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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
WASHINGTON, D.C. 20549
REGISTRATION NO.
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TRANSITION AUTO FINANCE III, INC.
(Name of small business issuer in its charter)
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TEXAS 6141 75-2822804
(State or other jurisdiction of (Primary industrial (I.R.S. Employer Identification
incorporation or organization) classification code number) No.)
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TRANSITION AUTO FINANCE III, INC. KEN LOWE
5422 ALPHA ROAD, SUITE 100 5422 ALPHA ROAD, SUITE 100
DALLAS, TEXAS 75240 DALLAS, TEXAS 75240
(972) 404-0042 (972) 404-0042
(Address, including zip code, and telephone (Name, address, including zip code and
number, including telephone number,
area code, of registrant's principal executive including area code, of agent for service)
offices and
principal place of business)
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Copies to:
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VINCE MOUER GERALD MORGAN
KUPERMAN, ORR, MOUER & ALBERS, P.C. BURDETT, MORGAN & THOMAS
100 CONGRESS AVENUE, SUITE 1400 5700 S.W. 45TH STREET
AUSTIN, TEXAS 78701-4042 AMARILLO, TEXAS 79114
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF DOLLAR AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT PRICE REGISTRATION FEE
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Secured Promissory Notes $20,000,000 N/A $20,000,000 $6,061
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(A))
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ITEM
NO. ITEM LOCATION IN PROSPECTUS
- ---- ---- ----------------------
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1. Front of Registration Statement and Outside Front Cover
Page of Prospectus................................... Front of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover of Prospectus...... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................ Use of Proceeds
5. Determination of Offering Plan......................... Underwriting
6. Dilution............................................... Dilution
7. Selling Security Holders............................... Not Applicable
8. Plan of Distribution................................... Underwriters
9. Legal Proceedings...................................... Not Applicable
10. Directors, Executive Officers, Promoters and Control
Persons.............................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................... Principal Stockholders
12. Description of Securities To Be Registered............. Description of the Securities
13. Interests of Named Experts and Counsel................. Experts, Legal Matters
14. Disclosure of Commission's Position on Indemnification
for Securities Act Liabilities....................... Management
15. Organization Within Last Five Years.................... Prospectus Summary -- Overview;
Prospectus Summary -- Use of
Proceeds; Use of Proceeds; THE
BUSINESS, Security Ownership of
Certain Beneficial Owners and
Management; Management -- Certain
Relationships and Related
Transactions
16. Description of Business................................ Available Information; Risk Factors,
Management's Discussion and Analysis
of Plan of Operation; Security
Ownership of Certain Beneficial
Owners and Management; Management;
Description of the Notes; Index to
Financial Statements
17. Management's Discussion and Analysis of Plan of
Operation............................................ The Company; Management's Discussion
and Analysis of Plan of Operation
18. Description of Property................................ The Company
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ITEM
NO. ITEM LOCATION IN PROSPECTUS
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19. Certain Relationships and Related Transactions......... Use of Proceeds; The Company -- The
Business of the Company;
Management -- Certain Relationships
and Transactions
20. Market for Common Equity and Related Stockholder
Matters.............................................. Risk Factors; Description of
Securities; Shares Eligible for
Future Sale
21. Executive Compensation................................. Management
22. Financial Statements................................... Financial statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. Not Applicable
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TRANSITION AUTO FINANCE III, INC.
11% SECURED PROMISSORY NOTES
$20,000,000
Who we are: Transition Auto Finance III, Inc., a wholly-owned,
single purpose subsidiary of Transition Leasing
Management, Inc. ("TLMI")
What we do: Purchase passenger cars, light trucks, suburban utility
vehicles and minivans and lease them to customers with
damaged credit ratings; TLMI identifies lease customers,
purchases the vehicles those customers wish to lease
from us, creates the lease contracts, collects the lease
payments and performs all other tasks necessary to
service those contracts.
The terms of our notes: Interest Rate -- 11% per annum from the date of issuance
Maturity Date -- August 31, 2004
Interest Payments -- monthly
Principal Payments -- none due until maturity
Sinking Fund -- beginning , all of the
revenues from our vehicles (lease payments, prepayments,
early termination proceeds and other proceeds), less
certain specified expenses, will be held in a sinking
fund account for payment of interest and principal on
the notes
Collateral for our
notes: Our vehicles and lease contracts and, should we lapse
into default under the notes, our funds will be held in
trust for the benefit of the noteholders
Trustee: Trust Management, Inc.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or has determined that
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK INCLUDING RISKS
OF DEFAULT ON THE LEASE CONTRACTS. SEE "RISK FACTORS", BEGINNING ON PAGE 6.
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The offering proceeds will be distributed as follows:
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MINIMUM MAXIMUM
OFFERING ($250,000) OFFERING ($20,000,000)
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Underwriter's commission and fees........... 8.5% $ 21,250 $ 1,700,000
Other offering expenses..................... 1.5 3,750 300,000
Our net proceeds............................ 90 225,000 18,000,000
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This offering is being conducted on a "best efforts" basis by our
underwriter, Great Nation Investment Corporation. We may contract with other
broker/dealers who are members of the National Association of Securities
Dealers, Inc. to serve as additional underwriters of this offering. Until we
receive subscriptions totaling $250,000, all investor funds will be held in an
interest bearing escrow account. This offering will terminate on the first to
occur of (A) , if we have not received subscriptions totaling
$250,000 by that date, (B) our receipt of $20,000,000 in subscriptions, (C)
, 2,000 or (D) such earlier date as we elect in our sole
discretion.
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The date of this Prospectus is
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The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference includes
the exhibits to the registration statement we filed with the SEC in connection
with our offering and is an important part of this prospectus. Information that
we file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), until our offering
terminates:
- Indenture between us, Transition Leasing Management, Inc. ("TLMI"), and
Trust Management, Inc., as Trustee, dated as of July 8, 1998;
- Master Purchasing Agreement between us and TLMI dated as of July 8, 1998;
and
- Servicing Agreement between us and TLMI dated as of July 8, 1998.
You may request a copy of the above information incorporated by reference,
at no cost, by writing to or calling:
Ken Lowe
President and Chief Financial Officer
Transition Auto Finance III, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
(Telephone: (972) 404-0042).
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The Company will furnish to the Noteholders annual reports of the Company
containing audited financial statements. An IRS Form 1099 will be mailed to each
Noteholder following the end of each year.
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You should rely on the information contained in this Prospectus. We have
not authorized anyone to provide you with information different from that
contained in this Prospectus. We are not marketing an offer of notes in any
state in which such an offer would be unlawful. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the cover of this Prospectus.
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You may invest in our offering only if you meet our minimum suitability
standard or the applicable state suitability standard, whichever is more
stringent. In order to meet our minimum suitability standard, you must (a)(i)
have a gross annual income of at least $45,000, and a net worth (exclusive of
personal residence, furnishings and automobiles) of at least $45,000, or (ii)
have a net worth (exclusive of personal residence, furnishings and automobiles)
of at least $150,000, without reference to income and (b) have a net worth
(exclusive of personal residence, furnishings and automobiles) at least ten
times the amount of your subscription. You will be required to represent, in
writing, that you satisfy the applicable standard.
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The mailing address of our principal executive offices is 5422 Alpha Rd.,
Suite 100, Dallas, Texas 75240, and our telephone number is (972) 404-0042.
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SUMMARY
The following summarizes the information that is discussed in more detail
in the text of this prospectus. You should read the entirety of this prospectus
before making your decision to purchase notes.
Terms of the Offering. The basic terms of our offering are as follows:
Securities offered: 11% Secured Promissory Notes
Maximum offering amount: $20,000,000
Minimum subscription
amount: $5,000
Minimum offering amount: $250,000; all subscriptions will be held in escrow
until we have received subscriptions totaling at
least $250,000. Your subscription funds will be
deposited in an interest bearing escrow account
until we receive subscriptions totaling $250,000 or
we terminate this offering, whichever occurs
earlier.
Offering termination date: Our offering will terminate on , if we
have not received subscriptions of at least
$250,000 by that date. If we receive subscriptions
of at least $250,000 by that date, this offering
will terminate on the earlier of (i) ,
(ii) the date we have sold all of the notes we are
offering, or (iii) such date as we may elect, in
our sole discretion, to terminate the offering.
For a more complete discussion of the terms of the offering, please see the
section titled "PLAN OF DISTRIBUTION."
Terms of the Notes. The basic terms of the notes we are offering to you are
as follows:
Maturity Date: August 31, 2004.
Interest Rate: 11% per annum.
Interest Payments: Interest will be payable monthly in arrears,
meaning that we will pay interest for each month on
or before the fifteenth day of the next month. The
first interest payment will be due on the 15th day
of the second full month after your note is issued.
Principal Payments: No principal payments will be due until maturity.
Sinking Fund: From and after , all of
our assets, and any proceeds from the collateral
securing the notes, will be placed in a sinking
fund account and we may use such proceeds only for
the repayment of the notes and payment of the
trustee's fees and expenses.
Redemption: We may redeem the notes, in whole or in part, at
any time after . If we
redeem less than all of the notes, the trustee will
determine which notes are to be redeemed in such
fashion as the trustee thinks appropriate.
For a more complete discussion of the terms of the notes, please see the section
titled, "TERMS OF THE NOTES" and "ADDITIONAL INDENTURE PROVISIONS."
Collateral. The collateral for the notes consists of substantially all of
our assets.
Vehicles and Lease
Contracts: The titles to the vehicles and the lease contracts
will be held in the trust by the trustee. The
trust's lien on the vehicles will be indicated
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on the face of each vehicle's title. We will
deliver the lease contracts to the trustee, who
will hold them for the benefit of the trust.
Bank accounts: The master collections account, our operating
account and the sinking fund account are all
deposit bank accounts. We will execute a pledge and
assignment of those accounts in favor of the
trustee and the trustee will notify the depositary
bank in writing of the pledge.
Servicing Agreement: The Servicing Agreement will be pledged as
collateral and the trustee will file a UCC-1
financing statement with the Secretary of State.
For a more complete discussion of the collateral for the notes offered pursuant
to this prospectus, please see the section titled "COLLATERAL FOR THE NOTES."
The Indenture. The notes are issued pursuant to an Indenture dated
, 1999 between us and Trust Management, Inc., (the
"Indenture"). A copy of the Indenture is filed as an exhibit to the Registration
Statement we have filed in connection with this offering. Summary information
about the Indenture and the Trustee is set forth below.
Trustee: Trust Management, Inc.
210 West Sixth Street
Suite 605
Fort Worth, Texas 76102
(817) 335-2933
Trust Property: Vehicles, lease contracts, the sinking fund account
and, should an event of default occur, the
remainder of our assets.
Trustee's Responsibilities: - Disburse payments to noteholders;
- Supervise the collateral securing the notes and
review our compliance with the terms of the
Indenture
- Hold the security interest in all collateral for
the benefit of the noteholders
- Maintain the register of noteholders
- Distribute annual tax information but not tax
advice to the noteholders
- Exercise rights of noteholders in the event of
our default
Fees: We pay specified fees to the Trustee as an allowed
expense under the terms of the Indenture.
Indemnification: We will indemnify the Trustee against certain
liabilities.
Trustee's Lien: The Trustee has a lien on the assets in the Trust
to secure our payment of the Trustee's fees and any
indemnification amount we may owe to the Trustee.
The Trustee's lien is superior to yours and, if we
default, the Trustee will be paid its fees before
you are paid.
For a more complete discussion of the Trust Indenture and the rights of the
Trustee in the event of our default, please see the section titled, "COLLATERAL
FOR THE NOTES" and "ADDITIONAL INDENTURE PROVISIONS." We encourage you to review
the Indenture in its entirety.
Our Business. We are permitted to engage in only those activities which
further our business purpose of leasing vehicles to customers with "sub-prime"
credit ratings and to incur only those expenses permitted
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by the Indenture. See "COLLATERAL FOR THE NOTES -- THE CONTRACT PROCEEDS AND
OPERATING ACCOUNT."
Vehicles: We will lease only new and late model (less than
four model years old) used vehicles -- passenger
cars, light trucks, minivans and sport utility
vehicles.
Lease Customers: We will lease vehicles only to customers who will
agree to the terms of our lease contract and who,
in the opinion of TLMI, meet our credit criteria.
We will lease vehicles to customers who, generally,
cannot meet the credit standards of traditional
sources of vehicle financing as a result,
generally, of past credit problems. We will rely on
TLMI to evaluate the credit risk of potential
customers and monitor the performance of our lease
contracts. We believe that our credit standards and
contract terms, if properly implemented, will
permit us to operate profitably.
Allowed Expenses: The Indenture prohibits us from paying any expenses
other than those described in the Indenture,
thereby assuring you that the proceeds from our
vehicles and lease contracts will be used, to the
fullest extent practicable, to maximize the value
of the collateral securing your notes. The allowed
expenses are in the nature of the following:
- the Trustee's expenses and fees;
- fees due to TLMI under the Servicing Agreement
and the Master Purchasing Agreement;
- vehicle acquisition expense (price, tax, title
and license, etc.) and charges for vehicle
warranty service contracts;
- federal, state and local taxes;
- legal and accounting fees;
- printing expenses for reports, compliance
certificates and opinions required by the
Indenture;
- premiums for residual insurance;
- bank service charges and account fees; and
- expenses of repossessing, repairing, remarketing
and liquidating the vehicles (as to each vehicle,
not to exceed the liquidation proceeds from the
vehicle and any insurance proceeds applied to
vehicle repairs or required to be refunded to
Lessees).
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RISK FACTORS
An investment in the notes involves a number of risks. In considering a
purchase of these securities, you should carefully consider the risks involved,
including the following:
Limited Assets; Single Purpose Nature; No Guarantor
We were organized by TLMI as a single purpose entity. Under the indenture,
we can engage in and conduct only the vehicle leasing business. Accordingly, we
will not have any significant assets other than the vehicles, the lease
contracts and the accounts into which the net proceeds of this offering and our
operating revenues are deposited. No other party, including our sole
shareholder, TLMI, will insure or guarantee our obligations under the notes or
will be obligated to make capital contributions to us at any time. Consequently,
you can rely only on the funds we receive from leasing the vehicles and the
funds we receive from the sale of the vehicles, for the payment of interest on
and principal of the notes. If such payments and funds are insufficient to
permit payment of the sums due on the notes, we will have no other significant
assets with which to pay any portion of the deficiency.
Sufficiency of Sinking Fund
Prior to the sinking fund trigger date, we will deposit into the sinking
fund account only such funds as are needed to pay each monthly interest payment
due with respect to the notes. Following the sinking fund trigger date, which is
the earlier of (A) [37] months from the release of subscription funds from
escrow or (B) the day we deliver a contract unavailability notice, we will be
required to transfer all net collection proceeds from the lease contracts and
vehicles, after deduction of allowed expenses, to the sinking fund account.
After transfer to the sinking fund account, the proceeds can be used only to
make payments on the notes (monthly interest payments, principal and accrued
interest which remains outstanding on the maturity date or, at our discretion,
redemption payments prior to the maturity date). See "COLLATERAL FOR THE
NOTES -- The Sinking Fund Account."
Except for the obligation to deposit funds for monthly interest payments,
we are not required to satisfy any minimum schedule of payments into the sinking
fund account, and prior to the maturity date, we are not required to satisfy any
minimum schedule of payments of principal on the notes. After the sinking fund
trigger date, the funds in the sinking fund account will consist of the net
collection proceeds from the lease contracts and vehicles during the period from
the sinking fund trigger date to the maturity date and any income earned on such
proceeds while they are in the sinking fund account. There is a risk that the
funds in the sinking fund account will be insufficient to pay all principal and
interest outstanding on the notes on the maturity date.
If the funds in the sinking fund account are insufficient to pay all
principal and interest outstanding on the notes on the maturity date, we
anticipate being able to refinance or sell the remaining lease contracts and
vehicles and using the proceeds of any such refinancing or sale to repay any
principal and interest then outstanding under the notes. There is a risk,
however, that no such refinancing or sale can be consummated or that the
proceeds from any such refinancing or sale will be insufficient to repay the
principal and interest then outstanding.
Purchasing and Availability of Contracts Dependent on Transition Leasing
We will be dependent upon TLMI's judgment with respect to the subjective
and difficult process of leasing automobiles to people with prior substantial
credit problems and non-prime credit ratings and making credit decisions in
connection therewith. Poor credit decisions by TLMI could impair our ability to
repay the notes.
We will depend on TLMI for purchasing and originating leases and contacts
with automobile franchise dealers, independent automobile dealers, and
independent leasing companies from whom most of the vehicles will be purchased
by us and most of our lessee-customers will be referred. Based on TLMI's recent
limited experience, we believe that an adequate supply of eligible customers and
lease contracts will
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be available. If we are unable to locate a sufficient number of additional
eligible customers, we could elect to deliver a contract unavailability notice
to the trustee, at which time we would cease purchasing vehicles and creating
new lease contracts, and all subsequent net collection proceeds from the then
existing lease contracts and vehicles, following deduction for payment of
interest on the notes and allowed expenses, would be deposited into the sinking
fund account for payment of the notes. See "COLLATERAL FOR THE NOTES -- The
Sinking Fund Account." Our delivery of a contract unavailability notice prior to
the time at which the sinking fund trigger date would otherwise occur may have a
number of adverse consequences, among them a negative impact on our ability to
repay the notes and an incentive for us to redeem the notes earlier than we
might otherwise redeem or pay them.
Interest Rate Risk; Yield Considerations
Because the notes will bear interest at a fixed rate, you will be subject
to the risk that future higher interest rates, while not affecting your yield if
you purchase and hold notes through their maturity, will diminish or limit your
yield if you attempt to sell your note prior to maturity. Moreover, if future
interest rates decline, our ability to redeem the notes may limit your ability
to realize enhancements in the value of the notes resulting from the lower
interest rates generally existing in the market. You may not be able to reinvest
the redemption proceeds at yields equal to or exceeding the yields on the notes.
It is possible that yields on any such reinvestments will be lower, and may be
significantly lower, than the yields that could have been realized on the notes.
Because all of the notes will mature on the same date without regard to the
date of issuance, if you purchase at an earlier date you will earn interest over
a longer period of time and you should earn more interest than if you were to
purchase at a later date. The discounted value of the earned interest may be
exacerbated or mitigated by market interest rates at the time of your purchase.
In addition, because the interest which accrues with respect to the notes is
payable in arrears (i.e., within 15 days after the end of the month in which it
accrues), the yield will be less than the stated rate of 11% per annum.
Funds for Repayment of Principal and Redemption of Notes
Our ability to repay the notes, both in terms of monthly interest payments
and principal payments at the maturity date or upon an earlier redemption, will
primarily depend on whether lease customers make monthly lease payments timely
or prepay in accordance with the terms of their respective lease contracts.
While we believe that the structure of our lease program provides an incentive
for timely payment of the lease contracts, you should note:
- unlike automobile retailers or banking institutions which finance
automobile leases, but which do not typically extend credit to
individuals with past credit problems or non-prime credit ratings, our
financing criteria will be based on a more subjective analysis;
- the payment experience on the lease contracts is likely to be different
than that on receivables of traditional automobile financing sources and
may be more sensitive to changes in the economic climate in the areas in
which the lease customers reside;
- the delinquency rates on the lease contracts may generally be higher than
those experienced by traditional automobile financing sources; and
- adverse changes in collectibility rates could be caused by changes in
general economic conditions, or other factors beyond the Company's
control.
Although we firmly believe that our method of estimating the
creditworthiness of our leasing customers will result in a portfolio of lease
contracts that will perform in a manner sufficient to make the interest and
principal payments on the notes as they become due, the actual collection rates
are impossible to predict precisely. If the lease contracts do not collectively
perform as we expected our ability to collect on the lease contracts and to make
the required payments on the notes could be adversely affected.
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Collection Policies
In the event that a lease payment is more than 30 days overdue, TLMI
generally will commence repossession of the leased vehicle. However, TLMI
believes that collections on the lease contracts will be maximized if it is
permitted some latitude to work with customers who may be in technical default
for late payment of a single installment, but who have been making payments on a
regular and timely basis and who otherwise are not in default. Of course, if a
substantial number of defaulting lease customers make no further payments on
their lease contracts, the delay in the repossession of their leased vehicles
could result in a decrease in our repossession proceeds and could have an
adverse impact on our ability to pay the notes.
Subjective Determination of Residual Value; Limitation on Protection Provided
by Residual Value Insurance; Reliance on Remarketing To Satisfy Residual
Obligation
At the end of the scheduled lease term, we generally will dispose of the
leased vehicle either by selling it to the lease customer or some other related
party or by selling it "wholesale" in the used automobile market. If we realize
proceeds from such disposition in an amount less than our original estimate of
the residual value, whether due to adverse changes in the market for that leased
vehicle, in the used automobile market in general or otherwise, we may realize a
loss on the vehicle. Losses suffered on the disposition of off-lease vehicles
could reduce our ability to repay the notes.
At lease inception, we must estimate what the value of the vehicle will be
at the end of the scheduled lease term, a value generally described in the
automobile leasing industry as the "residual value." Our leases are designed to
recover the depreciation in the value of each vehicle over the life of the
lease, and the projection of residual value is a key element in the way we
structure the financial terms of our leases. At the end of the lease term, the
proceeds we receive from disposition of the leased vehicle may be less than our
expected residual value for a number of reasons. Among possible reasons are a
possible inaccuracy of the initial estimate, changes in the market for the
specific model of the leased vehicle or the used vehicle market in general, and
ineffective remarketing efforts by TLMI. See "THE COMPANY -- Remarketing."
Lack of Market for Notes
The notes will constitute a new issue of securities, and such securities
will have no established trading market. We do not intend to list the notes on
any national securities exchange or to seek the admission of the notes for
quotation and trading in the NASDAQ National Market System. Although certain
broker/dealers may determine to make a market in the notes, we do not anticipate
that this will occur or that a secondary market will develop at any point during
the term of the notes. You will not be able to require us to redeem your notes
and you may not be able to liquidate your investment in the notes in the event
of an emergency or for any other reason. Moreover, you may not be able to use
the notes as collateral for loans. Accordingly, you should not purchase the
notes if you have any need for liquidity in your investment.
Lien of Trustee
Under the terms of the Indenture, the trustee is granted a lien on the
property which serves as collateral for the notes. The trustee's lien is
superior to that securing the notes and secures the payment to the trustee of
the amounts due to it under the terms of Indenture, including any amounts we owe
to the trustee pursuant to indemnification provisions within the Indenture. In
the case of a default, the trustee's lien will entitle it to be paid any sums
owed the trustee before you receive any payments.
Delays in Contract Purchases or Acquisitions
We expect to purchase or acquire lease contracts as soon as practicable
following the receipt of the net proceeds from the sale of notes. Until we use
the proceeds for that purpose, we will hold them in an interest-bearing bank
account or invest them in money market mutual funds that invest in
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U.S. government obligations. We have made no provision in this offering for
cessation or suspension of the selling effort if we experience a delay in the
utilization of investor funds to purchase vehicles and create new leases. If
unforeseen delays occur in the purchase of vehicles and creation of lease
contracts, our overall profitability and ability to repay the notes could be
reduced because the yields of the short-term investment alternatives for such
funds are expected to be less than both (A) the yields we anticipate receiving
from the lease contracts and (B) the cost of such funds, i.e., the interest rate
payable on the notes.
Reliance on Key Personnel
Our success will depend significantly upon the efforts of our officers and
the officers of TLMI. Neither we nor TLMI have entered into an employment or
non-competition agreement with any of such officers, nor do we contemplate
obtaining "key man" life insurance for any of such officers. If such officers
are unable to perform their respective duties, it could affect our financial
performance and our ability to repay the notes in accordance with these terms.
Certain Legal Matters Relating to the Contracts
Priority of Liens in Leased Vehicles. Statutory liens for repairs, unpaid
storage charges or unpaid taxes may have priority even over a perfected security
interest in a vehicle, and certain state and federal laws permit the
confiscation of motor vehicles used in unlawful activity. Liens for repairs or
taxes, or the confiscation of a vehicle, could arise or occur at any time during
the term of a lease contract and may result in the loss or impairment of the
trustee's perfected security interest in a motor vehicle. We may not be given
any notice in the event such a lien arises or confiscation occurs.
Bankruptcy and Deficiency Judgments. Certain statutory provisions,
including federal and state bankruptcy and insolvency laws, may limit or delay
our ability to repossess, resell or re-lease vehicles or enforce a claim for
damages. In addition, we may determine that a damage claim is not an appropriate
or economically viable remedy, or we may settle at a discount any judgment that
we do obtain. In the event we do not obtain deficiency judgments, and
deficiencies are not satisfied or are satisfied at a discount or discharged, in
whole or in part, the loss will be borne by us and could adversely affect our
ability to repay the notes.
Consumer Protection Laws. Numerous federal and state consumer protection
laws impose requirements upon the origination, form, and collection of
automobile lease contracts. State laws impose finance charge ceilings and other
restrictions on consumer transactions and may require certain contact
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. A risk exists that this liability could affect our ability, as
lessor under certain of the lease contracts and as an assignee of certain lease
contracts, to enforce the lease contracts. In addition, certain of these laws
make an assignee of such contract liable to the lease customer for any violation
by the assignor. Accordingly, as holder of the lease contracts, we could be
subject to liability to a lease customer under one or more of the lease
contracts. TLMI will warrant to us that consumer protection laws have not been
violated and if a lease customer has a claim or defense under such laws that
materially and adversely affects our interest in a lease contract, TLMI will be
obligated to repurchase the lease contract. See "CERTAIN LEGAL ASPECTS OF THE
CONTRACTS -- Consumer Protection Laws."
Effect of Governmental Regulations on Leasing
We and TLMI are subject to regulation under federal, state and local laws
and regulations concerning many aspects of the vehicle leasing business. In
particular, there are laws and regulations that require particular disclosure
of, among other matters, lease agreement terms and many other matters. In
addition, we and TLMI are required to obtain and maintain certain licenses and
qualifications to do business in Texas and other states. We and TLMI have
obtained such licenses. Numerous proposals are and have been under consideration
or have been enacted in Congress, certain state legislatures, including in
Texas,
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<PAGE> 13
and certain regulatory agencies that would impose greater regulation and
requirements on our and TLMI's leasing activities in those states. See "THE
COMPANY -- Government Regulations." The laws, rules and regulations governing
our business and TLMI's business may be changed, or new laws, rules and
regulations may be enacted, any or all of which may make our operation and
business more difficult or more expensive.
Competition
There is substantial competition in the business of selling and leasing
motor vehicles and the financing thereof. In addition, a number of institutions,
including banks, have entered the automobile financing business with respect to
high risk, non-prime credit borrowers and will be competing for the best high
risk borrowers. We believe, however, that we have few competitors in the leasing
of new and late model used motor vehicles to individuals who have had prior
credit problems. We compete to some extent with providers of alternative
financing services, secondary finance companies such as used car dealer groups,
and other firms with greater financial and marketing resources than ours. These
competitive factors could have a material adverse effect upon our operations,
including our ability to use high implicit interest rates in calculating the
payments to be made under the lease contracts. One of the material assumptions
underlying our belief that our revenues will be sufficient to cover our expenses
and to pay all principal and interest on the notes is that we generally will be
able to use an implicit interest rate of 18% per annum. If we were not able to
use this high implicit interest rate because of competitive factors or other
factors, it would make it more difficult for us to pay our expenses and the
principal and interest on the notes.
Vicarious Tort Liability as Lessor for Liabilities of Lessees
Under the laws of certain states, we could suffer vicarious tort liability
as the owner of a vehicle involved in an accident or otherwise causing personal
injury or property damage. We will attempt to mitigate this potential liability
by requiring that all lease customers carry liability insurance in specified
minimum amounts naming us as additional insured and loss payee. In addition, we
will maintain contingent and excess automobile liability policies to protect our
interest in the event that a lease customer's required insurance is not
available or is inadequate in any given case. If we were not adequately
protected by insurance, substantial judgment liabilities against us could reduce
and even eliminate our ability to repay the notes.
Conflicts of Interest
We are the third single-purpose vehicle leasing subsidiary formed by TLMI.
Prior to forming our Company, TLMI organized Transition Auto Finance, Inc.
("TAF-I"), and Transition Auto Finance II, Inc. ("TAF-II"). TAF-I has redeemed
all the notes it had issued and no longer conducts business. TAF-II continues in
operation, and expects that it will have fully invested the proceeds of its
offering of notes before we use any of the proceeds from our offering to buy
vehicles and create leases. If we were to begin to buy vehicles and create
leases at the same time TAF-II is engaging in that same activity, we would be
competing against TAF-II for leasing customers and vehicles. In order to avoid
such a conflict of interest, we commit that we will not commence buying vehicles
and creating new leases until TAF-II has completed investing its funds in
vehicles and leases. TLMI has advised us that it probably will continue to form
and obtain financing for additional new subsidiaries to engage in the vehicle
leasing business in the future.
Ken Lowe, our President, Chief Financial Officer and sole director, is the
President and sole director of TLMI and of TAF-II. There are real and on-going
conflicts of interest between us and one or both of TAF-II and TLMI. There are
and will be conflicts of interest with respect to allocation of management time,
services, overhead expenses and functions. Management of TLMI intends to resolve
any such conflicts in a manner that is fair and equitable to the Company. You
could be subject to the risk that any particular conflict might be resolved in a
manner that adversely affects noteholders.
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<PAGE> 14
In addition, we anticipate having a conflict of interest with respect to
the decisions as to which lease customers and lease contracts originated by TLMI
are to be acquired by the Company or by parties other than us, including TLMI
and affiliates, which may include future subsidiaries. To minimize these
conflicts, TLMI has determined that, once TAF-II has fully invested its funds in
vehicles and leasing, any future lease contracts originated by TLMI that satisfy
our lease contract criteria will be acquired by us, subject to our having funds
available for acquisition of such lease contracts, and subject to the right of
TAF-II to acquire vehicles and lease them to customers using proceeds realized
from repossession of vehicles and prepayments of lease contracts.
