, dealer
repurchase, and litigation are client responsibilities, and Servicer will not
perform these functions. Servicer, however, at the request of the Client
will engage repossession firms to repossess Financed Vehicles securing
Defaulted Receivables.
Section 2.5 [THIS SECTION RESERVED].
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Section 2.6 MAINTENANCE OF SECURITY INTERESTS IN FINANCED VEHICLES AND
RECEIVABLES.
(a) The Servicer shall retain all responsibility regarding obtaining
and maintaining perfection of the security interest created by each
Receivable in the related Financed Vehicles.
Section 2.7 COVENANTS OF SERVICER: NOTICES.
(a) The Servicer shall (1) not release any Financed Vehicle securing
any Receivable from the security interest granted by such Receivable in whole
or in part except in the event of payment in full by the Obligor thereunder
or upon transfer of the Financed Vehicle to a successor purchaser of the
vehicle following repossession by the Servicer, (2) not impair the rights of
Client in the Receivable, (3) not increase the number of scheduled payments
due under a Receivable except as permitted herein, (4) not sell, pledge,
assign, or transfer to any other person, or grant, create, incur, assume, or
suffer to exist any lien on any Receivable transferred to Client or any
interest therein, (5) immediately notify Client of the existence of any lien
on any such Receivable, (6) defend the right, title, and interest of Client
in, to and under such Receivables, against all claims of third parties
claiming through or under the Servicer, (7) promptly notify Client of the
occurrence of any Event of Servicing Default and any breach by Client of any
of its covenants or representations and warranties contained herein.
(b) The Servicer shall promptly notify Client of any actual knowledge
on its part of any (i) abandonment of any Financed Vehicle, (ii) adverse
material change in the condition of any Financed Vehicle, (iii) failure on
the part of the related Obligor to keep any Financed Vehicle insured or in
operating condition and repair, (iv) permanent or substantial injury to any
Financed Vehicle caused by accident, unreasonable use, abuse or neglect, and
(v) any unusual matter which would adversely affect or result in diminution
of the value of any Financed Vehicle.
(c) The Servicer shall promptly notify Client upon learning of any
Insolvency Proceeding involving any Obligor, or the death or incapacity of
any Obligor (including co-signers and guarantors).
(d) The Servicer will promptly advise Client of any inquiry received
from an Obligor which contemplates the consent of Client and as to which the
Servicer does not have the express authority to give to grant without the
prior approval of Client. Inquiries requiring consent of Client shall
include, but not be limited to, inquiries about settlement of any unasserted
claim or defense, or compromise of any amount an Obligor owes or any other
matters the Servicer should reasonably understand are not within the
Servicer's authority under this Servicing Agreement.
(e) The Servicer shall maintain an errors and omissions insurance
policy providing coverage in an amount of not less than $1,000,000 and a
fidelity bond in an
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amount of not less than $100,000, in such form as is customary for loan
servicers acting in respect of mortgage loans or consumer loans on behalf of
institutional investors therein.
Section 2.8 Intentionally Omitted.
Section 2.9 SERVICING FEE. The Servicer shall be paid a monthly
servicing fee ("Servicing Fee") with respect to each Receivable serviced
under this Servicing Agreement during a Collection Period of $15.00 per
Receivable. The Servicer shall be paid a one-time boarding fee of $10.00 per
Receivable and a one time administrative fee of $100 per Receivable. The
Servicing Fee for any Receivables which are not part of a Conforming Pool
shall be separately quoted by Servicer, based upon Servicer's evaluation of
the quality of the Receivables. The Servicing Fee shall be payable on the
Distribution Date following each Collection Period, and shall be deducted by
the Servicer from the Collections received. The Servicing Fee shall be full
compensation for the services contemplated herein (except for the services
provided for in Section 2.13 (b) hereof, which shall be paid as set forth
herein). The Servicer shall be entitled to a one time marketing fee of
$150.00 per contract.
Section 2.10 DISTRIBUTION DATE CERTIFICATES. The Servicer shall
deliver to Client on the Distribution Date, a Distribution Date Certificate
hereto containing all information necessary for Client to make the
distributions required on such date to the trustee under that certain Trust
Indenture dated _____, 1997 between Client and ___, as Trustee Servicer,
Client, or any other parties entitled to a distribution on such Distribution
Date.
Section 2.11 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer shall
deliver to Client on or before March 31 of each year, a certificate of an
officer of the Servicer, dated effective as of December 31 of the preceding
year, stating that (i) a review of the activities of the Servicer during the
preceding 12-month period and of its performance under this Servicing
Agreement has been made under such officer's supervision, and (ii) based on
such review, the Servicer has materially fulfilled all its obligations under
this Servicing Agreement throughout such year, or, if there has been a
default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof.
