<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-40321
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SOVEREIGN CREDIT FINANCE II, Inc.
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(Exact name of small business issuer as specified in its charter)
TEXAS 75-2728381
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4015 BELTLINE ROAD, BUILDING B, DALLAS, TEXAS 75244
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(Address of principal executive offices) (Zip Code)
972-960-5500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. N/A
-----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date. 1,000 SHARES
------------
Transitional Small Business Disclosure Format (Check One): Yes No X
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
----
Balance Sheet at March 31, 1998 (Unaudited). . . . . . . . . . . 3
Income Statement for the period from October 9, 1997
(inception) to March 31, 1998 (Unaudited). . . . . . . . . 4
Statement of Cash Flows for the period from October 9,
1997 (inception) to March 31, 1998 (Unaudited) . . . . . . 5
Statement of Stockholders' Equity for the period from
October 9, 1997 (inception) to March 31, 1998
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements (Unaudited). . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . 9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents........................................ $ 950
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY
Common stock, $.01 par value, 50,000 shares authorized,
1,000 shares issued and outstanding............................ $ 10
Additional paid-in capital....................................... 990
Deficit.......................................................... (50)
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$ 950
---------
---------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE PERIOD FROM OCTOBER 9, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<S> <C>
REVENUE............................................................ $ --
EXPENSES
Service Charges.................................................. 50
NET LOSS........................................................... $ (50)
---------
---------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM OCTOBER 9, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................... $ (50)
---------
Net decrease in cash............................................. (50)
Cash at beginning of period...................................... 1,000
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Cash at end of period............................................ $ 950
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest........................................................... $ --
---------
Taxes.............................................................. $ --
---------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE PERIOD FROM OCTOBER 9, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at October 9, 1997.................. 1,000 $ 10 $ 990 $ -- $ 1,000
Net loss.................................... -- -- -- (50) (50)
----- --- ----- --- ---------
Balance at March 31, 1998................... 1,000 $ 10 $ 990 $ (50) $ 950
----- --- ----- --- ---------
----- --- ----- --- ---------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sovereign Credit Finance II, Inc. (Company) was incorporated in Texas on
October 9, 1997. The Company is a subsidiary of Sovereign Auto Finance Holdings,
Inc. (Parent) and was formed for the purpose of purchasing, collecting and
servicing retail installment sales, lease contracts and notes secured by motor
vehicles (Contracts). The Contracts typically involve consumers who cannot
obtain loans from local financial institutions or from the credit facilities of
major automobile manufacturers. The "creditworthiness grade" of the obligors on
the Contracts is usually "D." The Company does business primarily in the south
and southwest.
MANAGEMENT ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
during the reporting period. Actual results may vary from such estimates.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments exposed to concentration of credit risk
consist primarily of cash maintained in Federally insured financial institutions
which are considered by the Company to be of high credit quality. Therefore,
management considers concentration of credit risk to be limited.
2. AUTOMOBILE CONTRACT NOTES OFFERING
The Company is offering on a "best efforts" basis, up to $10,000,000 in
principal amount of 11% Notes (Notes) due February 15, 2002. Interest begins
to accrue on the Notes upon release of escrowed subscription funds to the
Company, which will not occur until a minimum of $500,000 of the Notes are
sold. As of March 31, 1998, $309,325 or the Notes have been sold. All unpaid
principal and accrued interest are payable at maturity. The Notes are being
offered through licensed broker-dealers who will receive sales commissions of
8% of the principal amount of the Notes sold by such broker-dealers.
The Company will also use up to 2% of the gross proceeds from the sale of
the Notes to pay offering and organizational expenses, including filing and
registration fees, legal, accounting, printing, trustee fees, escrow fees and
other fees and expenses. Sovereign Auto Finance, Inc. (SAF), an affiliate
of the Company's Parent, will advance some of these expenses. SAF has agreed to
pay such expenses to the extent such expenses exceed 2% of the gross proceeds
from the sale of the Notes. The Company will also pay an additional 5.5% of the
gross proceeds from the sale of the Notes (5.0% of the gross proceeds in excess
of $9,000,000) to SAF for its services in administering and managing the ongoing
operations of the Company. SAF will also administer noteholder payments,
communications and relations. For such services, the Company will pay SAF a
monthly fee equal to 1/12 of 0.5% of the outstanding principal amount of the
Notes.
Such payments to SAF are contingent upon the successful completion of the
Company's public offering. If the offering is not successful, the Company is not
obligated to reimburse SAF for any expenses incurred. The remainder of the
proceeds from the sale of the Notes (84.5% of the gross proceeds) is to be used
to acquire Contracts. No more than 15.5% of such proceeds is to be used for the
foregoing
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<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 1998
2. AUTOMOBILE CONTRACT NOTES OFFERING (CONTINUED)
commissions, fees and expenses. Proceeds received from the sale of the Notes
will be held in escrow by a third-party escrow agent and will not be available
to the Company until subscriptions for $500,000 in principal amounts of the
Notes have been received.
The Company intends to enter into a note purchasing and servicing agreement
with Sovereign Associates, Inc. (SAI), an unrelated Company. The majority of
Contracts will be originated by Fiesta Motors LLC, an affiliate, which finances
the sale of motor vehicles. SAI will initially be entitled to a monthly
servicing fee of $20 for administering the collection of payments due under the
Contracts for each Contract that is not assigned for repossession. SAI will
receive a fee of $125 for each financed vehicle assigned for repossession. This
fee is paid for overseeing the repossession and resale of the vehicle securing
any Contract in default. SAI will also receive a purchase administration fee for
each Contract purchased, equal to the lesser of $500 or 5% of the total amount
of installments due under the Contract as of the date of purchase.
In addition, the Company intends to enter into an indenture agreement
between the Company and an unrelated trust company, which will govern collection
of the Contract proceeds and repayment of the Notes.
-8-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
PLAN OF OPERATION
Sovereign Credit Finance II, Inc. (the "Company") is in the
developmental stage, offering on a "best efforts" basis up to
$10,000,000 in principal amount of 11% Notes Payable (the "Notes")
due February 15, 2002. As such, operations have not commenced as
of March 31, 1998. The Company is subsidiary of Sovereign Auto
Finance Holdings, Inc. (Parent). Sovereign Auto Finance, Inc.
(Sovereign), which is an affiliate of the Company's parent,
administers and manages the ongoing operations of the Company.
Sovereign Associates, Inc. (SAI), an unrelated corporation,
provides purchasing and collection services to the Company.
The proceeds from the sale of the Notes will be held in escrow
until such amount reaches $500,000, the minimum offering amount.
As of March 31, 1998, $309,325 of the Notes had been sold. After
such amount is attained the Company will begin purchasing,
collecting and servicing retail installment sales and lease
contracts (the "Contracts") secured by motor vehicles, and
accruing interest on the Notes. The Company will use at least
84.5% of the proceeds from the sale of the Notes for the purchase
of the contracts. No more than 15.5% of such proceeds will be
used for commissions, fees, and expenses.
Management anticipates the cash flow from Contract installments and
sales of the Notes to be sufficient to fund the future cash
requirements of the Company. In addition, the Company will seek to
enter into a senior line of credit agreement which will provide
additional capital for the acquisition of additional Contracts. At
this time, no such line of credit agreement has been reached.
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<PAGE>
PART II - OTHER INFORMATION
Item 2(d). Changes in Securities and Use of Proceeds
(1) The registrant has filed a registration statement on Form SB-2 with the
Securities and Exchange Commission (file number 333-40321) for the purpose of
registering under the Securities Act of 1933, as amended, the registrants 11%
Notes Due February 15, 2002 in the aggregate principal amount of $10,000,000.
The effective date of the registration statement was March 3, 1998.
(2) The offering commenced on March 5, 1998.
(3) Not applicable.
(4) (i) The offering has not terminated.
(ii) There is no managing underwriter.
(iii) The title of each class of securities registered is as follows: 11%
Notes Due February 15, 2002.
(iv) The amount registered was $10,000,000. The aggregate price of the
offering amount registered is $10,000,000. The amount sold as of March 31,
1998 was $309,325, which was also the aggregate offering price of the amount
sold. The entire amount sold remains in escrow until a minimum of $500,000 has
been sold.
(v) From March 3, 1998 until March 31, 1998, the amount of expenses incurred
for the issuers account in connection with the issuance and distribution of the
securities registered for underwriting discounts and commissions, finders fees,
and expenses paid to or for underwriters was $-0-, and the amount of other
expenses was approximately $5,000, which is a reasonable estimate for the
amount of expenses incurred instead of the actual amount of expenses. An
additional $24,746 will we owed to selling broker-dealers upon release of the
escrowed funds. None of such expenses did or will involve direct or indirect
payments to directors, officers, general partners of the issuer or their
associates, persons owning 10% or more of any class of equity securities of
the issuer, or affiliates of the issuer, but did or will involve direct
payments to others.
(vi) The net offering proceeds to the issuer after deducting the total
expenses described in paragraph (4)(v) of this Item was $-0-, since the minimum
required to break escrow had not been sold as of March 31, 1998.
(vii) Not applicable. See paragraph (4)(vi) above.
(viii) Not applicable. See paragraph (4)(vi) above.
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<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
Number Description
- ------ -----------
2 not applicable
3 (i) Articles of Incorporation of Sovereign
Credit Finance II, Inc.*
3 (ii) Bylaws of Sovereign Credit Finance II, Inc.*
4 Indenture between Sovereign Credit
Finance II, Inc. and Sterling Trust Company,
as Trustee
10 (i) Master Contract Purchase Agreement*
10 (ii) Servicing Agreement*
10 (iii) Subscription Escrow Agreement*
11 not applicable
15 not applicable
16 not applicable
18 not applicable
19 not applicable
22 not applicable
23 not applicable
24 not applicable
27 Financial Data Schedule
99 not applicable
*Incorporated by reference to the registrant's Registration Statement on
Form S-1, Commission file number 333-40321
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOVEREIGN CREDIT FINANCE II, INC.
Signature Title Date
--------- ----- ----
/s/ A. Starke Taylor, III President, (principal executive May 28, 1998
- ------------------------------ officer, principal financial
A. Starke Taylor, III officer and chief accounting
officer) and director
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<PAGE>
EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-B
Number Description
- ------ -----------
2 not applicable
3 (i) Articles of Incorporation of Sovereign
Credit Finance II, Inc.*
3 (ii) Bylaws of Sovereign Credit Finance II, Inc.*
4 Indenture between Sovereign Credit
Finance II, Inc. and Sterling Trust Company,
as Trustee
10 (i) Master Contract Purchase Agreement*
10 (ii) Servicing Agreement*
10 (iii) Subscription Escrow Agreement*
11 not applicable
15 not applicable
16 not applicable
18 not applicable
19 not applicable
22 not applicable
23 not applicable
24 not applicable
27 Financial Data Schedule
99 not applicable
*Incorporated by reference to the registrant's Registration Statement on
Form S-1, Commission file number 333-40321
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<PAGE>
THIS INDENTURE, dated as of March 3, 1998 is between SOVEREIGN CREDIT
FINANCE II, INC., a Texas corporation (the "Company"), having its principal
office at 4015 Beltline Road, Building B, Dallas, Texas 75244 and Sterling
Trust Company, as Trustee (the "Trustee"), a trust company organized and
existing under the laws of the State of Texas and having its principal office at
7901 Fish Pond Road, Waco, Texas 76710.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture and the issuance of its Notes Due February 15, 2002 in the maximum
aggregate principal amount of $10,000,000 (the "Notes").
All acts necessary to make the Notes, when executed by the Company,
authenticated and delivered hereunder and duly issued by the Company, the valid
obligations of the Company and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been accomplished.
Therefore, for and in consideration of the premises and the purchase or
acceptance of the Notes by the Holders (as herein defined) thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders, as follows:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions.
"Accounts" means the Trust Account and the Operating Account established by
the Company under the provisions of Section 4.1.
"Additional Lender" means the Additional Lender as defined by the final
prospectus filed with the SEC pursuant to which the Notes are offered and sold
on behalf of the Company.
"Additional Borrowing" means any one or more loans, and the proceeds
thereof, made by the Additional Lender to the Company and subject to any
restrictions set forth in the final prospectus filed with the SEC pursuant to
which the Notes are offered and sold on behalf of the Company.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition "control" (including, with its correlative
meanings, "controlled by" and "under common control with") means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of capital stock, partnership interests,
by contract or otherwise), provided that, in any event, any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to control
such other Person for the purposes of this definition; and provided further that
no individual shall be an Affiliate of a corporation or partnership solely by
reason of his being an officer, director or partner of such entity.
