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As filed with the Securities and Exchange Commission on July 20, 1998
REGISTRATION NO. 333-29067
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
======================================
AMENDMENT NO. 4 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)
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FLORIDA 6153 65-0776789
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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601 Gateway Blvd., Suite 260, South San Francisco, CA 94080; (650) 869-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JONATHON W. HOLLANDSWORTH
Sentinel Acceptance Corporation
President
601 Gateway Blvd., Suite 260
South San Francisco, CA 94080
(650) 869-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
MARK A. BONENFANT, ESQ.
Buchalter, Nemer, Fields & Younger
a Professional Corporation
601 South Figueroa Street, Suite 2400
Los Angeles, CA 90017-5704
(213) 891-0700
__________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
__________
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
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Item No. and Caption Location or Caption in Prospectus
-------------------- ---------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover of
the Prospectus........................ Cover Page of the Registration
Statement; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page; Outside
Back Cover Page; Available
Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors;
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
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16. Description of Business............... Business
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
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PROSPECTUS
$15,000,000
Sentinel Financing Ltd., L.P.
12% Secured Notes
Due 2003
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 2003
(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 ______________, 1998. The Notes will
mature on _____________, 2003, 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 ON 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
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NOR HAS THE COMMISSION OR ANY STATE SECURITIES AGENCY PASSED ON THE 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%
Total Minimum $ 1,000,000 $ 75,000 $ 925,000
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 Attkisson,
Carter & Akers as placement agent. The Company has agreed to indemnify
Attkisson, Carter & Akers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. The Company
will also pay Attkisson, Carter & Akers a non-accountable expense
allowance not to exceed 1.25% of the principal aggregate amount of Notes
sold. See "Plan of Distribution."
(2) Before deduction of a 1% investment banking and marketing fee payable to
Attkisson, Carter Akers 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 Attkisson, Carter & Akers. All proceeds from the sale of
Notes will be deposited in an escrow account at Greater Bay 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 October 31, 1998, 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 July 31, 2000, unless sooner terminated by
the Company in its sole discretion.
The date of this Prospectus is ___________________________________, 1998
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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
Four Star Financial Services, LLC, a California limited liability company
("Four Star"). Management services will be provided to the Company by SAC.
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. Utilizing state of the art technology to approve, process,
service and collect automobile loans of a "B" and "C" nature, the Company
will leverage long-term relationships established by its sales force. The
Company will employ sophisticated behavioral models developed by Fair-Issac
of San Rafael, CA to support credit decisions, as well as other tools such as
an internally developed, windows based, loan processing and control systems.
The acquisition and portfolio management systems will support the Company's
commitment to manage the portfolio utilizing the debt policies and practices
applied by commercial banks. See "Risk Factors - Availability of Installment
Contracts."
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THE OFFERING
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SECURITIES OFFERED $15,000,000 aggregate principal amount of 12% Secured
Notes due 2003 (the "Notes").
MATURITY _________________, 2003
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."
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 Greater
Bay 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 October 31, 1998, 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 Sterling
National Bank, a national banking association, as trustee
(the "Trustee").
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PLAN OF DISTRIBUTION The Notes will be offered and sold on a "best efforts"
basis on behalf of the Company by Attkisson, Carter &
Akers, a member of the National Association of Securities
Dealers, Inc. 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. INVESTORS WILL BE
REQUIRED TO DELIVER CHECKS FOR THE PURCHASE PRICE MADE
PAYABLE TO GREATER BAY TRUST COMPANY - SENTINEL FINANCING
LTD., L.P. ESCROW ACCOUNT. If the Minimum Subscription
Amount is not reached on or before October 31, 1998, 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 began operations in 1995 and has 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. While management has numerous relationships
with Installment Contract originators, 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. There is no
assurance that the Company will be able to find 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.
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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, 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 Ltd., LP ("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. Jonathan Hollandsworth,
President of SAC will devote approximately twenty-five percent (25%) of his time
to the management of the Company. The balance of the Company's management team
will devote less than five percent (5%) of their time to the Company's
management. 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
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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."
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 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
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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, may 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 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 rejection. The Fair
Credit Reporting Act requires the Company 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, including California where the Company will initially focus
its business, 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
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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."
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
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<PAGE>
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."
12
<PAGE>
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 $ 672,500 67.2% $6,268,750 83.6% $12,742,500 85.0%
Installment
Contracts from
Unaffiliated Third
Parties
Estimated Initial 15,000 1.5 112,500 1.5 225,000 1.5
Expenses Related to
Purchase of
Installment
Contracts(1)
Sales Commissions and 75,000 7.5 562,500 7.5 1,125,000 7.5
Concession(2)
Non-Accountable 12,500 1.25 93,750 1.25 187,500 1.25
Expense Allowance(3)
Investment Banking and 10,000 1.0 75,000 1.0 150,000 1.0
Marketing Fee(4)
Other Offering 215,000 21.5 387,500 5.1 570,000 3.8
Expenses(5)
Total Use of Proceeds $1,000,000 100% 7,500,000 100% $15,000,000 100%
---------- ----- --------- ----- ----------- ----
---------- ----- --------- ----- ----------- ----
</TABLE>
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<PAGE>
(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) The Company will pay Attkisson, Carter & Akers a non-accountable expense
allowance equal to 1.25% of the principal amount of each Note. See "Plan
of Distribution."
(4) An investment banking and marketing fee will be paid to Attkisson, Carter &
Akers 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 Four Star and will be reimbursed by the Company
following the offering.
The Company does not intend to use any proceeds of the offering to
service obligations to Noteholders.
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 Installment
Contracts. See "Business--Business Strategy and Purchase of Installment
Contracts."
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. See "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."
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<PAGE>
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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<PAGE>
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 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."
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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 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
Installment Contracts through agreements with Dealers or other lenders
without direct contact with the borrower. The terms of Installment 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 Installment
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 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
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<PAGE>
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, based on prior experience of its management, 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 will primarily focus on the California market,
but from time to time also evaluate other geographical areas in the United
States for opportunities where management believes the particular regional
economy is sound. Utilizing state of the art technology to approve, process,
service and collect automobile loans of an "B" and "C" nature, the Company
will leverage long-term relationships established by its sales force. The
Company will employ sophisticated behavioral models developed by Fair-Issac
of San Rafael, CA to support credit decisions, as well as other tools such as
an internally developed, windows based, loan processing and control systems.