Section 2.12 FINANCIAL STATEMENTS: ANNUAL SERVICING REPORTS.
(a) Commencing on the anniversary date of the Agreement, on or before
ninety (90) days after the end of each fiscal year of the Servicer, the
Servicer shall deliver to Client, a copy of the financial statements of
Servicer containing a report of a firm of independent public accountants of
recognized national standing selected by the Servicer to the effect that such
firm has examined certain books and records of Servicer and that, on the
basis of such examination conducted substantially in compliance with
generally accepted audit standards such financial statements accurately
reflect the financial condition of Servicer.
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(b) On or before ninety (90) days after the end of its fiscal year, the
Servicer shall cause a firm of independent public accountants which is a
member of the American Institute of Certified Public Accountants (which firm
shall be reasonably acceptable to Client) to furnish a statement to Client,
to the effect that such firm has examined certain documents and records
relating to the servicing of the Receivables and the reporting requirements
with respect thereto and that, on the basis of such examination, such
servicing and reporting requirements have been conducted in compliance with
this Agreement, except for (i) such exception as such firm shall believe to
be immaterial, and (ii) such other exceptions as shall be set forth in such
statement. The cost to Servicer of such accountant's statements shall be
limited to 2% of the revenue payable to the Servicer under this Agreement for
the fiscal year in question, and any excess shall be paid by the Client or
other party who requested such accountant's statements.
Section 2.13 COSTS AND EXPENSES.
(a) Except as set forth in Section 2.13(b) below, all costs and
expenses incurred by the Servicer in carrying out its duties hereunder, fees
and expenses of independent accountants and all other fees and expenses shall
be paid or caused to be paid by the Servicer out of the compensation to be
paid to or retained by the Servicer pursuant to Section 2.9.
(b) During the term of this Servicing Agreement, the Servicer shall be
reimbursed by Client for all actual out of pocket costs and expenses incurred
in connection with the performance of its duties hereunder including, but not
limited to the following:
(i) Any compensation paid to outside legal counsel retained at
Client's direction to protect the interests of Client, or if Client
is not the owner of the Receivables, the Owner's interest in assets
administered under this Servicing Agreement;
(ii) Any compensation paid to professional accountants retained
at Client's direction to review the assets administered under this
Servicing Agreement;
(iii) Any sales, franchise, income, excise, personal property or
other taxes arising from or related to any Receivables administered
under the Servicing Agreement;
(iv) Other requested services will be quoted on a time and
materials basis utilizing the Servicer's current pricing schedule;
and paid by requesting party;
(v) Expenses for special forms and materials, freight, tapes,
communications, lock-box charges and other expenses approved by
Client.
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(c) Servicer's rights to reimbursement of expenses shall not be
contingent upon success in skip tracing.
(d) Unless prior approval from Client is obtained, skip tracing
expenses shall be limited to $350.00.
(e) In the event Client requests Servicer to perform any functions
requiring Servicer to incur additional out-of-pocket expenses other than
those described in Section 2.13(b) above, Client will give Servicer written
authorization to perform such services, which shall entitle Servicer to
reimbursement for the out-of-pocket expenses incurred in connection
therewith. Unless such prior written authorization is given, Servicer shall
not be obligated to undertake any matters which would incur any out-of-pocket
expenses not described in Section 2.13(b) above.
(f) In the event Servicer seeks but does not obtain in a specific
instance approval to incur expenses in excess of those stated herein,
Servicer shall not be obligated to proceed with the recommended activity as
to which such approval is sought.
Section 2.14 Intentionally Omitted.
Section 2.15 DELIVERY OF COPIES OF DOCUMENTS TO THE SERVICER.
(a) The Servicer shall maintain copies or originals of the following
documents in its files with respect to each Receivable and the Financed
Vehicle related thereto, provided such is delivered to Servicer by Client:
(i) the application of the Obligor for credit;
(ii) a copy (but not the original) of the retail installment sale
contract and any amendments thereto; provided, however, that the
Servicer shall deliver any original amendments to the retail
installment sale contract to Client or escrow agent, if applicable,
immediately following execution thereof;
(iii) a copy of the certificate of insurance or application
therefor with respect to the Financed Vehicle securing the
Receivable;
(iv) a monthly delinquency report on all outstanding Receivables
in form and content reasonably acceptable to Client (provided, that
individual delinquency reports need not be kept in such
individual's files);
(v) a copy of the score sheet, proof of income and references,
credit report and AAP approval sheet utilized by Client in the
origination of the Loan to the Obligor,
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(vi) a copy of the Vehicle Invoice;
(vii) a copy of the Service contract, if any, on the Financed
Vehicle;
(viii) Intentionally Omitted;
(ix) such other documents as the Servicer may reasonably request
in order to accomplish its duties under this Servicing Agreement.