"Allowed Expenses" means any amounts due the Trustee under Section 7.7, any
Servicing Fees, any fees payable for the transfer of the lien reflected in the
Title Documents into and out of the Company's name, any federal, state and local
taxes and assessments incurred by the Company (including corporate franchise
taxes and any payments by the Company to any of its Affiliates as reimbursements
for tax payments made by such Affiliate for the Company's benefit or the benefit
obtained by the Company from use of tax losses employed by such Affiliate to
offset taxable income of the Company), any bank service charges and account fees
relating to the Accounts and the subscription escrow account established for the
receipt of the proceeds from the offering and sale of the Notes, the lockbox
fees, account fees and bank service charges
1
<PAGE>
relating to the Collections Account, any legal and accounting fees and
printing expenses (excluding Offering Expenses, but including those otherwise
incurred to comply with reporting and other requirements under Federal and
state securities laws and for reports, compliance certificates and opinions
required by the Indenture), premiums for vehicle value, vendor single
interest (VSI), auto loan default, gap or other insurance, charges for
vehicle warranty repair service contracts (including fees paid to vehicle
dealers), any Liquidation Expenses (as to each Financed Vehicle, limited to
the related Liquidation Proceeds), any Insurance Expenses (as to each
Financed Vehicle, limited to the related Insurance Proceeds), and any other
Allowed Expenses as described in or defined by the prospectus which offers
the Notes for sale.
"Assignment" means the original instrument of assignment of a Contract and
all other documents securing such Contract made by the Servicer to the Company
(or in the case of any Contract acquired by the Company from another Person,
from such other Person to the Company), which is in a form sufficient under the
laws of the jurisdiction under which the security interest in the related
Financed Vehicle arises to permit the assignee to exercise all rights granted by
the Obligor under such Contract and such other documents to the obligee and to
exercise all rights available under applicable law under such Contract and
which may, to the extent permitted by the laws of such jurisdiction, be an
assignment constituting a part of the form of the Contract itself or a blanket
instrument of assignment covering other Contracts as well.
"Bankruptcy Law" shall have the meaning provided in Section 6.1.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a Legal Holiday.
"Collection Period" means with respect to any Payment Date or Report Date,
the calendar month immediately preceding the Payment Date or Report Date.
"Collections Account" means the lockbox account created and maintained by
the Servicer in the Company's name and designated as such pursuant to Section
12.2.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person replaces it pursuant to the applicable
provisions of this Indenture, and thereafter "Company" means such successor
Person.
"Company Order" or "Company Request" means a written order or request
signed in the name of the Company by its Chairman, President or a Vice
President, Treasurer, Assistant Treasurer, Controller, Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Contract" means each retail installment sales or lease contract (or other
obligation) and security agreement which has been executed by an Obligor and
pursuant to which such Obligor purchased or leased the Financed Vehicle
described therein, agreed to pay the remaining unpaid portion of the purchase
price or the lease payments, as therein provided in connection with such
purchase or lease, granted a security interest in such Financed Vehicle, and
undertook to perform certain other obligations as specified in such Contract and
which is granted to the Trustee pursuant to this Indenture as security for the
Notes.
"Contract Documents" means with respect to each Contract, (i) the original
Contract; (ii) either the original Title Document for the related Financed
Vehicle showing the Obligor (or the originating dealer, in the case of a lease)
as the owner and the Servicer or the Company as first lienholder or an official
receipt from the responsible state or local governmental authority showing that
an application has been made (and the required fees have been paid) for
registration of the Title Documents for such Financed Vehicle in the names of
the Obligor (or the originating dealer, in the case of a lease) as owner and the
Servicer or the Company as first lienholder (or such other evidence of
perfection of the security interest in the related Financed Vehicle granted by
such Contract, as determined by the Company to be permitted or required to
perfect such security interest under the laws of the applicable jurisdiction, or
a guarantee from the dealer selling such Financed Vehicle that the Title
Document for such Financed Vehicle showing the Servicer or the Company as first
lienholder has been applied for); (iii) the related Assignment; and (iv) any
agreement(s) modifying the Contract (including, without limitation, any
extension agreement(s)).
2
<PAGE>
"Defaulted Contract" means with respect to any Collection Period, a
Contract (a) whose Obligor, at the end of such Collection Period, (i) in the
case of Contracts requiring biweekly or semi-monthly installments, is past due
with respect to at least three consecutive scheduled installments and has failed
for 30 days to remit any sums against the obligations under the Contract, or
(ii) in the case of Contracts requiring monthly installments, is past due with
respect to two scheduled installments and has failed for 60 days to remit any
sums against the obligations under the Contract, or (b) with respect to which
the related Financed Vehicle has been repossessed and, in the case of either (a)
or (b), in respect of which Liquidation Proceeds, which, in the Servicer's
judgment, would constitute the final amounts recoverable in respect of such
Contract, have not yet been collected as of the end of such Collection Period.
"Due Date" means as to any installment payable by an Obligor on a Contract,
the date upon which such installment is due.
"Eligible Account" means an account that is either (i) maintained with a
depository institution subject to supervision or examination by federal or state
authority and having a combined capital and surplus of at least $15,000,000,
(ii) an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation, or (iii) maintained with the Trustee or
its successor.
"Eligible Contract" means a Contract hereafter acquired by the Company
that, as of the date of such acquisition, satisfies the representations and
warranties contained in the Servicing Agreement.
"Eligible Investments" means any one or more of the following obligations
or securities:
(i) United States Obligations;
(ii) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by, or federal funds sold by any depository institution
or trust company (including the Trustee) incorporated under the laws of the
United States of America or any state thereof and subject to supervision
and examination by federal and/or state banking authorities, so long as
such institution or company has a combined capital and surplus of at least
$15,000,000;
(iii) repurchase obligations with respect to any security
described in clause (i) entered into with a depository institution or trust
company (including the Trustee), acting as principal, whose obligations
having the same maturity as that of the repurchase agreement and would be
Eligible Investments under clause(ii) above;
(iv) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which at the time of such investment have long-term,
unsecured debt rated by Standard & Poor's as "AA-" or better; provided,
however, that securities issued by any particular corporation will not be
Eligible Investments to the extent that investment therein will cause the
then outstanding principal amount of securities issued by such corporation
to exceed 10% of the aggregate outstanding balances and amounts of all
Contracts and Eligible Investments;
(v) commercial paper given the highest rating by Standard & Poor's at
the time of such investment; and
(vi) pooled or common trust funds of the Trustee or of any publicly
traded money market mutual fund that are invested in the above-mentioned
Eligible Investments.
"Event of Default" shall have the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financed Vehicle" means as to any Contract, the automobile or light-duty
truck that constitutes security for the obligations of the Obligor thereunder.
3
<PAGE>
"Full Prepayment" means any of the following: (i) payment to the Servicer
of 100% of the outstanding installments of a Contract (exclusive of any Contract
referred to in clause (ii) or (iii) of the definition of the term "Liquidated
Contract"), less any discount on such installments to which the Obligor shall be
entitled under the terms of such Contract and applicable law by virtue of early
payment of any installment, or (ii) payment by the Servicer into the Collections
Account of the purchase price of a Contract in connection with the purchase by
Servicer of a Contract pursuant to the Servicing Agreement.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Independent" means with respect to any specified Person, that such Person
(i) is in fact independent, (ii) does not have any direct financial interest or
any material indirect financial interest in the Company or in any other obligor
upon the Notes or in any Affiliate of the Company or of such other obligor, and
(iii) is not connected with the Company or such other obligor as an officer,
employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care and such opinion or certificate shall state that the signer is
Independent within the meaning hereof.
"Insurance Expenses" means, with respect to a Financed Vehicle, any
expenses incurred by the Servicer and recoverable out of the Insurance Proceeds
from the related insurance policy and any portion of such Insurance Proceeds
applied to the repair of such Financed Vehicle or required to be released to the
related Obligor.
"Insurance Proceeds" means the proceeds paid by any insurer pursuant to any
Physical Damage Insurance Policy, any credit or life insurance policy covering
payments owing under any Contract, or any other insurance policy for damage or
repair of a Financed Vehicle or for liability for confiscated, converted or
"skipped" Financed Vehicles.
"Legal Holiday" shall have the meaning provided in Section 11.6.
"Liquidated Contract" means a Contract which (i) has been the subject of a
Full Prepayment, (ii) was a Defaulted Contract and with respect to which
Liquidation Proceeds which, in the Servicer's judgment, constitute the final
amounts recoverable in respect of such Contract have been realized and deposited
in the Collections Account, or (iii) has been paid in full on or after its
Maturity Date.
"Liquidation Expenses" means the reasonable out-of-pocket expenses incurred
by the Servicer in connection with the liquidation of any Contract (including
the attempted liquidation of a Contract which is brought current and is no
longer in default during such attempted liquidation), the repossession, holding
and repair of any Financed Vehicle related thereto and the sale of any
repossessed or returned Financed Vehicle related thereto, which expenses may
include Insurance Expenses.
"Liquidation Proceeds" means the amounts received by the Servicer (before
reimbursement for Liquidation Expenses) in connection with the liquidation of
any Defaulted Contract and the sale of any repossessed or returned Financed
Vehicle related thereto, whether through repurchase by the motor vehicle dealer
who originated the Contract, receipt of Insurance Proceeds, repossession, sale
or otherwise.
"Majority Holders" means the Holders of Notes representing more than 50% of
the aggregate principal amount of Notes which are then Outstanding Notes.
"Maturity Date" means with respect to any Contract, the date on which the
last scheduled installment of such Contract shall be due and payable (after
giving effect to all prepayments received prior to the date of determination).
"Monthly Report" means an Officer's Certificate of the Company relating to
the purchasing and servicing of
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the Contracts, interest payments on the Notes and disbursements from the
Operating Account and required to be delivered to the Trustee under this
Indenture. The Monthly Report shall be substantially in the form of Exhibit
B attached hereto, as amended from time to time, and shall have attached or
included all lists, data and information required to be attached or included
hereunder.
"Net Insurance Proceeds" means the amount derived by subtracting from the
Insurance Proceeds of a Financed Vehicle the related Insurance Expenses.
"Net Liquidation Proceeds" means the amount derived by subtracting from the
Liquidation Proceeds of a Contract the related Liquidation Expenses.
"Note Register" means the register for the Notes maintained by the
Registrar pursuant to Section 2.5.
"Notes" means the Notes Due February 15, 2002, as amended or supplemented
from time to time, that are issued under this Indenture.
"Obligor" means each Person who is indebted under a Contract or who has
acquired or leased a Financed Vehicle subject to a Contract.
"Offering Amount" shall mean the $10,000,000 in aggregate principal amount
of the Notes that may be issued under this Indenture.
"Offering Expenses" shall mean the fees, commissions and expenses that the
Company will pay from the proceeds of the sale of the Notes, as disclosed in the
final prospectus relating to the offering of the Notes filed with the SEC
pursuant to which the Notes are offered and sold on behalf of the Company.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of any Person.
"Officer's Certificate" when used with respect to any Person, means a
certificate signed by the Chairman of the Board, President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of such Person, or any other officer of such Person customarily performing
functions similar to those performed by any of the above designated officers.
"Operating Account" means the commercial bank account created and
maintained by the Company and denominated as such pursuant to Section 4.1.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Outstanding Contracts" as of any date means all Contracts other than
Liquidated Contracts.
"Outstanding Notes" means, with respect to the Notes, as of the date of
determination, all the Notes theretofore authenticated and delivered under this
Indenture except:
(i) the Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) the Notes or portions thereof for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Holders of such Notes;
provided that, if such Notes or portions thereof are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered
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pursuant to this Indenture unless proof satisfactory to the Trustee is
presented that any such Notes are held by a holder in due course;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any Affiliates of the Company shall be disregarded and deemed not
to be Outstanding Notes, except that, in determining whether the Trustee shall
be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes with respect to which the Trustee has
received written notice of such ownership or otherwise has actual knowledge of
such ownership shall be so disregarded. Notes so owned which have been pledged
in good faith may be regarded as Outstanding Notes if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliates of the Company or such other obligor.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 7.10 and is
authorized by the Company to pay the principal or any interest which may become
payable on any Notes on behalf of the Company.
"Payment Date", with respect to any Note, means the (i) 15th day of each
calendar month (unless such day is not a Business Day in which event the next
preceding Business Day) commencing with the second calendar month following the
month in which the Note is issued, and (ii) the Stated Maturity.
"Person" means any individual, any corporation, partnership, joint venture,
trust or other entity, any unincorporated organization or any government or
agency or political subdivision thereof.
"Physical Damage Insurance Policy" means with respect to a Financed
Vehicle, any policy of physical damage, comprehensive or collision insurance
covering the Financed Vehicle pursuant to which the Servicer may obtain
recoveries for loss or damage to the Financed Vehicle.
"Price/Payments Ratio" means with respect to any Contract, the ratio of the
original purchase price paid by the Company for the purchase of a Contract to
the aggregate unpaid installments on the Contract, as of the date of the
purchase by the Company.
"Purchase Date" means the date on which the Company remits funds from the
Operating Account to pay the purchase price for an Eligible Contract.
"Record Date" for the interest and any principal payable on any Payment
Date means the first day (whether or not a Business Day) of the month in which
such Payment Date occurs.
"Redemption Date" has the meaning set forth in Section 3.1(a).
"Redemption Price" has the meaning set forth in Section 3.1(a).
"Registrar" means the office or agency of the Company or its designee where
the Notes may be presented for registration of transfer or exchange, as
established under Section 2.5.
"Registrar of Titles" means the agency, department or office having the
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
"Report Date" means the 20th day (or the Business Day next succeeding such
day if such day is not a Business Day) of each month during the existence of
this Indenture.