We will pay certain fees to TLMI including:
- a marketing fee equal to 57.5% of the customer's down payment with
respect to each lease contract;
- a purchase administration fee and a document fee totaling $150;
- in the case of new lease contracts following the repossession of a leased
vehicle, a releasing fee;
- a monthly lease contract servicing fee of $20 for each lease contract
that has not been assigned for repossession; and
- a reimbursement amount equal to TLMI's out-of-pocket expenses in
connection with the repossession, repair, remarketing and resale of a
leased vehicle. See, "PURCHASE, ACQUISITION AND COLLECTION OF CONTRACTS."
There has been no independent determination of the fairness and reasonableness
of the terms of these transactions nor have such terms been negotiated at arms'
length. We believe, however, that the fees to be paid to TLMI, including the
marketing fee, are reasonable based on comparable fees paid to other lease
brokers (or facilitators) in automobile leasing transactions involving customers
with non-prime credit ratings. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" and "MANAGEMENT -- Certain Relationships and Related
Transactions."
We may acquire vehicles, as well as the lease contracts which relate to
such vehicles, from TAF-II. In the event of any such purchase, we will pay
TAF-II a price equal to the depreciated value of the vehicle as of the date of
our purchase plus any marketing fee paid by TAF-II in connection with TAF-II's
acquisition of such vehicle plus other fees totaling $150. To minimize any
conflicts of interest with respect to the choice of which of TAF-II's vehicles
and lease contracts we may acquire, we have specified with TAF-II and TLMI the
method by which vehicles and lease contracts will be selected for sale to us.
There has been no independent determination of the fairness and reasonableness
of the purchase price, the method by which vehicles and lease contracts will be
selected or any other of the terms of these transactions. See, "PURCHASE,
ACQUISITION AND COLLECTION OF CONTRACTS" and "MANAGEMENT -- Certain
Relationships and Related Transactions" for additional information.
Lack of Damage Insurance
Although most state laws, including Texas law, require owners to maintain
liability insurance for damages arising from their use of a motor vehicle, lease
customers may fail to maintain physical damage insurance. We have obtained
insurance to provide protection from losses in these events; however, there is a
risk that such insurance will not continue to be obtainable at appropriate
premium rates and terms or will not provide adequate coverage in all
circumstances. As a consequence, in the event any vehicle is stolen or
physically damaged and no such insurance exists, we may suffer a loss unless the
customer is otherwise able to pay for repairs or replacement or its obligations
under the related lease contract. If we incur significant losses from uninsured
vehicles, our ability to pay the notes may be adversely affected. See "PURCHASE,
ACQUISITION AND COLLECTION OF CONTRACTS -- Contract Criteria."
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<PAGE> 15
Sale of Small Amount of Notes
We may consummate this offering with the sale of as little as $250,000 in
principal amount of the notes. If only the minimum offering amount ($250,000) is
raised, we will have approximately $225,000 (after offering and organizational
expenses and broker/dealer commissions) to purchase vehicles, see "USE OF
PROCEED." Even if no more than the minimum offering amount is raised, we believe
that we can cover our expenses and pay all interest and principal on the notes.
Our belief is based on a number of assumptions, including without limitation,
assumptions (i) that 12 vehicles may be purchased at an assumed purchase price,
(ii) that the lease contracts in relation to such 12 vehicles will be on
specific terms including an implicit annual interest rate of 18%, and (iii) that
our expenses will not exceed a specified level.
Although we believe these assumptions to be reasonable, they necessarily
include certain risks and uncertainties set forth under this caption "RISK
FACTORS." A variation in any single assumption could materially alter our
ability to cover our expenses and pay all principal and interest due on the
notes. These assumptions, including, without limitation, the expected implicit
interest rate of 18% per annum with respect to the lease contracts, may not be
realized. Accordingly, our ability to cover our expenses and pay all principal
and interest on the notes may differ materially from this forward-looking
information due to such risks and uncertainties.
In the event that we sell only a small amount of notes in excess of the
minimum offering amount, the performance of individual lease contracts in the
pool securing the notes will have a greater effect on our ability to pay the
notes than if a larger amount of the notes are sold. In addition, although most
of our expenses will generally vary with the amount of lease contracts or notes,
relatively small amounts of fixed fees and expenses payable to the trustee and
for on-going banking, accounting and legal services may not vary in proportion
with the amount of lease contracts and may be relatively higher if only a small
portion of the notes is sold. If the fixed expenses are higher than expected or
if we are unable to acquire the number of lease contracts on the proposed terms
projected herein, our ability to repay a small amount of notes may be materially
adversely affected. See "COLLATERAL FOR THE NOTES -- The Contract Proceeds and
Operating Account."
Lack of Participating Broker Dealers
As of the date of this prospectus, we have identified other
broker/dealers who have agreed to participate in this offering of the notes. See
"PLAN OF DISTRIBUTION." Our failure to obtain the agreements of a significant
number of broker/dealers to participate in this offering may increase the
likelihood that less than all of the notes will be sold. The sale of only a
small amount of the notes may adversely affect noteholders. See, "-- Sale of
Small Amount of Notes" above.
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<PAGE> 16
CAPITALIZATION
The following table sets forth our capitalization as of June 7, 1999, and
as adjusted to reflect the sale of the minimum amount of notes offered hereby.
<TABLE>
<CAPTION>
AS OF JUNE 7, 1999
-------------------------
AS ADJUSTED
MINIMUM
ACTUAL OFFERING
------ ----------------
<S> <C> <C>
LIABILITIES
11% Secured Notes Due August 31, 2004..................... $250,000(1)
SHAREHOLDERS' EQUITY
Common Stock, $0.10 par value, authorized 1,000 shares,
issued and outstanding................................. $ 100 $ 100
Paid-In Capital............................................. 900 900
Retained Earnings........................................... 0
TOTAL SHAREHOLDERS' EQUITY........................ 1,000 1,000
TOTAL LIABILITIES AND SHAREHOLDER EQUITY.......... 1,000 251,000
</TABLE>
- ---------------
(1) The expenses we have incurred as a result of this offering will be
capitalized and amortized over the lives of the notes. The offering expense
to be amortized annually will vary according to the amount and timing of the
funding of the Notes. For example, if the offering is completed prior to
December 31, 1999, the percentage of the total offering expenses that would
be charged to operations in the first five years would be 20% per year.
Other organizational expenses are capitalized and amortized over a five-year
period on a straight-line basis.
Our capitalization reflects our asset-backed security structure. Our only
significant assets will be the vehicles, the lease contracts with our lease
customers, the net proceeds of this offering, the net operating proceeds
(revenues from lease contracts and sale of leased vehicles less debt service and
allowed expenses), proceeds realized from reinvestment of such net proceeds and
excess collection proceeds. See "COLLATERAL FOR THE NOTES." The costs of ongoing
operations will be borne by TLMI and will be reimbursed to TLMI through payment
of monthly servicing and administration fees. See "THE COMPANY; COLLECTION AND
SERVICING OF CONTRACTS -- Payments to TLMI."
USE OF PROCEEDS
We will use at least 90% of the gross proceeds from the sale of our notes
for the purchase of vehicles and the leasing of such vehicles to our customers.
We will use 10% of the gross proceeds as follows:
- we will pay to the Underwriter sales commissions of 6% of the principal
amount of the Notes sold by such Underwriter;
- we will reimburse the Underwriter for certain expenses incurred in
connection with its due diligence activities with regard to the offering
in an amount not to exceed 2.5% of the aggregate principal amount of the
notes sold; and
- we will use up to 1.5% of the gross proceeds from the sale of the notes
to pay offering and organization expenses, including filing and
registration fees, legal fees of our counsel, accounting fees, trustee's
fees, escrow agent's fees, "blue sky" expenses and printing expenses.
These expenses have been or will be paid by TLMI, and we will reimburse
TLMI an amount not to exceed such 1.5%. TLMI has agreed to pay expenses
of the offering in excess of 1.5% of the gross proceeds from the sale of
the notes.
We will maintain the proceeds of this offering in our operating account
until they have been fully used to acquire vehicles or lease contracts. Under
the terms of the Indenture, we may invest all of our
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<PAGE> 17
deposits in specified types of deposits or securities -- the same type of
deposits or securities as the Trustee may utilize for funds that are in the
sinking fund account.
The use of proceeds is set in the following table and in the pie charts
below the table:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
($250,000) ($20,000,000)
---------- -------------
<S> <C> <C>
Offering and Organizational Expenses(1)..................... $ 3,750 $ 300,000
Broker/Dealer Commissions(2)................................ 21,250 1,700,000
Purchase of Contracts and Leased Vehicles................... 225,000 18,000,000
Total............................................. 250,000 20,000,000
</TABLE>
- ---------------
(1) We will pay these offering and organizational expenses to our parent, TLMI,
as reimbursement for a portion of such expenses it has paid on our behalf.
(2) Assumes the maximum permitted amount of due diligence reimbursement is paid.
PIE CHARTS
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<PAGE> 18
The subscription escrow will terminate upon the receipt of subscriptions in
the aggregate amount of $250,000 and, upon such termination, we will receive
that portion of the proceeds to be used for the purchase of vehicles or lease
contracts (estimated in the above table to be $225,000). We will attempt, and
anticipate being able, to use the aggregate amount of such proceeds within 60
days of the termination of the escrow and the release of the escrowed funds to
us.
We may use certain of the offering proceeds to purchase vehicles and leases
from TAF-II, another wholly-owned subsidiary of TLMI; provided, however, we will
not purchase any TAF-II vehicles or contracts if only the minimum gross proceeds
($250,000) are raised. The consideration to be paid to TAF-II will be determined
by a formula, and the vehicles and lease contracts to be so purchased will be
selected on a first-in, first-out basis, meaning that we will purchase those
vehicles and leases which were the earliest acquired by TAF-II and which, at the
time of our acquisition are not in default. See "THE COMPANY; PURCHASE OF
VEHICLES" and "MANAGEMENT -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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<PAGE> 19
DESCRIPTION OF THE NOTES
The notes will be issued pursuant to an Indenture dated as of
(the "Indenture"), between ourselves and Trust Management, Inc., who will serve
as Trustee. TLMI is a party to the Indenture for the purpose of making certain
agreements and representations regarding the purchasing and servicing of the
lease contracts with the Trustee for the benefit of noteholders. The Indenture
is qualified under the Trust Indenture Act of 1939. An example of the notes and
a copy of the Indenture are included as exhibits to the Registration Statement
we have filed in connection with this offering. You should review the example of
the notes before deciding to subscribe in this offering.
Our Indenture is typical of most indentures -- it is an agreement between
ourselves, TLMI and the Trustee, pursuant to which the Trustee is appointed as
the agent of the noteholders. The Indenture governs the notes, imposes the
noteholder's lien on our assets, and specifies certain obligations and rights
that bind us or accrue to our benefit or, similarly, bind you or the Trustee or
accrue to your or the Trustee's benefit. The Indenture's terms are incorporated
by reference into the notes -- this means that the obligations imposed, and the
rights conferred, by the Indenture, even though not set forth within your note,
still apply to both the note and the relationship among ourselves, the Trustee
and you. The Indenture, in turn, includes obligations and rights which are
incorporated by reference from the Trust Indenture Act. We encourage to you to
review both the Indenture and the Trust Indenture Act.
The following summaries of certain provisions of the notes and the
Indenture and the summaries included under "ADDITIONAL INDENTURE PROVISIONS" do
not purport to be complete and are subject to the full provisions of the notes
and the Indenture.
GENERAL
Interest Rate 11% per annum
Maturity Date August 31, 2004
Aggregate Principal Amount Up to $20,000,000
Recourse While the notes are our general obligations and you
will have recourse against our assets,
substantially all of our assets will be the lease
contracts, the vehicles and the revenues derived
from them. See "COLLATERAL FOR THE NOTES." You will
have no contractual recourse against TLMI for
payment of the notes.
Rating We have not sought, and are not required by the
Indenture or any other document to obtain, a rating
of the notes by a rating agency.
Paying Agent and Registrar The Trustee will initially act as the paying agent
and registrar. As paying agent, the Trustee will
disburse the funds that we submit for payment of
the notes. As registrar, the Trustee will maintain
the ledger records reflecting ownership of the
notes. We have the right to appoint some other
person or firm as paying agent or registrar.
ISSUANCE OF NOTES; TRANSFERS
Denominations Integral multiples of $1,000
Minimum Subscription Amount You must subscribe for a minimum of $5,000 unless
you are going to acquire the notes for your
individual retirement account, in which case you
may invest as little as $2,000.
Transfer We may require you to reimburse us for any
out-of-pocket costs we incur with respect to your
transfer or exchange of a note.
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<PAGE> 20
INTEREST PAYMENTS
Interest Commencement Date Interest will accrue on each note from the date
that it is issued.
Payments Interest payments will be due and payable monthly
on the 15th day of the month following the end of
each successive calendar month (for the interest
accruing during the prior month) and upon the
maturity date.
First Interest Payment The first interest payment will be due and payable
on the 15th day of the month following the first
full calendar month after your note is issued.
Default Interest Rate Any installment of interest that is not paid when
due will accrue interest at the lesser of (i) 18%
per annum or (ii) the highest lawful rate of
interest from the date due to the date of payment,
but only to the extent payment of such interest is
lawful and enforceable.
Effective Interest Rate The effective interest rate of the notes will be
lower than the stated interest rate because each
payment of interest will be paid 15 days after the
month over which it accrued.
Payment Source The paying agent will make monthly interest
payments out of funds in the sinking fund account.
Before each interest payment date occurring prior
to the sinking fund trigger date, we will transfer
to the sinking fund account from our operating
account an amount that, together with any funds in
the sinking fund account, is sufficient to pay the
accrued interest due on such payment date. Such
transfer must be made before we apply any remaining
funds in the operating account to any other purpose
(Indenture, Section 4.2) Interest payments will be
in the form of checks drawn on the sinking fund
account.
Record Dates Interest payments prior to the maturity date will
be mailed by the paying agent to the registered
holder of a given note as of the close of business
on the first day of the month of the payment.
Payments will be sent to the holders to the
addresses shown for the holders in the note
register maintained by the registrar.
PRINCIPAL PAYMENTS
Mandatory Principal
Payments The principal amount then outstanding on each note,
plus all accrued but unpaid interest will be due
and payable on the maturity date, August 31, 2004.
The final payment of principal and interest on each
note will be made only upon presentation and
surrender of such note at the office of the Trustee
or the paying agent. Prior to the maturity date, we
are not required to make any principal payments.
Payment Source Any amounts paid on the maturity date will be paid
from the funds accumulated in the sinking fund
account. We believe that there will be sufficient
funds in the sinking fund account to repay all
principal and interest then outstanding on the
loans, but this will be function of a number of
factors. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION." If the funds in the sinking
fund account are not sufficient, we anticipate
being able to generate funds from the sale of our
vehicles and lease contracts or from using our
vehicles and the lease contracts as collateral for
a loan from an institutional lender. We have no
arrangements at this time for
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<PAGE> 21
any such sale or loan and our ability to generate
funds from such sources will be subject to a number
of factors, many of which may be completely beyond
our control. See, "RISK FACTORS -- Funds Available
for the Repayment of Principal."
Sinking Fund Account On the sinking fund trigger date, we will deposit
in the sinking fund account any remaining net
proceeds from the sale of the notes that have not
been used as of the sinking fund trigger date for
the purchase of vehicles and creation of lease
contracts. From and after the sinking fund trigger
date, all of the funds in our operating account,
less expenses that are allowed expenses under the
Indenture, will be transferred on at least a
monthly basis to the sinking fund account. While a
default continues or remains uncured, we must
transfer all funds in our operating account, less
any amounts owing to the Trustee, to the sinking
fund account, and the Trustee will have the right
to cause such transfer. See, "DEFAULT," below. The
funds which accumulate in the sinking fund account,
after payment of the Trustee's expenses, may be
used only for payment of the notes.
REDEMPTION
Timing of Redemptions The amount and timing of any redemption will be at
our sole discretion. On any interest payment date
after , we may redeem one or more of the
notes, in whole or in part, in accordance with the
Indenture. To the extent that funds in the sinking
fund account exceed the aggregate amount of
interest payable on the notes on the next monthly
payment date, we may use funds in the sinking fund
account to redeem all or any portion of the notes.
Any redemption will have an effect analogous to a
principal payment.
Redemption Price The redemption price of any given note will be
equal to 100% of the outstanding principal amount
of such note, plus interest to the date of
redemption, without any premium or penalty.
Partial Redemption If less than all of the notes are to be redeemed,
the Trustee shall select the notes to be redeemed
by lot or other method selected by the Trustee. If
any note is to be redeemed in part only, a new note
in principal amount equal to the unredeemed portion
of the original note will be issued upon
cancellation of the original note.
Notice At least 10 days but not more than 60 days prior to
any redemption of your note, we will deliver to you
a notice by first class mail, postage prepaid, and
our notice will state:
- the redemption date;
- the portion of the principal amount of your note
to be redeemed;
- the redemption price;
- the name and address of the paying agent;
- the requirement that the notes be delivered to
the paying agent; and
- that interest on the notes ceases to accrue on
and after the redemption date.
Payment Source Before the sinking fund trigger date, we will
utilize funds generated by our operations to pay
any redemption amounts. From and after the
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<PAGE> 22
sinking fund trigger date, we will utilize funds in
the sinking fund account to pay any redemption
amounts.
DEFAULT
Sinking Fund Account If we lapse into default regarding our obligations
under the Indenture and for so long as such default
continues or remains uncured, all funds in the
operating account, less any amounts owing to the
Trustee, must be transferred on the business day
immediately preceding each payment date to the
sinking fund account, and the Trustee will have the
right to cause such transfer. In addition, during
the continuance of a default, the Trustee will have
all of its other rights and remedies available for
collection of the proceeds on the lease contracts
for purposes of obtaining sufficient funds to
satisfy the notes. See "ADDITIONAL INDENTURE
PROVISIONS -- Rights Upon Event of Default."
COLLATERAL FOR THE NOTES
GENERAL
To collateralize the notes, the Indenture grants to the Trustee a security
interest in or lien upon all of our assets, including without limitation, all of
our right, title and interest in:
- the vehicles;
- the lease contracts, and all payments and instruments received with
respect thereto;
- the Servicing Agreement and the Master Purchasing Agreement;
- our operating account and all funds and investments therein;
- our master collections account and all funds and investments therein;
- the sinking fund account and all funds and investments therein;
- all repossessed or returned vehicles (including vehicles returned upon
termination of lease contracts); and
- all proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquid property.
Pursuant to the Indenture, the Trustee has been granted a lien senior to
the lien of the Indenture in order to collateralize payment of its fees and
expenses as Trustee under the Indenture, except that the Trustee's lien does not
attach to money held in the sinking fund account for repayment of principal and
interest on the notes.
THE CONTRACTS
Each of the contracts will be a vehicle lease contract that is (i)
purchased from TAF-II or other sources or (ii) acquired in a transaction
originated by TLMI. Each lease contract will lease a new automobile or a late
model automobile that is not more than four model years old at the time of lease
(including passenger cars, minivans, sport/utility vehicles and light trucks).
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<PAGE> 23
We will purchase or acquire the lease contracts using the net proceeds from
the sale of notes until the sinking fund trigger date. So long as we are not in
default under the Indenture, we may use any net collection proceeds from the
lease contracts, after deduction for payments of interest and allowed expenses,
to purchase vehicles and lease them. See "THE COMPANY; Purchase of Vehicles." To
minimize conflicts of interest among potential buyers with respect to lease
contracts originated by TLMI, TLMI has determined that, after TAF-II has fully
invested its funds in vehicles and leases, we will acquire any lease contracts
that satisfy our contract criteria to the extent that we have available the
funds necessary for such purchases, subject only to the right of TAF-II to
acquire vehicles with proceeds from repossession of its leased vehicles or
prepayment of its lease contracts. See "RISK FACTORS -- Conflicts of Interest."
We will deliver each lease contract we acquire to the Trustee and label it
with a notice indicating the Trustee's security interest. In addition, (i) a UCC
financing statement listing such lease contract, and also covering the proceeds
therefrom, will be filed in the appropriate public office to give further notice
of the Trustee's security interest, and (ii) we will have each vehicle's
certificate of title issued to reflect us as the owner and the Trustee as a
first lienholder. Together with the Trustee, we may appoint a financial
institution to retain possession of the lease contracts and related title
documents as custodian and bailee for the Trustee and us.
THE SINKING FUND ACCOUNT
We have established, in the name of the Trustee, a trust account at Texas
Community Bank which we refer to in this prospectus as the sinking fund account.
All payments of interest or principal on the notes will be made from funds in
the sinking fund account.
Funds in the sinking fund account will not be commingled with any other of
our monies or the monies of TLMI. All monies deposited from time to time in the
sinking fund account will be held for the benefit of the Trustee as part of the
collateral for the notes. Payments with respect to the notes that are to be made
from the sinking fund account will be made on our behalf by the Trustee or a
paying agent, and no funds in the sinking fund account will be paid over to us
or TLMI. The funds in the sinking fund account will be employed by the Trustee
or the paying agent to pay interest on the notes on each payment date and to
effect redemptions of the notes, in our discretion, on any payment date after
the sinking fund trigger date.
In the absence of a continuing event of default under the Indenture, we
will have investment control of the funds in the sinking fund account. During
the continuance of an event of default, the Trustee will have such investment
control. In both cases, such investment control is limited to investments which
are within the restrictions established in the Indenture.
Prior to the sinking fund trigger date, all funds designated for payment of
interest due with respect to the notes will be deposited in the sinking fund
account. After the sinking fund trigger date, all net collection proceeds
(including all portions thereof treated for tax or financial accounting purposes
as principal or interest) from the lease contracts, following deduction of
allowed expenses (including fees payable to TLMI), will no longer be available
to us for the purchase of additional lease contracts and will be deposited into
and held, along with the income earned thereon, by the Trustee in the sinking
fund account for repayment of the notes. With the exception of payments required
to pay interest due and payable with respect to the notes, no schedule of
minimum required payments into the sinking fund account will exist. See
"DESCRIPTION OF THE NOTES -- PAYMENTS OF INTEREST."
THE CONTRACT PROCEEDS, MASTER COLLECTIONS ACCOUNT AND OPERATING ACCOUNT
We have established the master collections account, initially at Texas
Community Bank, where all remittance checks, drafts and other instruments for
the contracts will be deposited for collection by the financial institution as
our agent. All payments made on or with respect to the lease contracts
(including all portions thereof deemed to be principal or interest for tax or
financial accounting purposes) will be deposited in the master collections
account using code numbers assigned to individual lease contracts and separate
entities to ensure proper tracing of payments. We have established the operating
account, a
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<PAGE> 24
commercial bank account we maintain for use in holding our proceeds and in
paying our expenditures. Prior to the sinking fund trigger date, all funds in
the master collection account will be transferred to our operating account. We
may invest any funds in the operating account in investments deemed suitable
under the Indenture. We intend to invest such funds daily.
TLMI, as a party to the Indenture, has acknowledged that:
- any collections or other proceeds from the lease contracts in our master
collections account and operating account are our property;
- any such collections or other proceeds from the lease contracts in TLMI's
possession or control are held by TLMI pursuant to the Indenture as our
custodian and bailee and the custodian and bailee of the Trustee; and
- any such collections or other proceeds are subject to the security
interest of the Trustee.
Any funds in the our master collections account and operating account will
be subject to the Trustee's lien and will collateralize payment of the notes. So
long as the notes have not been declared due and payable as a result of an event
of default and subject to the receipt by the Trustee of any required
certificates, we will have the right to cause the funds contained in the
operating account to be withdrawn or applied for the following purposes in the
following priority:
- first, through a direct transfer to the sinking fund account, for the
payment of any interest due on the outstanding notes on each payment
date;
- second, for any amounts due the Trustee for its fees and expenses;
- third, except during an event of default, for the payment of any such
other allowed expenses as we certify to the Trustee;
- fourth, after the sinking fund trigger date or during an event of
default, for deposit to the sinking fund account for payment of the
notes; and
- fifth, prior to the sinking fund trigger date, except during an event of
default, for the purchase of such additional lease contracts, as we and
TLMI certified to the Trustee as being eligible under the lease contract
criteria specified in the Indenture. See, THE COMPANY; Purchase of
Vehicles.
The lease contract proceeds must be sufficient to satisfy fully any
application having higher priority before they may be applied to a use having a
lower priority. To the extent collected funds are not needed to fund the payment
on the notes, the purchase of additional lease contracts, or the payment of
allowed expenses, such funds will generally remain in our operating account.
We and TLMI will provide quarterly reports to the Trustee certifying to the
Trustee the purchasing and servicing activities that have occurred in relation
to the lease contracts, the amounts of allowed expenses paid from the operating
account and the fact that all payments from the operating account conform with
the Indenture and providing a reconciliation of deposits and withdrawals from
the operating account.
On or before the business day immediately preceding each payment date, we
will cause to be transferred directly from the operating account to the sinking
fund account an amount that, together with any funds in the sinking fund
account, is sufficient to make all interest payments on the notes outstanding on
such payment date. See "DESCRIPTION OF THE NOTES -- INTEREST PAYMENTS."
"Allowed expenses" will be limited to:
- the expenses and fees of the Trustee under the Indenture;
- fees charged by TLMI under the Servicing Agreement (including the
servicing fee and purchase administration fee) and under the Master
Purchasing Agreement;
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<PAGE> 25
- title transfer fees;
- federal, state and local taxes (including corporate franchise taxes but
excluding federal, state and local income taxes for which TLMI is
responsible under a tax sharing agreement);
- legal and accounting fees;
- printing expenses for reports, compliance certificates and opinions
required by the Indenture;
- premiums for vehicle residual value insurance;
- charges for vehicle warranty service contracts;
- bank service charges and account fees, including a share of such charges
and fees, if any, incurred by TLMI for the master collections account);
- expenses of repossessing, repairing, remarketing and liquidating the
vehicles (as to each vehicle, not to exceed the liquidation proceeds from
the vehicle and any insurance proceeds applied to vehicle repairs or
required to be refunded to Lessees).
TLMI will pay all other general administrative and overhead expenses
incurred by us. The following table summarizes our estimates of the anticipated
allowed expenses, (see "PURCHASE, ACQUISITION AND COLLECTION OF
CONTRACTS -- Collection of Payments"):
SUMMARY OF ESTIMATED ALLOWED EXPENSES
<TABLE>
<CAPTION>
ALLOWED EXPENSES ESTIMATED AMOUNT
---------------- ----------------
<S> <C>
Servicing Fees
Contract Servicing Fee (paid to TLMI)......... $20 per month per lease contract
Purchase Administration Fee (paid to TLMI).... $100 per lease contract purchased
License and Title Transfer Fee.................. $86.80 per lease contract
State Inspection Fee............................ $19.75 per lease contract
Documentary Fee................................. $50.00 per lease contract
Marketing Fee (paid to TLMI).................... 57.5% of customer down payment
Trustee Fees
Acceptance Fee................................ $6,500
Annual Administration......................... $7,500
Note Payments and Registrar Services.......... $5 per year per Note
Note Certificate Corrections.................. $10 each
Collateral Custodial Services................. $5 per year per lease contract plus $2.50 per
acceptance or release of lease contract
Bank Fees
Master Collections Account.................... $300 to $500 (varies with volume)
Operating Account............................. $2,000 per year (varies with number of
transactions)
Subscription Escrow Account................... $1,000 per year
Legal Expenses
Annual Attorneys' Opinion to Trustee.......... $2,500
Accounting Expenses
Annual Audit.................................. $15,000
Annual Tax Return............................. $1,750
Printing and Mailing.......................... $3,000
</TABLE>
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<PAGE> 26
<TABLE>
<CAPTION>
ALLOWED EXPENSES ESTIMATED AMOUNT
---------------- ----------------
<S> <C>
Insurance Premiums
Residual Value Insurance...................... $500 per year, plus 1.68% of the residual value
of each Leased Vehicle (with $100 deductible for
leased vehicles)
Contingent Liability and Physical............. $2.00 per Leased Vehicle per month
Total Annual Servicing, Trustee, Bank, Legal,
Accounting and Insurance Fees and Premiums.... Estimated to average (i) $279,650 (or $362 per
lease contract) if the maximum amount of Notes is
sold, or (ii) $38,771 or ($775 per outstanding
lease contract) if the minimum amount of Notes
is sold
Repossession, (Remarketing, Repair and Resale)
(to reimburse TLMI for such expenses)......... Estimated to average $100 to $400 for each
repossessed Leased Vehicle, but limited to the
related liquidation or insurance proceeds
Remarketing Expenses............................ $100 to $400 for each Leased Vehicle upon
expiration of the lease, but limited to the
related resale or insurance proceeds
Releasing Fee (paid to TLMI).................... 15% of the down payment by the customer (Lessee)
with respect to a new lease contract following
repossession
Federal Income Taxes............................ Varies with taxable income (maximum 35%)
Texas Corporate Franchise Taxes................. Greater of 4.5% of taxable income and 1/4 of 1%
of taxable capital
</TABLE>
PERFECTION OF TRUSTEE'S SECURITY INTEREST IN THE COLLATERAL
Set forth below is a description of how each of the types of property which
serves as collateral for the notes is made subject to the Trustee's pledge or
security interest in favor of the note holders under applicable Texas law.