The Servicer shall keep satisfactory books and records pertaining to
each Receivable and shall make periodic reports in accordance with this
Servicing Agreement. Such records may not be destroyed or otherwise disposed
of except as provided herein and as allowed by applicable laws, regulations
or decrees, provided, however, that Servicer may periodically purge records
in accordance with Servicer's standard record retention policies, which shall
comply with all applicable laws. All documents, whether developed or
originated by the Servicer or not, reasonably required to document or to
properly administer any Receivable shall remain at all times the property of
Client. The Servicer shall not acquire any property rights with respect to
such records, and shall not have the right to possession of them except as
subject to the conditions stated in this Servicing Agreement. The Servicer
shall bear the entire cost of restoration in the event any Collateral
Documents (as defined below) shall become damaged, lost or destroyed while in
the Servicer's possession or under the Servicer's control.
Section 2.16 POSSESSION OF ORIGINAL COLLATERAL DOCUMENTS: SERVICER
DOCUMENTS.
(a) The original titles and retail installment contracts shall be held
by the CSC Logic, a division of Computer Sciences Corporation or other party
designated by Client. Unless otherwise specified herein, the Servicer shall
maintain physical possession of good and legible copies of the instruments
and documents listed in paragraph 2.15(a) above, and such other instruments
or documents that modify or supplement the terms or conditions of any of the
foregoing. Collectively, all of the documents described in this paragraph
2.16(a) with respect to a Receivable are referred to as "Collateral
Documents". The Servicer shall hold all Collateral Documents in trust for the
benefit of Client, and all Collateral Documents shall remain the property of
Client. The Servicer shall respond to all third party inquiries concerning
ownership of the Receivables by indicating that the Receivables are the
property of Client.
(b) The Servicer shall maintain physical possession of good and legible
copies of all instruments, documents, correspondence and memoranda generated
by or coming into the possession of the Servicer (including, but not limited
to, proof of auto insurance policy, insurance premium receipts, ledger
sheets, payment records, insurance claim files, correspondence and current
and historical computer data files, that are required to document or service
any Receivable. Collectively, all the documents described in this paragraph
2.16(b), with respect to a Receivable are referred to as the "Servicer
Documents"). The Servicer hereby agrees that the computer files and other
physical
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records of the Receivables maintained by the Servicer will bear an indication
reflecting that the Receivables are owned by Client and that all Servicer
Documents shall remain the property of Client.
Section 2.17 WARRANTIES, REPRESENTATIONS AND INDEMNITY WITH RESPECT TO
DOCUMENTS. As to each document set forth in paragraph 2.16(a) hereof, the
Client represents that the Receivables are free of illegal or prohibited
powers or provisions. Client warrants that the enforcement thereof by the
Servicer will not subject the Servicer to liability under any federal, state
or local law, provided such enforcement by the Servicer is conducted in
accordance with the provisions of this Servicing Agreement and the Servicer's
normal operating procedures, and will indemnify Servicer from all liability
and costs, including reasonable legal fees, incurred as a result of the
presence of any such illegal or prohibited provision.
Section 2.18 STANDARD OF CARE. In performing its duties and
obligations hereunder pursuant to this Servicing Agreement, the Servicer
will comply with all applicable state and federal laws and will exercise that
degree of skill and care consistent with the highest degree of skill and care
that the Servicer exercises with respect to similar motor vehicle retail
installment sales contracts or loans owned and/or serviced by the Servicer
and that is consistent with prudent industry standards, and will apply in
performing such duties and obligations, those standards, policies and
procedures consistent with the best standards, policies and procedures the
Servicer applies with respect to similar motor vehicle retail installment
contracts or loans owned or serviced by it; provided, however, that
notwithstanding the foregoing, the Servicer shall not, except pursuant to a
judicial order from a court of competent jurisdiction, or as otherwise
required by applicable law or regulation, release or waive the right to
collect the unpaid balance on any Receivable. In performing its duties and
obligations hereunder, the Servicer shall comply with all applicable federal
and state laws and regulations, shall maintain all state and federal licenses
and franchises necessary for it to perform its servicing responsibilities
hereunder, and shall not impair the rights of Client (and, if applicable, any
escrow agent) in the Receivables.
Section 2.19 RECORDS. The Servicer shall maintain or cause to be
maintained such books of account and other records as will enable Client to
determine the status of each Receivable.
Section 2.20 INSPECTION.