"Responsible Officer" when used with respect to the Trustee means the
Chairman or Vice Chairman of the Board
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of Directors or Trustees, the Chairman or Vice Chairman of the Executive
Committee of the Board of Directors or Trustees, the President, any Vice
President, any Assistant Vice President, any Trust Officer or Assistant Trust
Officer, the Secretary, any Assistant Secretary, the Treasurer, any Assistant
Treasurer, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
and also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his or her knowledge
of an familiarity with the particular subject.
"SAFH" means Sovereign Auto Finance Holdings, Inc., of which the Company is
a wholly-owned subsidiary.
"SEC" means the Securities and Exchange Commission.
"Servicer" means Sovereign Associates, Inc. as servicer under the Servicing
Agreement, and its permitted successors and assigns.
"Servicer Request" means a written request signed in the name of the
Servicer by a Servicing Officer and delivered to the Trustee.
"Servicing Agreement" means the Master Contract Purchase Agreement and the
Servicing Agreement, each dated as of March 3, 1998, by and between the Company
and the Servicer, providing among other things, for the purchasing, collecting
and servicing of the Contracts, as said agreements may be amended or
supplemented from time to time as permitted hereby and thereby. Such term shall
also include any purchasing and servicing agreements entered into with a
successor servicer and any separate servicing agreement for the servicing of
Contracts.
"Servicing Fee" means the servicing, purchasing, investor administration
and repossession fees and other fees payable by the Company to the Servicer
under the Servicing Agreement.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of Servicing Officers furnished to the Company and the Trustee
by the Servicer, as such list may be amended or supplemented from time to time.
"Special Record Date" means the date determined pursuant to Section 2.11.
"Stated Maturity" means February 15, 2002.
"TIA" means the Trust Indenture Act of 1939, as amended.
"Title Document" means with respect to any Financed Vehicle, the
certificate of title for, or other evidence of ownership of, such Financed
Vehicle issued by the Registrar of Titles in the jurisdiction in which such
Financed Vehicle is registered.
"Trust Account" means the trust account controlled by the Trustee and
designated as such pursuant to Section 4.1, which account may be a sub-account
(for accounting purposes) of a general account maintained by the Trustee.
"Trust Officer" means any Responsible Officer assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the party named as such in this Indenture until a successor
replaces it and thereafter means the successor.
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction.
"United States Obligations" means direct obligations of the United States
of America or any agency or instrumentality of the United States of America, or
other obligations the principal of and interest on which are unconditionally
guaranteed or insured by Unites States of America.
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Section 1.2 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in and made a part of this Indenture. If this
Indenture is qualified under the TIA, any provision that is required by the TIA
to be incorporated herein shall be so incorporated and shall supersede any
conflicting provision hereof. The following TIA terms have the following
meanings in this Indenture:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture securityholder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company (or any other
obligor on the Notes).
All other TIA terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule have the meanings
assigned to them.
Section 1.3 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principals as of the date of
this Indenture;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural include
the singular.
ARTICLE TWO
THE SECURITIES
Section 2.1 Forms Generally.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion of
the text of any Note may be set forth on the reverse thereof, in which case the
following reference to the portion of the text appearing on the reverse of the
Notes shall be inserted on the face of the Notes, immediately prior to the
paragraph stating that the certificate of authentication on the Note must be
executed by manual signature of the Trustee as a condition to the validity of
such Note:
"Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof which provisions shall for all purposes have
the same effect as if set forth at this place."
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The definitive Notes shall be printed, lithographed or engraved or produced by
any commercially reasonable manner, all as determined by the officers executing
such Notes, as evidenced by their execution thereof.
Section 2.2 Form of Note.
(a) The form of Note is as follows:
SOVEREIGN CREDIT FINANCE II, INC.
NOTES DUE FEBRUARY 15, 2002
$_______________ No._____________
Sovereign Credit Finance II, Inc., a corporation duly organized and
existing under the laws of the State of Texas (herein referred to as the
"Company"), for value received, hereby promises to pay to ____________________
or registered assigns, the principal sum of __________________________ dollars,
and to pay interest (computed on the basis of a 360-day year consisting of 12
months of 30 days each) on the unpaid portion of said principal sum
outstanding from time to time from the date of issue, until the principal
amount of this Note is paid in full, at the rate of eleven percent (11.0%)
per annum, which interest shall be due and payable upon the 15th day of each
calendar month (for such interest accruing through the last day of the prior
calendar month) during the term of this Note commencing with the second
calendar month following the calendar month in which this Note is issued
(each a "Payment Date"). The principal sum hereof shall be due and payable
on February 15, 2002 (the "Stated Maturity"), at which time all then unpaid
principal and accrued interest hereunder shall be due and payable.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Company with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note. This Note represents a general obligation of the Company.
This Note is one of a duly authorized issue of Notes of the Company,
designated as its Notes Due February 15, 2002 (herein called the "Notes"), all
issued and to be issued under an Indenture dated as of March 3, 1998 (herein
called the "Indenture"), between the Company and Sterling Trust Company (the
"Trustee", which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights thereunder of the Company, the Trustee
and the Holders of the Notes, and the terms upon which the Notes are, and are to
be, authenticated and delivered. All capitalized terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
Payment of the outstanding principal of and accrued interest on this Note
at the Stated Maturity or of the Redemption Price payable on any Redemption Date
as of which this Note has been called for redemption shall be made upon
presentation of this Note to the Paying Agent appointed by the Company for such
purpose. Payments of all installments of interest due and payable on any
Payment Date (other than the Stated Maturity) shall be made by check mailed to
the Person whose name appears as the Holder of this Note on the Note Register as
of the first day of the month in which such Payment Date occurs (the "Record
Date") without requiring that this Note be submitted for notation of payment.
Checks returned undelivered will be held for payment to the Person entitled
thereto, subject to the terms of the Indenture, at the office or agency in the
United States of America designated by the Company for such purpose pursuant to
the Indenture.
If an Event of Default shall occur and be continuing with respect to the
Notes, the Notes, and all principal and unpaid accrued interest, may be declared
due and payable in the manner and with the effect provided in the Indenture.
The Notes are redeemable, at any time, at the option of the Company on any
Payment Date, in whole or in part, at 100% of the unpaid principal amount
thereof, together with accrued interest thereon; provided, however, that the
Paying Agent shall be required to redeem the Notes at such time only to the
extent that the Company has theretofore deposited
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with the Paying Agent money sufficient to effect such redemption. At least
ten days prior to the Redemption Date, the Company is required to mail a
notice of redemption to the registered owner of this Note specifying the
Redemption Date, the Redemption Price, the name and address of the Paying
Agent, that this Note must be delivered to the Paying Agent and that interest
on this Note ceases to accrue on and after the Redemption Date.
If provision is made for the redemption and payment of this Note in
accordance with the Indenture, this Note shall thereupon cease to bear interest
from and after the Redemption Date.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency designated by the Company pursuant to the Indenture, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Notes of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees. The Company may charge a
reasonable fee for the registration of such transfer, or for any change of
address of a Holder (or of any other Person to whom the Holder directs that
payments under this Note are to be made).
Prior to the due presentment for registration of transfer of this Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Majority Holders. The Indenture
also contains provisions permitting the Majority Holders, on behalf of the
Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note. The Indenture also permits the Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Note issued thereunder.
The Notes are issuable only in registered form in denominations as provided
in the Indenture and subject to certain limitations therein set forth. The
Notes are exchangeable for a like aggregate principal amount of a different
authorized denomination, as requested by the Holder surrendering same. The
Company may charge a reasonable fee for such exchange.
This Note and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of Texas applicable to agreements made and to
be performed therein.
The Indenture and this Note are hereby expressly limited so that in no
contingency or event, whether by reason of acceleration of the maturity of this
Note or otherwise, shall the amount paid, or agreed to be paid by the Company
for the use, forbearance, or detention of the money loaned under this Note or
otherwise or for the payment or performance of any covenant or obligation
contained herein or the Indenture or in any other document evidencing, securing
or pertaining hereto, exceed the maximum amount permissible under applicable
law, as now or as hereafter amended. If from any circumstances whatsoever
fulfillment of any provision hereof or any of such other documents, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then IPSO FACTO, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any such
circumstances the Holder of this Note shall ever receive interest or anything
which might be deemed interest under applicable law which should exceed the
highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal of this Note and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
of this Note such excess shall be refunded to the Company. All sums paid or
agreed to be paid to the Holder of this Note for the use, forbearance or
detention of the indebtedness of the Company to the Holder of this Note shall,
to the extent permitted
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by applicable law, be amortized, prorated, allocated and spread throughout
the full term of such indebtedness until payment in full so that the actual
rate of interest on account of such indebtedness is uniform, or does not
exceed the maximum rate permitted by applicable law as now or hereafter
amended, throughout the term thereof. The terms and provisions of this
paragraph shall control and supersede every other provision of this Note and
the Indenture. The Company hereby waives, to the extent permitted by
applicable law, all of its rights or protections afforded by any applicable
usury or interest limitation law.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Sovereign Credit Finance II, Inc. has caused this
instrument to be duly executed under its corporate seal.
Dated: ________________________
SOVEREIGN CREDIT FINANCE II, INC.
By: ______________________________
[SEAL] (Authorized Officer)
Attest:
___________________________________
(Authorized Officer)
(b) The form of the Trustee's certificate of authentication is as follows:
This is one of the Notes referred to in the withinmentioned Indenture.
STERLING TRUST COMPANY, as Trustee, Paying Agent and
Registrar
By: ________________________________
Authorized Signatory
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Section 2.3 Denominations.
The Notes shall be issuable only in registered form. The Notes shall be
issuable in any denomination, with no minimum denomination.
Section 2.4 Execution and Authentication.
(a) The Notes shall be executed on behalf of the Company by its Chairman
of the Board, President or any Vice President of the Company and attested to by
an Officer of the Company other than an Officer who has executed the Notes. The
signature of any of such individuals on the Notes may be manual or facsimile.
(b) Notes bearing the manual or facsimile signatures of individuals who at
any time held one or more of the offices set forth in subsection (a) above shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to be such prior to the authentication and delivery of such Notes.
(c) A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note on behalf of the
Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
(d) The Trustee shall authenticate Notes from time to time for original
issue up to the aggregate Offering Amount upon a Company Order; provided,
however, Trustee shall not be required to so authenticate more often than once
in a calendar month.
Section 2.5 Registrar and Paying Agent.
(a) The Company shall maintain or cause to be maintained an office or
agency where Notes may be presented for registration of transfer or for exchange
(the "Registrar"). The Registrar shall keep a register of the Notes and of
their transfer and exchange (the "Note Register"). The Company may have one or
more co-registrars.
(b) Subject to the provisions of Section 5.2, the Company may designate
one or more Paying Agents, within the United States of America, at which Notes
may be presented or surrendered for payment or which may make payments of
accrued interest on the Notes on behalf of the Company with funds withdrawn from
the Sinking Fund Account.
(c) The Company shall notify the Trustee of the name and address of any
such Registrar or Paying Agent and may appoint successors thereof.
(d) The Company initially appoints the Trustee as Registrar and Paying
Agent.
Section 2.6 Holder Lists.
The Trustee shall preserve a list of the names and addresses of Holders in
as current a form as is reasonably practicable. If the Trustee is not the
Registrar, the Company shall cause the Registrar to furnish to the Trustee on or
before June 30 and December 31 of each year during the term of the Notes and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Holders. The Company may charge its expenses for any changes to the Note
register requested by Noteholders.
Section 2.7 Transfer and Exchange.
Where a Note is presented to the Company or the Registrar with a request to
register a transfer of such Note, the Company shall cause the Registrar to
register the transfer as requested if the requirements for a transfer pursuant
to the Uniform Commercial Code, as enacted in the State of Texas, are met.
Where a Note is presented to the Company or the Registrar with a request to
exchange it for an equal principal amount of Notes of other denominations, the
Company shall cause the Registrar to make the exchange as requested if the same
requirements are met. To permit transfers and
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exchanges, the Trustee shall authenticate Notes upon Company Request or upon
request of the Registrar. The Company may charge its expenses to the Holder
for any transfer or exchange other than an exchange pursuant to Section 2.9
or 9.5, and may charge a reasonable fee to the Holder for any change of
address.
Section 2.8 Replacement Notes.
If a Holder claims that a Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note if the requirements for the issuance of replacement securities pursuant to
the Uniform Commercial Code, as enacted in the State of Texas, are met. An
indemnity bond must be sufficient in the judgment of the Company and the Trustee
to protect the Company, the Trustee, the Paying Agent and the Registrar from any
loss which any of them may suffer if a Note is replaced. The Company may charge
for its expenses in replacing a Note.
Section 2.9 Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes.
Section 2.10 Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar, the Paying Agent and the Company shall forward to the Trustee any
Notes surrendered to them for transfer, exchange or payment. The Trustee and no
one else shall cancel all Notes surrendered for transfer, exchange, payment or
cancellation and shall dispose of canceled Notes as the Company directs. The
Company may not issue new Notes to replace Notes it has paid or delivered to the
Trustee for cancellation.
Section 2.11 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest and, to the extent permitted by law, interest on
defaulted interest at the rate of 11% per annum. Such interest shall be paid to
Holders of record as of a subsequent date designated as a "Special Record Date"
for such payment. The Trustee shall establish the Special Record Date if and
when funds for the payment of such interest have been received by the Paying
Agent from the Company. At least 15 days before the Special Record Date, the
Trustee shall mail to each Holder a notice that states the Special Record Date,
the payment date for such interest, and the amount of such interest (including
any permitted interest thereon) to be paid.