The acquisition and portfolio management systems will support the Company's
commitment to manage the portfolio utilizing the debt policies and practices
applied by commercial banks. In addition, from time to time, the Company
intends to negotiate non-exclusive purchase arrangements with intermediaries
and originators, including independent financing companies and, to a lesser
extent, individual Dealers. See "Risk Factors - Availability of Installment
Contracts."
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, portfolio management and collection
procedures, for example the Company intends to:
- - establish an allowance for losses on the date of purchase of 5% to 10% on
all Installment Contracts, in addition to the purchase discount
- - select dealers based on management's prior experience with the dealership,
which have been in operation for a number of years and are in good standing
with management
- - require quarterly reporting by dealers based on their portfolio's
performance
- - enter into agreements with qualified third parties to handle all
repossessions and remarketing
- - utilize "behavioral" scoring analysis models to manage risk, determine loan
loss reserves, stratify collection activities and reduce expenses
- - implement a "commercial banking" quality control review process to identify
and correct systemic deficiencies as well as underwriter credit authority
delegation
- - utilize an automobile credit application scoring model to classify loan
grades of A, B, C and D.
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<PAGE>
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.
CERTAIN CONTRACT PURCHASE CRITERIA. The Company will endeavor to
purchase Installment Contracts from 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-signors on
the Installment Contract except immediate family members. In order to
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<PAGE>
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.
THIRD PARTY PORTFOLIO ACQUISITIONS. The Company may also acquire
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
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<PAGE>
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 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
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<PAGE>
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
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 California or majority of other 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
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<PAGE>
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. These laws regulate,
among other things, the interest 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 601 Gateway Blvd., Suite
260,, South San Francisco, CA 94080. This space is shared with an affiliated
company under a five-year lease for 11,081 square feet that expires in 2000.
The Company has no obligations under the lease and pays no rent.
Administrative fees paid to SAC 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.
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<PAGE>
LITIGATION
The Company is not a party to any legal proceedings.
CERTAIN LEGAL ASPECTS OF THE INSTALLMENT CONTRACTS
GENERAL
The Installment Contracts are "chattel paper" as defined in the UCC.
Pursuant to the UCC, a security interest in chattel paper may be perfected by
taking possession of the chattel paper or by the filing of a UCC financing
statement with the Secretary of State of the state in which a corporate
debtor's principal place of business is located, which in the case of the
Company is the Secretary of State of California.
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.
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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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<PAGE>
MANAGEMENT
SAC is the general partner of the Company. SAC was incorporated under
the laws of Florida in 1995. The balance sheet of SAC as for the year ended
December 31, 1997 (audited) and for the three months ended March 31, 1998
(unaudited) is included elsewhere in this prospectus. SAC provides
management and administrative services to the Company. The Company's
management therefore consists of the officers and directors of SAC as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jonathon W. Hollandsworth 41 President of SAC
Dorothy Kulpinski 51 Secretary, Treasurer and Director of SAC
Dean Kayes 44 Director of SAC
Suzanne Tikkannen 42 Director of SAC
</TABLE>
JONATHON W. HOLLANDSWORTH has spent more than 12 years in the commercial
banking and financial services industries in progressively responsible
positions in consumer and business lending. He joined SAC in November 1997
and has been with the Company since its inception. Prior to joining SAC, Mr.
Hollandsworth was the Chief Credit Officer for CFC Investments (October 1996
to November 1997). Previously he was the Manager of the Consumer Lending
Division of Sumitomo Bank (November 1994 to October 1998). In the years
preceding that position, Mr. Hollandsworth worked for Bank of America (March
1989 to November 1994) and Security Pacific Bank (March 1987 to March 1989).
He held management assignments at these banks in Portfolio Credit Risk,
Credit Policy Compliance, Credit Operations, Bank Operations and Sales &
Marketing.
DEAN KAYES became a Director of SAC in August 1997. Mr. Kayes is also
the Vice President and Senior Staff Counsel for Starlink, a
telecommunications servicing company. Prior to joining Starlink in January
1997, he had been in the private practice of law since 1989.
DOROTHY H. KULPINSKI has been a Director and the Secretary and Treasurer
of SAC since October 1997. Prior to joining SAC she was Corporate Controller
for Condor Investment Corporation from April 1996 to October 1996. From July
1995 to April 1996, Ms. Kulpinski worked as an independent financial
consultant. From 1991 to June 1995, she worked as a financial manager for
Crum & Forster.
SUZANNE TIKKANNEN became a Director of SAC in August 1997. Ms.
Tikkannen is the Senior Vice President and Director of Finance for Condor
Investment Corporation, a California corporation, which provides management
services. She is also Senior Vice President of Four Star.
Mr. Hollandsworth will devote approximately twenty-five percent (25%) of
his time and other members of the management will devote no more than five
percent of their time on the management of the Company.
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<PAGE>
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. Of the compensation paid to Mr.
Hollandsworth by SAC, approximately $60,000 is attributable for his
management services to the Company. Since the balance of the Company's
management will devote less than five percent (5%) of their time to the
management of the Company, it is not possible to identify what portion of
their compensation from SAC is attributable to management services 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
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.
PAYMENTS TO SAC
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
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<PAGE>
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."
29
<PAGE>
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.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER(1) SHARES (1) OUTSTANDING SHARES
- --------------------------- --------- ------------------
<S> <C> <C>
Four Star Financial Services, LLC(2) 10,000 100%
601 Gateway Boulevard
Suite 260
South San Francisco, California 94080
Jonathon W. Hollandsworth --- ---
Dorothy Kulpinski --- ---
Dean Kayes --- ---
Suzanne Tikkannen --- ---
All directors and executive officers as a --- ---
group (4 persons)
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. 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 sole limited partner of the Company. The managing members of Four
Star are Ronald Anson, Mark Cohn and Jack Garrett.
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<PAGE>
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 _________________, 1998 (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, and a form of the Security Agreement is attached hereto as Exhibit
B. Copies of the Indenture and the Custodian Agreement are available upon
request to the Company. 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 duties on 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 _______, 2003. 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
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<PAGE>
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
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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<PAGE>
CUSTODIAN AGREEMENT
The Company has entered into a Custodian Agreement Sterling Financial
Services Company (the "Custodian"), an affiliate of the Trustee 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 Notes by notice to the Company and Trustee,
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<PAGE>
may declare the unpaid principal of and any accrued interest on all
outstanding Notes 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 Code of 1986, as amended (the
"Code"). Prospective investors should note that no rulings have been
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<PAGE>
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 be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with
35
<PAGE>
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 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
36
<PAGE>
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.