(a) At all times during the term hereof, the Servicer shall afford
Client, its authorized agents, and any escrow agent, if applicable,
reasonable access during normal business hours to the Servicer's records
relating to the Receivables and will cause its personnel to assist in any
examination of such records. The examination referred to in this Section 2.20
will be conducted in a manner which does not unreasonably interfere with the
Servicer's normal operations or customer or employee relations. Without
otherwise limiting the scope of the examination Client or any applicable
escrow agent may, using
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generally accepted audit procedures, verify the status of each Receivable and
compliance with the standards represented to exist as to each Receivable in
this Servicing Agreement. Nothing herein shall require Client or any
applicable escrow agent to conduct any inspection pursuant to this Section.
Nothing in this Section shall affect the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information regarding
the Obligors, and the failure of the Servicer to provide access to
information as a result of such obligation shall not constitute a breach of
this Section 2.20. To the extent that Client shall participate in any
securitization or collateralization financing, the Servicer shall cooperate
with Client and the entities involved in such financing by preparing such
reports, tabulations, reconciliations and other data production activities
necessary for such financing at Client's expense.
(b) All information obtained by Client or any applicable escrow agent
regarding the Obligors and the Receivables, whether upon exercise of its
rights under this Section 2.20 or otherwise, shall be maintained by Client or
any applicable escrow agent in confidence to the degree required by
applicable privacy or other laws, and shall not be disclosed to any other
person, except as permitted or required by applicable law or regulation.
Section 2.21 ENFORCEMENT. All costs of enforcement of the Receivables
will be reimbursed to Servicer by Client.
Section 2.22 SUBSTITUTION OF COLLATERAL. In the event a Financed
Vehicle sustains significant physical damage such that the insurance company
carrying the physical damage insurance covering such Financed Vehicle
determines that the Financed Vehicle is not repairable, the Servicer or an
affiliate thereof may permit the Obligor to pledge a vehicle of equal or
greater market value than that of the Financed Vehicle immediately prior to
sustaining the physical damage. The second vehicle shall be substituted as
the collateral ("Substituted Financed Vehicle") for the Receivable and the
terms of the Receivable shall not be amended or modified except to reflect
the substituted collateral. The Servicer shall, within 90 days of the
purchase of the Substituted Financed Vehicle, cause the certificate of title
for the Substituted Financed Vehicle to be delivered to Client or the escrow
agent, as applicable. The Servicer shall make appropriate notation in its
records of the substitution of the collateral.
ARTICLE 3.
LOCKBOX ACCOUNT; COLLECTIONS;
STATEMENTS TO CLIENT
Section 3.1 LOCKBOX ACCOUNT. The Client with the assistance of the
Servicer has established the initial Lockbox Account Depository with respect
to the Receivables. Prior to the appointment of a successor Lockbox
Depository, the Servicer shall provide 30 days' notice to the Client of such
proposed appointment and obtain the written consent of such appointment from
Client, which consent shall not be unreasonably withheld.
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Section 3.2 COLLECTIONS. The Servicer shall remit to the Lockbox
Account as soon as practical, but in no event later than the close of
business (Florida time) on the Business Day after receipt thereof by the
Servicer, all payments by or on behalf of the Obligors, including proceeds
from repurchase of Receivables, as Liquidation Proceeds, collected during the
Collection Period, in respect of a Receivable being serviced by the Servicer;
provided, however, that amounts remitted by or on behalf of Obligors under
the terms of, or with respect to, the Receivables, representing NSF charges,
late fees, extension fees or prepayment charges allowed by applicable law,
shall be retained by the Servicer as additional compensation.
Section 3.3 DISTRIBUTIONS FROM THE LOCKBOX ACCOUNT.
(a) The Servicer shall provide the Lockbox Account Depository with a
report providing instructions related to cleared funds from the Lockbox
Account. Such reports shall also indicate amounts on deposit representing
uncleared funds.
(b) On or before the eighth (8th) Business Day of each month,
commencing the first month following the first Collection Period, the
Servicer shall submit the Distribution Date Certificate to Client. The
Distribution Report shall contain a description of all amounts then due and
owing the Servicer, Client and to all other parties for such Collection
Period. Client shall instruct the Lockbox Account Depository to distribute
all uncontested amounts to the recipients thereof on or before the
Distribution Date. Any amounts that are contested shall be distributed upon
the direction of Client to the recipient thereof following the resolution of
the amount to the satisfaction of Client. Client shall instruct the Lockbox
Account Depository to make or permit withdrawals from the Lockbox Account
only as provided in this Servicing Agreement and to transmit data on all
amounts received or paid from the Lockbox Account to the Servicer.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The
Servicer hereby represents, warrants and covenants to Client that as of the
date of this Servicing Agreement or as of such date specifically provided
herein:
(a) The Servicer is a corporation duly organized and validly existing
under the laws of the State of Florida.