Section 2.12 Persons Deemed Owners.
Prior to due presentment for registration of transfer of any Note, the
Company, the Trustee, and Paying Agent, the Registrar and any agent of the
Company or of the Trustee may treat the Person in whose name a Note is
registered on the Note Register as the owner of such Note for the purpose of
receiving payments of the principal of and interest on such Note and for all
other purposes whatsoever, whether or not such Note be in default, and neither
the Company, the Trustee, nor any agent of the Company shall be affected by
notice to the contrary.
ARTICLE THREE
REDEMPTION
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Section 3.1 General.
(a) On any Payment Date, the Notes may be called for redemption, in whole
or in part, at the option of the Company at a price equal to 100% of the unpaid
principal amount of such Notes together with accrued and unpaid interest on the
unpaid principal amount thereof to the applicable Redemption Date (the
"Redemption Price") for such Notes. If the Company elects to redeem the Notes,
it shall, not later than 30 days prior to the Payment Date selected for
redemption (the "Redemption Date"), deliver notice of such election to the
Trustee, together with a Company Order directing the Trustee to effect such
redemption. Any such redemption shall be without premium or penalty.
(b) If the Company wishes to credit Notes it has not previously delivered
to the Trustee for cancellation against the principal amount of Notes to be
redeemed, it shall so notify the Trustee and it shall deliver the Notes duly
endorsed with the notice.
Section 3.2 Notice of Redemption.
(a) At least ten days but not more than 60 days before the Redemption
Date, the Company shall mail a notice of redemption by first-class mail to each
Holder of Notes, with a copy thereof to the Trustee.
(b) The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that the Notes must be delivered to the Paying Agent at the
address stated in the notice for the Holder to receive the
Redemption Price; and
(v) that interest on the Notes ceases to accrue on and after the
Redemption Date.
(c) At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. Failure to give
notice of redemption, or any defect therein, to any Holder shall not impair or
affect the validity of the redemption of any Note.
Section 3.3 Effect of Notice of Redemption.
Once notice of redemption has been given, the Notes shall be redeemed on
the designated Redemption Date. Upon surrender to the Paying Agent, such Notes
shall be paid at the Redemption Price. Unless the Company shall fail to deposit
the Redemption Price as provided in Section 3.4, no interest shall accrue on the
Notes for any period after the Redemption Date.
Section 3.4 Deposit of Redemption Amount.
Prior to the Redemption Date, the Company shall deposit with the Paying
Agent money sufficient to pay the Redemption Price on the Notes on that date.
Such moneys shall be segregated by the Paying Agent for the purpose of
application to such redemption on the Redemption Date. If such deposit shall be
made, the amount payable on the Notes shall be limited to the Redemption Price
therefor, without any premium or penalty, and no interest shall accrue on the
Notes to be redeemed or the Redemption Price thereof for any period after the
Redemption Date.
ARTICLE FOUR
ACCOUNTS, DISBURSEMENTS AND RELEASES
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Section 4.1 Trust Account; Operating Account.
(a) Prior to the initial authentication and delivery of any Notes, the
Trustee shall open, at one or more depository institutions (which may be the
Trustee), a trust account which shall have a sub-account denominated "Trust
Account--Sterling Trust Company, as trustee in respect of Notes Due February 15,
2002" (such sub-account is hereinafter referred to as the "Trust Account"). The
Trust Account shall be an Eligible Account, and funds in the Trust Account shall
not be commingled with any other moneys of the Company or the Servicer. The
Company shall also open, at one or more depository institutions, an account in
its own name for use in holding the Company's funds and in paying the Company's
expenditures (the "Operating Account"). The Trust Account and the Operating
Account are sometimes collectively referred to as the "Accounts" or individually
as an "Account". The Company shall give the Trustee at least five Business
Days' written notice of any change in the location of the Operating Account and
any related account identification information.
(b) The Company shall direct or cause to be directed all Obligors to remit
all collections and payments on the Contracts directly to the Collections
Account maintained by the Servicer under Section 12.2. The Company agrees that
all cash, money orders, checks, notes, drafts and other items which it otherwise
receives and which are attributable to the Contracts shall be promptly deposited
into the Collections Account. The Company shall likewise deposit or cause to be
deposited in the Collections Account within two Business Days of receipt all
Liquidation Proceeds and Insurance Proceeds.
(c) If the Collections Account is a lock-box account, the Company shall
cause the Servicer to transfer to the Operating Account, on a periodic basis,
all funds (except any minimum sum necessary to avoid bank service charges) in
the Collections Account.
(d) The Company agrees that it shall not draw any funds from the Operating
Account except for an investment, transfer or payment of such funds in
accordance with the provisions of this Section 4.1 and Section 12.9.
(e) Except as otherwise permitted by this Indenture with respect to
purchases of Contracts and payments of Allowed Expenses and Offering Expenses,
the Company may invest the funds in the Operating Account but only in Eligible
Investments and only if sufficient funds are available in the Operating Account,
through maturations of Eligible Investments or otherwise, on the Business Day
next preceding the next Payment Date to pay the interest to be paid on such
Payment Date on the Notes.
(f) Subject to the requirement to pay interest and principal to any
Additional Lender, and provided that the Notes have not been declared due and
payable pursuant to Section 6.2, the Company shall have the right to cause the
funds in the Operating Account to be withdrawn or applied, to the extent
necessary and in the amounts required, for the following purposes in the
following order of priority:
FIRST, to the transfer to the Trust Account of the amount that,
together with any amounts held in the Trust Account, is sufficient for the
payment, PRO RATA, of all interest due on the Outstanding Notes on each
Payment Date;
SECOND, to the payment to the Trustee of any unpaid amount due the
Trustee pursuant to Section 7.7;
THIRD, to the payment of any unpaid Allowed Expenses, except that
during the continuance of an Event of Default, no such payments of unpaid
Allowed Expenses shall be made (except for payments of amounts due to the
Trustee under Section 7.7);
FOURTH, to the transfer to the Trust Account for the PRO RATA payment
of principal owing on the Notes on the Stated Maturity; and
FIFTH, except during the continuance of an Event of Default, to the
purchase of Eligible Contracts in accordance with Section 12.9.
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All of the foregoing applications of the funds in the Operating Account that
have higher priority must be fully satisfied before any of the foregoing
applications having lower priority may be satisfied with such funds.
(g) On or prior to the Business Day next preceding each Payment Date
occurring prior to the Stated Maturity, the Company shall cause to be
transferred from the Operating Account to the Trust Account in immediately
available funds an amount which, together with any funds then held in the Trust
Account, is sufficient to pay the accrued interest due on the Outstanding Notes
on such Payment Date. On or prior to the Business Day next preceding the Stated
Maturity, the Company shall cause to be transferred from the Operating Account
to the Trust Account in immediately available funds an amount which, together
with any funds then held in the Trust Account, is sufficient to pay the accrued
interest due, and principal owing, on the Outstanding Notes on such Payment
Date.
(h) On or prior to each Report Date, the Company agrees to provide to the
Trustee the Monthly Report which shall set forth the following information:
(A) the amounts by category of any Allowed Expenses paid through
draws from the Operating Account during the preceding calendar month; and
(B) a reconciliation of the deposits and withdrawals to and from the
Operating Account during the preceding calendar month together with
beginning and ending balances for the Operating Account.
(i) During the continuance of an Event of Default, no draws from the
Operating Account to pay any Allowed Expenses, other than amounts due to the
Trustee under Section 7.7, may be made. Subject to the foregoing, and subject
to subsection (f) above, the Company agrees to pay promptly any Allowed Expenses
for which sums are available in the Operating Account by check or wire transfer
drawn on the Operating Account.
(j) Subject to the requirements of any Additional Lender, during the
continuance of an Event of Default, upon the written request of a Trust Officer
from time to time but in any event not less often than the Business Day next
preceding each Payment Date, the Company shall cause to be transferred from the
Operating Account to the Trust Account all of the funds in the Operating
Account, less any amounts due the Trustee under Section 7.7.
(k) All payments of principal or accrued interest with respect to the
Notes shall be made from amounts held in the Trust Account. All payments to be
made from time to time to the Holders of Notes out of funds in the Trust Account
pursuant to this Indenture shall be made by the Trustee as the Paying Agent of
the Company or by any other Paying Agent appointed by the Company, subject to
Section 5.2. No amounts contained in the Trust Account shall be paid over to or
at the direction of the Company, except as otherwise provided by the provisions
of this Indenture.
(l) So long as no Event of Default shall have occurred and be continuing,
any funds in the Trust Account shall be invested and reinvested by the Trustee
at the Company's direction in one or more Eligible Investments. All income or
other gain from investment of moneys deposited in the Trust Account shall be
deposited therein immediately upon receipt, and any loss resulting from such
investment shall be charged to such Account.
(m) Notwithstanding any other provision of this Indenture, the Company may
elect, in its sole discretion, to deposit the proceeds from the sale of Notes
into the Operating Account. In that event, the Company may, without the consent
of the Trustee or any Holder, withdraw from the Operating Account the funds
necessary to pay (i) the Offering Expenses, but not to exceed the limits set
forth in the Company's final prospectus filed with the SEC pursuant to which the
Notes are offered and sold on behalf of the Company, and (ii) the administration
fee payable to Sovereign Auto Finance, Inc. as described in such prospectus,
equal to 5.5% of the gross proceeds from the sale of the Notes (5.0% of the
gross proceeds in excess of $9,000,000).
Section 4.2 General Provisions Regarding Trust Account.
(a) The Company shall not direct the Trustee to make any investment of any
funds in the Trust Account or to sell any investment held in the Trust Account
except under the following terms and conditions: (i) (A) each such
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investment shall be made in the name of the Trustee (in its capacity as such)
or its nominee (or, if applicable law provides for perfection of pledges of
an investment not evidenced by a certificate or other instrument through
registration of such pledge on books maintained by or on behalf of the issuer
of such investment, such pledge may be so registered), (B) the Trustee shall
have sole investment control over such investment, the income thereon and the
proceeds thereof, and (C) any instrument evidencing such investment shall be
delivered directly to the Trustee or its agent; and (ii) the proceeds of each
sale of such investment shall be remitted by the purchaser thereof directly
to the Trustee for deposit in the Trust Account.
(b) If any amounts are needed for disbursement from the Trust Account and
sufficient uninvested funds are not available to make such disbursement, in the
absence of a Company Order for the liquidation of investments in an amount
sufficient to provide the required funds, the Trustee may cause to be sold or
otherwise converted to cash a sufficient amount of the investments in the Trust
Account.
(c) The Trustee shall not in any way be held liable by reason of any
insufficiency in the Trust Account resulting from any loss on any Eligible
Investment included therein except that Trustee shall remain liable on Eligible
Investments which are obligations of the Trustee in its commercial capacity.
(d) All investments of funds in the Trust Account and all sales of
Eligible Investments held in the Trust Account shall, except as otherwise
expressly provided in this Indenture, be made by the Trustee in accordance with
a Company Order. Such Company Order may specify actions (including, without
limitation, that such funds shall not be invested, in which case such funds
shall remain deposited in the Trust Account) or may be a general, standing order
authorizing the Trustee to act within certain general parameters or to act on
written, telegraphic or telephonic instructions of specified personnel or agents
of the Company. In order to insure that the Trustee can invest funds in the
Trust Account or sell any investment in the Trust Account, the Company Order
with respect thereto must be received by the Trustee no later than 9:00 a.m. on
the date specified in the Company Order for effecting such transaction.
(e) In the event that the Company shall have failed to give investment
directions to the Trustee by 9:00 a.m. Dallas, Texas Time on any Business Day
authorizing the Trustee to invest the funds then in the Trust Account, the
Trustee may invest and reinvest the funds then in the Trust Account to the
fullest extent practicable, in such manner as the Trustee shall from time to
time determine, but only in one or more Eligible Investments. All investments
made pursuant to this subsection shall mature on the next Business Day following
the date of such investment.
Section 4.3 Reports by Trustee.
The Trustee shall report and account to the Company with respect to the
Trust Account and the identity of the investments included therein on a monthly
basis and more frequently as the Company may from time to time reasonably
request, including accountings of deposits into and payments from the Trust
Account.
ARTICLE FIVE
COVENANTS
Section 5.1 Payment of Principal and Interest.
(a) Interest and any principal payable on any Note shall be paid to the
Person in whose name such Note (or one or more predecessor Notes) is registered
at the close of business on the Record Date for the applicable Payment Date by
check mailed to such Person's address as it appears in the Note Register on such
Record Date, except for the final payment of principal of and interest on a
Note, which shall be payable only upon presentation and surrender as provided in
subsection (b) of this Section 5.1. For payments made on any Note prior to the
final payment of principal and interest, such Note need not be submitted for
notation of payment. Checks returned undelivered will be held by the Paying
Agent
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for payment to the Person entitled thereto, subject to the terms of Section
5.2. Payments made on any Payment Date shall be binding upon all future
Holders of such Notes and of any Notes issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, whether or not
noted thereon.