37
<PAGE>
STATE AND LOCAL TAX CONSEQUENCES
The above discussion does not address the tax treatment of the Company,
Notes, or Noteholders under any state or local tax laws. Prospective investors
are urged to consult with their own tax advisors regarding the state and local
tax treatment of the Company as well as any state and local tax consequences to
them of purchasing, holding and disposing of Notes issued by the Partnership.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code (each a "Benefit Plan"), from engaging in
certain transactions with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to such Benefit Plan.
A violation of these "prohibited transaction" rules may result in an excise
tax or other penalties and liabilities under ERISA and the Code for such
persons.
A fiduciary of a Benefit Plan considering the purchase of Notes should
carefully review with its legal and other advisors whether the assets of the
Partnership would be considered plan assets, and whether the purchase or
holding of the Notes could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code.
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA) and certain church plans (as defined Section 3(33)
of ERISA) are not subject to the fiduciary and prohibited transaction
provisions under ERISA or the Code discussed herein, but governmental plans
may be subject to comparable restrictions under applicable state law.
PLAN OF DISTRIBUTION
The 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 Attkisson, Carter & Akers ("Attkisson") a member of the National
Association of Securities Dealers Inc. (the "NASD"). The Company has agreed to
indemnify Attkisson against certain liabilities, including liabilities under the
Securities Act of 1933. Investor funds will be held in escrow at Greater Bay
Trust Company 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
October 31, 1998, 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
38
<PAGE>
escrowed funds, including interest thereon, will be released to the Company.
Any subsequent sales proceeds from Notes will be immediately available for use
by the Company. The Company will pay Attkisson 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 1% of the sale price of each Note sold will be paid to
Attkisson. The Company will also pay Attkisson 1.25% of the sale price of each
Note sold as a non-accountable expense allowance. Attkisson is not affiliated
with the Company.
However, Attkisson 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. Investors will be required to make checks
payable for the purchase price to the Greater Bay Trust Company -- Sentinel
Financing Ltd., L.P. Escrow Account. 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.
Attkisson has 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 Attkisson by or before noon of the next
business day following the sale of said Notes.
The Notes purchased from the Company will be issued as soon as
practicable after the sale thereof (or, if later, upon sale of the Minimum
Offering).
TRANSFERABILITY OF NOTES
The Notes will be registered with the Commission and the states of
Florida and Georgia. The Notes may be registered or exempt form registration
in other states. No public or other market for the Notes exists and no
market is expected to develop in the future. No transfers will be permitted
of less than the Minimum Purchase, nor may an investor transfer,
fractionalize or subdivide Notes so as to retain less than such Minimum
Purchase. Accordingly, the Notes should be purchased only as an
39
<PAGE>
investment to be held to the end of the term of the Notes because Noteholders
may not be able to liquidate their investment in the event of an emergency or
for any other reason.
LEGAL MATTERS
The validity of the Notes offered here will be passed upon by Buchalter,
Nemer, Fields & Younger, a professional corporation, Los Angeles, California.
EXPERTS
The balance sheet of SAC as of December 31, 1997 and the balance sheet
of the Company as of December 31, 1997 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.
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<PAGE>
FINANCIAL STATEMENTS
INDEX
PAGE
----
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . F-1
SENTINEL ACCEPTANCE CORPORATION
BALANCE SHEET, December 31, 1997 and March 31, 1998 (unaudited) . . . . F-2
NOTES TO BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . F-3, F-4, F-5
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . F-6
SENTINEL FINANCING LTD., L.P.
BALANCE SHEET, December 31, 1997 and March 31, 1998 (unaudited) . . . F-7
NOTES TO BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . F-8, F-9
F-i
<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, 1997. This balance sheet is the
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 referred to above present fairly, in
all material respects, the financial position of Sentinel Acceptance
Corporation as of December 31, 1997, in conformity with generally accepted
accounting principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
May 1, 1998
F-1
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31, 1998
----------------- ------------------
1997 (Unaudited)
----------------- ------------------
<S> <C> <C>
ASSETS
Current asset:
Cash $ 100 $ 44
Investment in Partnership 150,050 $150,050
-------- --------
Total assets $150,150 $150,094
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
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 (63,250) (63,306)
-------- --------
Total shareholders' equity 150,150 150,094
-------- --------
Total liabilities and shareholders' equity $150,150 $150,094
-------- --------
-------- --------
</TABLE>
INVESTORS IN THE NOTES ARE NOT ACQUIRING ANY FINANCIAL INTEREST OR
LIABILITY OF THE CORPORATION WHOSE BALANCE SHEET APPEARS ABOVE.
F-2
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(INFORMATION PERTAINING TO THE THREE
MONTHS ENDED MARCH 31, 1998 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 (Sentinel Acceptance Ltd., L.P.) 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. Investment in the partnership
consists of costs incurred in processing existing receivables. The carrying
value of the investment in the partnership is reviewed if the facts and
circumstances suggest that it may be impaired. The partnership has
experienced continuing losses, accordingly the original investment has been
impaired and has been adjusted and reduced to the guaranteed value of
$150,000, the amount guaranteed by Four Star Financial Services, LLC, an
affiliate. As of December 31,1997, the company reduced the carrying value of
the investment by $41,412.
The Company has a $50 investment in Sentinel Financing Ltd., L.P. for
its general partnership interest.
INCOME TAXES
Income taxes are accounted for under the asset and liability method of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities or a change in tax rate is
recognized in income in the period that includes the enactment date.
Deferred tax assets are reduced to estimated amounts to be realized by the
use of a valuation allowance.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents. As of December 31, 1997, the Company did not have
any cash equivalents.
INVESTORS IN THE NOTES ARE NOT ACQUIRING ANY FINANCIAL INTEREST OR
LIABILITY OF THE CORPORATION WHOSE BALANCE SHEET APPEARS ABOVE.
F-3
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(INFORMATION PERTAINING TO THE THREE
MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
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.