- Vehicles. The vehicles will be automobiles or trucks subject to the Texas
Transportation Code. Pursuant to Section 501.021 of the Texas
Transportation Code, evidence of the Trustee's security interests against
such vehicles will be evidenced by notation on a certificate of title
issued by the Texas Department of Public Safety. Pursuant to the
Indenture and the custodial agreement, the Trustee will maintain actual
possession of such certificates of title.
- Lease Contracts. The lease contracts will be leases of vehicles which we
own. Article 9.105(a)(2) of the Texas Uniform Commercial Code ("UCC")
defines such lease contracts as "chattel paper." Section 9.304(a) of the
UCC provides that a security interest in chattel paper may be perfected
by filing a financing statement, and Section 9.305 of the UCC provides
that a security interest in chattel paper may also be perfected by the
collateralized party taking possession of the chattel paper. The Trustee
will file a UCC-1 financing statement with respect to the lease contracts
and will maintain actual possession of the lease contracts pursuant to
the Indenture and the custodial agreement.
- Servicing Agreement. The Servicing Agreement and Master Purchasing
Agreement are contractual agreements and are considered "general
intangibles" under Section 9.106 of the UCC. Security interests in
general intangibles are perfected by filing a financing statement. The
Trustee will file a UCC-1 financing statement with respect to the
Servicing Agreement and Master Purchasing Agreement.
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<PAGE> 27
- Operating Account, the Master Collections Account and the Sinking Fund
Account. The operating account, the master collections account and the
sinking fund account are deposit accounts, and pledges of such accounts
are not subject to the provisions of Article 9 of the UCC as provided in
Section 9.104(12) of the UCC, except as provided with respect to proceeds
(Section 9.306) and priorities in proceeds (Section 9.312). Perfection of
a pledge of these deposit bank accounts is made pursuant to Texas common
law rules covering the pledge of personal property. Pledges are made by
the pledgor executing a pledge and assignment agreement in favor of the
pledgee and are perfected by the pledgor notifying the depositary bank in
writing of the pledge. Security interests with respect to any investments
within these accounts will be subject to applicable provisions of the
UCC, depending upon the types of investments. At present, the depository
bank is Texas Community Bank.
- Repossessed or Returned Vehicles. The repossessed or returned vehicles
will already be subject to the lien noted on the certificates of title as
described in the first point above, and the Trustee shall have actual
possession of such certificates of title.
- Proceeds. The proceeds of the items above that are subject to perfection
under the UCC are subject to the provisions of Section 9.306 of the UCC,
and the Trustee's lien in such proceeds is perfected by perfection of the
underlying property as noted above, subject to Section 9.306 of the UCC.
Prepayments by lease customers on the lease contracts will be treated in
the same manner as collection proceeds on the lease contracts. Consequently,
such prepayments may be used to purchase additional lease contracts prior to the
sinking fund trigger date and will not be passed through to noteholders as
principal payments.
The following chart illustrates the flow of lease contract proceeds from
the lease customers through the master collections account and operating account
to the applications thereof and the priority of the various applications of such
proceeds.
FLOW OF CONTRACT PROCEEDS AND PRIORITY OF APPLICATIONS
[FLOW CHART]
- ---------------
(1) Priority of Monthly Proceeds Applications
1. Interest is paid by Trustee from transfers to the sinking fund account.
2. Trustee's fees and expenses are paid from the operating account.
3.* Other allowed expenses are paid from the operating account.
4.* A. After the sinking fund trigger date, any remaining proceeds are
deposited into the sinking fund account and held by Trustee for
payment of notes.
B. Before the sinking fund trigger date, any remaining proceeds are
used to purchase or acquire additional eligible lease contracts.
* Applications described in 3 and 4 above are prohibited during an Event of
Default.
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<PAGE> 28
THE COMPANY
GENERAL
Formation
We were incorporated in the State of Texas on May 26, 1999 and we have no
material properties or assets and no operating history. We are a subsidiary of
TLMI. Our principal offices are located at 5422 Alpha Road, Suite 100, Dallas,
Texas 75240 and our telephone number is (972) 404-0042. As of the date of this
Prospectus, Transition Leasing has two other subsidiaries -- TAF-II and
Transition Auto Finance, Inc. ("TAFI"). Although TAFI no longer conducts
operations, both TAF-II and TAFI were formed as single purpose auto vehicle
leasing subsidiaries, just as we were. TAFI sold all of its vehicles and lease
contracts to TAF-II and repaid its noteholders entirely, prior to the maturity
of their notes. Both TAFI and TAF-II have made all interest payments in
accordance with the terms of the notes they issued.
The Business of the Company
We were established for the sole purposes of:
- purchasing vehicles from third parties (including TAF-II) and leasing
them to customers pursuant to lease contracts;
- collecting and servicing the lease contracts;
- obtaining capital through borrowings or through sale of debt or equity
securities to invest in such lease contracts;
- remarketing the vehicles upon termination of their lease contracts; and
- all related business activities.
While the notes remain outstanding, we will be prohibited from engaging in
any business inconsistent with the purposes set forth above and from incurring
any additional indebtedness other than allowed expenses and any other amounts
incurred in the ordinary course of our business.
Pursuant to the terms of the Purchasing Agreement and the Servicing
Agreement, TLMI will provide substantially all of the activities described
above, other than raising capital.
The funds necessary to purchase the lease contracts or vehicles will
initially be provided from the sale of the notes offered hereby. Subject to the
prior payment of interest as it becomes due upon the notes and payment of
allowed expenses, the collection proceeds from the lease contracts will be used,
until the sinking fund trigger date, and for so long as no event of default
exists, to purchase or acquire additional lease contracts. Upon the payment in
full of all principal and interest on the notes, the Trustee will release the
lease contracts and the titles to the vehicles to us, and the Indenture will
terminate.
The lease contracts will relate primarily to vehicles in the middle range
of the new and late model automobile market, where consumer retail prices
typically range from $15,000 to $30,000. We expect that most of the lease
contracts will be originated by TLMI. TLMI originates automobile lease contracts
through new automobile franchise dealers, independent automobile dealers,
independent leasing companies, automobile auctions, and other sources, including
the internet site of its wholly-owned subsidiary, Verusauto.com. TLMI seeks to
lease vehicles to individuals who do not have access to other sources of
consumer credit because they do not meet the credit standards imposed by
automobile retailers or banking institutions, generally because they have past
credit problems or non-prime credit ratings. Frequently, the reason that such an
individual may have a non-prime credit rating is that, at some time in the past,
he has defaulted on one or more financial obligations, or he has filed for
relief under the bankruptcy laws, or both.
In originating the lease contracts, TLMI takes a more flexible approach and
applies a more subjective analysis than those taken by traditional automobile
financing sources in determining an applicant's
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<PAGE> 29
suitability for loan approval. TLMI endeavors to determine whether the
applicant's prior credit problems were a result of job displacement, financial
hardship beyond the applicant's control or other circumstances that are not
indicative of the applicant's current financial condition or payment
performance. In addition, TLMI seeks customers that have stable employment
providing regular income and possess a strong need to acquire transportation.
TLMI believes that by using subjective judgment and knowledge of local
conditions, it is able to profitably originate automobile lease contracts for
new and late model automobiles to many consumers who would be denied approval
for such leases from traditional sources. We will purchase or acquire only lease
contracts that satisfy the contract criteria established in the Indenture and
the Purchasing Agreement, and believe that the quality and performance of the
lease contracts will be enhanced through the consistent application by TLMI of
the purchasing, origination and collection criteria established in the Indenture
and the Purchasing Agreement.
Industry Overview
United States automobile sales are estimated to be in excess of 17 million
vehicles in 1999. Financing of these vehicles will consume more than $390
billion dollars, making it the largest grouping of consumer installment debt in
the U.S. It is estimated that over one-third of this debt will be incurred by
borrowers that have a limited credit history or past credit problems that
preclude them from securing traditional sources of financing. During 1984
approximately 14.2 million passenger cars and light trucks were sold in this
country. Of that total, 9.8% were leased. In 1996, 14.9 million vehicles were
sold and 27% of these were leased. Leasing as an alternate method of financing
vehicle purchases continues to grow and industry experts forecast that in the
year 2000 one-third to one-half of all new automobiles will be leased. In an
effort to maintain the number of cars sold in this country, automobile
manufacturers are encouraging alternative methods of financing.
The average price of new vehicles has continued to escalate over the past
two decades, forcing drivers to devote a larger portion of their income to the
purchase of automobiles. From 1975 to 1995 the average new car expenditure rose
from $4,950 per vehicle to over $20,000 -- a fourfold increase. In 1975, median
new vehicle expenditures were 36.1% of median average family incomes; however,
in 1995, median new vehicle expenditures were 53.% of median average family
incomes. Obviously, the rate of growth in consumer income is not keeping pace
with the rise in automotive pricing. TLMI's management believes that this
disparity will force more people to choose alternate means of financing an
automobile or alter the model, style and age of the automobile they drive.
Consumers have a variety of financing alternatives available to them to
acquire the use of a new or late model automobile. These alternatives include
different types of loans (including fully amortizing, balloon payment and no
money down or low down payment loans and leases). The primary benefit of leasing
over such alternatives is that leasing typically provides a consumer with the
opportunity to acquire the use of a new or late model automobile at a lower
monthly payment and initial cash outlay. On the same automobile, the monthly
lease payment may be 30-40% lower than conventional financing. This encourages
drivers to (i) operate newer and sometimes more expensive vehicles and (ii) to
trade or lease vehicles more often. According to CNW Marketing/Research, an
automobile leasing market research firm, the number of passenger automobiles and
light trucks leased has increased from approximately 912,000 units in 1984 to an
estimated 3.1 million units in 1994. Over the same period, leasing has increased
as a percentage of comparable new vehicle deliveries from approximately 9.8% to
approximately 30%.
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<PAGE> 30
The increase in new automobile prices in relation to annual median family
income has also significantly increased the popularity of leasing. The following
table shows the relationship between the average new automobile expenditure and
median family income for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NEW INCOME NEEDED TO
AUTOMOBILE MEDIAN FAMILY PURCHASE
YEAR EXPENDITURE(1) INCOME(2) AUTOMOBILES
- ---- -------------- ------------- ----------------
<S> <C> <C> <C>
1975 $ 4,950 $13,719 36.1%
1980 7,574 21,023 36.0%
1985 12,022 27,144 44.3%
1990 16,157 33,969 47.6%
1992 18,078 35,776 50.5%
1993 19,223 36,934 53.2%
1994 19,746 37,117 53.1%
1995 20,019 37,239 53.7%
</TABLE>
- ---------------
(1) Source: U.S. Department of Commerce, Bureau of Economic Analysis
(2) Source: U.S. Department of Labor Statistics.
Leasing has now been expanded to the "Previously Owned" market as the
industry deals with late model autos (i) at the end of their original lease
period, (ii) designated as "Program Cars" by dealers, and (iii) recovered from
financing institutions as a result of nonpayment and/or repossession. This
practice has the added benefit of providing a viable market for late model cars
and maintaining the residual value of such cars in the aftermarket. As the
divergence of personal income and the price of automobiles continues, the market
for alternative financing methods will continue to increase.
Government Regulations
We and TLMI are subject to regulation under federal, state and local laws
and regulations concerning many aspects of their respective businesses. See
"RISK FACTORS -- Effect of Government Regulation on Leasing." During the 1995
legislative session, the Texas Legislature passed legislation which
significantly increased Texas regulation of motor vehicle leasing, lessors, such
as us, and "lease facilitators," such as TLMI. The legislation requires lessors
and lease facilitators to obtain a license from the Texas Motor Vehicle
Commission. Licenses are granted only upon a showing of compliance with the
legislation and the rules of the Commission adopted pursuant to the legislation.
Licenses issued by the Commission are for one year, subject to renewal at the
discretion of the Commission. We have filed an application with the Texas Motor
Vehicle Commission to become licensed as a lessor. TLMI has been issued a
license as a lessor under the legislation and, as such, TLMI is deemed to be
licensed as a lease facilitator as well. We and TLMI intend to obtain any
licenses that may be required in any other state where we purchase and collect
lease contracts.
The Texas legislation and the regulations adopted by the Commission impose
requirements relative to the licensing process (application, maintenance and
revocation), and certain record keeping and reporting requirements, including
notification of changes in ownership and the closing or relocation of any
licensed business location.
The legislation prohibits or restricts the paying of fees, directly or
indirectly, among automobile dealers, lessors, and lease facilitators. For
example, a lessor may not pay a fee to any person for the solicitation of a
prospective lessee of motor vehicles unless the person receiving the fee is a
duly licensed lease facilitator. A lessor may appoint one or more duly licensed
lease facilitators as we have appointed TLMI to represent the lessor and obtain
lease customers.
The Texas legislation also requires that lease contracts procured by a
lease facilitator contain certain required disclosures, including notice of the
complaint procedure under the Code.
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<PAGE> 31
The regulations require a lessor or a lease facilitator to conduct its
business from an established and permanent place of business that meets certain
requirements. The regulations require a lessor or a lease facilitator to be
independent of financial institutions and dealerships in such location and in
business activities; however, the Texas legislation does not require a lessor to
be independent of its lease facilitators. The regulations provide that upon a
change in the majority ownership interest of a licensee, the license will be
canceled.
We must qualify for a license as a lessor, and, as mentioned above, we have
applied for such a license. In order to qualify for such a license, we have
already begun complying with the requirements of the law, including compliance
with the office requirements, sign requirements, lease requirements, and record
keeping requirements of the Texas legislation. We have received an opinion of
counsel to the effect that the our intended method of business is in compliance
with the Texas legislation. A copy of this opinion has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
While we believe that we and TLMI will be able to comply with the
requirements of the Texas legislation and the regulations, we are unable to
predict the extent to which the terms of future regulations promulgated by the
Commission under the Texas legislation and/or the administration of the Texas
legislation by the Commission will make the operation of our business and the
business of TLMI significantly more difficult and/or costly or otherwise have a
material adverse effect on us.
The Federal Reserve Board has published final revisions to Regulation M,
which implements the Consumer Leasing Act. New requirements under Regulation M
include:
- a uniform format for lease contracts that requires certain disclosures to
be segregated in the document and written in "plain English;"
- a calculation of the lease payments that itemizes, among other things,
the gross capitalized cost of the lease, the vehicle's residual value,
the rent charge and depreciation;
- disclosure of the total amount the lessee will pay by the end of the
lease; and
- certain warnings and disclosures.
Our management does not believe that these requirements will materially and
adversely impact our or TLMI's leasing activities.
As the Texas legislation and revised Regulation M reflect, the business of
automobile leasing recently has been the subject of legislative and regulatory
scrutiny, and numerous proposals are under consideration that, if enacted, would
impose greater regulation and requirements on the our and TLMI's activities. See
"RISK FACTORS -- Effect of Governmental Regulations on Leasing." Certain of
these proposals have been prompted by consumers allegedly being charged unfair
prices in leasing transactions, with inadequate disclosure of the leased vehicle
prices, imputed interest rates and other charges. These proposals would require
greater disclosure in leasing contracts with respect to such matters. Our
management is not in a position to predict the effect of any such legislation or
regulation on our activities or TLMI's activities.
PURCHASE/LEASING OF VEHICLES
General
Our lease contracts will be originated by TLMI under the Master Purchasing
Agreement, dated as of , 1999 (the "Purchasing Agreement"), between
us and TLMI. A copy of the Purchasing Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. We have granted a
security interest in the Purchasing Agreement to the Trustee as collateral for
the notes and for our obligations under the Indenture. The discussion of the
Purchasing Agreement which follows is not, and does not purport to be, complete.
We encourage you to review the Purchasing Agreement.
Pursuant to the Purchasing Agreement, we may require TLMI to use reasonable
efforts to originate customers and such lease contracts or vehicles as represent
a lesser amount of funds than we specify to TLMI from time to time. We will be
obligated to purchase all lease contracts or vehicles originated by
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<PAGE> 32
TLMI which satisfy the lease contract and customer criteria set forth in the
Purchasing Agreement, subject only to the funds limit that we specify to TLMI.
TLMI will originate customers and lease contracts, will purchase vehicles from
new automobile franchise dealers, independent automobile dealers and independent
leasing companies and will manage the lease contracts through their termination.
Lease Contract and Credit Criteria
We have developed criteria as to the price, down payment, and length of
lease term for the lease contracts and make of the vehicles to qualify for
purchase or acquisition. We believe that the most significant of these criteria,
in general, are as follows:
- The lease contracts generally should have original terms that are
typically 36 months but may not be more than 48 months;
- The customers will be required to make a down payment of not less than
15% of the purchase price of the vehicle and if the vehicle is four model
years old, the required down payment will be at least 25% of the
vehicle's purchase price;
- The customers must have supplied certain credit information, and credit
verification procedures must have been performed by TLMI in a manner
commensurate with standard industry practice;
- The customer's monthly lease payments must have been determined using an
implicit annual interest ranging from 16% to 18% of the net capitalized
cost of the vehicle less the customer's down payment.
We have established certain credit information and criteria to be satisfied
by each customer. We believe that the most significant of these criteria, in
general, are as follows:
- Verifiable home telephone number in customer's residence;
- Residence: (1) Evidence of purchase, lease, or rental agreement in
customer's name; or
(2) Stability -- review time at last two addresses, as well
as time in area;
- Employment: At least one year with last two employers;
- Verifiable income (check stub, W-2, 1099, tax return, or bank
statements);
- Customer's net disposable income generally at least 2.5 times total
monthly debt service (home, car, etc.);
- References: (1) Five relatives; and
(2) Five personal;
- Valid driver's license;
- Any previous bankruptcy must have been discharged, or if open, need
letter of permission from bankruptcy Trustee; and
- Certain exceptions for first time automobile "buyers" are permitted.
To verify the foregoing information, TLMI will obtain a copy of the credit
application executed by the customer, which application should contain the
necessary information to verify by telephone or otherwise the customer's
addresses, employment and personal references and authorization to obtain a
credit report from a credit reporting agency.
The Purchasing Agreement and the Indenture mandate that contracts and lease
customers meet the criteria specified above. If TLMI fails to comply with these
criteria, we have the right to terminate the Purchasing Agreement and we could
appoint another agent to provide the purchasing services; however, as we are a
wholly-owned subsidiary of TLMI, it is not likely that we would terminate the
Purchasing Agreement. If we suffer a default under the Indenture, the Trustee
may, or at the direction of the holders
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<PAGE> 33
of notes representing 25% of the aggregate principal amount of the outstanding
notes will require us to terminate the Purchasing Agreement. The Purchasing
Agreement allows TLMI to contract with industry-qualified third parties to
perform its obligations thereunder. The performance by any third party will not
relieve TLMI from liability for its obligations under the Purchasing Agreement.
The Purchasing Agreement and the Indenture require us and TLMI to make
certain representations, warranties and covenants with respect to any lease
contracts to be purchased or acquired, including, the following:
- the conformity of each lease contract with federal, state and local laws;
- our compliance in all material respects with federal, state and local
laws;
- the validity and enforceability of the lease contract and the security
interest created thereby in the vehicle.
If any of such representations or warranties is discovered to have been
incorrect in any material respect with regard to a given lease contract, TLMI is
required to cure the defect or purchase the impaired lease contract from us.
Vehicle Purchase Price
The purchase price which we will pay for any vehicle acquired from
independent parties will vary generally with the method by which the lease
customer is introduced to TLMI. If dealers or leasing companies introduce the
lease customer to TLMI, the purchase price will generally be equal to 95% of
manufacturer's suggested retail price ("MSRP"). If the customer is generated by
TLMI's in-house marketing staff, the purchase price will generally be less than
95% of MSRP. We will pay to TLMI a marketing fee, a purchase administration fee
and a documentary fee with respect to each lease contract. See, "PAYMENTS TO
TLMI," below.
The purchase price which we will pay for any vehicle and lease contract
acquired from TAF-II will equal the sum of (i) the depreciated value of the
vehicle as of the date of our purchase plus (ii) 57.5% of the down payment
received by TAF-II from the lease customer when TAF-II acquired and leased such
vehicle -- this payment has the effect of reimbursing the marketing fee paid by
TAF-II to TLMI. The depreciated value will be calculated by amortizing over the
term of the lease the difference between (A) 120% of the actual purchase price
TAF-II paid for the vehicle, less the lease customer's down payment and (B)
TAF-II's estimate, at lease inception, of the vehicle's residual value at the
expiration of the lease contract. We will pay TLMI a purchase administration fee
and a documentary fee with respect to each vehicle related lease contract
purchased from TAF-II.
We anticipate that we will not purchase a vehicle from TAF-II unless we
have substantial funds in our operating account and TLMI is experiencing
difficulty in originating lease contracts in sufficient numbers to fully utilize
such funds. The vehicles that may be purchased from TAF-II will be selected
according to the date purchased by TAF-II on a first-in, first-out basis,
meaning that we will purchase those vehicles and lease contracts which were the
earliest acquired by TAF-II. We will not purchase a vehicle if its related lease
contract, at the time of our contemplated purchase, is in default.
Down Payment and Monthly Lease Payment
We will require the customer to make a down payment to us of not less than
15% of the purchase price of the vehicle. If the vehicle is four model years
old, we will require the customer to make a down payment of not less than 25% of
the vehicle's purchase price. The customer's monthly lease payment will be
computed by applying an implicit interest rate factor of 16% to 18% per annum to
an adjusted purchase price equal to 120% of the purchase price for the vehicle,
less the amount of the customer's down payment. The lease payment is designed,
among other things, to recover the vehicle's depreciation in value over the term
of the lease. We calculate this depreciation by amortizing over the term of the
lease, the
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difference between the estimated residual value of the vehicle at the expiration
of the lease term, see "THE COMPANY; REMARKETING," and the vehicle's adjusted
purchase price.
Warranty and Vehicle Insurance
To insure that all our vehicles are maintained to factory specifications,
we will require that all vehicles be covered by a warranty for the complete
duration of the vehicle's lease contract. In the event that the manufacturer's
warranty is insufficient to cover both the term and anticipated mileage, the
customer is required to purchase an extended warranty to protect the vehicle.
Although most state laws, including Texas law, mandate that owners maintain
liability insurance for damages arising from their use of a motor vehicle, the
owners of the vehicles may not be required to maintain physical damage
insurance. We will require lessees under our lease contracts to purchase both
liability coverage and physical damage coverage. However, we also will maintain
vehicle single interest insurance that will insure the Company against liability
and physical insurance for damages arising from a customer's use of a vehicle in
the event that the customer's coverage lapses or is inadequate. The making of
significant claims against the Company's policy could result in the non-renewal
of such policy, which could have a material adverse effect on the Company. In
addition, the Company will be named as a loss payee under the lessee's
automobile insurance policy.
Residual Value and Residual Value Insurance
A residual value is the value of a given vehicle upon expiration of its
lease contract. When we lease a vehicle, we review the Automotive Lease Guide to
determine the estimated value for the specific vehicle upon expiration of the
lease contract (typically 36 months). This figure represents the residual value,
and the amount of the premium for the residual value insurance coverage we buy
is the residual value multiplied by .0168. For example, the residual value
premium for a vehicle with a residual value of $10,000 is $10,000 X .0168, or a
one-time premium of $168. If the vehicle does not have a wholesale value at the
end of the lease contract equal to or more than the residual value (in this
example, $10,000), the insurance company will pay to us the difference between
the residual value and the actual wholesale value, (less a $100 deductible)
UNLESS such difference is the result of excessive mileage, excess wear and tear,
damage, and/or lease termination expenses. Coverage for each vehicle will
continue until it is disposed of. See "RISK FACTOR -- Subjective Determination
of Residual Value; Limitation on Protection Provided by Residual Value
Insurance; Reliance on Remarketing to Satisfy Residual Obligation."
We estimate the residual value of a vehicle at the inception of its lease
contract and incorporate it into our lease payment calculations so as to recover
the diminution in value from lease inception until expiration. Put another way,
the lease terms are intended to amortize the vehicle's depreciation expected to
occur over the term of the lease contract. Because we calculate this
depreciation using an initial value which is 120% of the actual purchase price
of the vehicle less the customer's down payment, we expect that, upon the
expiration of a lease contract, the actual residual value of such vehicle will
be more than our cost basis, even after adjustment for capital costs. If our
expectation is correct, we believe that upon expiration of the contract, we can
sell the vehicle for a profit equivalent to the difference between the actual
market value and our cost basis. It has been TLMI's experience that profitable
resales are possible even when a contract is terminated prior to its expiration.
TLMI's experience in such matters is, of course, limited.
Our analysis has shown that mileage is the primary factor in determining a
vehicle's residual value. By imposing mileage limitations and monitoring the
customer's compliance, we can establish accurate residual value estimates. The
process of establishing mileage limits begins during the personal interview with
the candidate. The goal is to establish an understanding of the candidate's
driving needs, distance to work, personal use, and other factors for determining
estimated annual mileage.
If this estimate exceeds the standard 15,000 miles per year limitation, the
terms of the contract are modified and payments are increased to accommodate
additional use. To monitor the customer's
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compliance with the terms of the customer's contract, we require the customer to
bring the vehicle to a TLMI office for an annual inspection and to receive the
current year registration sticker. If the inspection discloses excess mileage,
the customer must then pay 15 cents per excess mile to offset the decline in the
vehicle's value. In addition, TLMI may elect to revise the terms of the contract
(and thereby increase the customer's payment) to avoid reoccurrence. TLMI will
also review the vehicle for damage and, if any damage is found, will take the
actions necessary, including a fine or repossession.
An accurate prediction of residual value is important. If overstated, the
scheduled lease payments may not fully recompense us for the vehicle's
depreciation over the life of the lease contract and, if understated, may put us
at a competitive disadvantage with other sources of vehicle leasing or
financing. Moreover, inaccurate estimates may impact dramatically upon the
decision of a customer to exercise his option to acquire the leased vehicle at
the residual value upon expiration of the contract. See, "REMARKETING." In
determining the expected residual value of a vehicle, we use guides and
estimates of residual values that are widely accepted in the car leasing
industry but there can be no assurances that such guides and estimates will be
accurate predictors of the actual residual value we might realize upon our
regaining possession of the vehicle.
To date, TLMI's experience with respect to its estimation of residual
values has been limited largely to repossession and early termination.
Generally, vehicles returned upon expiration of their lease have been
re-marketed in transactions which have produced net cash gains to the subsidiary
which owned the vehicles. The number of such lease contracts has been limited,
however, and there can be no assurances that our experience will be similar to
that of TLMI or its other subsidiaries. With respect to early termination of
lease contracts and repossessions of vehicles, TLMI's experience, generally, has
validated the inputs we anticipate using to estimate residual values. Our
experience indicates that much of the actual vehicle depreciation occurs in the
early periods of the contracts. Termination or repossession which occurs
relatively early in the term of a contract will subject us to a greater
possibility that the payments under the defaulted contract will not have fully
amortized the depreciation, and that the vehicle will be remarketed at a loss.
Remarketing losses have the immediate effect of diminishing the collateral
securing the repayment of the notes (although the remarketing losses would have
to increase significantly over those experienced to date to cause a default on
the notes) and the longer term effect of diminishing the aggregate residual
value we might realize.
We intend to purchase and maintain a residual value insurance policy issued
by an insurer rated A by A.M. Best, in order to provide us with certain limited
protection in case proceeds from the remarketing of off-lease vehicles are not
sufficient to recover at least the residual value of the remarketed vehicles.
The purpose of the policy is to protect us if there is a dramatic downturn in
the market value of a specific vehicle model. An example of such a market
development for a specific vehicle is the Audi 5000, which precipitously lost
value when information of its perceived "sudden acceleration" problems was
widely disseminated. Other examples are the VW diesel Rabbit and the Cadillac
diesel. The residual insurance policy will not protect us against loss due to
excessive mileage, excessive wear and tear, damage, and lease termination
expenses on any specific vehicle or contract.
Payments to TLMI
In connection with each vehicle whose lease contract is originated by TLMI,
without regard to the means by which the lease customer came to TLMI, we will
pay TLMI (A) a marketing fee of 57.5% of a customer's down payment to us, (B) a
purchase administration fee equal to $100 and (C) a documentary fee equal to
$50. We will use that portion of the customer's down payment remaining after
payment of the marketing fee, the purchase administration fee and the
documentary fee to pay a portion of the vehicle's purchase price.
Each marketing fee is payable at inception of the lease contract. The
purchase administration fees and the documentary fees generally will be
accumulated by us and paid in a single payment each month to TLMI; they are
intended to compensate and reimburse TLMI for administering the purchase of the
lease contracts, including receipt and approval of dealer drafts and lease
contract transfer documents, monitoring
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compliance with purchase criteria, preparing, organizing and delivering
certificates, UCC financing statements and other documents to the Trustee,
creation of lease contract files, communications with dealers and independent
leasing companies, and other related activities.
Under the Indenture, our payment to TLMI of the purchase administration fee
is subject to the prior payment of any amounts owing on the notes or to the
Trustee.
COLLECTION AND SERVICING OF CONTRACTS
Our lease contracts will serviced by TLMI under the Servicing Agreement,
dated as of , 1999 (the "Servicing Agreement"), between us and TLMI.
A copy of the Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. We have granted a
security interest in the Servicing Agreement to the Trustee as collateral for
the notes and for our obligations under the Indenture. The discussions of the
Servicing Agreement which follows are not, and do not purport to be, complete.
We encourage you to review the Servicing Agreement.
Under the Servicing Agreement, TLMI is obligated to use its own discretion,
subject to the requirement that it use the same care and apply the same policies
that it would exercise if it owned the lease contracts, in the management,
administration and collection of the lease contracts and to bear all costs and
expenses incurred in connection therewith.