(b) Each installment of interest on the Notes is due and payable as
specified on the form of Note set forth in Section 2.2. Any installment of
interest which is not paid when and as due shall bear interest at the rate of
11% per annum from the date due to the date of payment thereof. Unless such
Note becomes due and payable at an earlier date by declaration of acceleration,
call for redemption or otherwise, the principal of each Note shall be due and
payable at the Stated Maturity; provided, however, the final payment of
principal of and interest on each Note (or the Redemption Price thereof if the
Notes called for redemption) shall be payable only upon presentation and
surrender thereof to the Paying Agent. The Trustee shall notify the Person in
whose name a Note is registered at the Record Date for the Payment Date next
preceding the Payment Date on which the Company expects that the final payment
of principal and interest on such Note will be paid. Such notice shall be
mailed no earlier than the 60th day, and no later than the 20th day, prior to
such Payment Date and shall specify that such final payment will be payable only
upon presentation and surrender of such Notes and shall specify the name and
address of the Paying Agent where such Notes may be presented and surrendered
for payment of such final payment. Notices in connection with redemptions of
Notes shall be mailed to Holders as provided in Section 3.2.
(c) All computations of interest due with respect to any Notes shall be
based on a 360-day year consisting of 12 months of 30 days each and on the
amount of principal outstanding on the Notes from time to time.
(d) On or prior to each Report Date, the Company shall transmit to the
Trustee the Monthly Report which shall set forth, with respect to the next three
succeeding Payment Dates, the amount of interest and any principal payable on
such Payment Dates on each Outstanding Note. Each Monthly Report shall state
that the computations of interest were made in conformity with the requirements
of this Indenture. Notwithstanding the foregoing, the Trustee may rely on its
own calculations for purposes of paying interest on the Notes.
(e) The Company at any time may terminate, by written notice to the
Trustee, its obligation to pay an installment of interest if it deposits with
the Trustee, or the Trustee holds in the Trust Account as of the related Payment
Date, money sufficient to pay the installment when due.
(f) Subject to the foregoing provisions of this Section 5.1, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to unpaid principal and
interest, if any, that were carried by such other Note.
Section 5.2 Money for Note Payments to be Held in Trust.
(a) Whenever the Company shall have a Paying Agent other than the Trustee,
it will, by Company Order delivered on or before the Business Day next preceding
each Payment Date, direct the Trustee to deposit with such Paying Agent on or
before such Payment Date a sum sufficient to pay the amounts then becoming due,
and the Trustee shall, to the extent it has received such amount from the
Company, deposit such amount with the Paying Agent as directed. Such sum shall
be held in trust for the benefit of the Persons entitled to such payments.
(b) The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent, in acting as Paying Agent, will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided, and pay such sums to such Persons as herein
provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment required to be
made with respect to the Notes; and
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(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
(c) For the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, the Company may at any time direct by
Company Order any Paying Agent to pay to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Section 5.3 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged before
the same shall become delinquent (1) all taxes, assessments and governmental
charges levied or imposed upon the Company, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings; and provided further, that
the Company shall not be required to cause to be paid or discharged any such
tax, assessment, charge or claim if the Company shall determine such payment is
not advantageous to the conduct of the business of the Company and that the
failure so to pay or discharge is not disadvantageous in any material respect to
the Holders.
Section 5.4 Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working order
and will cause to be made all necessary repairs, renewals, replacements,
betterment and improvements thereof, all as in the judgment of the Company may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Company, desirable
in the conduct of the business of the Company and not disadvantageous in any
material respect to the Holders.
Section 5.5 Limitation on Investment Activities.
The Company will not register as, or conduct its business or take any
action which shall cause it to become, or to be deemed to be, an "investment
company" as defined under the provisions of and subject to registration under
the Investment Company Act of 1940, as amended.
Section 5.6 Compliance Certificates.
(a) The Company will deliver to the Trustee an Officer's Certificate
stating whether or not the signee knows of any default by the Company in
performing its covenants under this Indenture within 15 days of a written
request by the Trustee. The Company will perform, execute, acknowledge and
deliver all such further acts, instruments, and assurances in this regard as may
reasonably be requested by the Trustee. The certificates required under this
Section shall comply with Section 11.4(b).
(b) The Company will deliver to the Trustee within 15 days after the
occurrence thereof written notice of the occurrence of any Event of Default.
Section 5.7 Reporting.
(a) Commencing with fiscal year ending December 31, 1998, the Company
shall file with the Trustee copies of any annual reports and other information,
documents, and statements (or copies of such portions of any of the foregoing as
the SEC may by rules and regulations prescribe) which the Company may be
required to file with the SEC pursuant
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to Section 13 or 15(d) of the Securities Exchange Act, which filing shall be
made within 15 days after the Company makes such filing with the SEC. The
Company also shall comply with the other provisions of TIA Section 314(a).
(b) If the Company is not subject to Section 13 or 15(d) of the Exchange
Act, then the Company shall file with the Trustee such of the supplementary and
periodic information, documents and reports which would be required under
Section 13 of the Exchange Act if the Notes were listed or registered on a
national securities exchange, which filing shall be made within 15 days after
the Company would otherwise have been required to make such filing with the SEC.
(c) To the extent reasonably requested by the Trustee, the Company shall
provide to the Trustee information in the Company's possession to assist the
Trustee in complying with its reporting duties specified in Section 7.6.
(d) On or before 120 days after the end of each fiscal year of the
Company, the Company shall deliver to the Trustee a report, prepared by a firm
of independent accountants selected by the Company, that they have examined the
balance sheet of the Company as of the last day of said fiscal year and the
related statements of operations, retained earnings and changes in financial
position for such fiscal year and have issued an opinion thereon, specifying the
date thereof.
Section 5.8 Performance of Obligations; Servicing Agreement.
(a) The Company will punctually perform and observe all of its obligations
and agreements contained in the Servicing Agreement.
(b) The Company will not take any action or permit any action to be taken
by others which would release any Person from any of such Person's covenants or
obligations under any of the Contract Documents, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided in this Indenture, the Servicing
Agreement or such Contract Document or other instrument.
(c) If the Company shall have knowledge of the occurrence of a default by
the Servicer of any of its material obligations under the Servicing Agreement or
Article Twelve hereof, the Company shall promptly notify the Trustee thereof,
and shall specify in such notice the action, if any, the Company is taking in
respect of such default. If such default arises from the failure of the
Servicer to perform any of its obligations under the Servicing Agreement or
Article Twelve hereof with respect to the Contracts, the Company may remedy such
failure. Unless directed or permitted by the Trustee or the Majority Holders,
the Company may not waive any such default under the Servicing Agreement or
Article Twelve hereof or terminate the rights and powers of the Servicer under
the Servicing Agreement and Article Twelve hereof.
Section 5.9 Negative Covenants.
The Company will not:
(i) engage in any business or activity other than in connection with
the purchase, collection and servicing of retail installment sales or lease
contracts and consumer obligations secured by motor vehicles, the
repossession and resale of motor vehicles, the dealing in all respects with
such Contracts and obligations and their motor vehicle collateral, and the
raising of capital, both debt and equity, and any other incidental
businesses or activities, without the consent of the Majority Holders;
(ii) without the consent of the Majority Holders create, incur, assume
or in any manner become liable in respect of any indebtedness other than
(1) the Notes, (2) any Allowed Expenses, (3) the Additional Borrowing, and
(4) any other amounts incurred in the ordinary course of the Company's
business;
(iii) dissolve or liquidate in whole or in part;
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(iv) merge or consolidate with any corporation, partnership or other
entity other than an Affiliate of the Company or the Servicer. Any such
merger or consolidation with an Affiliate of the Company or the Servicer
shall be subject to the following conditions:
(1) the surviving or resulting entity shall be a corporation
organized under the laws of the United States or any state thereof
whose business and activities shall be limited as set forth in
paragraph (i) above,
(2) the surviving or resulting corporation (if other than the
Company) shall expressly assume by an indenture supplemental hereto
all of the Company's obligations hereunder,
(3) the surviving or resulting corporation shall have the same
fiscal year as the Company, and
(4) immediately after consummation of the merger or
consolidation no Event of Default shall exist with respect the Notes;
(v) (to the extent that it may lawfully so covenant and to the extent
that such covenant is lawfully enforceable) institute any bankruptcy,
insolvency or receivership proceedings with respect to itself or its
properties;
(vi) permit the validity or effectiveness of this Indenture to be
impaired, or permit any Person to be released from any covenants or
obligations under this Indenture, except as may be expressly permitted
hereby; or
(vii) originate or acquire any Contract of an Obligor located in
any jurisdiction unless at the time of such origination or acquisition of
such Contract by the Company or the Servicer, both the Company and the
Servicer shall have obtained all licenses, permits and governmental
approvals, if any (1) necessary to comply with the laws of such
jurisdiction with respect to their respective operations and businesses,
(2) necessary to perform their respective obligations as contemplated by
this Indenture and the Servicing Agreement with respect to such Contract,
(3) necessary to maintain the enforceability of such Contract and the
security interest in the related Financed Vehicle and to prevent such
Contract or any portion thereof from becoming void or voidable by the
Obligor or any other person, and (4) if such Contract has been assigned to
the Company, necessary for such assignment to be a lawful and binding
assignment on the assignor and the Obligor.
ARTICLE SIX
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.
An "Event of Default" shall occur if:
(1) the Company defaults in the payment of interest on any Note when the
same becomes due and payable and the default continues for a period of
30 days;
(2) the Company defaults in the payment of the principal of any Note when
the same becomes due and payable and the default continues for a
period of 30 days;
(3) the Company fails to comply with any of its other agreements in the
Notes or this Indenture (other than a covenant or warranty, a default
in the observance of which is elsewhere in this section specifically
dealt with) and the default continues for a period of 30 days after
receipt by the Company of written notice of such default from the
Trustee specifying such default and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder or after
receipt by the Company and the
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Trustee of such notice from the Holders of Notes representing at least
25% of the aggregate principal amount of the Notes which are then
Outstanding Notes;
(4) if any representation or warranty of the Company made in this
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith shall prove to be incorrect in any
material respect as of the time when the same shall have been made
and, within 30 days after receipt by the Company of written notice
from the Trustee specifying such inaccuracy and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder or after receipt by the Company and the Trustee of such
notice from the Holders of Notes representing at least 25% of the
aggregate principal amount of the Notes which are then Outstanding
Notes, the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been
eliminated or otherwise cured;
(5) if the validity or effectiveness of this Indenture shall be impaired,
or this Indenture shall be amended, hypothecated, subordinated,
terminated or discharged, or any Person shall be released from any
covenants or obligations under this Indenture or the Servicing
Agreement, in each case except as may be expressly permitted hereby
and thereby;
(6) the Company, pursuant to or within the meaning of title 11, U.S. Code
or any similar Federal or State law for the relief of debtors (the
"Bankruptcy Law"):
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official of it or for all or substantially
all of its property; or
(D) makes a general assignment for the benefit of its creditors; or
(7) a court of competent jurisdiction enters an order or decree, which
remains unstayed and in effect for 60 days, under any Bankruptcy Law
against the Company:
(A) for relief in an involuntary case;
(B) appointing a receiver, trustee, assignee, liquidator or similar
official for all or substantially all of its property; or
(C) ordering its liquidation.
Section 6.2 Acceleration.
If an Event of Default occurs and is continuing, the Trustee may, and at
the direction of the Holders of Notes representing at least 25% of the aggregate
principal amount of Notes which are then Outstanding Notes shall, by written
notice to the Company, declare the principal amount of all the Notes together
with accrued interest thereon to be due and payable immediately. The Majority
Holders may, by written notice to the Trustee, rescind an acceleration and its
consequences.
Section 6.3 Remedies.
(a) If an Event of Default shall have occurred and be continuing, the
Trustee may, subject to Section 6.2, make demand and institute judicial
proceedings in equity or law for the collection of all amounts then payable on
the Notes, or under this Indenture, whether by declaration or otherwise, enforce
all judgments obtained, and collect from the Company moneys adjudged due.
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(b) The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceedings. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or an acquiescence in the Event of Default. No remedy is exclusive of
any other remedy. All available remedies are cumulative.
(c) Upon the institution of legal proceedings by the Trustee pursuant to
subsection (a) above, then, in addition to any and all other amounts due
hereunder, the Company shall be liable for any and all costs and expenses of
collection, including the reasonable expenses, disbursements and advances of the
Trustee, its agents and counsel.
Section 6.4 Waiver of Past Defaults.
Subject to Section 9.2, the Majority Holders may, by written notice to the
Trustee, waive a continuing Event of Default and its consequences. When an
Event of Default is waived in accordance herewith, it is cured and shall no
longer be considered continuing.
Section 6.5 Control by Majority.
The Majority Holders may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that is unduly prejudicial
to the rights of Holders not joining in such direction, or that would involve
the Trustee in personal liability.
Section 6.6 Limitation on Suits.
(a) A Holder may not pursue any remedy with respect to this Indenture or
the Notes unless:
(i) an Event of Default has occurred and is continuing, and the
Holder gives to the Trustee written notice of such continuing Event of
Default;
(ii) the Majority Holders have made a written request to the Trustee
to pursue the remedy;
(iii) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expenses;
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request;
(v) the Event of Default has not been waived or cured; and
(vi) the Trustee has received no contrary direction from the Majority
Holders during such 60-day period.