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, 1997 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 Sentinel Acceptance Ltd., L.P. a management fee on a
monthly basis for reimbursement of certain operating assets as incurred. For
the year ended December 31, 1997, the Company recognized approximately $292,429
in management fee income, which has been included in income on the statement of
operations.
The Company is a co-defendant with Sentinel Acceptance Ltd., L.P. in a
claim for approximately $12,000.
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
INVESTORS IN THE NOTES ARE NOT ACQUIRING ANY FINANCIAL INTEREST OR
LIABILITY OF THE CORPORATION WHOSE BALANCE SHEET APPEARS ABOVE.
F-4
<PAGE>
SENTINEL ACCEPTANCE CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(INFORMATION PERTAINING TO THE THREE
MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
primary business is described in Note 1 -- "Organization". The following
represents the Company's investment activity:
<TABLE>
<CAPTION>
<S> <C>
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 1997 and reduction in carrying value 55,074
Balance - December 31, 1997 and March 31, 1998 (unaudited) $ 150,050
---------
---------
</TABLE>
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, Sentinel
Acceptance Ltd., L.P., which represents the Company's investment in the
limited partnership. The distribution to the Company's equity accounts was
as follows:
<TABLE>
<CAPTION>
<S> <C>
Preferred stock $ 110,000
Common stock 10,000
Additional paid-in capital 93,400
---------
$ 213,400
---------
---------
</TABLE>
NOTE 4. - INCOME TAXES
At December 31, 1997, the Company has net operating loss carryforwards
of approximately $21,000 that expire through 2012. 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
(approximately $7,000) 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 BALANCE SHEET APPEARS ABOVE.
F-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Sentinel Financing Ltd., L.P.
South San Francisco, California
We have audited the balance sheet of Sentinel Financing LTD., L.P. as of
December 31, 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 December 31, 1997, in conformity with generally accepted
accounting principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
January 5, 1998
F-6
<PAGE>
SENTINEL FINANCING LTD., L.P.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
1997 (UNAUDITED)
------------ --------------
<S> <C> <C>
ASSETS
Cash $ 100 $ 100
Debt Issuance Costs 4,900 4,900
------- -------
------- -------
5,000 5,000
EQUITY
Partnership Equity $5,000 $5,000
------- -------
------- -------
</TABLE>
F-7
<PAGE>
SENTINEL FINANCING, LTD., L.P.
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(INFORMATION PERTAINING TO THE THREE
MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
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
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 ("SAC"), and its sole limited partner is Four Star Financial
Services, LLC ("Four Star"). Management services will be provided to the
Company by SAC.
The Company has not yet commenced operations.
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,
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.
DEBT ISSUANCE COSTS
The costs related to the proposed issuance of debt are capitalized and
amortized to interest expense using the effective interest method over the lives
of the related debt. If the debt offering is unsuccessful, the costs will be
charged to operations.
NOTE 2. - DEBT OFFERING
The Company is offering $15,000,000 aggregate principal amount of 12%
secured Notes due 2003. 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
F-8
<PAGE>
SENTINEL FINANCING, LTD., L.P.
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(INFORMATION PERTAINING TO THE THREE
MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
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 requirement of
$2,000. The Notes will be secured by retail installment sales contracts
received by used automobiles and light trucks. The Notes are being offered
on a best efforts, $1,000,000 minimum offering basis.
NOTE 3. - DEBT ISSUANCE COSTS
A related entity (Four Star) has incurred $162,362 for costs of the debt
offering on behalf of the Sentinel Acceptance Corporation as of December 31,
1997. If the offering is successful, the advances will be reimbursed and
deferred debt 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
As of December 31, 1997, the Company received equity contributions from
its partners as follows:
<TABLE>
<S> <C>
Four Star Financial Services, LLC $4,950.
Sentinel Acceptance Corporation 50.
------
$5,000
------
------
</TABLE>
F-9
<PAGE>
EXHIBIT A
FORM OF SECURED NOTE
(FACE OF SECURITY)
No. $
SENTINEL FINANCING, LTD., L.P.
promises to pay to
or registered assigns,
the principal sum of Dollars on __________
12% SECURED FIXED RATE NOTES
DUE ___________, 2003
Interest payment Dates:
Record Dates:
Dated:
_____________________________________________________
By___________________________________________________
By___________________________________________________
(SEAL)
Authenticated to be one of the
Securities described in the Indenture
referred to herein:
By____________________________________
Authorized Signature
A-1
<PAGE>
(Back of Security)
12% Secured Fixed Rate Notes due _____________, 2003
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 ____________,
1998, 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 , 1998 (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: (i)
the Company fails to pay any installment of interest on the Securities when
the same becomes due and payable; (ii) the Company fails to pay all or any
part of the principal of any Security when the same becomes due and payable
at maturity, upon redemption, by acceleration or otherwise; (iii) the Company
fails to observe or perform any covenant, condition or agreement on the part
of the Company to be observed or performed pursuant to the Securities, the
Security Documents, or the Indenture (iv) the Company or any Subsidiary of
the Company pursuant to or within the meaning of any Bankruptcy Law: (a)
commences a voluntary case or proceeding, (b) consents to the entry of an
order for relief against it in an involuntary case or proceeding, (c)
consents to the filing of a petition seeking reorganization or relief under
any applicable Bankruptcy Law, or to the appointment of a receiver of it or
for all or substantially all of its property, (d) makes a general assignment
for the benefit of its creditors, or (e) admits in writing its inability to
pay its debts generally as they become due; or (v) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is
for relief against the Company or any Subsidiary in an involuntary case, (b)
appoints a Receiver of the Company for al or substantially all of its
property, or (c) orders the liquidation of the Company, and any such order or
decree under (v) herein remains unstayed and in effect for 90 days. If an
Event of Default occurs and is continuing, the Trustee or the holders of at
last 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
A-3
<PAGE>
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.
12. NO RECOURSE AGAINST OTHERS. A director, officer, partner,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations of
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.
601 Gateway Blvd., Suite 260
South San Francisco, California 94080
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 ___________, 1998, by and between Sentinel Financing Ltd., L.P., a Florida
limited partnership (hereinafter called ("Debtor") and Sterling National Bank
& Trust Company (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 ___________, 1998, 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 Notes 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 Secured
Party as described in paragraph 4.5 hereof (all of the foregoing hereinafter
called the "Collateral").