(b) All necessary partnership, regulatory or other similar action has
been taken to authorize and empower the Servicer and the officers or
representatives acting on the Servicer's behalf, and the Servicer has full
power and authority to execute, deliver and perform this Servicing Agreement;
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(c) This Servicing Agreement has been duly authorized, executed and
delivered by the Servicer and the performance and compliance with the terms
of this Servicing Agreement will not violate the Servicer's partnership
agreement or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach of,
any material contract, indenture, lease, credit agreement or any other
agreement or instrument to which the Servicer is a party or which may be
applicable to the Servicer or any of its assets;
(d) The Servicer is duly licensed and qualified to perform the
functions specified herein and this Servicing Agreement constitutes a valid,
legal and binding obligation of the Servicer, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors' rights
generally and to general principles of equity;
(e) The Servicer is not in violation of, and the execution, delivery
and performance of this Servicing Agreement by the Servicer will not
constitute a violation with respect to any order or decree of any court or
any order, regulation or demand of any federal, state, municipal or
governmental agency, which violation might have consequences that would
materially and adversely affect the condition (financial or other) or
operations of the Servicer or its properties or might have consequences that
would affect the performance of its duties hereunder,
(f) No proceeding of any kind, including but not limited to litigation,
arbitration, judicial or administrative, is pending or threatened against or
contemplated by the Servicer which would under any circumstance have an
adverse effect on the execution, delivery, performance or enforceability of
this Servicing Agreement;
(g) No information, certificate of an officer, statement furnished in
writing or report delivered to Client, or if applicable any escrow agent, by
the Servicer will, to the knowledge of the Servicer, contain any untrue
statement of a material fact or omit a material fact necessary to make the
information, certificate, statement or report not misleading, and
(h) Intentionally Omitted.
Section 4.2 REPRESENTATIONS AND WARRANTIES OF THE CLIENT. The Client
hereby represents, warrants and covenants to the Servicer that as of the date
of this Servicing Agreement or as of such date specifically provided herein:
(a) DUE ORGANIZATION AND GOOD STANDING. The Client is a limited
partnership duly organized and in good standing under the laws of the State
of Florida, with power and authority to own its properties and to conduct its
business as such properties are owned and such business is presently
conducted.
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(b) POWER AND AUTHORITY. The Client has the power and authority to
execute and deliver this Servicing Agreement and to carry out its terms; and
the execution, delivery, and performance of this Servicing Agreement have
been duly authorized by the Client by all necessary corporate or partnership
action.
(c) BINDING OBLIGATIONS. This Servicing Agreement shall constitute a
legal, valid, and binding obligation of the Client enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a proceeding
in equity or at law.
(d) NO VIOLATION. The consummation of the transactions contemplated by
this Servicing Agreement and the fulfillment of the terms thereof shall not
conflict with, result in any breach of any of the terms, and the provisions
of, nor constitute (with or without notice or lapse of time) a default under,
the articles of organization, charter or by-laws of the Client, or to the
best of the Client's knowledge, after reasonable investigation, any
indenture, agreement, or other instrument to which the Client is a party or
by which it shall be bound; nor result in the creation or imposition of any
lien upon any of its properties pursuant to the terms of any such indenture,
agreement, or other instrument (other than the Agreement); nor violate any
law or, to the best of the Client's knowledge, any order, rule, or regulation
applicable to the Client of any court or of any federal or state regulatory
body, administrative agency, or other governmental instrumentality having
jurisdiction over the Client or its properties.
(e) NO PROCEEDINGS. There are no proceedings or investigations pending
or, to the Client's best knowledge, threatened before any court, regulatory
body, administrative agency, or other governmental instrumentality having
jurisdiction over the Client or its properties (A) asserting the invalidity
of this Servicing Agreement, (B) seeking to prevent the consummation of any
of the transactions contemplated by this Servicing Agreement, or (C) seeking
any determination or ruling that might materially and adversely affect the
performance by the Client of its obligations under, or the validity or
enforceability of, this Servicing Agreement.
Section 4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in this Article IV are continuous
and shall survive the date of this Servicing Agreement. Upon discovery by
either Client or the Servicer of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties.
ARTICLE 5.
DEFAULT, REMEDIES AND LIABILITY
Section 5.1 EVENTS OF DEFAULT. Any of the following acts or occurrences
shall constitute an Event of Default under this Servicing Agreement:
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(a) The failure to make any payment required to be made under the terms of
this Servicing Agreement which failure continues unremedied for a period of
thirty (30) Business Days after written notice of such failure shall have been
given to the party required to make such payment;
(b) The failure to observe or perform in any material respect any
covenant or agreement required to be performed under this Servicing Agreement
which failure continues unremedied for a period of fifteen (15) days after
written notice of such failure shall have been given to the breaching party;
(c) The entry with respect to either Client or the Servicer of a decree
or order for relief by a court or agency or supervisory authority having
jurisdiction under any present or future federal or state bankruptcy,
insolvency or similar law;
(d) A conservator, receiver or liquidator is appointed with respect to
either Client or the Servicer in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings;
(e) Client or the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(f) Any representation, warranty or statement made in this Servicing
Agreement or in any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time
when the same shall have been made.