(b) A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal and interest on the Note, on or
after the respective due dates, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
Section 6.8 Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2) occurs and is
continuing, the Trustee may recover
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judgment in its own name and as trustee of an express trust against the
Company for the whole amount of principal and interest remaining unpaid.
Section 6.9 Trustee may File Proofs of Claim.
(a) The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Holders allowed in any judicial proceedings relative to the
Company, its creditors or its property.
(b) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
FIRST, to the Trustee for the amounts due under Section 7.7;
SECOND, to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively;
THIRD, to the Servicer for any unpaid Allowed Expenses owed to or
incurred by it with respect to the Contracts; and
FOURTH, to the Company.
The Trustee may fix a record date and payment date for any payment to Holders.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, or a suit by the Majority Holders.
Section 6.12 Stay, Extension or Usury Laws.
The Company agrees (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefits or
advantage of any stay or extension law or any usury or other law, wherever
enacted, now or at any time hereafter in force, which would prohibit or forgive
the Company from paying all or any portion of the principal of and/or interest
on the Notes as contemplated herein, or which may affect the covenants or
performance of this Indenture, and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and agrees that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of any
such power as though no such law has been enacted.
ARTICLE SEVEN
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TRUSTEE
Section 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in the exercise of such rights and powers
as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default known to the
Trustee:
(i) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a written
direction received by it from the Majority Holders relating to the time,
method, and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(iv) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
(d) Each provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required by
law.
(f) The Trustee shall not be liable for any action or omission taken by or
not taken by the Servicer of any kind or nature.
Section 7.2 Rights of Trustee.
(a) The Trustee may rely and shall be protected in acting or refraining
from acting upon any document reasonably believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of
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Counsel or both. The Trustee shall not be liable for any action it takes or
omits to take in reliance on such Certificate or Opinion, in the absence of
bad faith on its part.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders of Notes, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters at it may see fit.
(f) The permissive right of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty.
Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or its Affiliates with
the same rights it would have if it were not Trustee. Any Paying Agent,
Registrar or co-registrar may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes. It shall not be
accountable for the Company's use of the proceeds from the sale of the Notes and
shall not be responsible for any statement (i) in the Notes, other than its
certificate of authentication, or (ii) in any prospectus used in the sale of the
Notes, other than statements provided in writing by the Trustee for use in such
prospectus.
Section 7.5 Notice of Default.
If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Holder notice of the Event of Default
within 90 days after it obtains actual knowledge thereof. Except in the case of
an Event of Default resulting from the failure to pay principal or interest on
any Note, the Trustee may withhold the notice if and so long as the Board of
Directors, the executive committee or a trust committee of the directors and/or
Responsible Officers of the Trustee in good faith determines that withholding
notice is in the interests of Holders.
Section 7.6 Reports by Trustee to Holders.
(a) Within 60 days after each December 31 beginning with December 31,
1998, the Trustee shall, to the extent required by TIA Section 313(a), mail to
each Holder a brief report dated as of such December 31 that complies with TIA
Section 313(a). The Trustee shall also, to the extent required by TIA Section
313(b), comply with TIA Section 313(b)(1) and (2).
(b) If this Indenture is qualified with the SEC under the TIA, a copy of
each report at the time of its mailing to the Holders shall be filed with the
SEC and each national securities exchange on which the Notes are listed, to the
extent required by the TIA. The Company shall notify the Trustee if and when
the Notes are listed on any national securities exchange (as defined in the
Exchange Act) or quoted on the National Association of Securities Dealers
Automated Quotation system.
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(c) Within 60 days after each December 31 beginning with December 31,
1998, the Trustee shall provide a report to the Noteholders which indicates
whether the Trustee has fulfilled its obligations under this Indenture and
whether there have been any known uncured defaults hereunder.
Section 7.7 Compensation and Indemnity.
(a) (i) The Company shall pay to the Trustee from time to time as
compensation for its services the amounts set forth on the Trustee's Fee
Schedule attached hereto as EXHIBIT C, as may be agreed upon from time to
time by the Trustee and the Company. In addition, the Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it, as set forth in Exhibit C. Such expenses may
include the reasonable compensation and expenses of the Trustee's agents
and counsel.
(ii) The Company and SAFH shall indemnify and hold harmless the
Trustee and its successors and their respective officers, directors,
employees, agents and attorneys against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs (including the costs and expenses of defending itself), expenses and
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Trustee and such other Persons, in
connection with the performance by the Trustee of its duties hereunder.
The Trustee and such other Persons shall notify the Company and SAFH
promptly of any claim for which it or they may seek indemnity, but failure
to so notify the Company and SAFH shall not relieve the Company or SAFH of
their obligations hereunder. Neither the Company nor SAFH shall be
required to pay for any settlement made without their consents, such
consents not to be unreasonably withheld. Neither the Company nor SAFH
shall be required to reimburse any expense or indemnify against any loss or
liability incurred by the Trustee or any such other Person through the
Trustee's or such other Person's gross negligence, bad faith, breach of
contract or misconduct.
(b) The obligations set forth in this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
(c) When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.1(6) or (7), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
(a) The Trustee may resign at any time upon 30 days prior written notice
to the Company. The Majority Holders may remove the Trustee at any time upon 30
days prior written notice to the removed Trustee and may appoint a successor
Trustee with the Company's consent. The Company shall remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent; or
(iii) a receiver or other public officer takes charge of the
Trustee or its property.
(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The resignation or removal of the Trustee shall not be
effective until a successor Trustee has been appointed and has assumed the
responsibilities of Trustee hereunder.
(c) A successor Trustee shall deliver a written acceptance of this
appointment to the retiring Trustee and to the Company. Immediately thereafter,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee. Upon delivery of such written acceptance, the resignation or
removal of the retiring Trustee shall become effective and the retiring Trustee
shall cease to be Trustee hereunder and shall be discharged from any
responsibility or obligations for actions taken by any successor Trustee. The
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each
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Holder.
(d) If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Majority Holders may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 7.10, any Holder who has
been a bona fide Holder for at least six months may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
Section 7.9 Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another Person, the
resulting, surviving or transferee Person without any further act shall be the
successor Trustee.
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Section 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1) and (5). The Trustee shall have a combined capital and
surplus of at least $1 million as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA Section 310(b).
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
Section 7.12 Withholding Taxes.
Whenever it is acting as a Paying Agent for the Notes, the Trustee shall
comply with all requirements of the Internal Revenue Code of 1986, as amended
(or any successor or amendatory statutes), and all regulations thereunder, with
respect to the withholding from any payments made on such Notes of any
withholding taxes imposed thereon and with respect to any reporting requirements
in connection therewith.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
Section 8.1 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect, except as to surviving
rights of transfer or exchange of Notes herein expressly provided for, and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered (other than
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.8) have been delivered to the
Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Notes not theretofore delivered to the Trustee for cancellation,
the principal at Stated Maturity of such Notes, or the applicable
Redemption Price with respect thereto upon redemption;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each
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stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company under Sections 7.7 and 8.3 shall survive.
Section 8.2 Application of Trust Money.
All money deposited with the Trustee pursuant to Section 8.1 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent as
the Trustee shall be directed by Company Order, to the Persons entitled thereto,
of the principal at Stated Maturity, or the Redemption Price, of the Notes for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
Section 8.3 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any money or securities held by them at any time in excess of the
amounts needed to pay and discharge the Notes in full. The Trustee and the
Paying Agent shall pay the Company upon request for any money or securities held
by them for the payment of principal or interest that remains unclaimed for two
years. After such payment to the Company, Holders entitled to such funds must
look to the Company for the payment of such unclaimed principal or interest.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders.
(a) The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to or consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency in this Indenture
or the Notes;
(ii) to effect a merger or consolidation in conformance with Section
5.9(iv);
(iii) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(iv) to make any change that does not materially adversely affect the
rights of any Holder; or
(v) to modify or add to the provisions of this Indenture to the
extent necessary to qualify it under the TIA or under any similar federal
statute hereafter enacted.
(b) The Trustee may waive compliance by the Company with any provisions of
this Indenture or the Notes without notice to or consent of any Holder if the
waiver does not materially adversely affect the rights of any Holder.
Section 9.2 With Consent of Holders.
(a) The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to any Holder but with the written consent of the
Majority Holders. The Majority Holders may waive compliance by the Company with
any provision of this Indenture or the Notes without notice to any Holder.
However, without the consent of each Holder adversely affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.4, may not:
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(i) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment of interest on
any Note;
(iii) reduce the principal of or extend the Stated Maturity of any
Note; or
(iv) make any Note payable in money other than that stated in the
Note.
(b) After an amendment under this Section becomes effective, the Company
shall mail to Holders a notice briefly describing the amendment. The Trustee
may in its discretion determine whether or not any Notes would be adversely
affected, materially or otherwise, by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Trustee
shall not be liable for any such determination made in good faith.
Section 9.3 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect so long as this Indenture shall then be
qualified under the TIA.
Section 9.4 Revocation and Effect of Consents.
(a) A consent to an amendment, supplement or waiver by a Holder shall bind
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of a Note. The
Trustee must receive the notice of revocation before the date the amendment,
supplement or waiver becomes effective.
(b) After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it makes a change described in clause (ii), (iii), (iv)
or (v) of Section 9.2(a). In that case the amendment, supplement or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note.
Section 9.5 Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Note concerning the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue, and the Trustee
shall authenticate, a new Note that reflects the changed terms.
Section 9.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Company may not sign an amendment or supplement until
such amendment or supplement is approved by the Chairman of the Board, President
or any Vice President of the Company or any other officer of the Company
customarily performing functions similar to those performed by any of the above
designated officers, and such approval shall evidence the Company's
determination that such amendment, supplement or waiver is authorized pursuant
to this Article.
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ARTICLE TEN
MEETINGS OF HOLDERS
Section 10.1 Purposes for Which Meetings may be Called.
A meeting of Holders may be called for the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give any
direction to the Trustee, or to waive or to consent to the waiving of any Event
of Default hereunder and its consequences;
(b) to remove the Trustee, appoint a successor Trustee or apply to a court
for a successor Trustee;
(c) to consent to the execution of a supplemental indenture; or
(d) to take any other action (i) authorized to be taken by or on behalf of
the Holders of any specified aggregate principal amount of the Notes under this
Indenture, or authorized or permitted by law, or (ii) which the Trustee deems
necessary or appropriate in connection with the administration of the Indenture.
Section 10.2 Manner of Calling Meetings.
(a) The Trustee may call a meeting of Holders to take any action specified
in Section 10.1. Notice setting forth the time and place of, and the action
proposed to be taken at, such meeting shall be mailed by the Trustee to the
Company and to the Holders not less than ten or more than 60 days prior to the
date fixed for the meeting.
(b) Any meeting shall be valid without notice if the Holders of all Notes
are present in person or by proxy, or if notice is waived before or after the
meeting by the Holders of all Notes, and if the Company and the Trustee are
either present and not objected to holding the meeting without notice or have,
before or after the meeting, waived notice.
Section 10.3 Call of Meetings by Company or Holders.
In case at any time the Company or the Holders of not less than 10% in
aggregate principal amount of the Outstanding Notes shall have requested in
writing that the Trustee call a meeting of Holders to take any action specified
in Section 10.1, and the Trustee shall not have mailed the notice of such
meeting within 20 days after receipt of such request, then the Company or the
Holders of Notes in the amount above specified may determine the time and place
for such meeting and may call such meeting by mailing notice thereof.
Section 10.4 Who may Attend and Vote at Meetings.
To be entitled to vote at any meetings of Holders, a person shall (a) be a
Holder, or (b) be a person appointed by an instrument in writing as proxy for a
Holder. The only persons who shall be entitled to be present or to speak at any
meeting of Holders shall be the persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and the Company and their
counsel.
Section 10.5 Regulations may be Made by Trustee; Conduct of the Meeting;
Voting Rights.
(a) The Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders, to prove the registered holding of Notes,
the appointment of proxies, and other evidence of the right to vote, to fix a
record date and to provide for such other matters concerning the conduct of the
meeting as it shall deem appropriate.
(b) At any meeting each Holder or proxy thereof shall be entitled to one
vote for each $1,000 principal amount of Notes registered in such Holder's name;
provided, however, that the Company shall not be entitled to vote with respect
to any Notes held of record by it. At any meeting of Holders, the presence of
persons holding or representing any
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number of Notes shall be sufficient for a quorum.
Section 10.6 Exercise of Rights of Trustee or Holders may not be Hindered or
Delayed by Call of Meeting.
Nothing in this Article shall be deemed or construed to authorize or
permit, by reason of any call of a meeting of Holders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any rights conferred upon or reserved to the Trustee or to the
Holders by this Indenture or the Notes.
Section 10.7 Evidence of Actions by Holders.
Whenever the Holders of a specified percentage in aggregate principal
amount of the Notes may take any action, the fact that the Holders of such
percentage have acted may be evidenced by (a) instruments of similar tenor
executed by Holders in person or by attorney or written proxy, or (b) the
Holders voting in favor thereof at any meeting of Holders called and held in
accordance with the provisions of this Article, or (c) by a combination
thereof. The Trustee may require proof of any matter concerning the execution
of any instrument by a Holder or the Holder's attorney or proxy as it shall
deem necessary.