B-1
<PAGE>
3. REPRESENTATION AND WARRANTIES OF DEBTOR.
Debtor represents and warrants and, so long as any portion of the
Indebtedness remains unpaid, shall be deemed continuously to represent and
warrant that:
3.1 Debtor is the owner of the Collateral free and clear of all
security interests or other encumbrances and claims of any kind or nature in
favor of any third persons other than the rights of the purchasers of the
Vehicles under the Contracts and Replacement Contracts, ("Vehicle
Purchasers"), and Secured Party has and at all times maintain 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 and this
Agreement is a valid and binding obligation of Debtor enforceable in
accordance with its terms;
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
B-2
<PAGE>
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 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 and the Indenture with
respect to the servicing of Contracts and Replacement Contracts and the
B-3
<PAGE>
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;
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.
B-4
<PAGE>
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.
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.
B-5
<PAGE>
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 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 New York. 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 New York and shall be interpreted, and the rights and
liabilities of the parties hereto
B-6
<PAGE>
determined, in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of New York. Debtor and Secured Party hereby
waive any right to a trial by jury in any action to 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.
Any legal action or proceeding with respect to this Agreement
may be brought in the courts of the State of New York or of the United States
for the Sourthern District of New York, and, by execution and delivery of
this Agreement, Debtor hereby irrevocably accepts for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Debtor hereby further irrevocably waives any claim that
any such courts lack jurisdiction over Debtor, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Agreement
brought in any of the aforesaid courts, that any such court lacks
jurisdiction over Debtor. Debtor irrevocably consents to the service of
process in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to Debtor, at its address for
notices pursuant to Section 8.15, such service to become effective 10 days
after such mailing. Debtor hereby irrevocably waives and agrees not to plead
or claim in any action or proceeding commenced hereunder or under any other
document that service of process was in any way invalid or ineffective.
Nothing herein shall affect the right of the Secured Party to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against Debtor in any other jurisdiction. Debtor hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising our of
or in connection with this Agreement brought in the courts referred to above.
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 by hand, by overnight courier or 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:
Sterling National Bank & Trust Company
430 Park Avenue
New York, New York 10022
Attention: Jerrald Gilbert, General Counsel
B-7
<PAGE>
b. If to Debtor at:
Sentinel Financing Ltd., L.P.
601 Gateway Blvd., Suite 260
South San Francisco, CA 94080
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.
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
(including fees and expenses of in-house counsel and paralegal and support
personnel), 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 or under
any other agreement or instrument providing indemnity for
B-8
<PAGE>
it in any actions taken by it as Secured Party hereunder. The Secured Party
assumes no duties or obligations except for those expressly set forth herein.
In addition to, and not in limitation of the foregoing, Debtor
agrees (i) to indemnify and hold harmless the Secured Party and the
successors, assigns, employees and agents (hereunder referred to individually
as, an "Indemnitee" and, collectively, as "Indemnitees") from and against any
and all claims, demands, losses, judgments and liabilities of whatsoever kind
or nature, and (ii) to reimburse each Indemnitee for all costs and expenses,
including reasonable attorneys' fees, growing out of or resulting from this
Agreement or the exercise by any Indemnitee of any right or remedy granted to
it hereunder or under any other agreement related to any Indebtedness except,
with respect to clauses (i) and (ii) above, for those arising from such
Indemnitee's gross negligence or willful misconduct. In no event shall
Indemnitee hereunder be liable, in the absence of gross negligence or willful
misconduct on its part, for any matter or thing in connection with this
Agreement other than to account for moneys actually received by it in
accordance with the terms hereof. The indemnity obligations of Debtor
contained in this Section 8.22 shall continue in full force and effect
notwithstanding the full payment of all the Notes issued under the Indenture
and the payment of all other Indebtedness.
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: ___________________________________________
Jonathon W. Hollandsworth, President
STERLING NATIONAL BANK & TRUST COMPANY
By: ___________________________________________________
Its:___________________________________________________
B-9
<PAGE>
EXHIBIT 1
COLLATERAL ASSIGNMENT
SENTINEL FINANCING LTD., L.P., a Florida limited partnership
("Assignor") hereby collaterally assigns to Sterling National Bank & Company,
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 New York 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 ___________, 1998.
IN WITNESS WHEREOF, the Assignor has placed its hand and seal as of this
____ day of ________, 1998.
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By: ___________________________________________
Jonathon W. Hollandsworth, President
B-10
<PAGE>
EXHIBIT 2
COLLATERAL ASSIGNMENT
SENTINEL FINANCING LTD., L.P., a Florida limited partnership
("Assignor") hereby collaterally assigns to Sterling National Bank & Trust
Company, 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 New York 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 ___________, 1998.
IN WITNESS WHEREOF, the Assignor has placed its hand and seal as of the
____ day of ________, 1998.
SENTINEL FINANCING LTD., L.P.,
a Florida limited partnership
By: Sentinel Acceptance Corporation,
a Florida corporation,
its General Partner
By:______________________________________________
Jonathon W. Hollandsworth, President
B-11
<PAGE>
EXHIBIT C
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 GREATER BAY TRUST COMPANY --
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.
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: U.S. Citizen [ ] Other [ ]
7. Social Security #: __________/__________/_____________
Co-Owner SS#: __________/__________/_____________
Corporate or Custodial:
Taxpayer ID#: ____________-____________-____________
8. Telephone #: (H) (_____) ________________________
(O) (_____) ________________________
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:__________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
MAIL TO: Sentinel Financing Ltd., L.P., 601 Gateway Blvd., Suite 260,
South San Francisco, CA 94080, Attention: Jonathon W. Hollandsworth,
President
Telephone: (650) 869-3900 FAX: (650) 869-3738
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ALL CHECKS FROM INVESTORS MUST BE TRANSMITTED TO THE ESCROW AGENT
C-1
<PAGE>
BY NOON OF THE NEXT BUSINESS DAY FOLLOWING RECEIPT
C-2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- -------------------------------------
<S> <C>
NO DEALER, SALES REPRESENTATIVE OR
OTHER PERSON HAS BEEN AUTHORIZED TO $15,000,000 (MAXIMUM)
GIVE ANY INFORMATION OR TO MAKE ANY $ 1,000,000 (MINIMUM)
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 SENTINEL FINANCING LTD.,
L.P.