Collections. TLMI will be responsible for administering the collection of
the lease contracts, including collecting and posting all payments. All lease
customers will be requested, through correspondence and delivery of payment
books or monthly statements, to remit payments under their lease contracts
directly to the master collection account. TLMI has also agreed to deposit in
the master collections account any payment proceeds received directly by TLMI
with respect to the lease contracts, including any proceeds from resales of
returned or repossessed vehicles and any recoveries from insurance claims on
vehicles. The Indenture requires us to transfer at least weekly, from the master
collections account to the operating account, all of the funds in the master
collections account.
TLMI generally will contact any customer on a past due lease contract
within fifteen (15) days after the payment due date. Any material extensions,
modifications or acceptances of partial payments by customers, and any related
necessary lease contract amendments or default waivers must be approved by the
Chief Credit Officer or President of TLMI. TLMI is also required to document the
reasons for each charge off of any material unpaid amount from a customer under
any lease contract. See, "-- Lease Defaults and Repossession," below.
Servicing. Among its obligations under the terms of the Servicing
Agreement, TLMI will be responsible for:
- responding to inquiries of customers on the lease contracts,
- investigating delinquencies,
- sending payment coupons to customers,
- reporting any required tax information to customers,
- paying costs of collections
- policing the vehicles
- furnishing monthly and annual statements to us and the Trustee with
respect to collections and proceeds
- generating certain information necessary to permit the Company to prepare
its required federal and state income tax returns
- coordinating the repossession, remarketing, repair and sale of any
vehicle.
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TLMI will instruct the Dallas County Tax Assessor/Collector to remit
vehicle license renewal stickers to TLMI, as opposed to the lease customers.
TLMI will require a customer to appear at TLMI's offices to collect the licence
renewal sticker, at which time a representative of TLMI will inspect the vehicle
for damage or excess mileage and collect any reimbursement for such damage or
excess mileage, as well as the license renewal fees. See "PURCHASE OF
VEHICLES -- Residual Value and Residual Value Insurance."
Lease Defaults and Repossession. We anticipate that we will maximize our
return by continuing to collect installments on the lease contract, despite a
missed installment by the customer, in lieu of repossessing the vehicle. A
customer's failure to make any payments for more than 30 days will, however,
generally cause us to commence a repossession action. By paying his current
payment and his past due payment plus repossession charges, the customer may be
allowed to retain his vehicle pursuant to the lease contract. If default occurs
a second time, the vehicle will be repossessed without further opportunity for
the customer to cure the default under the lease contract and retain possession
of the vehicle, unless otherwise required by applicable law.
Upon repossession, TLMI will either re-lease the vehicle or sell the
vehicle at wholesale at an automobile auction and use the proceeds thereof to
arrange for the purchase and lease of another vehicle. See "THE COMPANY;
REMARKETING." If a vehicle is re-leased, we will pay to TLMI a marketing fee.
See. "PURCHASE, ACQUISITION AND COLLECTION OF CONTRACTS; ACQUISITION; Payments
to TLMI."
TLMI has agreed to repurchase from us any vehicle which is the subject of a
lease contract in default if the vehicle has not been re-leased or wholesaled
within two months following the default. The purchase price for any such vehicle
will be the purchase price we originally paid for the vehicle (plus applicable
sales tax and title transfer and license plate fees) minus (i) 42.5% of the down
payment made by the customer (which is that portion of the down payment not paid
to TLMI as the marketing fee) and (ii) any monthly lease payments we have
received under such defaulted lease contract. We do not expect TLMI to have to
purchase a significant number of vehicles under this repurchase obligation but
we can offer you no assurances that TLMI will have the financial resources to
honor this repurchase obligation if a substantial number of our lease contracts
should come into default.
TLMI is required to deliver us a report certifying that all lease contracts
managed by TLMI were serviced in material accordance with the servicing
agreement and that TLMI is not in default under the Servicing Agreement. The
report also will contain collection information on each lease contract since the
date of the last such report and a reconciliation of the deposits into and
withdrawals from our operating account. If TLMI fails to service and collect
amounts due from the customers in accordance with the servicing criteria
established by the servicing agreement or if certain bankruptcy or insolvency
proceedings occur, we have the right to terminate all rights and obligations of
TLMI under the Servicing Agreement and to transfer servicing rights to a
successor servicer. As we are a wholly-owned subsidiary of the TLMI and we have
common management, it is unlikely that we will exercise our right to terminate
TLMI's rights and obligations under the Servicing Agreement. See
"MANAGEMENT -- Certain Relationship and Related Transactions." Under the
Indenture, during the continuance of a default by TLMI of any of its material
obligations under the servicing agreement or the Indenture, the Trustee or
holders of at least 25% of the aggregate principal amount of the outstanding
notes have the right to compel us to terminate the rights and obligations of
TLMI under the Servicing Agreement.
Payments to TLMI.
TLMI is entitled under the Servicing Agreement to receive a fee of $20 per
month per outstanding lease contract that has not been assigned for
repossession. (Servicing Agreement, Section 3.) The servicing fee is intended to
compensate and reimburse TLMI for providing the services required of it
thereunder.
Under the Indenture, TLMI will also be entitled to reimbursement, as an
allowed expense, of the expenses it incurs in the repossession, remarketing,
repair and sale of any vehicle to the extent of the related proceeds from its
sale or from any recovery on a related insurance policy. (Servicing Agreement,
Section 5.J.)
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Under the Indenture, our payment to TLMI of the servicing fee is subject to
the prior payment of any amounts owing on the notes or to the Trustee.
(Indenture, Section 4.2.)
REMARKETING
TLMI will remarket for us each vehicle at the end of its scheduled lease
term or in connection with early termination of any lease contract. These
remarketing efforts may produce income to us to the extent that vehicle
disposition proceeds exceed, in the aggregate, our cost basis in the remarketed
vehicles.
TLMI will first remarket the vehicles to the original customers or to other
related parties brought to the attention of TLMI by the lease customer (e.g.,
family members, friends, etc.). TLMI will commence its remarketing efforts
approximately four months prior to the end of the scheduled contract term. At
that time, the lease customer will be contacted by a member of the remarketing
department to explain the customer's options upon termination. The lease
customer's options will be to buy the vehicle, extend the lease contract or
return the vehicle to us. Generally, under the lease contracts, the lease
customer will have an option to purchase the vehicle at the end of the scheduled
lease term for a purchase price determined at inception of the lease contract. A
lease customer generally will purchase the vehicle it has leased if the fixed
purchase price is less than its actual fair market value and will return the
vehicle to us if the fixed purchase price is in excess of the actual fair market
value. Thus, it is unlikely that we will ever be able to effect a sale of a
vehicle, either to the current lessee or to a third party, for any amount
substantially in excess of the fixed price in the lease contract.
If a vehicle is returned to us at the end of the scheduled lease contract
term, the vehicle will be inspected for excessive wear and mileage over that
permitted under the lease contract and the customer will be billed accordingly.
TLMI then will generally sell the vehicle on our behalf at wholesale through
regional auctions.
TLMI
We expect that substantially all of the lease contracts that we will
purchase or acquire will be originated by TLMI, our sole shareholder. TLMI was
founded on October 17, 1994, to lease new and late model automobiles with
factory warranties or extended warranty service contracts that extend to the
termination of their respective lease contracts. TLMI is in the process of
forming two subsidiaries to further its lease origination efforts. The first of
these subsidiaries is to be a Louisiana limited liability company, which will
originate lease customers and leases in Louisiana. The Louisiana subsidiary will
provide the same origination, leasing and servicing services in Louisiana as
TLMI provides in Texas. As with TLMI, we will purchase the vehicles and enter
into leases with the customers in our name. The second subsidiary, named
Verusauto.com, Inc., is to be a Texas corporation and will be organized to
originate customers and lease opportunities via the Internet. This subsidiary,
which will originate lease customers only via the Internet, will purchase cars
and execute leases in its own name and then, if the customer and lease fit our
lease contract and purchasing criteria, we will purchase the vehicle and the
lease contract from Verusauto.com, Inc. We will pay Verusauto.com, Inc., a price
equal to the vehicle purchase price paid by Verusauto.com, Inc. to the vehicle
dealer, less 42.5 % of the lease customer's down payment to Verusauto.com, Inc.,
plus a purchase administration fee and documentary fee totaling $150. In this
fashion, we will pay, on a net basis, exactly what we would have paid to TLMI
had TLMI originated the lease customer for us and had we paid the vehicle
purchase price directly to the vehicle dealer and the marketing fee to TLMI.
TLMI is engaged in the business of leasing such automobiles to individuals who
do not have access to other sources because they do not meet the credit
standards imposed by automobile retailers or banking institutions, generally
because these individuals have past credit problems or non-prime credit ratings.
In leasing automobiles to its customers, TLMI first determines the dollar
amount that the customer is able to pay on a monthly basis, and then assists the
customer in selecting an automobile within his price range. After an automobile
has been selected by the customer, TLMI arranges for the purchase of the
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automobile and the entering into of a lease with the customer (i.e., the lessee)
with respect to the automobile.
TLMI has determined that, once TLMI has fully invested its funds in
vehicles and leases, any lease contracts originated by TLMI that satisfy our
purchase criteria will be made available to the us, to the extent that funds are
available for such purchases and subject to the right of TAF-II to acquire
vehicles and lease contracts with proceeds that TAF-II realizes from
repossessions and prepayments. See "RISK FACTORS -- Conflicts of Interest" and
"MANAGEMENT -- Certain Relationships and Related Transactions."
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of May 31, 1999, relating to
the beneficial ownership of our Common Stock by any person or "group," within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), whom we know to own beneficially 5% or more of our outstanding
shares of Common Stock, (B) each of our officers or directors and (C) all of our
officers and directors as a group. Except as otherwise indicated, we believe
that each of the persons named below possesses sole voting and investment power
with respect to the shares of Common Stock beneficially owned by such person.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE NUMBER OF SHARES
OFFICER OR NAME OF BENEFICIAL OWNER OUTSTANDING PERCENTAGE OF CLASS
- ----------------------------------- ---------------- -------------------
<S> <C> <C>
TLMI Management, Inc........................................ 1,000(2) 100%
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Kenneth C. Lowe............................................. 0(2) 0
Terry Scharig............................................... 0 0
Randall K. Lowe............................................. 0 0
Brian Alexander............................................. 0 0
Kevin Kane.................................................. 0 0
All current officers and directors as a group (5 persons)... 0(2) 0
</TABLE>
- ---------------
(1) The information as to beneficial ownership of Common Stock has been
furnished by the respective shareholders, directors and officers of the
Company.
(2) The directors of TLMI could be deemed to share voting and investment powers
over the shares of Common Stock owned of record by TLMI. The sole director
of TLMI is Kenneth C. Lowe. The sole owners of the common stock of TLMI are
Kenneth C. Lowe and Randall K. Lowe. TLMI has a number of preferred
shareholders, who have limited voting rights and who may convert their
preferred shares into shares of TLMI common stock. The preferred
shareholders, on a fully diluted basis, will not own more than 20% of TLMI's
voting securities.
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MANAGEMENT
BUSINESS BACKGROUND AND EXPERIENCE
The names, ages, backgrounds and principal occupations of our directors and
executive officers are set forth below:
Kenneth C. "Ken" Lowe, age 63, has served as our sole director, President
and Secretary since our inception. Mr. Lowe has served as a director, Vice
President and Secretary of TLMI from October 1994 until July 1996 and as a
director, President and Secretary of TLMI since July 1996. Since 1993, Mr. Lowe
has been Vice President of Young & Lowe, Inc., a private investment banking
firm. From 1990 to 1992, Mr. Lowe was President of Custom Data Services, a
company that specialized in financial data processing and from 1988 to 1990, Mr.
Lowe was President of Westside Communications, which provided telephone
equipment service to commercial customers. Mr. Lowe has a Master's of Business
Administration from Southern Methodist University and over 20 years of
experience in investment banking.
Terry Scharig, age 43, has served as our Vice President since inception and
as Vice President of TLMI since April 1998. From 1994 to 1997 Mr. Scharig was
employed by CKS Securities as a wholesaler of syndicated public offerings. From
1985 to 1994 Mr. Scharig was employed by A.B. Culbertson Company as a licensed
representative specializing in the sale of fixed income securities. Mr. Scharig
holds a Bachelors Degree of Science from Kansas State University.
Randall K. Lowe, age 30, has served as our Vice President since our
inception and Vice President of TLMI since July 1998. Prior to joining the
Company and since 1994, Mr. Lowe served as a credit analyst for Bank One in New
Orleans, Louisiana and Dallas, Texas. From 1991 to 1994 Mr. Lowe was a credit
analyst and branch office manager for Whitney National Bank, N.A. in New
Orleans. Mr. Lowe holds a Bachelor of Science degree from Tulane University.
Randall Lowe is the son of Ken Lowe.
Brian Alexander, age 51, joined our Company in May 1999 and serves as
Controller and Chief Accounting Officer. Prior to joining the Company, Mr.
Alexander was Finance and Administration Manager for Cue Energy Indonesia Pty
Ltd. -- Jakarta, Indonesia from 1997 to 1999. From 1984 to 1997, Mr. Alexander
was Systems Administrator for Santa Fe Energy Resources in Jakarta, Indonesia.
Mr. Alexander has a Bachelor of Science degree from the University of Arkansas.
Kevin Kane, age 31, joined our Company in May 1999 as a Vice President and
branch office manager in New Orleans, Louisiana which will open in July 1999.
From 1993 to 1997, Mr. Kane was with Merrill Lynch and Company in New York in
their Litigation and Compliance Department. Mr. Kane is a graduate of Tulane
University and Loyola Law School and is a member of the New York State Bar.
Except as disclosed above, there are no family relationships among our
directors and any of our executive officers. Except as disclosed above, none of
our directors hold any directorship in any company with a class of securities
registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered as
an investment company under the Investment Company Act of 1940.
INDEMNIFICATION
Our Articles of Incorporation provide that, to the fullest extent permitted
by Texas law, our directors and former directors shall not be liable to us or
our shareholders for monetary damages occurring in their capacity as a director.
Texas law does not currently authorize the elimination or limitation of the
liability of a director to the extent the director is found liable (i) for any
breach of the director's duty of loyalty to us or our shareholders, (ii) for
acts or omissions not in good faith that constitute a breach of duty of our
director or which involve intentional misconduct or a knowing violation of law,
(iii) for transactions from which the director received an improper benefit,
regardless of whether the benefit resulted from an action taken within the scope
of the director's office or (iv) for acts or omissions for which the liability
of a director is expressly provided by law.
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Our Articles of Incorporation and Bylaws grant mandatory indemnification to
directors and officers to the fullest extent authorized under the Texas Business
Corporation Act. In general, a Texas corporation may indemnify a director or
officer who was, is or is threatened to be, made a named defendant or respondent
in a proceeding by virtue of his position in the corporation if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of criminal proceedings, had no
reasonable cause to believe his conduct was unlawful. A Texas corporation may
indemnify an officer or director in an action brought by or in the right of the
corporation only if such director or officer was not found liable to the
corporation, unless or only to the extent that a court finds him to be fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
our payment of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TLMI owns 100% of our Common Stock. Our officers are also officers of TLMI.
Mr. Kenneth Lowe is President and Secretary and a director of TLMI and a
director, the President, Chief Financial Officer and Secretary of our company
and TAF-II. These officers will devote as much of their time to our business as,
in their judgment, is reasonably required. We have real and ongoing conflicts of
interest with TAF-II and TLMI in allocating management time, services, overhead
and functions among ourselves, TAF-II and TLMI. Management of TAF-II and TLMI
intends to resolve any such conflicts in a manner that is fair and equitable to
us. However, there can be no assurance that TLMI will not form additional
subsidiaries engaged in the same business as us or that any particular conflict
may be resolved in a manner that does not adversely affect you. Neither TAF-II
nor TLMI has guaranteed or is otherwise liable for our debts and liabilities.
Under the terms of the Servicing Agreement and the Purchasing Agreement,
TLMI will be paid various fees and be entitled to reimbursement for its expenses
incurred in connection with the repossession, remarketing, repair and resale of
vehicles out of the proceeds from such resales. The terms of the Servicing
Agreement and the Purchasing Agreement were not negotiated at arm's-length but
were determined unilaterally by the management of TLMI. Thus, there are real and
ongoing conflicts of interest with respect to these agreements. We did not and
do not intend to seek competitive bids from other providers of lease purchasing,
administration and collection services. There has been no independent
determination of the fairness and reasonableness of the terms of these
transactions and relationships. Thus, there is no assurance that such services
could not have been obtained from an unaffiliated third party in arm's-length
negotiations on terms more favorable to us.
We may purchase vehicles and the lease contracts related thereto from
TAF-II if we have substantial funds in our operating account and TLMI is
experiencing difficulty originating sufficient lease contracts to fully utilize
such funds. The terms under which we will purchase the TAF-II lease contracts
have not been negotiated at arm's-length but have been determined by a formula
created unilaterally by TLMI. For more information, see "THE COMPANY; PURCHASE
OF CONTRACTS." We will not purchase any TAF-II lease contracts if only the
minimum gross offering proceeds ($250,000) are raised.
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In addition, the terms of the new lease contracts to be originated by TLMI
will not have been negotiated at arm's-length but will be determined
unilaterally by TLMI. TLMI will receive 57.5% of each customer's down payment as
a marketing fee.
TLMI currently provides purchase and collection services for TAF-II, but
does not provide such services to any other party, including affiliates. TLMI,
however, may agree in the future, to purchase and service lease contracts for
itself, its affiliates and other unrelated parties. We have the right to
purchase additional lease contracts originated by TLMI from the net collection
proceeds on our existing lease contracts until the earlier of the sinking fund
trigger date or an event of default under the Indenture. Management of TLMI will
have real and ongoing conflicts of interest in deciding whether to make
available to us any automobile lease contracts that it originates or to retain
or acquire the contracts for its own benefit or for the benefit of affiliated
parties, including future subsidiaries to be engaged in the vehicle leasing
business. TLMI has determined that, once TLMI has fully invested its funds in
vehicles and leases, all vehicle lease contracts purchased or originated by it
that satisfy our contract criteria will be made available to us, to the extent
that we have funds available for such purchases, subject only to right of TAF-II
to acquire vehicle lease contracts and vehicles with proceeds from repossession
of its leased vehicles or prepayments of its lease contracts. See "RISK
FACTORS -- Potential Conflicts of Interest."
We will use up to 1.5% of the gross proceeds from the sale of the notes to
reimburse TLMI, our parent, for offering and organizational expenses paid by it.
The maximum reimbursement will range from $3,750 for the minimum offering of
$250,000 to $300,000 for the maximum offering of $20,000,000. TLMI has agreed to
pay such expenses to the extent they exceed 1.5% of the gross proceeds from the
sale of the notes. It is expected that such expenses will exceed 1.5% of the
gross proceeds from the sale of the notes, only if the aggregate gross proceeds
from sale of the notes are less than $10,000,000.
We believe that the transactions between us and TLMI, including the
marketing fee and other fees to be paid to TLMI, are reasonable, based on
comparable fees paid to lease brokers (or facilitators) in automobile leasing
transactions involving customers with non-prime credit ratings. The amount of
fees payable to TLMI may not be increased without the consent of holders of at
least 75% of the aggregate principal amount of the notes (excluding notes we
hold or that are held by our affiliates). See "ADDITIONAL INDENTURE
PROVISIONS -- Modification of Indenture" and "RISK FACTORS -- Potential
Conflicts of Interest" for additional information.
We have joined in a tax sharing agreement with TLMI. In general, under the
terms of this agreement, TLMI is responsible for making all payments of federal
income taxes due with respect to itself and its subsidiaries to the Internal
Revenue Service and all payments of state and local consolidated, combined and
unitary income taxes to the applicable state and local authorities. "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS -- FEDERAL INCOME TAX LIABILITIES OF US AND
TLMI." Under applicable federal tax laws, however, if TLMI fails to make such
payments of tax, the subsidiaries, including us, would be responsible for making
such payments. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Uncertain
Federal Income Tax Liability of the Company and TLMI."
We have adopted a policy pursuant to which we will not make loans to
officers, directors, stockholders or affiliates of such persons.
All ongoing and future transactions with our affiliates will be entered
into on terms that are no less favorable to us than those that can be obtained
from unaffiliated third parties and must be approved by a majority of our
directors.
LITIGATION
Neither we nor TLMI is the subject of any pending litigation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
GENERAL
As of the date hereof, we have had no operating history. The net proceeds
of the sale of the notes will be employed to purchase vehicles and lease
contracts. See "USE OF PROCEEDS." While the notes remain outstanding, we will be
prohibited from engaging in any business other than the purchase or other
acquisition of vehicles and lease contracts, collection and servicing of the
lease contracts (including possession and resale of the vehicles) and the
remarketing of the vehicles upon termination of the lease contracts, and from
incurring any additional indebtedness other than allowed expenses and any other
amounts incurred in the ordinary course of our business. See, "THE COMPANY;
GENERAL; The Business of the Company."
Our use of the net collection proceeds from the lease contracts will be
restricted to payments on the notes and, so long as we are not in default under
the Indenture, to payments of allowed expenses and, until the sinking fund
trigger date, to the purchase or acquisition of additional eligible lease
contracts. See "COLLATERAL FOR THE NOTES -- The Lease Contract Proceeds and
Operating Account."
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of funds for repayment of the notes will be proceeds
from the lease contracts, any income on the reinvestment of such proceeds, and
any proceeds from sale or refinancing of the remaining lease contracts at the
maturity of the notes. We do not have, nor are we expected to have in the
future, any significant source of capital for payment of the notes and our
expenses other than such sources. Payment of the principal or interest on the
notes is not guaranteed by any other person or entity. See "RISK
FACTORS -- Limited Assets; Single Purpose Nature." Although our management
believes that we will realize sufficient proceeds from the foregoing sources to
pay all installments of interest when due on the notes and to satisfy the
principal amount of the notes in full prior to or at maturity, there can be no
assurance that such sources will be sufficient to repay the notes in full.
Moreover, management's belief is based on a number of assumptions, believed by
management to be reasonable. Should any of such assumptions prove to be
inaccurate, it could have a material adverse effect on our ability to pay the
notes in accordance with their terms.
We intend to use at least 90% of the gross proceeds from the sale of notes
to purchase or acquire vehicles or lease contracts, which may include the
purchase from time to time of certain of the vehicles and related lease
contracts from TAF-II, one of our affiliates. We expect that substantially all
lease contracts and vehicles will be acquired in transactions originated by
TLMI. None of the offering proceeds will be used to pay interest on the notes.
Any cash proceeds from existing lease contracts in excess of interest payments
and payments of allowed expenses will be reinvested in the purchase of
additional vehicles and the entering into of related lease contracts prior to
the sinking fund trigger date, thereby causing the total amount of funds
invested in the lease contracts to exceed the amount of the proceeds from the
sale of notes. We believe that by purchasing and acquiring lease contracts that
meet the lease contract criteria, the total future installments required to be
paid under the lease contracts should be greater than the outstanding principal
of the notes. All of the vehicles and lease contracts purchased or acquired with
proceeds from the sale of the notes or with the collection proceeds from
previously purchased or acquired lease contracts will serve as collateral for
the notes.
We believe that the amount of the collateral for the notes will increase
until the sinking fund trigger date. As a result of our reinvestment of the net
collection proceeds from existing lease contracts, after deduction for payments
of interest and allowed expenses, in additional lease contracts, we believe that
the ratio of the total unpaid installments of the lease contracts securing the
notes to the aggregate principal of the outstanding notes will generally
increase until the sinking fund trigger date.
The foregoing paragraph contains forward-looking information that is based
on a number of assumptions and these assumptions include certain risks and
uncertainties. A principal risk is that we have had no operations to date, and
TLMI, our parent, which is responsible for the acquisition and servicing of
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our lease contracts, has limited operating history to date upon which to base
these assumptions. Other risks and uncertainties are set forth under the caption
"RISK FACTORS" elsewhere in this Prospectus. A variation in any single
assumption could materially alter our ability to cover the allowed expenses and
pay all principal and interest due on the notes. There is no assurance that
these assumptions, including, without limitation, the expected implicit interest
rate of 18% per annum with respect to the lease contracts, will be achieved.
Accordingly, our ability to cover the allowed expenses and pay all principal and
interest on the notes may differ materially from this forward-looking
information.
ADDITIONAL INDENTURE PROVISIONS
The following material describes certain provisions of the Indenture.
Certain provisions of the Indenture are also described under "DESCRIPTION OF THE
NOTES" and "COLLATERAL FOR THE NOTES." The descriptions are complete. We
strongly recommend that you review the Indenture. See, "WHERE YOU CAN GET MORE
INFORMATION."
MODIFICATION OF INDENTURE
With the consent of the holders of at least a majority of the aggregate
principal amount of the outstanding notes, the Trustee can agree with us to
amend or supplement the Indenture or the notes, except as provided below. We
will mail notice of any such amendment of the Indenture or the notes to all
holders of the notes promptly after the effectiveness thereof. Without the
consent of the holder of each outstanding note affected, however, no amendment
to the Indenture or supplemental indenture will, among other things:
- reduce the amount of notes whose holders must consent to an amendment,
supplement or waiver;
- reduce the rate of or extend the time for payment of interest on any
note;
- reduce or extend the maturity of the principal of any note;
- permit the creation of any lien ranking prior to or on a parity with the
lien of the Indenture or terminate the lien of the Indenture on any
property at any time subject thereto or deprive the holder of any note of
the collateral afforded by the lien of the Indenture; or
- make any note payable in money other than that stated in the note.
Without the consent of the holders of at least 75% of the aggregate principal
amount of the outstanding notes, no supplemental indenture may increase the
amount of fees payable to TLMI. For the purpose of consents of noteholders, the
term "outstanding" excludes notes which we hold or which are held by our
affiliates. (Indenture, Section 1.1.)
We may amend or supplement the Indenture or the notes, without obtaining
the consent of noteholders, to cure ambiguities or make minor corrections and,
among other things, to make any change that does not adversely affect the
interests of the noteholders. (Indenture, Section 9.1.)
EVENTS OF DEFAULT
An event of default with respect to the notes is defined in the Indenture
as being:
- our failure to make any interest payment on the notes within 30 days
after it becomes due;
- our failure to pay when due the principal of any notes;
- the impairment of the validity or effectiveness of the Indenture or of
the security interest granted thereby;
- the improper amendment or termination of the Indenture;
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- the continuance of any of the following events for a period of 30 days
after we are delivered notice of such event by the Trustee or after we
and the Trustee are delivered notice of such event by the holders of
notes representing at least 25% of the aggregate principal amount of the
outstanding notes;
- the creation of a lien on any of the assets other than the lien of the
trust or the Trustee;
- the failure of the Indenture to create a valid first priority security
interest in assets which are held in the trust; or
- our failure to comply with any of our covenants in the Indenture;
- TLMI's failure to purchase lease contracts which are in default or which
it otherwise is required to purchase from us;
- the incorrectness in any material respect of any of our representations
or warranties in the Indenture (exclusive of representations and
warranties as to individual lease contracts that TLMI is obligated to,
and does, repurchase from us) and the failure to cure such circumstances
or condition within 30 days after we receive notice thereof from the
Trustee or the holders of notes representing at least 25% of the
aggregate principal amount of the outstanding notes; and
- the Company enters into bankruptcy, or is put into bankruptcy, or becomes
subject to certain other actions relating to insolvency or other
financial incapacity.
RIGHTS UPON EVENT OF DEFAULT
If an event of default should occur and continue, the Trustee may, or at
the direction of the holders of notes representing at least 25% of the principal
amount of the notes will, declare the notes due and payable. Upon such
declaration, the notes will immediately become due and payable in an amount
equal to their remaining principal amount plus accrued interest at such time.
Under such circumstances, such declaration may be rescinded by the holders of a
majority of the aggregate principal amount of the outstanding notes. (Indenture,
Section 6.2.)
If, following an event of default, the notes have been declared due and
payable, the Trustee may exercise one or more of its remedies including:
- the right to retain the assets held as collateral in the trust and apply
all amounts received with respect to such assets, first, to payment of
its fees and expenses and then, to the payment of the principal of and
interest on the notes, ratably with respect to the noteholders
(Indenture, Sections 6.3, 6.10 and 6.13);
- the right to sell the assets held as collateral in the trust and apply
the proceeds, first, to payment of its fees and expenses and then, to the
amounts due on the notes (Indenture, Sections 6.3, 6.10 and 6.14); or
- the right to cause a transfer of all funds in our operating account
directly to the sinking fund account.
In the event of a continuing default by TLMI with respect to its obligations
under the Servicing Agreement or the Purchasing Agreement, the Trustee will also
have the right to direct us to terminate the duties and rights of TLMI under
such agreements and to cause TLMI to turn over to the Trustee all records and
data pertaining to the lease contracts in its possession. (Indenture, Section
5.10; Servicing Agreement, Section 9; Purchasing Agreement.)
The holders of a majority of the aggregate principal amount of the
outstanding notes will have the right to direct the time, method and place of
conduct of any proceedings for any remedy available to the Trustee to exercise
any trust or power conferred on the Trustee. The Trustee may refuse, however, to
follow any such direction that conflicts with law or the Indenture, that is
unduly prejudicial to the rights of noteholders not joining in such direction or
that would subject the Trustee to personal liability. (Indenture,
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Section 6.5.) The holders of a majority of the aggregate principal amount of the
outstanding notes may also waive any default, except a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of each holder of notes affected. (Indenture, Section 6.4.)
No holder of notes will have the right to pursue any remedy with respect to
the Indenture or the notes, unless:
- such holder gives to the Trustee written notice of a continuing event of
default;
- the holders of at least 25% of the aggregate principal amount of the
outstanding notes have made a written request to the Trustee to pursue
such remedy, and have offered indemnity satisfactory to the Trustee
against loss, liability or expense
- the Trustee does not comply with the request within sixty (60) days; and
- the Trustee has received no contrary direction during such 60-day period
from the holders of a majority of the principal amount of the outstanding
notes. (Indenture, Section 6.6.)