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed on any Person by Sections 310 through 317, inclusive, of the TIA,
the duties imposed under such Sections of the TIA shall control.
Section 11.2 Notices.
(a) Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first class mail addressed as follows:
if to the Company: Sovereign Credit Finance II, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President
if to SAFH: Sovereign Auto Finance Holdings, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President
if to the Trustee: Sterling Trust Company
7901 Fish Pond Road
Waco, Texas 76710
Attn: Paul E. Skretny, President
if to the Servicer: Sovereign Associates, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: Douglas M. Kemp, President
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(b) The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(c) Any notice or communication mailed to a Holder shall be mailed first
class, postage prepaid to such Person at such Person's address as it appears on
the Note Register of the Registrar and shall be sufficiently given to such
Person if so mailed within the time prescribed. If the Company mails a notice
or communication to Holders, it shall mail a copy to the Trustee at the same
time.
(d) Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
Section 11.3 Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).
Section 11.4 Certificate and Opinion as to Conditions Precedent.
(a) Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officer's Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
(b) Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include (i) a
statement that the person making such certificate or opinion has read such
covenant or condition; (ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 11.5 Rules by Paying Agent and Registrar.
The Paying Agent or Registrar may make reasonable rules for its functions.
Section 11.6 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking
institutions are not required to be open in the State of Texas. If a Payment
Date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday.
Section 11.7 Governing Law.
The laws of the State of Texas shall govern this Indenture and the Notes.
Section 11.8 No Adverse Interpretation of Other Agreements.
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This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or an Affiliate of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
Section 11.9 No Recourse Against Others.
No recourse may be taken, directly or indirectly, against any incorporator,
subscriber to the capital stock, stockholder, officer, director, agent or
employee of the Company or the Servicer or of any predecessor or successor of
the Company or the Servicer with respect to the obligations of the Company or
the Servicer with respect to the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith, and
all such liability is waived and released by the Trustee and all Holders.
Section 11.10 Successors.
All agreements of the Company and the Servicer in this Indenture and the
Notes shall bind their respective successors. All agreements of the Trustee in
this Indenture shall bind its successor.
Section 11.11 Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.12 Severability.
If any provision of this Indenture is held to be illegal, invalid, or
unenforceable under the present or future laws effective during the term of this
Indenture, such provision shall be fully severable; this Indenture shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Indenture; and the remaining provisions of
this Indenture shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Indenture. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Indenture a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and still be legal, valid, and enforceable.
Section 11.13 Headings.
The headings contained herein are for purposes of convenience only, and
shall not be deemed to constitute a part of this Indenture or to affect the
meaning or interpretation of this Indenture in any way.
ARTICLE TWELVE
AGREEMENTS OF SERVICER
Section 12.1 General.
(a) The Servicer agrees that all covenants, representations and warranties
made by the Servicer in the Servicing Agreement with respect to the Contracts
shall also be for the benefit of the Trustee.
(b) In carrying out its servicing obligations with respect to the
Contracts, the Servicer agrees that it will use its customary and usual
procedures in servicing motor vehicle retail installment contracts and
obligations and, to the extent more exacting, the procedures used by the
Servicer in respect of such contracts serviced by it for its own account. The
Servicer shall take all actions that are necessary or desirable to maintain
continuous perfection and priority of the security interests granted by the
Obligors in the Financed Vehicles, including, but not limited to, obtaining the
execution by the Obligors on, and the filing of, all security agreements,
financing statements, continuation statements or other instruments as are
necessary to maintain the security interests granted by the Obligors under the
respective Contracts.
35
<PAGE>
Section 12.2 Collections Account.
(a) The Servicer shall maintain, in the Company's name, at a depository
institution (which may be the Trustee), a lock box account (the "Collections
Account"). The Collections Account shall be an Eligible Account. The Servicer
shall give the Trustee and the Company at least five Business Days' written
notice of any change in the location of the Collections Account and any related
account identification information.
(b) The Servicer agrees to direct all Obligors to remit all collections
and payments directly to, or otherwise cause all payments on the Contracts to be
deposited in, the Collections Account. The Servicer agrees and covenants to
provide correspondence, statements, and/or payment books to all Obligors with
remittance instructions directing all payments to be remitted directly to the
Collections Account and that all cash, checks, notes, drafts and other items
which it otherwise receives and which are attributable to the Contracts shall be
promptly deposited into the Collections Account. The Servicer shall likewise
deposit in the Collections Account within two Business Days of receipt all
Liquidation Proceeds and Insurance Proceeds. The Servicer shall cause to be
transferred to the Operating Account, at least weekly, all funds in the
Collections Account that are attributable to the Contracts.
Section 12.3 Servicer Acting as Custodian.
The Servicer acknowledges that any collections or proceeds from the
Contracts in the Collections Account, or otherwise in the possession or control
of the Servicer, are the Company's property. In holding such proceeds and
collections, the Servicer agrees to act as custodian of the Company and the
Additional Lender, if any, at all times.
Section 12.4 Records.
The Servicer shall retain all data (including, without limitation,
computerized records) relating directly to or maintained in connection with
the servicing of the Contracts at its office in Dallas, Texas, or at the
office of any party with whom the Servicer may subcontract for the
performance of its duties and obligations arising under the Servicing
Agreement and this Indenture. Within 15 days after the change in the
servicing office where such data is located, the Servicer shall give the
Trustee notice of the location of the new servicing office of the Servicer or
its subcontractor. The Servicer shall give the Trustee access to all data
(including, without limitation, computerized records) at all reasonable times.
Section 12.5 [reserved]
Section 12.6 Servicing Compensation.
As compensation for the performance of its obligations under the Servicing
Agreement and subject to the terms of this Section, the Servicer shall be
entitled to receive payment of the Servicing Fees from the Company, out of
amounts available for that purpose in the Operating Account. Payment of such
Servicing Fees shall be conditioned upon the availability in the Operating
Account of amounts intended for such purpose after satisfaction of all higher
priority applications of such funds under Section 4.1(f), any deficiency being
carried over and not payable (without accountability for interest) until
sufficient amounts become available for that purpose in the Operating Account.
The Servicer shall generally pay all expenses incurred by it in connection with
its servicing activities under the Servicing Agreement and shall not be entitled
to reimbursement of such expenses except to the extent they constitute
Liquidation Expenses, Allowed Expenses, or any other expenses permitted by the
prospectus which offers the Notes for sale.
Section 12.7 Realization upon Defaulted Contracts.
In accordance with the servicing procedures specified in the Servicing
Agreement, the Servicer shall repossess, or otherwise comparably convert the
ownership of, any Financed Vehicle securing a Defaulted Contract and as to which
no satisfactory arrangements can be made for collection of delinquent payments
pursuant to the Servicing Agreement. In connection with such repossession or
other conversion, the Servicer shall follow such practices and procedures as it
shall deem necessary or advisable and as shall be normal and usual for
responsible holders of retail installment sales
36
<PAGE>
contracts and obligations and as shall be in compliance with all applicable
laws, and, in connection with the repossession of any Financed Vehicle or
other proceedings with respect to any Defaulted Contract, may commence and
prosecute any judicial proceedings in respect of such Contract in its own
name, or if the Servicer deems it necessary, in the name of the Company, on
behalf of the Company.
Section 12.8 Collecting Title Documents Not Delivered at the Closing Date.
(a) If the Title Document for a Financed Vehicle does not reflect the
Company as lienholder at the time of the Company's purchase direct from a Dealer
of the related Contract, the Servicer shall confirm, prior to the Company's
purchase, that an appropriate application has been made to transfer the lien on
the Title Document to the Company. If the Title Document for a Financed Vehicle
reflects the Servicer as lienholder at the time of the Company's purchase of the
related Contract, the Servicer shall, in connection with the Company's purchase,
make an appropriate application to transfer the lien on the Title Document to
the Company.
(b) In the case of any Contract in respect of which the Title Document for
the related Financed Vehicle showing the Servicer as first lienholder has been
applied for in connection with the purchase of the Contract, the Servicer shall
use reasonable efforts to obtain such Title Document and promptly upon receipt
thereof to make application for the transfer of the lien noted thereon to the
Company. In the case of any Contract in respect of which the Title Document for
the related Financed Vehicle showing the Company as first lienholder has been
applied for in connection with the purchase of the Contract or thereafter, the
Servicer shall use reasonable efforts to obtain such Title Document and to
deliver it to the Company (or other Person appointed as custodian for the
Contract Documents) as promptly as possible.
(c) The Servicer shall deliver to the Trustee on a monthly basis a listing
of Contracts which as of the date prior to such delivery do not show the
Servicer or the Company as first lienholder on the Title Documents for such
Contracts.
(d) Any fees charged for the transfer of liens on the Title Documents for
the Financed Vehicles into or out of the Company's name shall be paid by the
Company as an Allowed Expense.
Section 12.9 Purchase of Eligible Contracts.
(a) Eligible Contracts shall be purchased on behalf of the Company by the
Servicer (or its subcontractors) pursuant to the terms of the Servicing
Agreement and this Indenture. In carrying out its purchase obligations, the
Servicer agrees that it will use its customary and usual procedures in
purchasing motor vehicle retail installment contracts (and obligations) and, to
the extent more exacting, the procedures used by the Servicer in respect of such
contracts (and obligations) purchased by it for its own account. The Company
and the Servicer shall agree from time to time as to which Eligible Contracts
are to be purchased by the Company from or through Servicer. The purchase
prices for any such purchases shall be payable from the funds in the Operating
Account.
(b) The Company acknowledges that the Servicer also purchases motor
vehicle retail installment contracts (or obligations) on behalf of various other
parties. Servicer agrees that any motor vehicle retail installment contracts
(or obligations) purchased by it shall be assigned to the various parties for
which the Servicer purchases such contracts, including the Company, on a basis
which takes into account the respective periods of time the purchasing parties
have been in existence, the cost of the available contract package, the amount
of their unexpended funds, and the need to diversify their holdings.
(c) The purchase price payable by the Company for each Contract shall
equal the actual out-of-pocket price payable by the Servicer for the purchase of
the Contract (inclusive of any incentives paid to dealers on a per Contract
basis, such as a volume bonus). Notwithstanding the foregoing, with respect to
any Contract which has been purchased by the Company from the Servicer or any of
its Affiliates and for which the Servicer or such Affiliate has received one or
more installments from the Obligor prior to the purchase of the Contract by the
Company and is retaining such installments for its own account rather than
transferring them to the Company's account, the purchase price payable by the
Company shall be determined to provide the Company an internal rate of return on
its investment in the Contract from
37
<PAGE>
the remaining unpaid installments equal to the original purchaser's initial
internal rate of return on its investment in the Contract, as of its purchase
from the originating dealer, assuming in both cases that the Contract was
paid in full in accordance with its scheduled installments. In addition, no
Contract purchased by the Company from the portfolio of the Servicer or any
of its Affiliates may be in default at the time of purchase by the Company or
have violated the purchasing criteria set forth in EXHIBIT A attached hereto
(with all references to the Company deemed to refer to the Servicer or such
Affiliate) or in the Servicing Agreement at the time of its purchase by the
Servicer or such Affiliate.
(d) Servicer and the Company may amend the purchasing criteria set forth
in the Servicing Agreement with the exception of the purchasing criteria set
forth on EXHIBIT A to this Indenture, for which the prior written consent of the
Trustee or the Majority Holders must be obtained.
(e) Without the prior consent of the Trustee, neither the Servicer nor the
Company shall make any payments or withdrawals from funds in the Operating
Account for the purchase of any Contracts during the continuance of an Event of
Default.
Section 12.10 [reserved]
Section 12.11 [reserved]
Section 12.12 Representations and Warranties Concerning the Servicer.
The Servicer represents and warrants to the Company and the Trustee as
follows:
(a) The Servicer (i) has been duly organized and is validly existing and
in good standing as a corporation organized and existing under the laws of the
State of Texas, (ii) has qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of its properties
or the nature of its activities makes such qualification necessary, and (iii)
has full power, authority and legal right to own its property, to carry on its
business as presently conducted, and to enter into and perform its obligations
under this Indenture.
(b) The execution and delivery by the Servicer of this Indenture are
within the corporate power of the Servicer and have been duly authorized by all
necessary corporate action on the part of the Servicer. Neither the execution
and delivery of this Indenture, nor the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof, will conflict with or
result in a breach of, or constitute a default under, any of the provisions of
any law, governmental rule, regulation, judgment, decree or order binding on the
Servicer or its properties or the charter or bylaws of the Servicer, or any of
the provisions of any indenture, mortgage, contract or other instrument to which
the Servicer is a party or by which it is bound or result in the creation or
imposition of any lien, charge or encumbrance upon any of its property pursuant
to the terms of any such indenture, mortgage, contract or other instrument.
(c) The Servicer is not required to obtain the consent of any other party
or consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Indenture.
(d) This Indenture has been duly executed and delivered by the Servicer
and the provisions of Article Twelve hereof constitute legal, valid and binding
covenants enforceable against the Servicer in accordance with their terms
(subject to applicable bankruptcy and insolvency laws and other similar laws
affecting the enforcement of creditors' rights generally).