Page 12% SECURED NOTES DUE 2003
SUITABILITY STANDARDS . . . . . . . 3
RISK FACTORS . . . . . . . . . . . 7 ______________
USE OF PROCEEDS . . . . . . . . . . 12
MANAGEMENT'S DISCUSSION AND PROSPECTUS
ANALYSIS OF FINANCIAL CONDITION ______________
AND RESULTS OF OPERATIONS . . . 13
BUSINESS . . . . . . . . . . . . . 15
MANAGEMENT . . . . . . . . . . . . 26
CERTAIN TRANSACTIONS . . . . . . . 27
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT. 29
DESCRIPTION OF THE NOTES . . . . . 30 ____________, 1998
FEDERAL INCOME TAX CONSEQUENCES . . 33
PLAN OF DISTRIBUTION . . . . . . . 37
TRANSFERABILITY OF NOTES . . . . . 38
LEGAL MATTERS . . . . . . . . . . . 39
EXPERTS . . . . . . . . . . . . . . 39
ADDITIONAL INFORMATION . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . F-i
EXHIBIT A - Form of Secured Note
(Face of Security). . . A-1
(Back of Security). . . A-2
ASSIGNMENT FORM . . . . A-5
EXHIBIT B - SECURITY AGREEMENT . . B-1
EXHIBIT C - SENTINEL FINANCING
LTD., L.P.
SUBSCRIPTION AGREEMENT -
SECURED NOTES . . . . . C-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.
- ------------------------------------- -------------------------------------
</TABLE>
<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:
<TABLE>
<CAPTION>
TOTAL
MINIMUM MAXIMUM
<S> <C> <C>
SEC filing fee.................................... $ 4,546 $ 4,546
NASD filing....................................... 2,000 2,000
Blue Sky fees and expenses, including legal fees.. 5,000 5,000
Printing and engraving............................ 7,000 12,000
Legal fees and expenses........................... 106,000 244,000
Accounting fees and expenses...................... 52,000 52,000
Trustee and Custodian's fees...................... 22,000 22,000
Miscellaneous..................................... 1,000 1,000
-------- --------
TOTAL $199,546 $342,546
-------- --------
-------- --------
</TABLE>
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. Sentinel Acceptance transferred its limited
partnership interest to Four Star Financial Services, LLC in December 1997.
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
South San Francisco, California on this 17th day of July, 1998
Sentinel Financing Ltd., L.P.
By Sentinel Acceptance Corporation
General Partner
By_______________________________
Jonathon W. Hollandsworth
President
II-i
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------
Jonathon W. Hollandsworth President of Sentinel July 17, 1998
Acceptance Corporation
- -----------------------------
Dean Kayes Director of Sentinel Acceptance July 17, 1998
Corporation
- -----------------------------
Dorothy H. Kulpinski Director, Secretary and July 17, 1998
Treasurer of Sentinel
Acceptance Corporation
- -----------------------------
Suzanne Tikkannen Director of Sentinel Acceptance July 17, 1998
Corporation
</TABLE>
II-ii
<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
South San Francisco, California on this 17th day of July, 1998
Sentinel Financing Ltd., L.P.
By Sentinel Acceptance Corporation
General Partner
By/s/ Jonathon W. Hollandsworth
-----------------------------------
Jonathon W. Hollandsworth
President
i
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Jonathon W. Hollandsworth
- -------------------------------
Jonathon W. Hollandsworth President of Sentinel July 17, 1998
Acceptance Corporation
/s/ Dean Kayes
- -------------------------------
Dean Kayes Director of Sentinel Acceptance July 17, 1998
Corporation
/s/ Dorothy H. Kulpinski
- -------------------------------
Dorothy H. Kulpinski Director, Secretary and July 17, 1998
Treasurer of Sentinel
Acceptance Corporation
/s/ Suzanne Tikkannen
- -------------------------------
Suzanne Tikkannen Director of Sentinel Acceptance July 17, 1998
Corporation
</TABLE>
ii
<PAGE>
EXHIBIT INDEX
TO
SENTINEL FINANCING LTD., L.P.
REGISTRATION STATEMENT ON FORM SB-2
<TABLE>
<CAPTION>
Exhibit Seq.
No. Description Page No.
- ------- ----------- --------
<S> <C> <C>
1.1 Form of Placement Agent Agreement
3.1* Limited Partnership Agreement of Registrant
3.2* Amendment to Limited Partnership Agreement
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 C to Prospectus)
4.5* Escrow Agreement
5.1* Opinion re: Legality
10.1* Portfolio Service Agreement between Sentinel Acceptance Corporation
and Registrant
10.2* Custodian Agreement
23.1(a) Consent of Independent Accountants
23.1(b) Consent of Independent Accountants
23.2* Consent of Legal Counsel (included in Exhibit 5.1)
25.1* Form T-1 Statement of Eligibility of Trustee
</TABLE>
- -----------------------
* Previously Filed.
iii
<PAGE>
SENTINEL FINANCING LTD., L.P.
1,500,000 of 12% Secured Notes Due 2003
(Par Value $1,000 Per Note)
Agency Agreement
March 19, 1998
ATTKISSON, CARTER & AKERS
3060 Peachtree Road, NW
Suite 1475
Atlanta, Georgia 30305
Dear Sirs:
Sentinel Acceptance Corporation, a Florida corporation (the "Company"), the
general partner of Sentinel Financing Ltd., L.P. ("SFL") hereby confirms its
agreement with ATTKISSON, CARTER & AKERS (the "Agent"), as follows:
1. GENERAL. SFL proposes to offer, through the Agent on an exclusive,
"best-efforts" basis, up to $15,000,000 aggregate principal amount
of 12% Secured Notes due 2003 (the "Notes"), to be offered to the public
in multiples of $1,000, subject to a minimum purchase requirement of
$2,000 (the "Offering").
SFL has filed a Registration Statement on Form SB-2 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC")
pursuant to which SFL will register the Notes for sale to the public.