Notwithstanding the foregoing, the Indenture prohibits the Trustee from
reselling any portion of the assets held in trust as collateral upon the
occurrence of an event of default to us or any of our officers or directors,
TLMI or any of its shareholders, officers or directors, or any other of our
affiliates.
RESTRICTIONS ON BUSINESS ACTIVITIES AND ADDITIONAL INDEBTEDNESS
We have made certain covenants in the Indenture that restrict our business
activities and prohibit certain transactions. We have agreed, among other
things, that, without the consent of the holders of a majority of the aggregate
principal amount of the notes, we will not (i) engage in any business or
activity other than or in connection with the purchase or other acquisition of
vehicles and lease contracts, collection and servicing of the lease contracts,
the repossession and resale of the vehicles, the remarketing of vehicles upon
termination of the lease contracts and the raising of equity capital, and any
other incidental businesses or activities, or (ii) create, incur, assume or in
any manner become liable in respect of any indebtedness other than the notes,
any allowed expenses and any other amounts incurred in the ordinary course of
our business. In addition, we have agreed not to dissolve or liquidate in whole
or in part or to merge or to consolidate with any corporation, partnership or
entity other than a subsidiary of which we are, directly or indirectly, the sole
owner or any affiliate thereof whose business is restricted in the same manner
as our business under clause (i) above. (Indenture, Section 5.11.)
COMPLIANCE STATEMENTS AND ANNUAL ACCOUNTANTS' REPORTS
We and TLMI are required to certify, quarterly, to the Trustee that we have
fulfilled our obligations under the Indenture. (Indenture, Section 5.7.) In
addition, we and TLMI annually must file with the Trustee a report of a firm of
independent public accountants as to their examination of our financial
statements and those of TLMI and the documents and records relating to the lease
contracts and deliver a certificate with respect to our compliance and that of
TLMI, in all material respects, with our respective obligations arising under
the Indenture. (Indenture, Section 5.6.)
TRUSTEE'S ANNUAL REPORT
The Trust Indenture Act requires the Trustee to mail annually to all
holders of notes a brief report if any of certain events occur. These events
include:
- any change in the Trustee's eligibility and qualifications to continue as
the Trustee under the Indenture;
- any amounts advanced by the Trustee under the Indenture;
- the amount, interest rate and maturity date of certain indebtedness, if
any, owing by us to the Trustee in our individual capacity;
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- any change to the property and funds, if any, physically held by the
Trustee as such;
- any change in or any release, or release and substitution, of property
subject to the lien of the Indenture; and
- any action taken by it that materially affects the notes and that has not
been previously reported. (Indenture, Section 7.6.)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged, with certain limitations, upon deposit
with the Trustee of funds sufficient for the payment or redemption of all of the
notes. Our duties to you will cease upon such deposit. (Indenture, Section 8.1.)
DUTIES OF TRUSTEE
The Trustee is obligated, under the Indenture, to use the same degree of
care and skill in the exercise of its rights and powers under the Indenture as a
prudent man would exercise or use under the circumstances in his own affairs.
Except during an event of default, the Trustee may rely, in the absence of bad
faith, on certificates and opinions furnished to it. Generally, the Trustee is
not relieved from liability for its own negligence or willful misconduct except
that it is not liable (i) if it acted in good faith in accordance with a
direction from the holders of not less than a majority in principal amount of
the notes, or (ii) for any error in judgment made in good faith and without
negligence in ascertaining the pertinent facts. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense. (Indenture, Section
7.1.)
THE TRUSTEE
Trust Management, Inc. will be the Trustee under the Indenture for the
notes. We are obligated to pay the fees and expenses of the Trustee relating to
the notes. To provide security for our obligation to pay such fees and expenses,
the Trustee has a lien on the same assets as secure the notes. The Trustee's
lien is prior to that of the notes, prior to the assets in the trust, except as
to any money held in trust to pay principal and interest on the notes.
(Indenture, Section 7.7.)
CERTAIN LEGAL ASPECTS OF THE LEASE CONTRACTS
THE LEASES AS TRUE LEASES
The lease contracts are leases of personal property. Under the Texas
Uniform Commercial Code (the "UCC"), a transaction involving the lease of
personal property may create either a lease or a security interest. If the
transaction creates a lease, the lessor remains the owner of the personal
property subject to the lease and the lessee has the right to possess and use
the leased property during the term of the lease. The rights and remedies of the
lessor and lessee under a true lease of personal property are determined
primarily under Article 2A of the UCC (Leases). If the transaction creates a
security interest, (a) the transaction is in effect a credit sale under which
the lessor has in effect sold the personal property to the lessee on an
installment payment basis and holds a security interest in the subject personal
property to secure payment of the purchase price, (b) the lessee is the
purchaser and owner of the personal property, and (c) the lease payments are in
effect payments of the purchase price for the subject personal property. The
rights and remedies of the parties to a lease which is actually a sale coupled
with a security interest are determined primarily under Article 2 of the UCC
(Sales) and Article 9 of the UCC (Secured Transactions).
The determination of whether of a lease transaction creates a true lease or
a sale coupled with a security interest is very important and will determine the
respective rights, obligations and duties of the lessor, in this case us, and
the customer and will have particular impact on the remedies available upon a
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default by the customer. The following are some of the significant differences
between a true lease and a lease which is in effect a sale coupled with a
security interest:
- A true lease is exempt from Texas usury laws; a credit sale is not.
- A lessor under a true lease generally has a better chance than a secured
creditor of obtaining current payments, as well as repossession of the
goods, when the lessee is in bankruptcy.
- In the case of default, a true lessor has different and often more
favorable remedies than those available to a secured creditor.
- A security interest, unlike a lease, is subject to priority rules with
respect to the claims of competing secured creditors. If a lessor, not
contemplating that this transaction will be characterized as creating a
security interest, takes no steps to perfect the security interest
created in the transaction, a Trustee in bankruptcy or some other third
party may claim that the lessor is actually an unperfected secured
creditor and may be able to void, or otherwise take priority over, the
security interest, leaving the lessor/seller with an unsecured obligation
to pay the lease payments.
- A transaction that is truly a security interest, and not a lease, may
result in exclusion of the leased goods from insurance coverage under
some policies.
Whether a transaction creates a lease or a security interest depends on the
particular terms and facts on which the transaction is based. If the
transaction, however labeled, is actually a transaction under which the lessee
is acquiring ownership, or the equivalent of ownership, of the leased goods, the
transaction is a sale coupled with a security interest. The transaction will be
considered a security interest if the lessee's obligation to pay the
consideration under the lease (the rent payments) is not subject to termination
by the lessee, and one or more of the following factors are also present:
- The original lease term is equal to or greater than the remaining
economic life of the goods.
- The lessee is required to renew the lease for the remaining economic life
of the goods or is required to become the owner of the goods.
- The lessee has an option to renew the lease for the remaining economic
life of the goods for no additional consideration or for nominal
additional consideration upon compliance with the terms of the lease
agreement.
- The lessee has an option to become the owner of the goods for no
additional consideration or nominal additional consideration upon
compliance with the terms of the lease agreement.
Additional consideration is nominal if it is less than the lessee's
"reasonably predictable" cost of performing under the lease agreement if the
option is not exercised. Additional consideration given for an option to renew
or an option to purchase is not nominal if:
- When the option to renew the lease is granted, the rent is stated to be
the fair market rent for the use of the goods for the term of the renewal
determined at the time the option is to be performed.
- When the option to become the owner of the goods is granted, the price is
stated to be the fair market value of the goods determined at the time
the option is to be performed.
A transaction does not create a security interest merely because it
provides for any of the following:
- The "present value" of the consideration to be paid for the right to
possession and use of the goods is substantially equal to or greater than
the fair market value of goods at the time the lease agreement is made.
In this context, present value means the amount, as of a date certain, of
one or more sums payable in the future, discounted to the date certain.
The discount is determined by the interest rate specified by the parties,
if that rate is not manifestly unreasonable at the time the
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transaction is consummated. Otherwise, the discount is determined by a
reasonable rate that takes into account the facts and circumstances of
each case.
- The lessee assumes the risk of loss of the goods or agrees to pay taxes,
insurance, filing, recording, or registration fees or service or
maintenance costs with respect to the goods.
- The lessee has an option to renew the lease or become the owner of the
goods.
- The lessee has an option to renew the lease for a fixed rent that is
equal to or greater than the reasonably predictable fair market rent for
the use of the goods for the term of the renewal at the time the option
is to be performed.
- The lessee has an option to become the owner of the goods for a fixed
price that is equal to or greater than the reasonably predictable fair
market value of the goods at the time the option is to be performed.
Because (i) each of our lease contracts will provide for the lease of a
vehicle for a term which is considerably shorter than the expected useful life
of the vehicle, (ii) the lease payments required under each lease contract are
in an aggregate amount less than the payments which would be made if the
transaction was in essence a sale of the vehicle, and (iii) at the expiration of
the lease term, the customer can either return the vehicle to us with no further
payment obligations or purchase the vehicle at a fixed purchase price which,
based on the our policies, should be equal to or greater than the reasonably
predictable fair market value of the vehicle, we believe that the lease
contracts create true leases and will be governed by the laws and regulations
applicable to the lease of personal property rather than the laws and
regulations applicable to credit sales of motor vehicles. In documenting and
servicing the lease contracts, we will follow the rules and procedures required
for true lease transactions.
SECURITY INTEREST IN LEASE CONTRACTS
To secure payment of the notes, we will grant to the Trustee a security
interest in and to each of the lease contracts. Pursuant to the provisions of
Article 9 of the UCC governing security interests, a lease is designated as
chattel paper. A security interest in chattel paper may be perfected either by
taking possession of the lease contract or by the filing of a UCC financing
statement with the Secretary of State of the state in which a corporate debtor's
principal place of business is located. Our principal place of business is
located in the State of Texas and a security interest in one of our lease
contracts may be perfected by filing a UCC financing statement with the
Secretary of State of the State of Texas. In the event TLMI forms a subsidiary
to carry out a vehicle leasing business in one or more others states,
appropriate filings will be made in such other states.
Upon any purchase of lease contracts by us, the original lease contracts
and related title documents for the vehicles will be delivered to the Trustee.
Possession of such lease contracts and related title documents will be retained
by the Trustee or other financial institution appointed by the Trustee and us to
act as custodian and bailee of the lease contracts and related title documents
for the benefit of the Trustee and us. Upon its purchase, each lease contract
will be physically labeled to indicate the security interest therein of the
Trustee. In addition, a UCC financing statement will be filed in the appropriate
public office to perfect by filing and give notice of the Trustee's security
interest in the lease contracts and all proceeds therefrom. See "COLLATERAL FOR
THE NOTES -- The Lease Contracts."
SECURITY INTERESTS IN VEHICLES
We will own the vehicles subject to the lease contracts. To secure payment
of the notes, we will grant to the Trustee a security interest in and to each of
the vehicles subject to a lease contract. Perfection of security interests in
vehicles is generally governed by the motor vehicle registration laws of the
state in which a corporate debtor's principal place of business is located. As
stated above, as our principal place of business is located in the State of
Texas, a security interest in a vehicle will be perfected according to the
requirements of Article 9 of the UCC and the motor vehicle registration laws of
the State of Texas. In
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Texas, a security interest in a motor vehicle is perfected by notation of the
secured party's lien on the vehicle's certificate of title.
With respect to lease contracts we purchased, the originating entities will
sell and assign the lease contracts and the vehicles to us upon purchase of the
lease contracts. The originating entities will also provide evidence that proper
applications for certificates of title have been made to ensure that we will be
named as the owner and the Trustee as the first lienholder on the certificates
of title relating to the vehicles. We will deliver possession of the lease
contracts (originated or purchased) and related title documents to the Trustee
or other financial institution appointed by us and the Trustee to act as
custodian and bailee for us and the Trustee. We will supplement the description
in the Indenture of the lease contracts and confirm our grant to the Trustee of
a security interest in all lease contracts that we purchase.
OTHER MATTERS AFFECTING MOTOR VEHICLES AND LEASE CONTRACTS
Under the laws of Texas, liens for repairs performed on a motor vehicle and
liens for certain unpaid taxes take priority over even a perfected security
interest in a vehicle. The Uniform Commercial Code also grants priority to
certain federal tax liens over the lien of a secured party. Certain state and
federal laws permit the confiscation of motor vehicles under certain
circumstances if used in unlawful activities that may result in the loss of a
collateralized party's perfected security interest in the confiscated motor
vehicle. Upon our purchase of each lease contract or vehicle, we will receive a
warranty from TLMI that the lease contract creates a valid, subsisting and
enforceable first priority security interest in the vehicle. However, liens for
repairs or taxes or the confiscation of a vehicle could arise or occur at any
time during the term of a lease contract. Notice will not necessarily be given
to us in the event such a lien arises or confiscation occurs.
If a lien customer of ours relocates to another state, under the laws of
most states, the perfected security interest in the vehicle would continue for
four months after such relocation and thereafter, in most instances, until the
customer re-registers the vehicle in such state. Almost all states generally
require surrender of a certificate of title to re-register a titled vehicle.
Therefore, the Trustee or other appointed custodian must surrender possession,
if it holds the certificate of title to such vehicle, before the vehicle owner
may effect the re-registration. In addition, we should receive, absent clerical
errors or fraud, notice of surrender of the certificate of title because we will
be listed as the owner on the face of the title, and the Trustee will be shown
as the first lienholder thereon. Accordingly, we should have notice and the
opportunity to re-perfect out security interest in the vehicle in the state of
relocation. If a customer moves to one of the few states that does not require
surrender of a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection or loss of the Trustee's security
interest in such vehicle. The loss of the Trustee's security interest in a
number of vehicles under these circumstances could have a material adverse
effect on the collateral for the notes. In the ordinary course of servicing the
lease contracts, we will take steps to effect such re-perfection upon receipt of
notice of re-registration or other information from the customer as to
relocation. Under the servicing agreement and the Indenture, we are obligated to
maintain the continuous perfection of the security interest represented by each
lease contract in the related vehicle.
REPOSSESSION
In the event of default by a customer on a lease contract, we, as lessor,
have all the remedies of a lessor under Article 2A of the UCC. The UCC remedies
of a lessor include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless the customer under a lease
contract voluntarily surrenders a vehicle, self-help repossession, by an
individual independent repossession specialist engaged by TLMI, will be the
method usually employed by TLMI when an customer defaults. Self-help
repossession is accomplished by retaking possession of the vehicle. If a breach
of peace is likely to occur, or if applicable state law so requires, TLMI must
obtain a court order from the appropriate state court and repossess the vehicle
in accordance with that order. Most of the states in which the Company intends
to purchase lease contracts have state laws that would not require TLMI, in the
absence of a probable breach of the peace, to obtain a court order before it
attempts to repossess a vehicle.
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DISPOSAL OF VEHICLES AND DAMAGES AGAINST DEFAULTING CUSTOMERS
Upon default by a lessee, the UCC permits the lessor to take possession of
the leased goods, either by self-help methods or by judicial process. Upon
repossession of leased goods, a lessor may dispose of the leased goods (either
by releasing the leased goods or selling the leased goods) and seek recovery of
damages from the lessee. Damages of a lessor upon default by a lessee include
payment of all unpaid lease payments due and owing on the date of disposition of
the leased goods, recovery of the expenses incurred by the lessor in pursuing
its remedies against the lessee, and damages for the unpaid installments of rent
due under the lease. The damages to which a lessor is entitled for the unpaid
installments of rent due under a lease after default by a lessee will be
determined by whether the disposition of the leased goods is by releasing or by
sale. If the leased goods are re-leased, damages are based on the present value
of the remaining lease payments under the lease which is in default, less the
present value of lease payments due under the new lease created when the goods
are re-leased. If the leased goods are resold, damages will be based on the
difference between (a) the sum of estimated value of the leased goods at the
expiration of the lease which is in default plus the present value (or other
similar adjustment) of the remaining lease payments, less (b) the amount
realized upon the sale of the leased goods. Vehicles we repossess will generally
be re-leased to a new lessee or sold by TLMI through wholesale automobile
networks or auctions that are attended principally by dealers.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay our ability to repossess and re-lease or
sell a vehicle subject to a lease contract under which the lessee has defaulted
or enforce a judgment for the damages to which we are entitled upon repossession
and release or sale of the Motor Vehicle. In the event that damages are not
obtained, are not satisfied, are satisfied at a discount or are discharged, in
whole or in party, in bankruptcy proceedings, including bankruptcy proceedings
under Title 11 United States Code (the Federal bankruptcy law), we may suffer a
loss and diminish our ability to repay the notes.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lessors and servicers involved in consumer
leases. These laws include, but are not limited to, the Consumer Leasing Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and M, state adaptations of the National Consumer Act and of the
Uniform Consumer Credit Code, and other similar laws. These laws require us to
provide certain disclosures to prospective lessees, prohibit misleading
advertising and protect against discriminating financing or unfair credit
practices. The Federal Reserve Board has published final revisions to Regulation
M under the Consumer Leasing Act that are applicable to automobile lease
contracts. See "THE COMPANY -- Government Regulations." The Equal Credit
Opportunity Act prohibits creditors from discriminating against lease applicants
on the bases of race, color, sex, age or marital status. Under the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding
consumer rights and advise consumers whose credit applications are not approved
of the reasons for the rejection. The Fair Credit Reporting Act requires the
Company to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer reporting
agency. In addition to the foregoing, state laws impose finance charge ceilings
and other restrictions on consumer transactions and require contract disclosures
in addition to those required under federal law. These requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, this liability could affect an assignee's ability to
enforce consumer finance contracts such as the lease contracts. The so-called
"Holder-in-Due-Course" Rule of the Federal Trade Commission (the "FTC Rule"),
the provisions of which are generally duplicated by the Uniform Consumer Credit
Code, other state statutes, or the common law in certain states, is intended to
defeat the ability of the transferor of a consumer credit contract (such as the
lease contracts), which transferor is the lessor of the goods that gave rise to
the transaction, to transfer such contract free of notice of claims by the
debtor thereunder. The effect of the FTC Rule is to subject the assignee of such
a
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contract to all claims and defenses that the lessee under the contract could
assert against the lessor of the goods. Most of the lease contracts will be
subject to the requirements of the FTC Rule. Accordingly, as holder of the lease
contracts, we may be subject to any claims or defenses that the lease customer
may assert against us, as lessor. Such claims are limited to a maximum liability
equal to the amounts paid by the customer on the lease contract. The customer,
however, may also assert the FTC Rule to offset remaining amounts due on the
lease contract as a defense against any claim we bring against such customer.
Several states and the federal government have enacted "lemon laws" and
similar statutes containing warranty protections for consumers who purchase or
lease new or used motor vehicles. The application of these statutes may give
rise to a claim or defense by a consumer against the manufacturer of a purchased
vehicle or the dealer from or through whom such consumer purchased or leased
such vehicle. We may be required to cancel a lease with a consumer who
successfully asserts such a claim or defense, and while we would have a claim
against the manufacturer or such dealer, there can be assurance that we will be
made whole in every case in which the consumer successfully asserts such rights.
Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles at retail sale.
Furthermore, federal odometer regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of new and used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if an
odometer disclosure statement was not provided to the lessee of a vehicle, the
lessee may be able to assert a defense against the seller of the vehicle.
OTHER LIMITATIONS
In addition to the limitations discussed above, numerous other statutory
provisions, including federal bankruptcy laws and related state laws, may
interfere with or affect the ability of a lessor to realize upon leased goods or
collect all damages to which the lessor is entitled upon default by the lessee.
For example, in a proceeding under the federal bankruptcy law, a claim for
damages may be treated as an unsecured claim and may not be paid in full if the
particular bankruptcy proceeding does not result in payment in full of other
similar unsecured claims. The federal bankruptcy laws, however, do require the
debtor or trustee in a bankruptcy proceeding to perform all obligations of the
lessee under the lease (including payment of the installments of rent due under
the lease) and to cure any outstanding defaults if the leased goods are to
remain in the possession of the debtor or trustee subject to the provisions of
the lease.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
SCOPE AND LIMITATIONS
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the notes
by the holders acquiring the notes on their original issuance for cash. The
discussion is based upon the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder
and judicial or ruling authority as of the date hereof, all of which may be
repealed, revoked or modified retroactively in a manner that could adversely
affect a holder of the notes.
The discussion deals only with the notes held as capital assets (generally
property held for investments and not for the sale to customers in the ordinary
course of a trade or business) by holders who or which are (i) citizens or
residents of the United States, (ii) domestic corporations, partnerships or
other entities or (iii) otherwise subject to U.S. federal income taxation on a
net income basis in respect of income or gain from the notes. The discussion
does not purport to deal with federal income tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Moreover, the Internal Revenue Service may disagree with all or a part of the
discussion below. This summary does not address tax consequences of holding
notes under state, local or foreign tax laws.
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No ruling on any of the issues discussed below will be sought from the
Service.
EACH PURCHASER SHOULD CONSULT WITH HIS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OF PURCHASING, OWNING OR DISPOSING
OF THE NOTES, INCLUDING THE EFFECT OF STATE, LOCAL OR FOREIGN LAWS.
TAX CONSEQUENCES TO NOTEHOLDERS
Treatment of the Notes as Indebtedness. We will agree, and you will agree
by your purchase of notes, to treat the notes as debt for federal income tax
purposes, unless an adverse determination dictates otherwise. If, however, it is
determined for tax purposes that the notes represent an equity investment, a
substantial portion of the discussion set forth below will be inapplicable and
the tax consequences of the holders of the notes will change, possibly with
adverse tax consequences. The discussions below assume the characterization of
the notes as debt is correct. We have not received an opinion of counsel with
respect to the classification of the notes as debt for federal income tax
purposes.
Interest Income on the Notes. As a general rule, interest paid or accrued
on the notes will be treated as ordinary income to the recipients. If you use
the accrual method of accounting for federal income tax purposes, you will be
required to include stated interest earned on the notes in ordinary income as it
accrues. If you use the cash receipts and disbursements method of accounting for
federal income tax purposes, you must include such interest in ordinary income
when payments are received (or made available for receipt) by you.
Market Discount. The resale of notes may be affected by the market discount
provisions of the Internal Revenue Code. These provisions generally provide that
if subsequent to the original issuance of the notes you purchases a note at a
market discount that exceeds a DE MINIMIS amount, any gain recognized by you
upon the sale, redemption at maturity or other disposition of the note will be
taxable as ordinary income to the extent of the portion of market discount that
accrued on the note while held by you. Market discount will be treated as
accruing ratably over the term of such note or, at your election (which election
may not be revoked without the consent of the IRS), under a constant yield
method. Also, you may elect to include market discount into income as it accrues
in which case gain realized on the sale, exchange or retirement of a note will
not be treated as ordinary income under the market discount rules. If you so
elect (which election may not be revoked without the consent of the IRS), the
election will apply to all debt instruments with market discount you acquire on
or after the day of the first taxable year to which such election applies.
Market discount is defined generally as the excess, if any, of the stated
redemption price of the note at maturity over the basis of the note in your
hands immediately after its acquisition.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
note with accrued market discount. As noted above, a noteholder may elect to
include market discount in gross income on a current basis and, if you so elect,
is exempt from this rule. The adjusted basis of a note subject to such election
will be increased to reflect market discount included in gross income, thereby
reducing any gain or increasing any loss on a sale or taxable disposition.
Amortization Bond Premium. The resale of notes may be affected by the bond
premium rules of the Internal Revenue Code. In general, if you purchase a note
at a premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), you will be considered to have purchased such note with "amortized
bond premium" equal to the amount of such excess. You may elect to deduct the
amortizable [amortized] bond premium as it accrues under a constant-yield method
over the remaining term of the note. Amortizable bond premium is treated as an
offset to interest income rather than as a separate interest deduction. Your tax
basis in the note will be reduced by the amount of the amortizable bond premium
deduction. Any such election shall apply to all debt instruments (other than
instruments the interest on which is excludable from gross income) you held at
the beginning of the first taxable year to
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which the election applies or thereafter acquired and is irrevocable without the
consent of the Service. If you do not elect to deduct the bond premiums, the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the note.
Sale or Other Disposition. In general, you will recognize gain or loss upon
the sale, redemption, retirement or other disposition in an amount equal to the
difference between the amount realized on the sale and your adjusted tax basis
in the note. Your adjusted tax basis of a note generally will equal your cost
for the note, increased by market discount, if any, you previously included in
income with respect to the note and decreased by principal payments previously
received and the amount of bond premium, if any, you previously amortized with
respect to the note. Any such gain or loss will be capital gain or loss if the
note was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income, and will be
long-term capital gain or loss if the note was held for more than one year.
Capital losses generally may be used only to offset capital gains.
Tax Administration and Reporting. The Trustee will furnish you a statement
setting forth the amount of such distribution allocable to principal and to
interest. Such payment of principal or interest reports will be made annually to
the Internal Revenue Service and to holders of record that are not excepted from
the reporting requirements regarding such information as may be required with
respect to interest with respect to the notes.
Backup Withholding. Under certain circumstances, you may be subject to
"backup withholding" at a 31% rate. Backup withholding may apply to you if you
are a United States person and if you, among other circumstances, fail to
furnish your Social Security number or other taxpayer identification number to
the Trustee. You should consult your tax advisors for additional information
concerning the potential application of backup withholding to payments received
by you with respect to a note.
CERTAIN FEDERAL INCOME TAX LIABILITIES OF THE COMPANY AND TLMI
TLMI will file a consolidated federal income tax return with us. Because of
the consolidated filing and the closely-held corporation status of TLMI,
additional federal income tax consequences may arise. Certain of these are
summarized below.
We and TLMI constitute an "affiliated group" and, as such, intend to file
consolidated federal income tax returns and each will be severally liable for
the federal income tax liability of the affiliated group. We believe that there
will be sufficient assets available to timely pay the affiliated group's federal
income tax liability as it becomes due and payable. Also, under a tax allocation
agreement signed by us and TLMI, TLMI has agreed to pay all federal income tax
liability of the affiliated group as it becomes due and payable, although there
can be no assurance that TLMI will have the ability to pay such obligations.
Under applicable federal tax laws, if TLMI fails to make such payments of tax,
the other members of the affiliated group, including us, would be responsible
for making such payments.
Also, the affiliated group will be subject to the passive loss rules under
Section 469 of the Internal Revenue Code. As a result, any portfolio-type income
earned by the affiliated group (e.g., interest and dividends) may not be able to
be offset by passive losses of the affiliated group. We do not anticipate that
either we or TLMI will have significant amounts of portfolio-type income during
the period the notes are outstanding. If portfolio-type income is realized,
however, federal income tax may be owed with respect to such income even though
the affiliated group otherwise has incurred passive losses. In addition, the
affiliated group may be subject to the personal holding company rules of the
Internal Revenue Code which may, in certain circumstances, impose an additional
tax liability on the affiliated group.
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PLAN OF DISTRIBUTION
We are offering up to $20,000,000 in aggregate principal amount of the
notes. The notes will be sold on a "best efforts" basis by Great Nation
Investment Corporation ("Great Nation"), and Great Nation is not obligated to
purchase the notes. Great Nation may, but is not obligated to, select and engage
participating soliciting broker/dealers that are qualified to offer and sell the
notes in one or more states and that are members of the NASD. As of the date of
this Prospectus, Great Nation has not engaged any soliciting broker/dealers to
participate in the offering. Great Nation anticipates that Great Nation and any
broker/dealers engaged to participate in the offering will solicit those
investors and customers for whom this investment would be suitable. Great Nation
and such other broker/dealer selling notes will be responsible for determining
the suitability of the notes as an investment for any given investor.
We shall pay to Great Nation in consideration for its services, a sales
commission of 6% the principal amount of notes sold to investors. In addition,
we will reimburse Great Nation for certain expenses incurred in connection with
its due diligence activities with regard to the offering in an amount not to
exceed 2 1/2% of the aggregate principal amount of the notes sold. We may
terminate our underwriting agreement with Great Nation if the underwriting group
is unable to sell at least $750,000 of the notes within 45 days after the date
of this prospectus and at least $250,000 of the notes each calendar month after
the month in which the 45th day after the date of this prospectus occurs. Great
Nation may terminate the underwriting agreement in the event of a material
breach of the underwriting agreement by us or if Great Nation reasonably
determines that the notes are not marketable. Generally, Great Nation will bear
all of its expenses; provided, however, that if Great Nation terminates the
underwriting agreement because of a material breach of this Agreement by us, we
shall be obligated to pay to Great Nation an amount equal to all of Great
Nation's accountable out-of-pocket expenses. TLMI and we have agreed, jointly
and severally, to indemnify Great Nation against certain liabilities, including
liabilities under applicable securities laws. The underwriting agreement
provides that the obligations of Great Nation pursuant to the underwriting
agreement are subject to the approval of certain legal matters by Great Nation's
counsel and various other conditions.
We may contract with other broker/dealers who are members of the National
Association of Securities Dealers, Inc. to serve as additional underwriters of
this offering. If we do, we expect the terms of our agreements with such other
underwriters will not be materially different than our agreement with Great
Nation.
We will pay TLMI up to 1.5% of the gross offering proceeds to reimburse
TLMI for offering and organizational expenses paid by TLMI on our behalf. No
part of these payments will be paid by TLMI to brokers to engage in sales
efforts for us (sometimes called "wholesale fees").