Section 5.2 REMEDIES. If an Event of Default as described in Section
5.01 shall have occurred and be then continuing the non-breaching party may
exercise any right or remedy available to it under this Servicing Agreement
or under applicable law and, in addition, may terminate the rights and duties
of the defaulting party under this Servicing Agreement by giving such party
thirty (30) days prior written notice. If an Event of Default occurs as
described in Section 5.01 (a) or (c) through (f) above, this Servicing
Agreement may be terminated effective immediately upon either Client's or
Servicer's notice of default under Section 5.01 (a) or (c) through (f) above.
Section 5.3 LIABILITY OF THE SERVICER. Servicer shall be strictly
accountable to Client for all payments actually received on Receivables,
without limitation as to amount. However, in no event shall Servicer be
liable for any consequential, incidental or special damages including, but
not limited to, damages for loss of currency, funds, data, profits, goodwill
or prospective business opportunity. In event of any error, mistake, or
breach of this Agreement by Servicer, other than misappropriation of funds as
described in the first sentence of this Section 5.03, (collectively
"errors"), it is agreed that the measure of Servicer's liability shall be:
(a) the amounts by Client to third parties to correct or as the direct result
of, any errors by Servicer, and (b) any amount by which Client is underpaid
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as a result of Servicer's errors, which Client is unable to recover after
making reasonable efforts to do so; but in no event shall Servicer's
liability exceed the lesser of $50,000.00 or the total servicing fees paid by
Client to Servicer during the twelve (12) months immediately preceding the
assertion of a claim by Client. All software provided or selected by Client,
is without warranty by Servicer, and Client assumes all risk for any
software-based errors. Any errors in third party software selected by
Servicer shall not subject Servicer to any liability unless Servicer had
actual knowledge of such errors or should have been aware of such errors. The
only warranties made by Servicer are the specific obligations contained in
this Agreement, and there are no other warranties, express or implied,
including but not limited to merchantability or fitness for a particular
purpose.
Section 5.4 FORCE MAJEURE. Notwithstanding anything herein to the
contrary, the Servicer shall not be considered in default hereunder or have
any liability to any party for any failure to perform if such failure arises
out of the following causes beyond the control of the Servicer: acts of God
or a public enemy, fire, flood or war.
ARTICLE 6.
TERMINATION OF AGREEMENT
Section 6.1 TERM OF AGREEMENT. The initial term of this Agreement shall
begin on the Effective Date as set forth above and shall continue for a
period of five (5) years. Thereafter, this Agreement shall automatically
renew for periods of one (1) year each unless either Client or the Servicer
gives notice of non-renewal (a "Non-Renewal Notice") to the other party at
least ninety (90) days prior to the expiration of the initial term or any
renewal term.
Section 6.2 EFFECT OF TERMINATION. Upon termination of this Servicing
Agreement, the Servicer shall, at the direction of Client, promptly return
all Collateral Documents and Servicer Documents and any related files and
correspondence in its possession as are related to the management of the
Receivables and the services provided hereunder.
Section 6.3 TRANSFER OF SERVICING. Upon termination of this Servicing
Agreement, the Servicer shall cooperate in the transfer of the Servicer
Documents and Collateral Documents. Any matters pending at the effective
termination date will continue to be processed in an orderly and timely
fashion; it being intended, however, that responsibility for the Receivables
shall transfer as quickly as practicable and in any event within thirty (30)
days after the termination date.
Section 6.4 TERMINATION OF SERVICER.
(a) Either the Servicer or the Client may terminate this Servicing
Agreement by giving written notice of such termination to the other party no
less than ninety (90) days prior to the effective date of such termination.
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(b) Appointment of Successor Servicer. Upon receipt of notice of
termination pursuant to Section 6.04 hereof, the predecessor Servicer shall
continue to perform its functions as Servicer only until the date specified
in such termination notice or, if no such date is specified in a notice of
termination, until the date 90 days from receipt of such notice.