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. Subject to the terms and conditions hereof
and upon the basis of the representations, warranties and agreements
herein set forth, the Company hereby appoints the Agent as its agent
to sell the Notes on an exclusive, best efforts basis. The Agent
hereby accepts such appointment and agrees to use its best efforts to
find purchasers for the Notes. The Company and the Agent agree that
the Notes shall be offered to the investing public in Georgia, Florida
and any other state or states where the Company deems it appropriate
to offer the Notes, all in compliance with the Securities Act of 1933
(the "Securities Act"), the Securities Exchange Act of 1934 (the
"Exchange Act"), and the securities or "blue sky" laws of any
applicable jurisdiction.
2.2 EXCLUSIVE ENGAGEMENT. The Company shall not engage any other person
other than the Agent to solicit offers or Sales of Notes during the
offering period (as such term is herein defined). However, the Agent
may hire such other broker dealers to assist in the sale of the Notes
as the Agent 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 commission on all Notes
sold by the Agent in the Offering as follows: solely in the event
that a minimum of $1,000,000 of Notes (the "Minimum Offering") are
sold on or before the date which is 120 days from and after the
Effective Date (herein defined), (a) a
<PAGE>
commission equal to 7.5% of the sale price for each Note sold by the
Agent, PLUS (b) an investment banking and marketing fee equal to 1%
of the sale price for each Note sold by the Agent. IF THE MINIMUM
OFFERING IS NOT OBTAINED AND THE OFFERING IS TERMINATED, THE AGENT
SHALL BE REIMBURSED ONLY FOR ITS ACTUAL ACCOUNTABLE OUT-OF-POCKET
EXPENSES.
2.4 PAYMENT OF EXPENSES. The Company will pay all expenses in connection
with the Offering including, but not limited to, attorneys' fees,
expenses for auditing and accounting services, advertising fees, all
securities registration and NASD filing fees, postage, and document
reproduction expenses, and the engraving, issuance, transfer and
delivery of the Notes. The Company shall reimburse Agent for its
reasonable attorneys' fees incurred in the negotiation and execution
of this Agreement and in connection with filings made with the NASD in
connection with the Offering UP TO A MAXIMUM OF $5,000. Solely in the
event the Minimum Offering is achieved, in addition to the foregoing
expenses, the Company shall pay the Agent, as a non-accountable
expense allowance, an amount equal to 1% of the sale price of each
Note sold by the Agent.
2.5 BLUE SKY. The Company contemplates that the Offering will be made in
those states listed in Exhibit A attached hereto. The Company shall,
at its sole expense, take or cause to be taken all necessary action
and shall furnish to whomever the Agent may direct such information as
may be required to qualify the Notes for sale under the laws of such
jurisdictions and any other jurisdictions where the Company may
hereafter elect that Notes shall be offered and shall continue such
qualifications in effect for as long as may be necessary for the
distribution of the Notes. At the request of the Agent the Company
shall cause its counsel to prepare and furnish to the Agent "Blue Sky"
memoranda concerning the requirements for qualification of the Notes
for sale under the law of such jurisdictions, and the Agent shall be
entitled to rely on such memoranda in carrying out its obligations
under this Agreement.
2.6 SALE AND DELIVERY OF THE NOTES. The Notes will be 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
Greater Bay Trust Company (the "Escrow Account"), and no funds will
be released to the Company therefrom unless and until the Company has
achieved 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, 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. Throughout the Offering
Period, the Company will review the offers to purchase received and
will have the right to reject any such offers. Investors must
satisfy certain suitability standards prior to purchasing any Notes.
2.7 OFFERING PERIOD. The Notes will be offered for sale during the
period (the "Offering Period") commencing with the date that the
Registration Statement is declared effective by the SEC (the
"Effective Date" of the Offering) until the earlier to occur of
(a) the date that all Notes have been sold, (b) 24 months from and
after the Effective Date, or (c) the termination of the Offering by
the Company. The Company may, upon written notice to the Agent,
elect to extend the Offering Period, and as used herein, the term
"Offering Period" shall include any such extension.
2.8 CLOSING. Provided that the Escrow Agent is authorized and empowered
in accordance with the terms of the Escrow Agreement to release the
proceeds of the Offering from escrow as described in the Escrow
Agreement, and provided further that this Agreement shall not have
been terminated pursuant to the terms hereof, payment for the Notes
shall be made at a closing (the "Closing") to be held at the offices
of the Company's counsel (or such other place as the parties hereto
may agree), at 10:00 a.m., Atlanta time on the fifth (5th) business
day after the date on which the
2
<PAGE>
Minimum Offering is achieved, as determined by the Escrow Agent, or
on such other date and time as agreed to in writing by the parties
hereto.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company,
for itself and on behalf of SFL, 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 and policy statements applicable thereto,
including, without limitation, the applicable rules, regulations and
policy statements of 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
corporation 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) SFL is, and at all times during the Offering Period will be, a limited
partnership duly incorporated and organized and is, and will be,
validly existing and in good standing under the laws of the State of
Florida. SFL 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.
(d) 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 requires such qualification.
(e) SFL is, and at all times during the Offering Period will be, duly
qualified to do business and in good standing in each jurisdiction
where the ownership or leasing of its properties or the conduct of its
business requires such qualification.
(f) The financial statements contained in the Prospectus present fairly
and accurately the financial position of the Company and SFL as the
respective dates thereof in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
entire periods involved.
(g) At all times during the Offering Period except as set forth in or
contemplated by the Prospectus: (i) the Company and SFL 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 or SFL 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
or SFL.
3
<PAGE>
(h) Except as set forth in or contemplated by the Prospectus, to the best
of its knowledge, neither the Company nor SFL have or will not have
during the Offering Period any material contingent liabilities or
obligations.
(i) There are no actions, suits or proceedings pending or, to the best
of its knowledge, threatened against the Company or SFL or their
respective or business, business prospects, financial condition,
results of operations or properties, or against any of their
respective 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 or SFL.
(j) At all times during the offering Period, the Company and SFL each will
have title to all properties and assets described in the Prospectus as
being owned by it, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Prospectus or
which are not material to its business. At all times during the
Offering Period, the Company and SFL each will have valid, existing
and enforceable leases to the properties and equipment described in
the Prospectus as being leased by it, 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 or SFL.
(k) The Company and SFL have each 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 or SFL is obligated have been
paid or adequate accruals have been established to cover any such
unpaid taxes.
(l) Each of the Company and SFL is not, and at all times during the
Offering Period will not be, in violation of its articles of
incorporation, bylaws or agreement of limited partnership 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 it is a party or
by which it or any of its properties is bound, and each of the Company
and SFL 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 SFL, nor any employee or agent thereof, has made any payment of
funds of the Company or SFL 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.