Investor funds will be held in a subscription escrow account with Texas
Community Bank, N.A., as escrow agent, until a minimum of $250,000 in principal
amount of the notes are sold. In the event that the minimum amount of notes is
not subscribed before (or any earlier termination of the offering), we
will terminate this offering and the escrowed funds, plus interest at the rate
payable by the escrow agent bank, will be promptly returned to the subscribing
investors by the escrow agent. Upon the subscription of the minimum amount of
notes, the escrowed funds will be released to us and the interest earned as of
the release date will be remitted to the investors who tendered funds into the
escrow. Any subsequent subscription funds with respect to the sale of additional
notes will be immediately released to us and available for our use upon our
request. All subscriptions are subject to our right to reject any subscription
in whole or in part.
The offering will terminate on , unless we sooner
terminate it (i) upon the failure to achieve the minimum subscription amount, or
(ii) upon our determination, in our discretion, for any reason that it should be
terminated. Early termination of the offering may result in our selling less
than $20,000,000 in aggregate principal amount of the notes and may expose prior
purchasers of notes to certain risks. See "RISK FACTORS -- Sale of Small Amount
of Notes."
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To allow us to make an orderly investment of all proceeds from the sale of
the notes in the purchase of vehicles and the execution of lease contracts, we
may limit the dollar amount of subscriptions for notes that we are willing to
accept during any month of the offering period. To attempt to minimize the
effects of the delay in the purchase of vehicles and acquisition of lease
contracts, we will monitor the receipt of subscriptions.
We intend to accept in the order received properly completed subscriptions
and payments for subscription amounts from qualified investors meeting the
applicable suitability standards. We may elect to treat certain subscriptions as
accepted for purposes of any monthly limit on subscriptions from certain
otherwise qualified investors (for example, IRA's) whose subscription funds are
being paid by a Trustee or other institution that has confirmed to us that the
funds will be paid. Upon the achievement of the maximum subscription amount
($20,000,000) for the notes, any subsequently received subscriptions will not be
accepted by us and will be promptly returned.
EXPERTS
Our financial statements included in this Prospectus have been audited by
Sprouse & Winn, L.L.P., independent certified public accountants, whose report
thereon appears elsewhere herein, and have been so included in reliance upon the
report and authority of such firm as experts in auditing and accounting.
LEGAL MATTERS
Certain matters with respect to the validity of the notes have been passed
upon for us by Kuperman, Orr, Mouer & Albers, a Professional Corporation,
Austin, Texas. Kuperman, Orr, Mouer & Albers, a Professional Corporation, has
also delivered its opinion to us as to certain compliance matters relating to
the Texas Motor Vehicle Commission Code discussed under "THE
COMPANY -- Government Regulations." Drenner & Stuart, L.L.P. a Texas limited
liability partnership, has also delivered to us its opinion as to the federal
income tax matters discussed under "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 (including
the exhibits, schedules and amendments thereto) under the Securities Act with
respect to the shares of common stock to be sold in this offering. As permitted
by the SEC's rules and regulations, this prospectus does not contain all the
information set forth in the registration statement. For further information
regarding our company and the shares of common stock to be sold in this
offering, please refer to the registration statement and the contracts,
agreements and other documents filed as exhibits to the registration statement.
You may read and copy all or any portion of the registration statement or any
other information that we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's website (http://www.sec.gov). As a result of this offering,
we will become subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
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TRANSITION AUTO FINANCE III, INC.
FINANCIAL STATEMENT
AND
INDEPENDENT AUDITORS' REPORT
JUNE 8, 1999
F-1
<PAGE> 58
TRANSITION AUTO FINANCE III, INC.
AUSTIN, TEXAS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INDEPENDENT AUDITORS' REPORT................................
FINANCIAL STATEMENT
Balance Sheet.............................................
Notes to Financial Statement..............................
</TABLE>
F-2
<PAGE> 59
To the Board of Directors and Stockholder
of Transition Auto Finance III, Inc.
Dallas, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Transition Auto Finance
III, Inc., a Texas corporation, as of June 8, 1999. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Transition Auto Finance III, Inc.
as of June 8, 1999, in conformity with generally accepted accounting principles.
SPROUSE & WINN, L.L.P.
Austin, Texas
June 9, 1999
F-3
<PAGE> 60
FINANCIAL STATEMENT
F-4
<PAGE> 61
TRANSITION AUTO FINANCE III, INC.
BALANCE SHEET
JUNE 8, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash...................................................... $1,000
------
TOTAL ASSETS................................................ $1,000
======
LIABILITIES AND STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY
Common stock $.10 par value: 1,000 shares authorized,
issued, and outstanding................................ $ 100
Additional paid-in capital................................ 900
------
Total Stockholder's Equity........................ 1,000
------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $1,000
======
</TABLE>
See accompanying notes to this financial statement
F-5
<PAGE> 62
TRANSITION AUTO FINANCE III, INC.
NOTES TO FINANCIAL STATEMENT
JUNE 8, 1999
NOTE 1: GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Transition Auto Finance III, Inc. (the Company) is a Texas corporation
organized on May 26, 1999. The Company was established to purchase motor
vehicles and automobile lease contracts, collecting and servicing automobile
lease contracts and remarketing motor vehicles upon termination of their leases.
Transition Leasing Management, Inc. (Transition Leasing) owns 100% of the
Company's common stock. Through June 8, 1999, the Company has had no activity.
The Company has adopted a December 31 year-end.
INCOME TAXES
The Company is a corporation subject to federal and state income taxes. The
Company and its parent intend to file a consolidated tax return. Each company in
the consolidated group determines its taxable income or loss, on a separate
company basis, and the consolidated tax liability is allocated to each company
with taxable income in proportion to the total of the taxable income amounts.
Through June 8, 1999, the Company has had no federal taxable income.
NOTE 2: NOTES OFFERING
The Company is intending to offer (the "Notes Offering") on a "best efforts
basis" up to $20,000,000 of 11% Redeemable Secured Notes (the "Notes"). The
Notes will have a term of sixty months and will bear interest at a fixed rate of
11%. The Notes will mature on August 31, 2004. The Notes are to be sold through
an underwriter. The Company will be required to make monthly payments of
interest, paid in arrears, on the outstanding principal balance. The Notes will
bear interest from the date of issuance at a fixed rate set at 11% fixed per
annum.
The underwriter will receive fees totaling 8.5% of the gross offering
proceeds of the Notes Offering. The Company will reimburse Transition Leasing
for organizational and offering expenses up to a maximum amount equal to 1.5% of
the gross offering proceeds.
The remainder of the Notes Offering proceeds will be used to acquire automobile
lease contracts backed by new automobiles and automobiles with remaining factory
warranties or extended service contracts that extend to the termination of their
lease contracts (the "Contracts"). The Contracts and the leased vehicles will be
the asset-backed security for the Notes. A minimum of $250,000 of Notes must be
sold before any funds will be released for use by the Company.
The Company intends to enter into a Servicing Agreement with Transition
Leasing. Transition Leasing will be entitled to a servicing fee of $20 per month
per Contract and a payment of $150 per Contract purchased. Transition Leasing
will receive, as a marketing fee, 57.5% of the down payment made the customers
with respect to contracts it originates. The Company intends to enter into an
Indenture between the Company and a trust company, as trustee, which will govern
collection of the Contract proceeds and repayment of the Notes.
F-6
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TABLE OF CONTENTS
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PAGE
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Summary................................
Risk Factors...........................
Capitalization.........................
Use of Proceeds........................
Description of the Notes...............
Collateral for the Notes...............
The Company............................
Security Ownership of Certain
Beneficial Owners and Management.....
Management.............................
Litigation.............................
Management's Discussion and Analysis of
Plan of Operation....................
Additional Indenture Provisions........
Certain Legal Aspects of the Lease
Contracts............................
Certain Federal Income Tax
Considerations.......................
Plan of Distribution...................
Experts................................
Legal Matters..........................
Additional Information.................
Financial Statements...................
</TABLE>
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Until (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$20,000,000
SECURED NOTES
DUE AUGUST 31, 2004
TRANSITION AUTO FINANCE III, INC.
--------------------
PROSPECTUS
--------------------
GREAT NATION
INVESTMENT CORPORATION
, 1999
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<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, directors and former directors of the Company shall not
be liable to the Company or its shareholders for monetary damages which may have
been caused by them acting in their capacity as a director. Texas law does not
currently authorize the elimination or limitation of the liability of a director
to the extent the director is found liable (i) for any breach of the director's
duty of loyalty to the Company or its shareholders, (ii) for acts or omissions
not in good faith that constitute a breach of duty of the director of the
Company or which involve intentional misconduct or a knowing violation of law,
(iii) for transactions from which the director received an improper benefit,
regardless of whether the benefit resulted from an action taken within the scope
of the director's office or (iv) for acts or omissions for which the liability
of a director is expressly provided by law.
The Company's Articles of Incorporation and its Bylaws grant mandatory
indemnification to directors and officers of the Company to the fullest extent
authorized under the Texas Business Corporation Act. In general, a Texas
corporation may indemnify a director or officer who was or is threatened to be
made a named defendant or respondent in a proceeding by virtue of his position
in the corporation if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
in the case of criminal proceedings, had no reasonable cause to believe his
conduct was unlawful. A Texas corporation may indemnify an officer or director
in an action brought by or in the right of the corporation only if such director
or officer was not found liable to the corporation, unless or only to the extent
that a court finds him to be fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the issuance and
distribution of the Notes covered by this Registration Statement, all of which
will be paid by the Company, are as follows:
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Securities and Exchange Commission Registration Fee......... $ 6,061
NASD Fee.................................................... *
Printing and Engraving...................................... *
Legal Fees and Expenses..................................... 65,000+
Accounting Fees and Expenses................................ 5,000+
Blue Sky Fees and Expenses.................................. 20,000+
Miscellaneous............................................... 10,000+
TOTAL............................................. *
</TABLE>
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* To be furnished by amendment.
+ estimates
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Other than the issuance of 1,000 shares of its common stock to Transition
Leasing Management, Inc. upon its formation, the Company has not issued any
securities.
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<PAGE> 65
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits.
The following documents are filed as exhibits to this registration
statement:
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EXHIBIT NO. DESCRIPTION
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<C> <S>
1.1 -- Best Efforts Underwriting Agreement by and between
Transition Auto Finance III, Inc., and Great Nation
Investment Corporation*
3.1 -- Articles of Incorporation of Transition Auto Finance III,
Inc.*
3.2 -- Bylaws of Transition Auto Finance III, Inc.*
4.1 -- Form of Indenture between Transition Auto Finance, Inc.,
and Trust Management, Inc., as Trustee*
4.2 -- Form of Secured Note Due June 30, 2002 (included in
Article Two of Indenture filed as Exhibit 4.1)
5.1 -- Opinion of Kuperman, Orr, Mouer & Albers, a Professional
Corporation, regarding validity of Notes**
8.1 -- Opinion of Drenner & Stuart, L.L.P., a limited liability
partnership, regarding tax matters**
10.1 -- Form of Master Purchasing Agreement between Transition
Auto Finance III, Inc. and Transition Leasing Management,
Inc.*
10.2 -- Form of Servicing Agreement between Transition Leasing
Management, Inc. and Transition Auto Finance III, Inc.*
10.3 -- Proceeds Escrow Agreement*
10.4 -- Form of Broker-Dealer Selling Agreement**
10.5 -- Form of Subscription Agreement*
10.6 -- Form of Tax Sharing Agreement by and between Transition
Leasing Management, Inc., Transition Auto Finance, Inc.,
Transition Auto Finance II, Inc. and Transition Auto
Finance III, Inc.**
10.7 -- Form of Custodial Agreement between Transition Auto
Finance III, Inc. and Trust Management, Inc.*
24.1 -- Consent of Drenner & Stuart, L.L.P., a limited liability
partnership*
24.2 -- Consent of Kuperman, Orr, Mouer & Albers, a Professional
Corporation*
24.3 -- Consent of Sprouse & Winn, L.L.P.*
26.1 -- Form T-1: Statement of eligibility of Trust Management,
Inc.**
</TABLE>
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* filed electronically herewith
** to be filed by amendment
Financial Statement Schedules.
None.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant
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<PAGE> 66
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
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<PAGE> 67
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant hereby certifies that it has reasonable grounds to believe that it
meets the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on June 11, 1999.
TRANSITION AUTO FINANCE II, INC.
By: /s/ KENNETH C. LOWE
----------------------------------
Kenneth C. Lowe,
President and Chief
Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below hereby designates and
appoints Terry Scharig and Ken Lowe, and each of them, as such person's true and
lawful attorney-in-fact and agent (the "Attorney-in-Fact") with full power of
substitution and re-substitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, which
amendments may make such changes in this registration statement as the
Attorney-in-Fact deems appropriate and requests to accelerate the effectiveness
of this registration statement, and to file each such amendment with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto such Attorney-in-Fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that such Attorney-in-Fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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/s/ KENNETH C. LOWE Director, President (Principal June 11, 1999
- ----------------------------------------------------- Executive Officer) and Chief
Kenneth C. Lowe Financial Officer (Principal
Financial and Accounting
Officer)
</TABLE>
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<PAGE> 68
INDEX TO EXHIBITS
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EXHIBIT NO. DESCRIPTION
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1.1 -- Best Efforts Underwriting Agreement by and between
Transition Auto Finance III, Inc., and Great Nation
Investment Corporation*
3.1 -- Articles of Incorporation of Transition Auto Finance III,
Inc.*
3.2 -- Bylaws of Transition Auto Finance III, Inc.*
4.1 -- Form of Indenture between Transition Auto Finance, Inc.,
and Trust Management, Inc., as Trustee*
4.2 -- Form of Secured Note Due June 30, 2002 (included in
Article Two of Indenture filed as Exhibit 4.1)
5.1 -- Opinion of Kuperman, Orr, Mouer & Albers, a Professional
Corporation, regarding validity of Notes**
8.1 -- Opinion of Drenner & Stuart, L.L.P., a limited liability
partnership, regarding tax matters**
10.1 -- Form of Master Purchasing Agreement between Transition
Auto Finance III, Inc. and Transition Leasing Management,
Inc.*
10.2 -- Form of Servicing Agreement between Transition Leasing
Management, Inc. and Transition Auto Finance III, Inc.*
10.3 -- Proceeds Escrow Agreement*
10.4 -- Form of Broker-Dealer Selling Agreement**
10.5 -- Form of Subscription Agreement*
10.6 -- Form of Tax Sharing Agreement by and between Transition
Leasing Management, Inc., Transition Auto Finance, Inc.,
Transition Auto Finance II, Inc. and Transition Auto
Finance III, Inc.**
10.7 -- Form of Custodial Agreement between Transition Auto
Finance III, Inc. and Trust Management, Inc.*
24.1 -- Consent of Drenner & Stuart, L.L.P., a limited liability
partnership*
24.2 -- Consent of Kuperman, Orr, Mouer & Albers, a Professional
Corporation*
24.3 -- Consent of Sprouse & Winn, L.L.P.*
26.1 -- Form T-1: Statement of eligibility of Trust Management,
Inc.**
</TABLE>
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* filed electronically herewith
** to be filed by amendment
<PAGE> 1
EXHIBIT 1.1
BEST EFFORTS UNDERWRITING AGREEMENT
TRANSITION AUTO FINANCE III
This UNDERWRITING AGREEMENT made and entered into this ____ day of
July, 1999, by and between Transition Auto Finance III, Inc., a Texas
corporation, whose address is 5422 Alpha Road, Suite 100, Dallas, Texas 75240,
(the "Company"), Transition Leasing Management, Inc., a Texas corporation,
("Transition Leasing"), the parent company of Transition Auto Finance, Inc., and
Great Nation Investment Corporation, a Texas corporation, whose address is 5408
A Bell Street, Amarillo, Texas 79109 (the "Underwriter").
RECITALS
1. The Company desires to offer and sell up to $20,000,000 in 11%
Redeemable Secured Notes to the public through the Underwriter.
2. The offering and sale will be made pursuant to a registration
statement and prospectus hereinafter referred to.
3. The Underwriter is willing to assist the Company in connection with
the proposed issuance and sale of these securities on a best efforts basis on
the terms and conditions herein contained.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants, agreements, undertakings, representations, and warranties herein
contained, the Company and the Underwriter agree as follows:
I. Representations and Warranties
The Company represents and warrants to, and agrees with the Underwriter
that:
1. The Company is a corporation duly organized and validly existing as
a corporation in good standing under the laws of the State of Texas.
2. The Company shall issue consistent with the terms and conditions of
the Registration Statement (defined below) up to $20,000,000.00 in 11%
Redeemable Secured Notes ("the Notes"). The Notes shall:
(a) Bear interest at the rate of 11% per annum;
(b) Pay interest monthly in arrears on the fifteenth
(15th) day of the month of each successive calendar
month (except as provided in the prospectus); and
(c) Pay principal at maturity on August 31, 2004.
3. The Notes will be issued pursuant to the terms and conditions of a
Trust Indenture entered into between the Company and Trust Management, Inc.
("Trustee"), as Indenture Trustee.
<PAGE> 2
4. There will be delivered to the counsel to the Underwriter, upon
request at any time prior to the Delivery Date (defined below), certified copies
of the Articles of Incorporation and the bylaws of the Company, together with
all amendments, if any, certified copies of whatever resolutions the counsel may
request, and copies of all material contracts to which the Company is a party.
There will also be made available to the counsel for inspection minutes of all
meetings of incorporators, directors and stockholders of the Company from the
date of incorporation of the Company to the Delivery Date.
5. The Company has no subsidiaries, except as set forth in the
Prospectus (defined below).
6. A Registration Statement on the appropriate form as prescribed by
the Securities and Exchange Commission (the "Commission"), together with a
related Prospectus with respect to the Notes, has been filed with the Commission
under the Securities Act of 1933, as amended, (the "Act"). The Company will use
its best efforts to cause the Registration Statement and the Prospectus to
become effective as soon as possible after the filing. As used in this
Agreement, the term "Registration Statement" refers to and means the
Registration Statement and any and all amendments to the Registration Statement,
including exhibits and financial statements, when the Registration Statement
becomes effective and, in the event of any amendments after the effective date
of the Registration Statement, the Registration Statement as so amended; and the
term "Prospectus" refers to and means the related Prospectus in final form, and
in the event of any amendment or supplement to the Prospectus after the
effective date of the Registration Statement, also refers to and means the
Prospectus as so amended or supplemented.
7. The Notes shall also be registered or qualified for sale with the
state regulatory agencies of any and all states where the Securities shall be
offered.
8. All expenses of registration and qualification shall be paid by the
Company.
9. Notwithstanding the above, to the extent possible, the Effective
Date of the offering shall be at a date mutually agreed to by the Company and
the Underwriter, subject to the requirements of applicable law.
10. The purchase price of the Notes shall be in minimum denominations
of $1,000.00 and integral multiples thereof with a minimum purchase amount of
$5,000.00 (or $2,000.00 for Individual Retirement Accounts).
11. When the Registration Statement becomes effective, it and the
accompanying Prospectus will comply in all material respects with the
requirements of the Act and with the rules and regulations of the Commission
promulgated under the Act; provided, however, the Company makes no
representations or warranties as to information contained or omitted from the
Registration Statement or the Prospectus in reliance upon written information
furnished to the Company by the Underwriter specifically for inclusion in the
Registration Statement or the Prospectus.
12. The Company has the requisite corporate power and authority to
enter into this Underwriting Agreement.
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<PAGE> 3
13. The financial statements to be filed with the Registration
Statement will reflect all material liabilities of the Company on a consolidated
basis, contingent or otherwise, and will include adequate reserves for all
federal and state tax liabilities incurred to their respective dates.
14. All of the Notes to be sold under and pursuant to this Agreement,
when issued and delivered, will be validly issued and enforceable in accordance
with their terms and conditions and free and clear of all claims and
encumbrances, except as described in the Indenture.
15. The certified public accountants who will certify to the financial
statements to be filed with the Commission as a part of the Registration
Statement and to the financial statements incorporated in the Prospectus, and
who, as experts, may certify or review other information of a financial or
accounting nature contained in the Registration Statement and the Prospectus,
will be independent certified public accountants as required by the Act and the
rules and regulations promulgated under the Act.
16. The Company will deliver to the Underwriter financial statements as
of June 30, 1999. The Company represents that such financial statements will
fairly present in all material respects the financial condition of the Company,
computed in accordance with generally accepted accounting principles applied on
a consistent basis and the rules and regulations of the Commission relating to
financial statements.
17. The Company will furnish the Underwriter, at least one day before
the filing of the Registration Statement, with the financial statements included
in the Registration Statement and prepared in accordance with the rules and
regulations of the Commission. Such financial statements will fairly present the
position of the Company in all material respects on the dates shown and will
reflect all material liabilities of the Company, contingent or otherwise.
18. The certificate or certificates that the Company is required to
furnish to the Underwriter pursuant to the provisions of paragraphs 8, 9 and 10
of Article VIII of this Agreement will be true and correct.
19. All of the foregoing representations, warranties and agreements
shall survive delivery of, and payment for, all of the securities covered by
this Agreement.
II. Retention of the Underwriter
Based upon the foregoing representations, warranties and agreements,
and subject to the terms and conditions herein contained:
1. The Company hereby retains the Underwriter as its agent to sell for
its account the Notes. The Underwriter shall use its best efforts as agent,
promptly following the receipt of written notice of the effective date of the
Registration Statement, to sell the Notes subject to the terms, provisions and
conditions set forth below. There is no assurance that any or all of the Notes
to be offered by the Company will be sold, and the Underwriter is under no
obligation to purchase or take down any of the Notes on its own behalf or on
behalf of others.
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<PAGE> 4
2. Underwriter acknowledges that the Company may limit its acceptance
of subscriptions in any manner it deems prudent in order to provide for the
timely use of subscriber funds and may reject any subscriptions for any reason,
and Underwriter agrees that any such rejection of a subscription obtained by the
Underwriter or by the Underwriting Group shall be deemed not to be a sale made
by the Underwriter or by the Underwriting Group. Underwriter further
acknowledges that (i) all subscription funds will be deposited in escrow and if
the minimum amount of Notes is not subscribed on or before _____________ (as
defined in the Prospectus), the offering will be terminated and the escrowed
funds, plus any interest earned thereon, will be promptly returned to the
investors by the escrow agent; (ii) upon the subscription of the minimum amount
of the Notes, the escrowed funds will be released to the Company; (iii) any
subsequent subscription funds with respect to the sale of additional Notes will
be deposited in an account maintained by the Underwriter and be immediately
available for use by the Company upon the Company's request; and (iv) all
Subscriber's checks shall be made payable to the Underwriter and shall be
deposited with the escrow agent in accordance with applicable NASD regulations.
Subscriber's funds will be held in escrow and invested in compliance with SEC
Rule 15c2-4. Until the minimum amount of Notes is subscribed, all subscriber's
checks will be transmitted directly the escrow agent by noon of the next
business day after receipt by Underwriter.
3. As its compensation, the Underwriter shall receive a commission of
eight percent (8.5%) of the full amount of all Notes sold by the Underwriter
(including the Underwriting Group, as hereinafter defined) and for which payment
is made to the Company. Such amount is comprised of a 6% sales commission and a
2.5% due diligence fee.
4. The Underwriter may associate with themselves whatever other
underwriters they may desire. The Underwriter may offer the Notes through
registered securities dealers selected by them and to pay such dealers out of
the commissions received by the Underwriter whatever compensation the
Underwriter may determine. The Underwriter, such other underwriters and such
securities dealers shall be collectively referred to herein as the "Underwriting
Group." [The Underwriter acknowledges that the Company retain one or more
additional securities dealers who will serve as additional underwriters and that
any such other underwriters shall not be considered part of the "Underwriting
Group."
5. The Company may terminate this Agreement in the event that the
Underwriting Group is unable to sell at least $750,000.00 of the Notes within 45
days of the Effective Date and at least $250,000.00 of the Notes each calendar
month after the month in which the 45th day after the Effective Date occurs.
6. Underwriter represents that it is appropriately registered as a
broker-dealer with the Commission and in all states in which it conducts or will
conduct business in connection with this offering and is a member in good
standing of the National Association of Securities Dealers, Inc. Underwriter
also agrees not to solicit subscriptions for the Notes that will result in a
violation of the securities laws of the United States, or of any state, or any
rule or regulation thereunder, or of any rules of the NASD or any securities
exchange.
7. Underwriter represents that there is not now pending or threatened
against the Underwriter any action or proceeding of which Underwriter has been
advised, either in any court of competent jurisdiction, before the Commission or
any state securities commission concerning
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<PAGE> 5
activities as a broker or dealer, nor has the Underwriter been named as a
"cause" in any such action or proceeding.
8. In the event any action or proceeding of the type referred to in
paragraph 8 above shall be instituted or threatened against the Underwriter at
any time, or in the event there shall be filed by or against the Underwriter in
any court pursuant to any federal, state, local or municipal statute a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of assets, or the Underwriter makes an assignment for the
benefit of creditors, the Company shall have the right to terminate this
Agreement.
9. Upon request, the Company will inform the Underwriter as to the
states in which the Company has been advised by counsel that the Notes have been
qualified for sale under the respective state securities laws, but the Company
does not assume any responsibility or obligation as to the Underwriter's right
to sell the Notes in any state. Underwriter understands and agrees that under no
circumstances will Underwriter engage in any activities hereunder in any
jurisdiction (a) in which the Company has not informed the Underwriter that the
Notes are qualified for sale under the applicable securities laws, or (b) in
which the Underwriter may not lawfully so engage.
10. Underwriter confirms that its commitment to use its best efforts to
solicit subscriptions for the Notes will not result in a violation of the
securities laws of the United States, including but not limited to the Act or
any rule or regulation thereunder, or the securities laws of any state in which
the Underwriter will conduct business and the rules and regulations thereunder,
or of any rules of any securities exchange to which the Underwriter is subject
or of any restriction imposed upon the Underwriter by the NASD or any such
exchange or governmental authority and agrees to indemnify the Company, its
shareholders, directors, officers, employees or agents for any and all damages,
liabilities and costs (including reasonable attorneys' fees and expenses)
resulting from the same.
11. Underwriter represents that in connection with the offering:
A. Underwriter will comply in all respect with the
provisions of this Agreement.
B. Underwriter shall use its best efforts to obtain the
approval of the NASD pursuant to Rule 2710 of the
Conduct Rules of the NASD with respect to the
compensation arrangements set forth herein.
C. Underwriter will comply with any applicable
limitations on the manner of offering as required by
the Act, applicable state securities laws, and the
NASD.
D. Prior to making any sale, Underwriter will have
reasonable grounds to believe, after making
reasonable inquiry, that each subscriber meets the
requirements of the Act, the NASD and applicable
state securities laws as to the suitability of the
investment for such subscriber.
E. Except as otherwise disclosed to the Company, no
owner, partner, director or officer of Underwriter
has within the last five years been subject to any of
the
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<PAGE> 6
following administrative or judicial actions (by the
commission or any state securities commission):
1. Registration Stop Order (Issuance of
Securities);
2. Securities related felony conviction;
3. Securities related administrative order;
4. Any administrative order involving fraud or
deceit;
5. Securities related injunction;
F. Underwriter has no current effective administrative
order revoking a securities exemption; and
G. Underwriter has not been suspended, censured or
expelled by the NASD.
Underwriter agrees to indemnify and hold the Company, its
shareholders, officers, directors, employees, and agent harmless from any
liabilities and costs (including reasonable attorneys' fees and expenses)
associated with claims arising or alleged to arise out of a breach of the
foregoing representations.
12. Underwriter and any members of the Underwriting Group do hereby
undertake to comply with Rules 2730, 2740, 2420 and 2750 of the Conduct Rules of
the NASD. Furthermore, any and all Selling Group Agreements or Selected Dealer
Agreements shall provide that any member of the Underwriting Group shall agree
to comply with said Conduct Rules.
III. Further Agreements of the Company
The Company agrees, at its expense and without expense to the
Underwriter, as follows:
1. To give and to continue to give and supply whatever financial
statements and other information that may be required by the Commission or
the proper public bodies in the states in which the Notes may be qualified.
2. As soon as the Company is informed, to advise the Underwriter and to
confirm the advice in writing:
(a) When the Registration Statement becomes effective;
(b) When any amendment to the Registration Statement
filed subsequent to the effective date of the
Registration Statement becomes effective;
(c) Of any request of the Commission for amendments to
the Registration Statement or the related Prospectus,
or for additional information;
(d) Of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration
Statement or of the initiation of any proceeding for
that purpose;
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<PAGE> 7
(e) Of any material adverse change in its financial
position or operating condition and of any
development materially affecting the Company or
rendering untrue or misleading any material statement
in the Registration Statement or the Prospectus.
3. To make every reasonable effort to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement, and, if a stop
order is entered at any time, to use its best efforts to obtain withdrawal of
the order at the earliest possible moment.
4. To deliver to the Underwriter, without charge, (a) prior to the
effective date of the Registration Statement, copies of each preliminary
prospectus filed with the Commission bearing in red ink the statement required
by the rules of the Commission, (b) on and from time to time after the effective
date of the Registration Statement, copies of the Prospectus and of any amended
or supplemented Prospectus, and (c) as soon as they are available and from time
to time after they are available, copies of each Prospectus prepared for the
purpose of permitting compliance with Section 10 of the Act and of any amended
or supplemented Prospectus. The number of copies to be delivered in each case
shall be the number the Underwriter may reasonably request.
5. To furnish, without cost, to the Underwriter one executed copy of
the Registration Statement, including all exhibits and amendments, and a
reasonable number of copies of the Registration Statement and amendments.
6. For the period after the effective date of the Registration
Statement during which the Prospectus is required by law to be used, but not
after the Delivery Date, except in accordance with Article XII hereof, if any
change occurs so that the Prospectus includes an untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
in the Prospectus, in the light of the circumstances under which they are made,
not misleading, forthwith to prepare and furnish to the Underwriter, without
cost, supplements to the Prospectus or an amended Prospectus correcting the
untrue statement or supplying the omission.