(e) There are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened against or affecting the Servicer, before
or by any court, administrative agency, arbitrator or governmental body with
respect to any of the transactions contemplated by the Servicing Agreement or
this Indenture.
Section 12.13 Corporate Existence; Status as Servicer; Merger.
38
<PAGE>
(a) The Servicer shall keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Texas, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Contract Documents, this
Indenture and the Servicing Agreement.
(b) The Servicer shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as an
entirety to any person unless the corporation formed by such consolidation or
into which the Servicer has merged or the person which acquires by conveyance,
transfer or lease substantially all the assets of the Servicer as an entirety is
an entity organized and existing under the laws of the United States or any
state or the District of Columbia and executes and delivers to the Company and
the Trustee an agreement in form and substance reasonably satisfactory to the
Company and the Trustee, which contains an assumption by such successor entity
of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Servicer under this Indenture and
the Servicing Agreement.
Section 12.14 Performance of Obligations.
(a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Indenture and the Servicing
Agreement.
(b) The Servicer shall not take any action, or permit any action to be
taken by others, which would excuse any person from any of its covenants or
obligations under any of the Contract Documents, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided herein and therein.
Section 12.15 The Servicer Not to Resign; Assignment.
(a) The Servicer shall not resign from the duties and obligations hereby
imposed on it unless, by reason of change in applicable legal requirements, the
continued performance by the Servicer of its duties under this Indenture would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Servicer or its financial condition.
No such resignation shall become effective unless and until a new industry
qualified servicer acceptable to the Company is willing to service the Contracts
and enters into a servicing agreement with the Company in form and substance
substantially similar to the Servicing Agreement and assumes, pursuant to a
written instrument reasonably satisfactory to the Trustee, the obligations and
duties of the Servicer arising under this Indenture.
(b) The Servicer may not assign this Indenture or the Servicing Agreement
or any of its rights, powers, duties or obligations hereunder, provided that the
Servicer may assign this Indenture and the Servicing Agreement in connection
with a consolidation, merger, conveyance, transfer or lease made in compliance
with Section 12.13(b), and provided further that the Servicer may contract with
industry qualified third parties for the performance of its duties under the
Servicing Agreement and this Indenture, except that any such contract shall not
relieve the Servicer from liability for its obligations under the Servicing
Agreement and this Indenture.
Section 12.16 [reserved]
Section 12.17 [reserved]
Section 12.18 [reserved]
Section 12.19 Termination.
The respective duties and obligations of the Servicer under this Article
Twelve shall terminate upon the earlier of (i) the satisfaction and discharge of
this Indenture pursuant to Article Eight, or (ii) the latest to occur of (A) the
final payment or other liquidation of the last Outstanding Contract owned by the
Company, and (B) the disposition of all property acquired upon repossession or
comparable conversion of any Financed Vehicle securing a Contract.
39
<PAGE>
Section 12.20 Amendment.
(a) The provisions of this Article Twelve may be amended from time to time
by the Company, the Servicer and the Trustee, without the consent of any Holder,
provided that such action shall not adversely affect in any material respect the
interests of any Holder.
(b) The provisions of this Article Twelve may also be amended from time to
time by the Company, the Servicer and the Trustee, with the consent of the
Majority Holders for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Article, provided, however,
that no such amendment shall, without consent of each Holder, (i) alter the
priorities with which any allocation of funds shall be made under this Article;
(ii) deprive any such Holder of the benefit of this Indenture; or (iii) modify
this Section.
(c) Promptly after the execution of any amendment pursuant to Section
12.20(b), the Company shall cause to be sent to each Holder a notice setting
forth in general terms the substance of such amendment. Any failure to do so
shall not affect the validity of such amendment.
(d) It shall not be necessary, in any consent of Holders under this
Section, to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof. The manner
of obtaining such consents and of evidencing the authorization of the execution
thereof by Holders shall be subject to such reasonable regulations as the
Trustee may prescribe.
(e) Any amendment or modification effected contrary to the provisions of
this Section shall be void.
ARTICLE THIRTEEN
ADDITIONAL LENDER
Section 13.1 Indenture Subject to Terms of Additional Borrowing.
In addition to the Notes, the Company intends to pursue an Additional
Lender to borrow funds with which to purchase additional Contracts. The Company
anticipates that any Additional Borrowings from the Additional Lender will be
secured by first priority security interests in all the Contracts owned by the
Company and all other assets of the Company. The provisions of this Indenture,
and the rights and duties of the Company, the Servicer and the Trustee
hereunder, shall at all times, anything else herein to the contrary
notwithstanding, be subject to the terms and provisions of the Additional
Borrowing.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the day and year first above written.
STERLING TRUST COMPANY,
as Trustee
By: /s/ Paul E. Skretny
---------------------------------
Paul E. Skretny, President
40
<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
By: /s/ A. Starke Taylor, III
---------------------------------
A. Starke Taylor, III, President
The undersigned Sovereign Associates, Inc. joins in this Indenture for the
sole purpose of evidencing its agreement to the covenants, representations and
warranties pertaining to it that are set forth in Article Twelve of this
Indenture and not for the purpose of guarantying or otherwise covenanting to pay
the Notes or to perform any of the Company's obligations.
SOVEREIGN ASSOCIATES, INC.
By: /S/ Douglas M. Kemp
---------------------------------
Douglas M. Kemp, President
The undersigned Sovereign Auto Finance Holdings, Inc. joins in this
Indenture for the sole purpose of evidencing its agreement to the indemnity and
hold harmless provisions pertaining to it that are set forth in Section
7.7(a)(ii) of this Indenture and not for the purpose of guarantying or otherwise
covenanting to pay the Notes or to perform any of the Company's obligations.
SOVEREIGN AUTO FINANCE HOLDINGS, INC.
By: /s/ A. Starke Taylor, III
---------------------------------
A. Starke Taylor, III, President
41
<PAGE>
THE STATE OF TEXAS Section
Section
COUNTY OF MCLENNAN Section
BEFORE ME, the undersigned authority, on this day personally appeared Paul
E. Skretny, Pesident of Sterling Trust Company, a Texas corporation, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument, and acknowledged to me that he or she executed the same for the
purposes and consideration therein expressed, in the capacity therein stated and
as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1998.
[SEAL] ___________________________________
Notary Public in and for the
State of Texas
Print Name:________________________
My Commission Expires:_____________
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Credit Finance II, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1998.
[SEAL] ___________________________________
Notary Public in and for the
State of Texas
Print Name:________________________
My Commission Expires:_____________
42
<PAGE>
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Douglas M. Kemp, President of Sovereign Associates, Inc., a Texas corporation,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated and
as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1998.
[SEAL] ___________________________________
Notary Public in and for the
State of Texas
Print Name:________________________
My Commission Expires:_____________
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Auto Finance Holdings, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1998.
[SEAL] ___________________________________
Notary Public in and for the
State of Texas
Print Name:________________________
My Commission Expires:_____________
43
<PAGE>
EXHIBIT A
CONTRACT PURCHASE CRITERIA
SOVEREIGN CREDIT FINANCE II, INC.
The following purchasing criteria shall govern all purchases of Eligible
Contracts by the Company and no Contract shall be purchased that does not
materially meet such criteria.
I. PURCHASE PRICE AND COLLATERAL RATIOS
A. The purchase price for a Contract must involve an initial payment to
the Dealer which does not exceed the average retail value of a Financed Vehicle
plus tax, title, license and warranty. Average retail value shall be measured
by the MANNHEIM GOLD BOOK, NATIONAL AUTO RESEARCH BLACK BOOK or the NATIONAL
AUTOMOBILE DEALERS USED CAR GUIDE used car market guides, or other nationally
published used car market guides. If measured by the MANNHEIM GOLD BOOK, the
retail value of a Financed Vehicle shall be adjusted upward to reflect the
generally lower values provided by this publication when compared to other
publications.
B. The purchase price for a Contract must involve an initial payment to
the Dealer of no more than 90% of the principal plus accrued interest (pay-off
balance) of such Contract.
C. The age of each Financed Vehicle must be 7 years or less for
automobiles or 8 years or less for trucks.
D. Miles may not exceed 125,000 for automobiles or 135,000 for trucks,
unless the Dealer guarantees payments under the applicable Contract.
II. DOWN PAYMENT RATIO
A. Obligors on all Contracts must be required to have made a down payment
(cash plus net trade-in allowance) of at least 10% of the Dealer's cost
(excluding sale preparation expenses) in the Financed Vehicle.
III. CONTRACT TERMS
A. All Contracts must have an original term of 44 months or less although
54 month terms will be permitted where the Financed Vehicle is a 1991 or later
model, or where lower depreciation or stronger credit history justifies a 54
month term.
B. No Contract may violate any applicable usury laws of any state or of
the United States.
C. Each Contract shall be in the form of industry-standard consumer
automobile retail installment contracts or notes issued by the Texas Independent
Automobile Dealers Association if the Contract originated in Texas or by any
similar association of dealers in any other state in which the Contract
originated.
IV. CREDIT CRITERIA
Obligors on all Contracts purchased by Company must have supplied the
following credit information and meet the following requirements, and Servicer
shall perform verification procedures in an industry-standard manner observing
due care and procedure:
A. Personal reference with address and telephone number.
B. Copy of credit application executed by Obligor which contains the
necessary information to verify by
A-1
<PAGE>
telephone or otherwise the Obligor's address, employment and personal
references and to obtain a credit report from a credit reporting agency.
C. Obligor must have a valid driver's license.
D. No cosigners, except immediate family members.
E. Obligor must be at least 18 years old.
To the extent that, in the Servicer's good faith judgement, Contracts which
do not satisfy the criteria specified in I(A) through III(A) above may be
purchased for a purchase price which would be beneficial to the Company,
Servicer may purchase such Contracts.
A-2
<PAGE>
EXHIBIT B
MONTHLY REPORT CERTIFICATE
For Month: _________, 199__ (the "Collection Period")
Company: Sovereign Credit Finance II, Inc.
Servicer: Sovereign Associates, Inc.
Indenture: Dated as of March 3, 1998
Trustee: Sterling Trust Company
I. DISBURSEMENT ACTIVITIES (INDENTURE, SECTION 4.1)
A. Reconciliation of Operating Account
<TABLE>
<S> <C>
1. Balance of beginning of month: $______
2. Total Deposits: $______
3. Withdrawals $______
Offering Expenses: $______
Interest on Notes: $______
Allowed Expenses paid: $______
Contracts purchased: $______
Subtotal: $______
4. Balance at end of month: $______
</TABLE>
B. Allowed Expenses paid during month from Operating Account:
<TABLE>
<S> <C>
1. Servicing Fees (______ Contracts x $20): $______
2. Investor Administration Fees: $______
3. Purchase Administration Fees
(Contracts x $500, or 5% of
installments due): $______
4. Bank Fees: $______
5. Accounting Fees: $______
6. Legal Fees: $______
7. Income Taxes: $______
8. Corporate Franchise Taxes: $______
9. Trustee Fees: $______
10. Liquidation Expenses: $______
11. Vehicle Warranty Repair Service Contracts: $______
12. Repossession Fees (Repossessions x $125): $______
Total: $______
</TABLE>
C. Company confirms that:
1. All withdrawals and payments from the Operating Account during
the month conformed to the requirements of the Indenture;
II. INTEREST PAYMENTS ON NOTES (INDENTURE, SECTION 5.1)
B-1
<PAGE>
Company confirms that:
A. EXHIBIT I hereto sets forth a listing of the interest and any
principal payable to each Holder on the next Payment Date. The Company
certifies that computation of interest has been made in conformance with the
Indenture; and
B. There is no Event of Default under the Indenture.
All capitalized terms used herein and not otherwise herein defined shall
have the same meaning as set forth in the Indenture.
Company certifies that, to the best of its knowledge, the foregoing and
attached information is true and correct.
Dated: ___________________, 199__.
SOVEREIGN CREDIT FINANCE II, INC.
By: ____________________________
A. Starke Taylor, III, President
B-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
<S> <C>
I Purchased Contract Information
II Daily Contract Collections Journal
III Contract Receivables Report
IV Repossession and Liquidation Report
V Holder Interest Report
</TABLE>
B-3
<PAGE>
EXHIBIT C
TRUSTEE'S FEES
Sovereign Credit Finance II, Inc.
Notes
Due February 15, 2002
<TABLE>
<S> <C>
Acceptance Fee (payable upon execution
of Indenture) $7,000.00
Annual Administration Fee
(billed quarterly) $7,500.00
Paying Agent/Registrar Services $4.00 per year per Note
Interest Checks $1.00 per month per Note
Note Register Revisions, Transfers,
Exchanges and Replacement Notes $25.00 each
Expedited Deliveries (per delivery, in
addition to out-of-pocket) $10.00 each
</TABLE>
All out-of-pocket expenses such as postage, overnight mail costs, etc. will be
billed at cost to the Company. The Trustee understands that the closing of the
Note issuance will be completed in Dallas and there will not be any travel
expenses charged to the Company. If Trustee's duties are modified beyond a DE
MINIMUS extent, Trustee reserves the right to reevaluate its fees.
C-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 950
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 950
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 950
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (50)
<TOTAL-LIABILITY-AND-EQUITY> 950
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (50)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