(m) 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.
(n) No statement, representation, warranty or covenant made by the Company
or SFL 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.
(o) The Company has full right, power and authority, for itself and on
behalf of SFL, 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 and SFL 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 articles
of
4
<PAGE>
incorporation or the bylaws of the Company, the limited partnership
agreement of SFL, or 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 SFL or any of
their respective subsidiaries is a party or by which the Company or
SFL or any of their respective 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 or SFL. 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 Shares or in connection with the Agent's services
hereunder.
(p) For purposes of the Agent's obligation to file certain documents and
make certain representations to the NASD in connection with the
Offering: (i) neither the Company nor SFL have placed any securities
within the last eighteen months; (ii) there have been no material
dealings within the last twelve months between the Company or SFL 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 (other than BSC) 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
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
5
<PAGE>
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 SFL 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, no 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 opinion of
Buchalter, Nemer, Fields & Younger, counsel for the Company, dated as
of the Effective Date, to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida.
(ii) SFL is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Florida.
(iii) the Notes to be sold by SFL have been duly authorized by all
requisite action of the Company and SFL and will be, upon
issuance and delivery against payment therefor in accordance
with the terms of this Agreement, validly issued in due and
proper form (such opinion may be given in reliance on the
opinion of Stump, Storey & Callahan, special counsel to the
Company and SFL).
(iv) the amounts, terms and designations of the Notes conform as to
legal matters in all material respects to the description
thereof contained in the Registration Statement under the
caption "Description of the Notes".
(v) this Agreement has been duly authorized, executed and delivered
by the Company on behalf of itself and SFL and, when so
executed and delivered, constitutes the legal, valid
6
<PAGE>
and binding obligation of the Company and SFL, enforceable
against the Company and SFL (such opinion may be based on an
assumption that the governing law applicable to the Agreement
is substantially similar to California law).
(vi) the execution and delivery by the Company of this Agreement
does not, and if the Company and SFL were now to perform their
obligations under this Agreement such performance would not,
result in any: (1) violation of the Company's articles or
incorporation or bylaws; (2) violation of SFL's agreement of
limited partnership; (3) violation of any existing federal or
state constitution, statute, regulation, rule, order, or law to
which either the Company or SFL or their respective assets are
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 of the Company
or SFL under any Material Agreements; or (5) violation of any
judicial or administrative decree, writ, judgment or order to
which, to our knowledge, the Company or SFL or their respective
assets are subject.
(vi) to the knowledge of such counsel, each of the Company and SFL
has all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and has made all
declarations and filings with, all federal, state, local and
other governmental authorities, all self-regulatory
organizations, all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Registration Statement,
except to the extent that the failure to obtain or file would
not have a material adverse effect on the Company or SFL.
(vii) to the knowledge of such counsel, no authorization, consent,
approval of or qualification with any federal or state
governmental authority is required for the execution, delivery
or performance by the Company or SFL of this Agreement, except
such as have been previously made or obtained, in connection
with the distribution of the Notes by the Agent, and except
those which, if not made or obtained, will not, individually or
in the aggregate, have a material adverse effect on the Company
or SFL.
(viii) to such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which either the Company
or SFL is a party or to which any of the properties of the
Company or SFL is subject that are not fairly summarized in all
material respects in the Registration Statement.
(ix) to such counsel's knowledge, after due inquiry, all contracts,
indentures, mortgages, loan agreements, leases or other
documents to which either the Company or SFL is a party or to
which its business or properties are subject are fairly
summarized in all material respects in the Registration
Statement; and
(x) after due inquiry, such counsel does not know of any pending or
threatened proceeding relating to the revocation or
modification of any consent, authorization, approval, order,
certificate or permit necessary to the conduct of the business
of the Company or SFL.
As to questions of fact material to such opinion, counsel may rely on
(without independent verification of the accuracy or completeness
thereof), the representations and warranties of the Company or SFL
contained in this Agreement as well as the Material Agreements. The
term "Material Agreement," for purposes of such opinion, shall mean
each of the agreements which has been filed with the Securities and
Exchange Commission as an exhibit to the Registration Statement of
which the Prospectus is filed as part thereof. Counsel shall also
provide a letter to the effect that nothing has come to the attention
of such counsel to cause such counsel to believe that (except for
financial statements, projections, schedules and other financial and
statistical information included or incorporated by reference in the
Registration Statement as to which such counsel need not express any
opinion) the Registration Statement contained any untrue statement
7
<PAGE>
of a material fact or omitted to state 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, or
that the Registration Statement as of the Closing Date, contained any
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) At the Effective Date, the Agent shall receive the opinion of Stump,
Storey & Callahan, P.A., special counsel to the Company and SFL, dated
as of the Effective Date, to the effect that:
(i) The Notes are enforceable obligations of SFL.
(ii) The Notes to be delivered have been duly authorized by all
requisite action of the Company and SFL and will be, upon
issuance and delivery against payment therefor in accordance
with the terms of this Agreement, validly issued in due and
proper form.
As to questions of fact material to such opinion, counsel may rely on
(without independent verification of the accuracy or completeness
thereof), the representations and warranties of the Company contained
in this Agreement as well as the Material Agreements. The term
"Material Agreement", as used herein, shall mean each of the
agreements which has been filed with the Securities and Exchange
Commission as an exhibit to the Registration Statement of which the
Prospectus is filed as part thereof.
(c) On the Effective Date, the Agent shall have received from the
President 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.
(d) 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 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.
(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
8
<PAGE>
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 Notes 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
unconformity 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 which 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 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 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 Section (7)(a) or
&7)(b) above notice of 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 extent it shall wish, jointly with any
other indemnifying party similarly notified, the indemnified 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 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 cost of investigation.
9
<PAGE>
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 of 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, 601 Gateway
Blvd., Suite 260, South San Francisco, California 94080, 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 Georgia.
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.
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
Jonathon W. Hollandsworth
President
ACCEPTED AND AGREED TO this _________ day of March, 1998
ATTKISSON, CARTER & AKERS, INC.
_________________________________
Ronald L. Attkisson, President
10
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated December 31, 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
July 20, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated December 31, 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
July 20, 1998