7. If revision of the Prospectus pursuant to the provisions of Section
10 of the Act becomes necessary, to review the Prospectus, to file copies of the
Prospectus with the Commission, and to furnish copies of the revised Prospectus
to the Underwriter in whatever reasonable quantity they request.
8. To use its best efforts to cause the Notes to be qualified for sale
on terms consistent with those stated in the effective Registration Statement
under the Blue Sky laws in whatever states may be agreed upon.
9. Until the Delivery Date hereunder or the earlier termination hereof,
except with the approval of the Underwriter, not to:
(a) Undertake or authorize any change in its capital
structure or authorize or issue or permit any public
offering of any shares of capital stock or additional
Notes, except as provided in this Agreement;
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<PAGE> 8
(b) Authorize, create, issue, or sell any funded
obligations, notes or other evidences of
indebtedness, except in the ordinary course of
business and maturing not more than nine months from
the date of this Agreement and except as provided in
this Agreement; or
(c) Consolidate or merge with or into any other
corporation or create any mortgage or lien upon any
of its properties or assets except in the ordinary
course of its business and except as provided in this
Agreement.
10. To provide to Underwriter any reasonable additional information
or documentation deemed by the Underwriter to be necessary in the performance
of the Underwriter's due diligence.
11. To provide Underwriter: (i) at least twenty-four (24) hours prior
to dissemination to Noteholders, a facsimile of any letter, notice or other
similar communication, provided that the foregoing in no way obligates the
Company to await Great Nation approval of such letter, notice or similar
communication prior to dissemination, and (ii) from time to time, access to
review operations and such other public information concerning the Company as
Underwriter may reasonably request.
IV. Indemnity Provisions
1. The Company shall indemnify, defend and hold the Underwriter
(including any underwriter, dealer or securities dealer associated with the
Underwriter), and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act, free and harmless from and against any and all
losses, claims, demands, liabilities, and expenses (including reasonable legal
or other expense incurred by each Underwriter and controlling person in
connection with defending any claims or liabilities, whether or not resulting in
any liability to the Underwriter (or to any controlling person), which the
Underwriter or controlling person may incur under the Act or at common law or
otherwise, but only to the extent that the losses, claims, demands, liabilities,
and expenses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
in the Prospectus, or in any amendment or amendments to the Registration
Statement or the Prospectus, or in any application or other papers executed by
any underwriter or dealer with the written approval of the Company for filing in
any state or states in order to qualify the securities covered by this Agreement
under the securities laws of those state (the "Blue Sky Application"), or arise
out of or are based upon any omission or alleged omission to state in these
documents a material fact required to be stated in them or necessary to make the
statements in them not misleading, provided, however, that this indemnity
agreement shall not apply to any losses, claims, demands, liabilities, or
expenses arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus or in any amendment or amendments to them or in any Blue Sky
Application, or arising out of or based upon the omission or alleged omission to
state in these documents a material fact required to be stated in them or
necessary to make the statements in them not misleading, which statement or
omission was made in reliance upon information furnished to the Company by the
Underwriter in writing expressly for use in the Registration Statement or the
Prospectus or in any amendment or amendments to them, or was made by the
Underwriter in a Blue Sky Application not in reliance upon information furnished
by the Company.
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<PAGE> 9
2. The foregoing indemnity of the Company in favor of the Underwriter
shall not be deemed to protect the Underwriter against any liability to the
Company or its noteholders to which the Underwriter would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties, or by reason of their reckless disregard of their
obligations and duties under this Agreement.
3. The Underwriter shall give the Company an opportunity to participate
in the defense or preparation of the defense of any action brought against the
Underwriter or controlling person of the Underwriter to enforce any claim or
liability, and the Company may so participate. The Company's agreement under the
foregoing indemnity is expressly conditioned upon notice of any action being
sent by the Underwriter or controlling person, as the case may be, to the
Company, by letter or facsimile (addressed as provided herein), promptly after
the commencement of the action against the Underwriter or controlling person.
Such notice must either be accompanied by copies of papers served or filed in
connection with the action or by a statement of the nature of the action to the
extent known to the Underwriter. Failure to notify the Company within a
reasonable time of an action shall relieve the Company of respective liabilities
under the foregoing indemnity, but failure to notify the Company shall not
relieve the Company from any liability that the Company may have to the
Underwriter or controlling person other than on account of the indemnity
agreement contained in this Article IV.
4. The Underwriter likewise shall indemnify, defend and hold harmless
the Company against any and all losses, claims, expenses, and liabilities to
which it may become subject arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus, or in any amendment or amendments to the
Registration Statement or the Prospectus, or in any Blue Sky Application, or
arising out of or based upon the omission or alleged omission to state in these
documents a material fact required to be stated in them or necessary to make the
statements in them not misleading, resulting from the use of written information
furnished to the Company by the Underwriter expressly for use in the preparation
of the Registration Statement or the Prospectus, or in any amendment or
amendments to the Registration Statement or the Prospectus, or in any Blue Sky
Application.
5. The Company shall give the Underwriter an opportunity to participate
in the defense or preparation of the defense of any action brought against the
Company to enforce any claim or liability, and the Underwriter shall have the
right so to participate. The agreement of the Underwriter under the foregoing
indemnity is expressly conditioned upon notice of any action being sent by the
Company to the Underwriter, by letter or by facsimile (addressed as provided in
this Agreement), promptly after the commencement of the action against the
Company. The notice must either be accompanied by copies of papers served or
filed in connection with the action or by a statement of the nature of the
action to the extent known to the Company. Failure to notify the Underwriter of
any action shall relieve the Underwriter of its liability under the foregoing
indemnity, but failure to notify the Underwriter shall not relieve the
Underwriter from any liability which the Underwriter may have to the Company or
its stockholders otherwise than on account of the indemnity agreement contained
in this Article IV.
6. The provisions of this Article IV shall not in any way prejudice any
right or rights that the Underwriter may have against the Company, or that the
Company may have against the Underwriter, under any statute other than the Act,
at common law or otherwise.
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<PAGE> 10
7. The indemnity agreements contained in this Article IV shall survive
the Delivery Date and shall inure to the benefit of successors of the Company
and successors of the Underwriter, and shall be valid irrespective of any
investigation made by or on behalf of the Underwriter or the Company.
V. Payment of Expenses
The Company shall, at its own expense and without expense to the
Underwriter, pay all costs and expenses incident to this Agreement, including,
but without limitation, all expenses in connection with the preparation,
printing and filing of the Registration Statement and the Prospectus as well as
all amendments to them together with all exhibits; pay all filing fees and
costs, original issue taxes, trustee's fees, charges, or disbursements connected
with the issue and delivery of the Notes; and pay all reasonable expenses
incurred in connection with the qualification of the Notes under the securities
or blue sky laws of the states previously referred to.
VI. Public Offering
1. The Underwriter shall make a public offering on a best efforts basis
of the Notes covered hereby as soon after the effective date of the Registration
Statement as is advisable in accordance with and as set forth in the
Registration Statement. The public offering may be made either in the open
market or through securities dealers (acting as principals) selected by the
Underwriter, or partly in each manner, as determined by the Underwriter in their
sole discretion. The Underwriter may pay these dealers out of the commissions
received by the Underwriter for the Notes sold by the dealers whatever
compensation the Underwriter and such dealers may determine.
VII. Payments on Default
If any of the conditions, representations or warranties set forth in
Article VIII of this Agreement are not fulfilled in any material respect, or if
for any reason the Company fails to comply with the terms of this Agreement in
any material respect (other than in connection with a breach of the Agreement by
the Underwriter), and if the Underwriter elects to terminate this Agreement
pursuant to Article XI hereto, then, in addition to paying the Company's own
expenses as provided in Article V hereof, the Company shall reimburse the
Underwriter for its actual accountable out-of-pocket expenses.
VIII. Conditions Precedent to Underwriter's Obligations
The obligations hereunder of the Underwriter are conditioned upon:
1. The approval of counsel for the Underwriter of the form and content
of the Registration Statement and the Prospectus, of the organization and
present legal status of the Company or Transition Leasing, and of the legality
and validity of the Notes to be offered hereunder, which approval shall not be
unreasonably withheld.
2. The Company's performance in all material respects of all the
obligations required by it to be performed hereunder and the truth, completeness
and accuracy of all statements and
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<PAGE> 11
representations in all material respects contained herein or of any financial
statements furnished hereunder.
3. From the date hereof until the Delivery Date, and during the term
hereof, no material adverse change occurring in the properties and assets of the
Company or Transition Leasing, other than changes occurring in the ordinary
course of business.
4. No claim being made or legal action being instituted against the
Company or Transition Leasing, which if adversely determined would have a
material adverse effect on the financial condition of Transition Leasing and the
Company, taken as a whole, and no reasonable basis for a claim or an action of
this nature being discovered.
5. The Registration Statement becoming effective no later than August
31, 1999, or whatever later date that may be agreed upon, and no amendment to
the Registration Statement being filed to which the Underwriter reasonably have
objected after having received reasonable notice; and no stop order suspending
the effectiveness of the Registration Statement being issued and no proceedings
for that purpose being threatened or instituted.
6. Prior to the Delivery Date, the Company not sustaining any loss on
account of fire, flood, accident, or calamity of a character that materially
adversely affects its business or property, regardless of whether the loss is
insured; no litigation being instituted or threatened against the Company or
Transition Leasing of a character required to be disclosed in the Registration
Statement that is not disclosed and that shall materially adversely affect the
Company, its business or its property; and no substantial adverse change
occurring in the operations or financial condition or credit of the Company or
Transition Leasing or in any conditions affecting the prospects of the business
of the Company.
7. The Company having furnished to the Underwriter on the Delivery Date
an opinion or opinions of Kuperman, Orr, Mouer & Albers, counsel to the Company,
dated the Delivery Date and stating in effect that:
(a) The Company and its parent, Transition Leasing, have
been duly incorporated and, on the Delivery Date, are
validly existing corporation in good standing under
the laws of the State of Texas with an authorized and
issued capital stock as set forth in the Registration
Statement, and the shares of the Company shown in the
Registration Statement to be issued and outstanding
have been duly and validly issued and are
outstanding;
(b) The Company and Transition Leasing are duly
registered and qualified to conduct its business and
is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of
its business requires such registration and
qualification, except where the failure so to
register and qualify does not have material adverse
effect on the financial condition of the Company;
(c) The Notes conform in all material respects to the
description of the Notes contained in the
Registration Statement and the Prospectus, subject to
the
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<PAGE> 12
qualifications set forth in those documents, and the
holders of the Notes shall be entitled to the rights
and preferences set forth in the certificates for the
Notes;
(d) The Company and Transition Leasing have the requisite
corporate power and authority to enter into and
perform their respective obligations under the
Agreement. The Agreement has been duly authorized,
executed and delivered by the Company and Transition
Leasing and is a valid and binding agreement of the
Company and Transition Leasing and is enforceable
against the Company and Transition Leasing in
accordance with its terms, subject to the Underwriter
obtaining the approval of the National Association of
Securities Dealers, Inc. to the compensation and
other arrangements set forth therein, except to the
extent that the rights to indemnification thereunder
may be limited by federal or state securities laws
and policies embodied therein, or to the extent that
such obligations are subject to or affected or
limited by (i) applicable liquidation,
conservatorship, bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or
other laws affecting creditors' rights or in the
collection of debtors obligations generally from time
to time in effect or (ii) general principles of
equity (whether enforceability is considered in a
proceeding in equity or at law), including the
qualification that the availability of the remedy of
specific performance or injunctive relief or other
equitable remedies is subject to the discretion of
the court before which any such preceding therefor
may be brought and including standards of good faith,
fair dealing and reasonableness that may be applied
by a court to the exercise or certain rights and
remedies;
(e) The Registration Statement and the Prospectus comply
as to form in all material respects with the
requirements of the Act and the rules and regulations
of the Commission under the Act (except that no
opinion need be expressed as to financial statements
and financial data). In addition, the opinion shall
state, or counsel shall advise the Underwriter by
separate letter, that, although such counsel has not
passed upon and does not assume any responsibility
for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or
the Prospectus (except as expressly provided herein),
from the facts within its actual knowledge, nothing
has come to such counsel's attention that would cause
counsel to believe that either the Registration
Statement or the Prospectus at the time such
Registration Statement becomes effective contained an
untrue statement of a material fact or omitted to
state a material fact required to be stated therein
in order to make the statements stated therein not
misleading; and that counsel is familiar with all
contracts referred to in the Registration Statement
or the Prospectus, such contracts that are required
to be filed as exhibits to the Registration Statement
have been filed as exhibits to the Registration
Statement, the description of such contracts is
correct in all material respects, and counsel does
not know of any contracts required to be summarized
or disclosed or filed that have not been summarized
or disclosed or filed; and
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<PAGE> 13
(f) That counsel has no knowledge or information
concerning pending or threatened litigation or any
unasserted claims or assessments by any third party,
or parties, against the Company or Transition Leasing
that is not disclosed in the Registration Statement
that are required to be disclosed in the Registration
Statement.
8. The Company having furnished to the Underwriter on the Delivery Date
a certificate or certificates verified by the President or a Vice President and
by the Treasurer of the Company, certifying that:
(a) The respective signers of the certificate or
certificates have examined the answers to each item
of the Registration Statement and the information
contained in the Prospectus, and, to the best of
their knowledge, information and belief, those
answers and that information, as of the effective
date of the Registration Statement, were true and
correct and did not omit to state any material fact
required to be stated or necessary in order to make
the statements not misleading; and since the
effective date of the Registration Statement no event
has occurred that should have been set forth in an
amendment to the Registration Statement or in a
supplement or amendment to the Prospectus that has
not been so set forth in an amendment or supplement;
(b) The respective signers of the certificate or
certificates do not know of any litigation or
proceeding instituted or threatened against the
Company of a character required to be disclosed in
the Registration Statement that is not disclosed in
the Registration Statement;
(c) The respective signers of the certificate or
certificates do not know of any contract or
arrangement that is required to be summarized or
disclosed in the Registration Statement or filed as
an exhibit to the Registration Statement that has not
been summarized or disclosed or filed;
(d) To the best of their knowledge, information and
belief, the respective signers know of no substantial
adverse change in the general affairs of the Company,
or in the financial position of the Company during
the period from the date of the latest financial
statements contained in the Registration Statement to
the Delivery Date, except for the changes disclosed
or indicated in the Registration Statement; and
(e) To the best of their knowledge, information and
belief (i) the representations and warranties
contained in Article I of this Agreement are true and
correct at the Delivery Date; (ii) no stop order
suspending the effectiveness of the Registration
Statement has been issued prior to the Delivery Date
and no proceedings for that purpose, prior to that
date, has been initiated or threatened by the
Commission; (iii) every reasonable request by the
Commission for additional information to be included
in the Registration Statement or the Prospectus or
otherwise has or will be complied with; (iv)
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<PAGE> 14
prior to the Delivery Date, the Company has not
sustained a loss on account of fire, flood, accident,
or calamity of a character that materially adversely
affects its property or business.
9. The Company having furnished to the Underwriter copies of the
Articles of Incorporation and of each amendment to the Articles of
Incorporation, if any, of the Company, which are officially certified by a
proper state official; one copy of the bylaws of the Company certified by the
Secretary or an Assistant Secretary of the Company as being currently in effect;
and a certificate of good standing issued by the proper state official or
officials of each state in which the Company transacts business.
10. The Underwriter, on the Delivery Date, having received a
certificate or letter from the Company's accountants addressed to the Company,
dated not more than three days prior to the Delivery Date, confirming that the
accountants are independent certified public accountants within the meaning of
the Act, and the rules and regulations of the Commission, and certifying to the
effect that the financial statements audited by them and included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published rules
and regulations of the Commission, and that, in their opinion, on the basis of
the representations from certain officials of the Company who have
responsibility for financial and accounting matters, nothing has come to their
attention that caused them to believe that there was any substantial adverse
changes in the capitalization of the Company or the financial position or net
worth of the Company, except as disclosed or indicated in the Registration
Statement, and decreases in the capital stock and surplus accounts of the
Company from that shown in the Registration Statement or the Prospectus.
11. The Company having furnished to the Underwriter whatever
certificates, in addition to those specifically mentioned in this Agreement,
that the Underwriter may request as to the accuracy, on the Date of Delivery, of
the representations and warranties of the Company in this Agreement, as to the
performance by the Company of its obligations under this Agreement, and as to
the other concurrent or precedent conditions to the obligations of the
Underwriter under this Agreement. All of the opinions, letters, evidence, and
certificates mentioned above or elsewhere in this Agreement shall be deemed to
be in full compliance with the provisions hereof only if they are in form
satisfactory to counsel to the Underwriter. In the event of the failure of any
of the above conditions in any material respect, the Underwriter may be relieved
of any and all obligations hereunder or may waive this right and demand full
performance hereunder.
IX. Delivery Date
The Delivery Date, as referred to in this Agreement, shall be a date
agreed upon by the Company and the Underwriter and failing agreement, then the
Delivery Date shall be the Effective Date of the offering of the Notes.
1. The representations and warranties in this Agreement shall survive
the Delivery Date and shall continue in full force and effect regardless of any
investigation made by the party relying upon any representation or warranty.
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<PAGE> 15
2. This Agreement shall inure to the benefit of, and be binding upon,
the Company and the Underwriter (including specifically any dealer that the
Underwriter associates with pursuant hereto), and their successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person other than the persons mentioned in the preceding sentence any
legal or equitable right, remedy or claim under or with respect hereto, or any
provisions contained herein. This agreement and all of its conditions and
provisions are for the sole and exclusive benefit of the foregoing persons and
for the benefit of no other person, except that the warranties, indemnities and
agreements of the Company contained herein also shall be for the benefit of any
persons, if any, who control the Underwriter within the meaning of Section 15 of
the Act, and except that the indemnification by the Underwriter shall be for the
benefit of the directors of the Company and the officers of the Company who have
signed the Registration Statement.
3. This Agreement sets forth the entire agreement between the parties
hereto, and no representation, warranty, understanding, or agreement not
specifically set forth herein shall be implied from this Agreement.
4. The proceeds received by the Underwriter from the sale of the Notes
shall be remitted to the Trustee(s) not later than noon of the following
business day, less the selling commission payable by the Company to the
Underwriter.
5. The Underwriter shall comply with all of the rules and regulations
of the Commission and the state regulatory agencies where the Notes shall be
offered. If at any time during the term of this Agreement, the Underwriter
should, for any reason, be disqualified or precluded from offering to the public
these Notes, then the Company shall have the option to terminate this Agreement
upon three (3) days written notice to the Underwriter, in which event this
Agreement shall be void and of no further force and effect, except that the
Underwriter shall be entitled to the commissions earned and to their accountable
out-of-pocket expenses.
6. This Agreement, unless sooner terminated as herein provided, shall
continue until all Notes registered under the Registration Statement are either
sold or withdrawn by the Company from registration, whichever event first
occurs.
X. Underwriter's Right to Terminate
Notwithstanding any of the terms and provisions hereof, this Agreement
may be terminated by the Underwriter based on a material breach of this
Agreement by the Company. Underwriter shall give fifteen (15) days prior written
notice to the Company of such breach, and the Company shall have the opportunity
to cure such breach. In the event of such termination, the Underwriter shall be
entitled to any commissions to which it was entitled as of the date of
termination as well as any and all accountable out-of-pocket expenses. In the
event that the Underwriter reasonably determines that the Notes are not
marketable, notwithstanding its best efforts to sell the Notes, the Underwriter
may terminate this Agreement with thirty (30) days prior written notice.
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<PAGE> 16
XI. Post-Effective Amendments
1. The Company shall prepare and file under the Act any required
post-effective amendments to the Registration Statement and related Prospectus
or new Registration Statements and new related Prospectuses.
2. If any post-effective amendments or new Registration Statements
become effective, the Company shall furnish to the Underwriter opinions by the
same counsel and to the same effect as those required by Article VIII of this
Agreement, except that such opinions shall relate to the post-effective
amendments and new Prospectuses or to the new Registration Statements and new
Prospectuses and to the Notes that are being offered. The Company further agrees
with respect to these post-effective amendments and new Prospectuses and with
respect to these new Registration Statements and new Prospectuses to observe all
of the terms and conditions of this Agreement as set forth in Article III,
subdivisions 1, 2, 3, 4, 5, 6, and 7 and Article IV.
XII. Notice
Any notice required or permitted to be given under or pursuant to this
Agreement may be given in writing by depositing the notice in the United States
mail, postage prepaid, by hand-delivery or by courier, or by facsimile,
addressed as follows:
To the Underwriter: Great Nation Investment Corporation
5408 Bell Street
Amarillo, Texas 79109
FAX - (806) 353-9631
To the Company: Transition Auto Finance III, Inc.
5422 Alpha Road
Suite 100
Dallas, Texas 75240
FAX - (972) 404-9934
Attention: Ken Lowe, President
To Transition Leasing: Transition Leasing Management, Inc.
5422 Alpha Road
Suite 100
Dallas, Texas 75240
FAX - (972) 404-9934
Attention: Ken Lowe, President
Copy to: Kuperman, Orr, Mouer & Albers
100 Congress Avenue
Suite 1400
Austin, Texas 78701
Attn: Vince Mouer
FAX - (512) 322-8143
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<PAGE> 17
Notice shall be deemed given to a party hereunder when actually
received by such party.
XIII. Miscellaneous
1. This Agreement may be modified only by writing signed by the parties
hereto.
2. This Agreement shall be governed and construed in accordance with
the laws of the State of Texas.
3. This Agreement may be signed in various counterparts, which together
shall constitute one and the same instrument.
4. For purposes of any lawsuit or other proceeding in respect to this
Agreement, the undersigned hereby submits and consents to the jurisdiction of
any court of competent jurisdiction sitting in the State of Texas, Dallas
County.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day, month and year first written above.
TRANSITION AUTO FINANCE III, INC.
By:
------------------------------------
Ken Lowe, Its President
GREAT NATION INVESTMENT CORPORATION
By:
------------------------------------
Byron Pat Treat, Its President
TRANSITION LEASING MANAGEMENT, INC.
By:
------------------------------------
Ken Lowe, Its President
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<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
TRANSITION AUTO FINANCE III, INC.
I, the undersigned, a natural person of the age of eighteen years or
more acting as the incorporator of a corporation (hereinafter called the
"Corporation") under the Texas Business Corporation Act, do hereby adopt the
following Articles of Incorporation for the Corporation:
ARTICLE ONE
The name of the Corporation is Transition Auto Finance III, Inc.
ARTICLE TWO
The period of duration of the Corporation is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is to engage in the
transaction of any and all lawful businesses for which corporations may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The total number of shares which the Corporation shall have authority
to issue is 1,000 shares of common stock, all having a par value of $0.10 per
share. Each share of such common stock shall have identical rights and
privileges in every respect.
ARTICLE FIVE
No holder of any shares of capital stock of the Corporation, whether
now or hereafter authorized, shall, as such holder, have any preemptive or
preferential right to receive, purchase, or subscribe to (a) any unissued or
treasury shares of any class of stock (whether now or hereafter authorized) of
the Corporation, (b) any obligations, evidences of indebtedness, or other
securities of the Corporation convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase, or subscribe to, any such
unissued or treasury shares, (c) any right of subscription to or to receive, or
any warrant or option for the purchase of, any of the foregoing securities, or
(d) any other securities that may be issued or sold by the Corporation.
<PAGE> 2
ARTICLE SIX
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of $1,000.00, consisting
of money, labor done, or property actually received.
ARTICLE SEVEN
Cumulative voting for the election of directors is expressly denied and
prohibited.
ARTICLE EIGHT
No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved, or ratified by the Board of
Directors, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision or to subject
any director or officer to any liability that he would not be subject to in the
absence of this provision.
ARTICLE NINE
The Corporation shall indemnify any person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding (as
hereinafter defined) because the person (i) is or was a director or officer of
the Corporation or (ii) while a director or officer of the Corporation, is or
was
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<PAGE> 3
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent that a corporation may grant indemnification to a director under
the Texas Business Corporation Act, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article Nine is in effect. Any
repeal or amendment of this Article Nine shall be prospective only and shall not
limit the rights of any such director or officer or the obligations of the
Corporation with respect to any claim arising from or related to the services of
such director or officer in any of the foregoing capacities prior to any such
repeal or amendment of this Article Nine. Such right shall include the right to
be paid or reimbursed by the Corporation for expenses incurred in defending any
such proceeding in advance of its final disposition to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within 90 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall be entitled
to be paid also the expenses of prosecuting such claim. It shall be a defense to
any such action that such indemnification or advancement of costs of defense are
not permitted under the Texas Business Corporation Act, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, special
legal counsel, or shareholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances nor an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, special legal counsel, or shareholders) that such
indemnification or advancement is not permissible, shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his heirs, executors, administrators, and personal representatives.
The rights conferred above shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, resolution of
shareholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any person covered by the
grant of mandatory indemnification contained above to such further extent as is
permitted by law and may indemnify any other person to the fullest extent
permitted by law.
To the extent permitted by then applicable law, the grant of mandatory
indemnification to any person pursuant to this Article Nine shall extend to
proceedings involving the negligence of such person.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
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ARTICLE TEN
The post office address of the initial registered office of the
Corporation is 5422 Alpha Road, Suite 100, Dallas, Texas 75240, the name of its
initial registered agent at such address is Kenneth C. Lowe.
ARTICLE ELEVEN
The number of directors constituting the initial Board of Directors is
one and the name and address of the people who are to serve as director until
the first annual meeting of shareholders and until such directors' successors
are elected and qualified or, if earlier, until such directors' deaths,
resignation, or removal as directors, are as follows:
NAME ADDRESS
---- -------
Kenneth C. Lowe 5422 Alpha Road, Suite 100
Dallas, Texas 75240
ARTICLE TWELVE
To the fullest extent permitted by applicable law, a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, except that this Article Twelve does not eliminate or limit the
liability of a director of the Corporation to the extent the director is found
liable for:
(a) a breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) an act or omission not in good faith that constitutes a
breach of duty of the director to the Corporation or an act or omission
that involves intentional misconduct or a knowing violation of the law;
(c) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or
(d) an act or omission for which the liability of a director
is expressly provided by an applicable statute.
Any repeal or amendment of this Article Twelve by the shareholders of
the Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article
Thirteen, a director shall not be liable to the Corporation or its shareholders
to such further extent as permitted by any law hereafter enacted, including
without limitation any subsequent amendment to the Texas Miscellaneous
Corporation Laws Act or the Texas Business Corporation Act.
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ARTICLE THIRTEEN
Any action which may be taken, or which is required by law or the
Articles of Incorporation or bylaws of the Corporation to be taken, at any
annual or special meeting of shareholders may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall have been signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE FOURTEEN
The name and address of the incorporator are as follows:
NAME ADDRESS
---- -------
Vince Mouer Kuperman, Orr, Mouer & Albers
A Professional Corporation
100 Congress Avenue, Suite 1400
Austin, Texas 78701
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of May,
1999.
/s/ Vince Mouer
-----------------------------------
Vince Mouer
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EXHIBIT 3.2
BYLAWS
OF
TRANSITION AUTO FINANCE III, INC.
A Texas Corporation
PREAMBLE
These bylaws are subject to, and governed by, the Texas Business
Corporation Act and the articles of incorporation of TRANSITION AUTO FINANCE
III, INC. (the "Corporation"). In the event of a direct conflict between the
provisions of these bylaws and the mandatory provisions of the Texas Business
Corporation Act or the provisions of the articles of incorporation of the
Corporation, such provisions of the Texas Business Corporation Act or the
articles of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
Texas.
1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Texas, as the board of directors
may from time to time determine or the business of the Corporation may require.
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings. An annual meeting of shareholders of the
Corporation shall be held during each calendar year on such date and at such
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, if not a legal holiday in the place where
the meeting is to be held, and, if a legal holiday in such place, then on the
next business day following, at the time specified in the notice of the meeting.
At such meeting, the shareholders shall elect directors and transact such other
business as may properly be brought before the meeting.
2.02 Special Meetings. A special meeting of the shareholders may be
called at any time by the president, the board of directors, or the holders of
not less than ten percent of all shares entitled to vote at such meeting. Only
business within the purpose or purposes described in the notice of special
meeting may be conducted at such special meeting.
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2.03 Place of Meetings. The annual meeting of shareholders may be held
at any place within or without the State of Texas designated by the board of
directors. Special meetings of shareholders may be held at any place within or
without the State of Texas designated by the person or persons calling such
special meeting as provided in Section 2.02 above. Meetings of shareholders
shall be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.04 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day, and hour of each meeting of the shareholders and,
in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days before the
date of the meeting by or at the direction of the president, the secretary, or
the person calling the meeting, to each shareholder of record entitled to vote
at such meeting.
2.05 Voting List. At least ten days before each meeting of
shareholders, the secretary shall prepare a complete list of shareholders
entitled to vote at such meeting, arranged in alphabetical order, including the
address of each shareholder and the number of voting shares held by each
shareholder. For a period of ten days prior to such meeting, such list shall be
kept on file at the registered office or principal place of business of the
Corporation and shall be subject to inspection by any shareholder during usual
business hours. Such list shall be produced at such meeting, and at all times
during such meeting shall be subject to inspection by any shareholder. The
original share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such list.