Section 6.5 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, OR RESIGNATION OF SERVICER. Any person (a) into which the
Servicer may be merged or consolidated, (b) which may result from any merger
or consolidation to which the Servicer shall be a party, (c) which may
succeed to the properties and assets of the Servicer substantially as a
whole, or (d) which may succeed to the duties and obligations of the Servicer
under this Servicing Agreement following the resignation of the Servicer,
which person executes an agreement of assumption to perform every obligation
of the Servicer hereunder, shall be the successor to the Servicer or under
this Servicing Agreement without further act on the part of any of the
parties to this Servicing agreement; provided, however, that (i) immediately
after giving effect to such transaction, no Event of Servicing Default (as
defined in Section 5.01), and no event which, after notice or lapse of time,
or both, would become an Event of Servicing Default shall have happened and
be continuing, (ii) the Servicer shall have delivered to Client an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, succession or resignation and such agreement of assumption comply
with this Section 6.05 and that all conditions precedent provided for in this
Servicing Agreement relating to such transaction have been complied with and
(iii) the Servicer shall have delivered to Client an Opinion of Counsel
either (A) stating that, in the opinion of such counsel, all financing
statements, continuation statements and amendments and notations on
certificates of title thereto have been executed and filed that are necessary
fully to preserve and protect the interest of Client in the Receivables and
the Financed Vehicles, and reciting the details of such filings, or (B)
stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
ARTICLE 7.
MISCELLANEOUS PROVISIONS
Section 7.1 AMENDMENT. This Servicing Agreement may only be amended by
mutual written consent of the parties hereto. Other agreements made
contemporaneously as part of the acquisition of the Receivables (such as any
purchase agreement, escrow agreement, etc.) to which Servicer is not a party
may be amended without Servicer's consent, but no amendment thereon
disadvantageous to the Servicer shall be binding upon the Servicer unless
Servicer shall have consented to such change in writing.
Section 7.2 WAIVERS. The provisions of this Servicing Agreement may
only be waived by written consent of the party making the waiver. The failure
of either party at any time to require performance by the other of any
provision of this Servicing Agreement shall in no way affect that party's
right to enforce such provision, nor shall the waiver by
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either party of any breach of any provision of this Servicing Agreement be
taken or held to be a waiver of any further breach of the same provision or
any other provision.
Section 7.3 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered
personally or mailed by first-class registered or certified mail, postage
prepaid, or by telephonic facsimile transmission and overnight delivery
service, postage prepaid, in any case addressed as follows:
To the Servicer: SENTINEL ACCEPTANCE CORP.
210 N. University Drive, Suite 120
Coral Springs, Florida 33071
ATTN: Ivan Hoser
(954) 796-9915; FAX: (954) 796-8825
To Client: SENTINEL FINANCING LTD., L.P.
210 N. University Drive, Suite 800
Coral Springs, Florida 33071
ATTN: Ivan Hoser
(954) 796-9915; FAX: (954) 796-8825
Such notice, request, consent or other communication shall be deemed given
when so delivered, or if mailed two days after deposit with the U.S. Postal
Service.
Section 7.4 SEVERABILITY OF PROVISIONS. If one or more of the
provisions of this Servicing Agreement shall be held invalid for any reason,
such provisions shall be deemed severable from the remaining provisions of
this Servicing Agreement and shall in no way affect the validity or
enforceability of such remaining provisions. To the extent permitted by law,
the parties hereto hereby waive any law which renders any provision of this
Servicing Agreement prohibited or unenforceable.
Section 7.5 RIGHTS CUMULATIVE. All rights and remedies under this
Servicing Agreement are cumulative, and none is intended to be exclusive of
another. No delay or omission in insisting upon the strict observance or
performance of any provision of this Servicing Agreement, or in exercising
any right or remedy, shall be construed as a waiver or relinquishment of such
provision, nor shall it impair such right or remedy. Every right and remedy
may be exercised from time to time and as often as deemed expedient.
Section 7.6 NO OFFSET. Prior to the termination of this Servicing
Agreement, the obligations of the Servicer and Client under this Servicing
Agreement shall not be subject to any defense, counterclaim or right of
offset which the Servicer or Client may have against the other, whether in
respect of this Servicing Agreement, any Receivable or otherwise, but this
provision shall not limit the Servicer's right to pay its Servicing Fees and
Expenses from the Collections received.
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Section 7.7 INSPECTION AND AUDIT RIGHTS. The Servicer agrees that,
upon prior written notice, it will permit any representative of Client,
during the Servicer's normal business hours, to examine the Collateral
Documents or the Servicer Documents, all the books of account, records,
reports and other papers of the Servicer relating to the Receivables, to make
copies and extracts therefrom, to cause such books to be audited by
independent certified public accountants selected by the Servicer or Client,
as the case may be, and to discuss its affairs, finances and accounts
relating to the Receivables with its officers, employees and independent
certified public accountants, all at such reasonable times and as often as
may be reasonably requested. Any expense incident to the exercise by Client
of any right under this paragraph 7.7 shall be borne by Client, provided that
if an audit is made during the continuance of an Event of Default by
Servicer, the expense incident to such audit shall be borne by the Servicer.
Section 7.8 POWERS OF ATTORNEY. Servicer is made Client's
attorney-in-fact for the limited purpose of signing documents necessary to
release a lien upon full payment of a Receivable. With respect to other
matters, Client shall, from time to time, provide to the employees of the
Servicer limited, revocable powers of attorney or other such written
authorizations as may be appropriate to enable the Servicer to perform its
obligations under this Servicing Agreement; provided however, that Client
shall not be required to provide such powers with respect to any matter for
which Client does not have authority to perform itself.
Section 7.9 CAPTIONS. The article, paragraph and other headings
contained in this Servicing Agreement are for reference purposes only, and
shall not limit or otherwise affect the meaning hereof.
Section 7.10 DECISIONS AND DIRECTION. Whenever the Servicer shall
submit a matter to the Client for decision and/or direction, the Client shall
within a reasonably prompt period advise the Servicer of its decision or of
the further information needed for a decision; provided that if no comment is
received by the Servicer within five (5) business days of such submission or
request for additional information (whichever is later) that matter may be
deemed determined affirmatively in respect to the Servicer's recommendation,
if any, and the Servicer may act accordingly.
Section 7.11 ASSIGNMENT AND BINDING EFFECT. This Servicing Agreement
may be assigned only with the written consent of the parties hereto; however,
in the event of an assignment, all provisions of this Servicing Agreement
shall be binding upon and inure to the benefit of the respective successors
and assigns of the parties hereto. Notwithstanding the generality of the
foregoing the rights of Client hereunder maybe assigned to any Indenture
Trustee for debt obligations of Client.
Section 7.12 LEGAL HOLIDAYS. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day in Coral Springs, Florida, such
action, delivery or payment need not be made on that date, but may be made on
the next succeeding Business Day.
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Section 7.13 COUNTERPARTS. This Servicing Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and such counterparts shall constitute but
one and the same instrument.
Section 7.14 GOVERNING LAW. This Servicing Agreement shall be deemed
entered into with and shall be governed by and interpreted in accordance with
the laws of the State of Florida, except to the extent that it is mandatory
that the laws of some other jurisdiction apply.
Section 7.15 PARTIES. This Servicing Agreement shall inure solely to
the benefit of and shall be binding upon the parties hereto, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any equitable right, remedy or claim under
or in respect of or by virtue of this Servicing Agreement or any provision
contained herein.
Section 7.16 CONFIDENTIALITY OF SERVICER'S PROPRIETARY INFORMATION.
Client acknowledges that the designs, specifications, manuals, documentation
and other materials related to the services performed and the products
produced hereunder by Servicer (collectively "Documentation"), and all other
systems, programs, designs, specifications, manuals, documentation and other
materials which are utilized, developed or made available by the Servicer in
connection with this Servicing Agreement (collectively "Other Materials") are
the confidential, proprietary and/or trade secret property and information of
the Servicer and shall remain as such property and information of the
Servicer, both before and after the term of this Agreement. Client shall not
copy, sell, assign, transfer, distribute or disclose all or any part of the
Documentation or Other Materials to any other person, partnership,
corporation or other entity. Client shall confine the knowledge and use of
the Documentation and Other Materials only to its employees who require such
knowledge and use in the ordinary course and scope of their employment, and
Client and such employees shall use such Documentation and Other Materials
solely in connection with Client's own purposes under this Servicing
Agreement. Upon any expiration or termination of this Agreement, Client shall
promptly return to the Servicer all property or information which is covered
by this section.
Section 7.17 NO SOLICITATION OF EMPLOYEES. During the term of this
Agreement, and for a period of three (3) years after any expiration or
termination of this Agreement, Client shall not directly or indirectly
solicit, attempt to employ or retain, or employ or retain any employee or
representative of the Servicer, independent contractor or otherwise, or take
any other action to induce any person to leave the employ of the Servicer or
to terminate any other relationship with the Servicer.
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Section 7.18 RELATIONSHIP OF THE PARTIES. The relationship of the
parties to this Agreement is that of independent contractors. Neither this
Servicing Agreement nor any of the activities contemplated hereby shall be
deemed to create any partnership, joint venture, agency or employer/employee
relationship between the Servicer or Client.
IN WITNESS WHEREOF, the parties have caused this Servicing Agreement to
be duly executed by their respective authorized representatives on the 1st
day of June, 1997.
SENTINEL FINANCING LTD., L.P.
as Client
By: Sentinel Acceptance Corporation
General Partner
By: ___________________________________________
Ivan Hoser, President
SENTINEL ACCEPTANCE CORPORATION
as Servicer
By: ___________________________________________
Ivan Hoser, President
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated May 28, 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
August 28, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated August 6, 1997, on our audit of the financial statements of
Sentinel Financing LTD., L.P. We also consent to the reference to our firm
under the caption "Experts."
Millward & Co. CPAs
Fort Lauderdale, Florida
August 28, 1997