2.06 Voting of Shares. Treasury shares, shares of the Corporation's own
stock owned by another corporation the majority of the voting stock of which is
owned or controlled by the Corporation, and shares of the Corporation's own
stock held by the Corporation in a fiduciary capacity shall not be shares
entitled to vote or to be counted in determining the total number of outstanding
shares. Shares standing in the name of another domestic or foreign corporation
of any type or kind may be voted by such officer, agent, or proxy as the bylaws
of such corporation may authorize or, in the absence of such authorization, as
the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without transfer of such shares into his name so long as
such shares form a part of the estate served by him and are in the possession of
such estate. Shares held by a trustee may be voted by him, either in person or
by proxy, only after the shares have been transferred into his name as trustee.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without transfer of such shares into his name if authority to do so is contained
in the court order by which such receiver was appointed. A shareholder whose
shares are pledged shall be entitled to vote such shares until they have been
transferred into the name of the pledgee, and thereafter, the pledgee shall be
entitled to vote such shares.
2.07 Quorum; Withdrawal of Quorum. A quorum shall be present at a
meeting of shareholders if the holders of a majority of the shares entitled to
vote are represented at the meeting in person or by proxy, except as otherwise
provided by law or the articles of incorporation. If a quorum shall not be
present at any meeting of shareholders, the shareholders represented in person
or by proxy at such meeting may adjourn the meeting until such time and to such
place as may be
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determined by a vote of the holders of a majority of the shares represented in
person or by proxy at that meeting. Once a quorum is present at a meeting of
shareholders, the shareholders represented in person or by proxy at the meeting
may conduct such business as may be properly brought before the meeting until it
is adjourned, and the subsequent withdrawal from the meeting of any shareholder
or the refusal of any shareholder represented in person or by proxy to vote
shall not affect the presence of a quorum at the meeting.
2.08 Majority Vote. Directors of the Corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors of the Corporation at a meeting of shareholders at which a
quorum is present. Except as otherwise provided by law, the articles of
incorporation, or these bylaws, with respect to any matter, the affirmative vote
of the holders of a majority of the Corporation's shares entitled to vote on
that matter and represented in person or by proxy at a meeting at which a quorum
is present shall be the act of the shareholders.
2.09 Method of Voting; Proxies. Every shareholder of record shall be
entitled at every meeting of shareholders to one vote on each matter submitted
to a vote, for every share standing in his name on the original share transfer
records of the Corporation except to the extent that the voting rights of the
shares of any class or classes are increased, limited, or denied by the articles
of incorporation. Such share transfer records shall be prima facie evidence as
to the identity of shareholders entitled to vote. At any meeting of
shareholders, every shareholder having the right to vote may vote either in
person or by a proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Each such proxy shall be filed with the secretary
of the Corporation before, or at the time of, the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. If no date is stated on a proxy, such proxy shall be
presumed to have been executed on the date of the meeting at which it is to be
voted. Each proxy shall be revocable unless the proxy form conspicuously states
that the proxy is irrevocable and the proxy is coupled with an interest.
2.10 Closing of Transfer Records; Record Date. For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the board of directors may
provide that the share transfer records of the Corporation shall be closed for a
stated period but not to exceed in any event sixty days. If the share transfer
records are closed for the purpose of determining shareholders entitled to
notice of, or to vote at, a meeting of shareholders, such records shall be
closed for at least ten days immediately preceding such meeting. In lieu of
closing the share transfer records, the board of directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than sixty days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the share
transfer records are not closed and if no record date is fixed for the
determination of shareholders entitled to notice of, or to vote at, a meeting of
shareholders or entitled to receive a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or a share dividend, the date on which the notice of the meeting is mailed or
the
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date on which the resolution of the board of directors declaring such
distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 2.10, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of the
share transfer records and the stated period of closing has expired.
2.11 Officers Duties at Meetings. The president shall preside at, and
the secretary shall prepare minutes of, each meeting of shareholders, and in the
absence of either such officer, his duties shall be performed by some person or
persons elected by the vote of the holders of a majority of the outstanding
shares entitled to vote, present in person or represented by proxy.
2.12 Action Without Meeting. Any action which may be taken, or which is
required by law or the articles of incorporation or bylaws of the Corporation to
be taken, at any annual or special meeting of shareholders, may be taken without
a meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted. The signed consent or
consents of shareholders shall be placed in the minute books of the Corporation.
The record date for the purpose of determining shareholders entitled to consent
to any action pursuant to this Section 2.12 shall be determined in accordance
with Article 2.26.C of the Texas Business Corporation Act.
ARTICLE THREE: DIRECTORS
3.01 Management. The powers of the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the board of directors.
3.02 Number; Election; Term; Qualification. The number of directors
which shall constitute the board of directors shall be not less than one. The
first board of directors shall consist of the number of directors named in the
articles of incorporation. Thereafter, the number of directors which shall
constitute the entire board of directors shall be determined by resolution of
the board of directors at any meeting thereof or by the shareholders at any
meeting thereof, but shall never be less than one. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified. No
director need be a shareholder, a resident of the State of Texas, or a citizen
of the United States.
3.03 Changes in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director. Any directorship to be filled by reason of
an increase in the number of directors may be filled by (i) the shareholders at
any annual or special meeting of shareholders called for that purpose or (ii)
the board of directors for a term of office continuing only until the next
election of one or more directors by the shareholders; provided that the board
of directors may not fill more than two such directorships
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during the period between any two successive annual meetings of shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series of
shares are entitled to elect one or more directors by the provisions of the
articles of incorporation, any newly created directorship(s) of such class or
series to be filled by reason of an increase in the number of such directors may
be filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected or by
the vote of the holders of the outstanding shares of such class or series, and
such directorship(s) shall not in any case be filled by the vote of the
remaining directors or by the holders of the outstanding shares of the
Corporation as a whole unless otherwise provided in the articles of
incorporation.
3.04 Removal. At any meeting of shareholders called expressly for that
purpose, any director or the entire board of directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of directors. Notwithstanding the foregoing,
whenever the holders of any class or series of shares are entitled to elect one
or more directors by the provisions of the articles of incorporation, only the
holders of shares of that class or series shall be entitled to vote for or
against the removal of any director elected by the holders of shares of that
class or series.
3.05 Vacancies. Any vacancy occurring in the board of directors may be
filled by (i) the shareholders at any annual or special meeting of shareholders
called for that purpose or (ii) the affirmative vote of a majority of the
remaining directors though less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected to serve for the unexpired
term of his predecessor in office. Notwithstanding the foregoing, whenever the
holders of any class or series of shares are entitled to elect one or more
directors by the provisions of the articles of incorporation, any vacancies in
such directorship(s) may be filled by the affirmative vote of a majority of the
directors elected by such class or series then in office or by a sole remaining
director so elected or by the vote of the holders of the outstanding shares of
such class or series, and such directorship(s) shall not in any case be filled
by the vote of the remaining directors or the holders of the outstanding shares
of the Corporation as a whole unless otherwise provided in the articles of
incorporation.
3.06 Place of Meetings. The board of directors may hold its meetings in
such place or places within or without the State of Texas as the board of
directors may from time to time determine.
3.07 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and notice of such meeting shall not be necessary.
3.08 Regular Meetings. Regular meetings of the board of directors may
be held without notice at such times and places as may be designated from time
to time by resolution of the board of directors and communicated to all
directors.
3.09 Special Meetings; Notice. Special meetings of the board of
directors shall be held whenever called by the president or by any director. The
person calling any special meeting shall cause notice of such special meeting,
including therein the time and place of such special meeting,
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to be given to each director at least two days before such special meeting.
Neither the business to be transacted at, nor the purpose of, any special
meeting of the board of directors need be specified in the notice or waiver of
notice of any special meeting.
3.10 Quorum; Majority Vote. At all meetings of the board of directors,
a majority of the number of directors fixed in the manner provided in these
bylaws shall constitute a quorum for the transaction of business. If a quorum is
not present at a meeting, a majority of the directors present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the directors
present at a meeting at which a quorum is in attendance shall be the act of the
board of directors, unless the act of a greater number is required by law, the
articles of incorporation, or these bylaws.
3.11 Procedure; Minutes. At meetings of the board of directors,
business shall be transacted in such order as the board of directors may
determine from time to time. The board of directors shall appoint at each
meeting a person to preside at the meeting and a person to act as secretary of
the meeting. The secretary of the meeting shall prepare minutes of the meeting
which shall be delivered to the secretary of the Corporation for placement in
the minute books of the Corporation.
3.12 Presumption of Assent. A director of the Corporation who is
present at any meeting of the board of directors at which action on any matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.13 Compensation. Directors, in their capacity as directors, may
receive, by resolution of the board of directors, a fixed sum and expenses of
attendance, if any, for attending meetings of the board of directors or a stated
salary. No director shall be precluded from serving the Corporation in any other
capacity or receiving compensation therefor.
3.14 Action Without Meeting. Any action which may be taken, or which is
required by law, the articles of incorporation, or these bylaws to be taken, at
a meeting of the board of directors or any committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall have
been signed by all of the members of the board of directors or committee, as the
case may be, and such consent shall have the same force and effect, as of the
date stated therein, as a unanimous vote of such members of the board of
directors or committee, as the case may be, and may be stated as such in any
document or instrument filed with the Secretary of State of Texas or in any
certificate or other document delivered to any person. The consent may be in one
or more counterparts so long as each director or committee member signs one of
the counterparts. The signed consent shall be placed in the minute books of the
Corporation.
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ARTICLE FOUR: COMMITTEES
4.01 Designation. The board of directors may, by resolution adopted by
a majority of the entire board of directors, designate one or more committees.
4.02 Number; Qualification; Term. The board of directors, by resolution
adopted by a majority of the entire board of directors, shall designate one or
more of its members as members of any committee and may designate one or more of
its members as alternate members of any committee, who may, subject to any
limitations imposed by the board of directors, replace absent or disqualified
members at any meeting of that committee. The number of committee members may be
increased or decreased from time to time by resolution adopted by a majority of
the entire board of directors. Each committee member shall serve as such until
the earliest of (i) the expiration of his term as director, (ii) his resignation
as a committee member or as a director, or (iii) his removal, as a committee
member or as a director.
4.03 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors, including, without limitation, the
authority to authorize a distribution and to authorize the issuance of shares of
the Corporation. Notwithstanding the foregoing, however, no committee shall have
the authority of the board of directors in reference to:
(a) amending the articles of incorporation, except that a
committee may, to the extent provided in the
resolution designating that committee, exercise the
authority of the board of directors vested in it in
accordance with Article 2.13 of the Texas Business
Corporation Act;
(b) proposing a reduction of the stated capital of the
Corporation in the manner permitted by Article 4.12
of the Texas Business Corporation Act;
(c) approving a plan of merger or share exchange of the
Corporation;
(d) recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the property
and assets of the Corporation otherwise than in the
usual and regular course of its business;
(e) recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation
thereof;
(f) amending, altering, or repealing these bylaws or
adopting new bylaws of the Corporation;
(g) filling vacancies in the board of directors;
(h) filling vacancies in, or designating alternate
members of, any committee;
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(i) filling any directorship to be filled by reason of an
increase in the number of directors;
(j) electing or removing officers of the Corporation or
members or alternate members of any committee;
(k) fixing the compensation of any member or alternate
member of any committee; or
(l) altering or repealing any resolution of the board of
directors that by its terms provides that it shall
not be amendable or repealable.
4.04 Committee Changes. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.05 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.06 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.07 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the articles of incorporation, or
these bylaws.
4.08 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the secretary of the Corporation for placement in the
minute books of the Corporation.
4.09 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.10 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
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ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice. Whenever by law, the articles of incorporation, or these
bylaws, notice is required to be given to any committee member, director, or
shareholder and no provision is made as to how such notice shall be given, it
shall be construed to mean that any such notice may be given (a) in person, (b)
in writing, by mail, postage prepaid, addressed to such committee member,
director, or shareholder at his address as it appears on the books of the
Corporation or, in the case of a shareholder, the share transfer records of the
Corporation, or (c) by any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed to be delivered and given at the
time when the same is deposited in the United States mail, postage prepaid, and
addressed as aforesaid.
5.02 Waiver of Notice. Whenever by law, the articles of incorporation,
or these bylaws, any notice is required to be given to any committee member,
shareholder, or director of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time notice should have been given, shall be equivalent to the giving of such
notice. Attendance of a committee member, shareholder, or director at a meeting
shall constitute a waiver of notice of such meeting, except where such person
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
5.03 Telephone and Similar Meetings. Shareholders, directors, or
committee members may participate in and hold a meeting by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification. The officers of the
Corporation shall be a president, and a secretary and, if the board so
determines, one or more vice presidents (and, in the case of each vice
president, with such descriptive title, if any, as the board of directors shall
determine), and a treasurer. The Corporation may also have a chairman of the
board, one or more assistant treasurers, one or more assistant secretaries, and
such other officers and such agents as the board of directors may from time to
time elect or appoint. The board of directors shall elect a president and
secretary at its first meeting at which a quorum shall be present after the
annual meeting of shareholders or whenever a vacancy exists. The board of
directors then, or from time to time, may also elect or appoint one or more
other officers or agents as it shall deem advisable. Each officer and agent
shall hold office for the term for which he is elected or appointed and until
his successor has been elected or appointed and qualified. Any person may hold
any number of offices. No officer or agent need be a shareholder, a director, a
resident of the State of Texas, or a citizen of the United States.
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6.02 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the Corporation
may be filled by the board of directors.
6.04 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.05 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, that the
board of directors may by resolution delegate to any one or more officers of the
Corporation the authority to fix such compensation.
6.06 Chairman of the Board. The chairman of the board shall have such
powers and duties as may be prescribed by the board of directors.
6.07 President. Unless and to the extent that such powers and duties
are expressly delegated to a chairman of the board by the board of directors,
the president shall be the chief executive officer of the Corporation and,
subject to the supervision of the board of directors, shall have general
management and control of the business and property of the Corporation in the
ordinary course of its business with all such powers with respect to such
general management and control as may be reasonably incident to such
responsibilities, including, but not limited to, the power to employ, discharge,
or suspend employees and agents of the Corporation, to fix the compensation of
employees and agents, and to suspend, with or without cause, any officer of the
Corporation pending final action by the board of directors with respect to
continued suspension, removal, or reinstatement of such officer. The president
may, without limitation, agree upon and execute all division and transfer
orders, bonds, contracts, and other obligations in the name of the Corporation.
6.08 Vice Presidents. Each vice president shall have such powers and
duties as may be prescribed by the board of directors or as may be delegated
from time to time by the president and (in the order as designated by the board
of directors, or in the absence of such designation, as determined by the length
of time each has held the office of vice president continuously) shall exercise
the powers of the president during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a vice
president in the performance of the duties of the president shall be conclusive
evidence of the absence or inability to act of the president at the time such
action was taken.
6.09 Treasurer. The treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate accounts of receipts and
disbursements, and shall deposit all moneys and valuable effects in the name and
to the credit of the Corporation in such depository or depositories as may be
designated by the board of directors. The treasurer shall audit all payrolls and
vouchers of the Corporation, receive, audit, and consolidate all operating and
financial statements of the
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<PAGE> 11
Corporation and its various departments, shall supervise the accounting and
auditing practices of the Corporation, and shall have charge of matters relating
to taxation. Additionally, the treasurer shall have the power to endorse for
deposit, collection, or otherwise all checks, drafts, notes, bills of exchange,
and other commercial paper payable to the Corporation and to give proper
receipts and discharges for all payments to the Corporation. The treasurer shall
perform such other duties as may be prescribed by the board of directors or as
may be delegated from time to time by the president.
6.10 Assistant Treasurers. Each assistant treasurer shall have such
powers and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the president. The assistant treasurers (in the
order as designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant treasurer continuously) shall exercise the powers of the treasurer
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant treasurer in the performance
of the duties of the treasurer shall be conclusive evidence of the absence or
inability to act of the treasurer at the time such action was taken.
6.11 Secretary. The secretary shall maintain minutes of all meetings of
the board of directors, of any committee, and of the shareholders or consents in
lieu of such minutes in the Corporation's minute books, and shall cause notice
of such meetings to be given when requested by any person authorized to call
such meetings. The secretary may sign with the president, in the name of the
Corporation, all contracts of the Corporation and affix the seal of the
Corporation thereto. The secretary shall have charge of the certificate books,
share transfer records, stock ledgers, and such other stock books and papers as
the board of directors may direct, all of which shall at all reasonable times be
open to inspection by any director at the office of the Corporation during
business hours. The secretary shall perform such other duties as may be
prescribed by the board of directors or as may be delegated from time to time by
the president.
6.12 Assistant Secretaries. Each assistant secretary shall have such
powers and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the president. The assistant secretaries (in the
order designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant secretary continuously) shall exercise the powers of the secretary
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant secretary in the performance
of the duties of the secretary shall be conclusive evidence of the absence or
inability to act of the secretary at the time such action was taken.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares. The shares of the
Corporation may be either certificated shares or uncertificated shares. As used
herein, the term "certificated shares" means shares represented by instruments
in bearer or registered form, and the term "uncertificated shares" means shares
not represented by instruments and the transfers of which are registered upon
books maintained for that purpose by or on behalf of the Corporation.
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<PAGE> 12
7.02 Certificates for Certificated Shares. The certificates
representing certificated shares of stock of the Corporation shall be in such
form as shall be approved by the board of directors in conformity with law. The
certificates shall be consecutively numbered, shall be entered as they are
issued in the books of the Corporation or in the records of the Corporation's
designated transfer agent, if any, and shall state upon the face thereof: (a)
that the Corporation is organized under the laws of the State of Texas; (b) the
name of the person to whom issued; (c) the number and class of shares and the
designation of the series, if any, which such certificate represents; (d) the
par value of each share represented by such certificate, or a statement that the
shares are without par value; and (e) such other matters as may be required by
law. The certificates shall be signed by the president or any vice president and
also by the secretary, an assistant secretary, or any other officer; however,
the signatures of any of such officers may be facsimiles. The certificates may
be sealed with the seal of the Corporation or a facsimile thereof.
7.03 Issuance. Shares with or without par value may be issued for such
consideration and to such persons as the board of directors may from time to
time determine, except in the case of shares with par value the consideration
must be at least equal to the par value of such shares. Shares may not be issued
until the full amount of the consideration has been paid. After the issuance of
uncertificated shares, the Corporation or the transfer agent of the Corporation
shall send to the registered owner of such uncertificated shares a written
notice containing the information required to be stated on certificates
representing shares of stock as set forth in Section 7.02 above and such
additional information as may be required by Section 8.408 of the Texas Uniform
Commercial Code as currently in effect and as the same may be amended from time
to time hereafter.
7.04 Consideration for Shares. The consideration for the issuance of
shares shall consist of money paid, labor done (including services actually
performed for the Corporation), or property (tangible or intangible) actually
received. Neither promissory notes nor the promise of future services shall
constitute payment or part payment for the issuance of shares. In the absence of
fraud in the transaction, the judgment of the board of directors as to the value
of consideration received shall be conclusive. When consideration, fixed as
provided by law, has been paid, the shares shall be deemed to have been issued
and shall be considered fully paid and nonassessable. The consideration received
for shares shall be allocated by the board of directors, in accordance with law,
between stated capital and surplus accounts.
7.05 Lost, Stolen, or Destroyed Certificates. The Corporation shall
issue a new certificate or certificates in place of any certificate representing
shares previously issued if the registered owner of the certificate:
(a) Claim. Makes proof by affidavit, in form and
substance satisfactory to the board of directors or
any proper officer, that a previously issued
certificate representing shares has been lost,
destroyed, or stolen;
(b) Timely Request. Requests the issuance of a new
certificate before the Corporation has notice that
the certificate has been acquired by a purchaser for
value in good faith and without notice of an adverse
claim;
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<PAGE> 13
(c) Bond. If required by the board of directors or any
proper officer, in its or such officer's discretion,
delivers to the Corporation a bond or indemnity
agreement in such form, with such surety or sureties,
and with such fixed or open penalty, as the board of
directors or such officer may direct, in its or such
officer's discretion, to indemnify the Corporation
(and its transfer agent and registrar, if any)
against any claim that may be made on account of the
alleged loss, destruction, or theft of the
certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the board of directors.
7.06 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the shareholders thereof in
person or by their duly authorized attorneys or legal representatives. With
respect to certificated shares, upon surrender to the Corporation or the
transfer agent of the Corporation for transfer of a certificate representing
shares duly endorsed and accompanied by any reasonable assurances that such
endorsements are genuine and effective as the Corporation may require and after
compliance with any applicable law relating to the collection of taxes, the
Corporation or its transfer agent shall, if it has no notice of an adverse claim
or if it has discharged any duty with respect to any adverse claim, issue one or
more new certificates to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books. With respect to
uncertificated shares, upon delivery to the Corporation or the transfer agent of
the Corporation of an instruction originated by an appropriate person (as
prescribed by Section 8.308 of the Texas Uniform Commercial Code as currently in
effect and as the same may be amended from time to time hereafter) and
accompanied by any reasonable assurances that such instruction is genuine and
effective as the Corporation may require and after compliance with any
applicable law relating to the collection of taxes, the Corporation or its
transfer agent shall, if it has no notice of an adverse claim or has discharged
any duty with respect to any adverse claim, record the transaction upon its
books, and shall send to the new registered owner of such uncertificated shares,
and, if the shares have been transferred subject to a registered pledge, to the
registered pledgee, a written notice containing the information required to be
stated on certificates representing shares of stock set forth in Section 7.02
above and such additional information as may be required by Section 8.408 of the
Texas Uniform Commercial Code as currently in effect and as the same may be
amended from time to time hereafter.
7.07 Registered Shareholders. The Corporation shall be entitled to
treat the shareholder of record as the shareholder in fact of any shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have actual or other notice thereof, except as otherwise provided by law.
7.08 Legends. The board of directors shall cause an appropriate legend
to be placed on certificates representing shares of stock as may be deemed
necessary or desirable by the board of directors in order for the Corporation to
comply with applicable federal or state securities or other laws.
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<PAGE> 14
7.09 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
representing shares of stock of the Corporation.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends. Subject to provisions of applicable statutes and the
articles of incorporation, dividends may be declared by and at the discretion of
the board of directors at any meeting and may be paid in cash, in property, or
in shares of stock of the Corporation.
8.02 Books and Records. The Corporation shall keep books and records of
account and shall keep minutes of the proceedings of its shareholders, the board
of directors, and each committee of the board of directors. The Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the Corporation and a record of each transfer of those shares
that have been presented to the Corporation for registration of transfer, giving
the names and addresses of all past and current shareholders and the number and
class of the shares held by each of such shareholders.
8.03 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the board of directors does not defer its determination
of the fiscal year, the fiscal year shall be the calendar year.
8.04 Seal. The seal, if any, of the Corporation shall be in such form
as may be approved from time to time by the board of directors. If the board of
directors approves a seal, the affixation of such seal shall not be required to
create a valid and binding obligation against the Corporation.
8.05 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage, or other instrument executed by the Corporation through its
duly authorized officer or officers, the attestation to such execution by the
secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.06 Resignation. Any director, committee member, officer, or agent may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the president, or the secretary. Such
resignation shall take effect at the time specified in the statement made at the
board of directors' meeting or in the written notice, but in no event may the
effective time of such resignation be prior to the time such statement is made
or such notice is given. If no effective time is specified in the resignation,
the resignation shall be effective immediately. Unless a resignation specifies
otherwise, it shall be effective without being accepted.
8.07 Securities of Other Corporations. The president or any vice
president of the Corporation shall have the power and authority to transfer,
endorse for transfer, vote, consent, or take any other action with respect to
any securities of another issuer which may be held or owned by the
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<PAGE> 15
Corporation and to make, execute, and deliver any waiver, proxy, or consent with
respect to any such securities.
8.08 Amendment of Bylaws. The power to amend or repeal these bylaws or
to adopt new bylaws is vested in the board of directors, but is subject to the
right of the shareholders to amend or repeal these bylaws or to adopt new
bylaws.
8.09 Invalid Provisions. If any part of these bylaws is held invalid or
inoperative for any reason, the remaining parts, so far as is possible and
reasonable, shall remain valid and operative.
8.10 Headings; Table of Contents. The headings and table of contents
used in these bylaws are for convenience only and do not constitute matter to be
construed in the interpretation of these bylaws.
The undersigned, the secretary of the Corporation, hereby certifies
that the foregoing bylaws were adopted by the board of directors of the
Corporation as of June 7, 1999.
/s/Kenneth C. Lowe
------------------
Kenneth C. Lowe, Secretary
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<PAGE> 1
EXHIBIT 4.1
TRANSITION AUTO FINANCE III, INC.
AND
TRUST MANAGEMENT, INC., AS TRUSTEE
11% SECURED NOTES
DUE AUGUST 31, 2004
--------------------
INDENTURE
--------------------
DATED AS OF ,
-------------------- ------
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE ACT
SECTION INDENTURE SECTION
- ------------------------------ --------------------------------
<S> <C>
310 (a) (1) 7.10
(a) (2) 7.10
(a) (3) N/A
(a) (4) N/A
(a) (5) 7.10
(b) 7.8, 7.10, 11.2
(c) N/A
311 (a) 7.11
(b) 7.11
(c) N/A
312 (a) 2.6
(b) 11.3
(c) 11.3
313 (a) 7.6
(b) 7.6
(c) 11.2
(d) 7.6
314 (a) 5.7, 5.8, 11.2
(b) 5.9
(c) (1) 11.4
(c) (2) 11.4
(c) (3) N/A
(d) 5.12
(e) 11.4
(f) N/A
315 (a) 7.1(b)
(b) 7.5, 11.2
(c) 7.1(a)
(d) 7.1(c)
(e) 6.11
316 (a) (1) (A) 6.5
(a) (1) (B) 6.4
(a) (last sentence) 1.1 (Def. of "Outstanding")
(b) 6.7
(c) N/A
317 (a) (1) 6.8
(a) (2) 6.9
(b) 5.2
318 (a) 11.1
</TABLE>
"N/A" = Not Applicable
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 - DEFINITIONS AND INCORPORATION BY REFERENCE.........................................................2
SECTION 1.1 DEFINITIONS.............................................................................2
SECTION 1.2 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT......................................12
SECTION 1.3 RULES OF CONSTRUCTION..................................................................12
ARTICLE 2 - THE SECURITIES...................................................................................12
SECTION 2.1 FORMS GENERALLY........................................................................12
SECTION 2.2 FORMS OF SECURITY......................................................................13
SECTION 2.3 DENOMINATIONS..........................................................................17
SECTION 2.4 EXECUTION AND AUTHENTICATION...........................................................17
SECTION 2.5 REGISTRAR AND PAYING AGENT.............................................................18
SECTION 2.6 SECURITYHOLDER LISTS...................................................................18
SECTION 2.7 TRANSFER AND EXCHANGE..................................................................18
SECTION 2.8 REPLACEMENT SECURITIES.................................................................18
SECTION 2.9 TEMPORARY SECURITIES...................................................................19
SECTION 2.10 CANCELLATION...........................................................................19
SECTION 2.11 DEFAULTED INTEREST.....................................................................19
SECTION 2.12 PERSONS DEEMED OWNERS..................................................................19
ARTICLE 3 - REDEMPTION........................................................................................20
SECTION 3.1 REDEMPTION AFTER SINKING FUND TRIGGER DATE.............................................20
SECTION 3.2 SECURITIES NOT PREVIOUSLY DELIVERED TO TRUSTEE.........................................20
SECTION 3.3 SELECTION OF SECURITIES TO BE PURCHASED OR REDEEMED....................................20
SECTION 3.4 NOTICE OF REDEMPTION...................................................................20
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.........................................................21
SECTION 3.6 DEPOSIT OF REDEMPTION AMOUNT...........................................................21
SECTION 3.7 SECURITIES REDEEMED IN PART............................................................21
ARTICLE 4 - ACCOUNTS, DISBURSEMENTS AND RELEASES..............................................................22
SECTION 4.1 COLLECTION OF MONEYS...................................................................22
SECTION 4.2 SINKING FUND ACCOUNT; OPERATING ACCOUNT; MASTER COLLECTIONS ACCOUNT....................22
SECTION 4.3 PURCHASE OF LEASED VEHICLES AND ELIGIBLE ADDITIONAL CONTRACTS..........................25
SECTION 4.4 REPRESENTATIONS AND WARRANTIES AS TO THE CONTRACTS.....................................26
SECTION 4.5 GENERAL PROVISIONS REGARDING SINKING FUND ACCOUNT......................................28
SECTION 4.6 RELEASES...............................................................................29
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
SECTION 4.7 REPORTS BY TRUSTEE.....................................................................30
SECTION 4.8 TRUST ESTATE; CONTRACT DOCUMENTS.......................................................30
ARTICLE 5 - COVENANTS........................................................................................30
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST......................................................30
SECTION 5.2 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST........................................32
SECTION 5.3 PAYMENT OF TAXES AND OTHER CLAIMS......................................................32
SECTION 5.4 MAINTENANCE OF PROPERTIES..............................................................33
SECTION 5.5 LIMITATION ON INVESTMENT ACTIVITIES....................................................33
SECTION 5.6 COMPLIANCE CERTIFICATES................................................................33
SECTION 5.7 REPORTING..............................................................................34
SECTION 5.8 PROTECTION OF TRUST ESTATE.............................................................34
SECTION 5.9 OPINIONS AS TO TRUST ESTATE............................................................35
SECTION 5.10 PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT........................................35
SECTION 5.11 NEGATIVE COVENANTS.....................................................................36
SECTION 5.12 SUBSTITUTION OR RELEASE OF COLLATERAL OR WITHDRAWAL OF CASH IN TRUST ESTATE............38
ARTICLE 6 - DEFAULTS AND REMEDIES.............................................................................39
SECTION 6.1 EVENTS OF DEFAULT......................................................................39
SECTION 6.2 ACCELERATION...........................................................................40
SECTION 6.3 REMEDIES...............................................................................41
SECTION 6.4 WAIVER OF PAST DEFAULTS................................................................41
SECTION 6.5 CONTROL BY MAJORITY....................................................................41
SECTION 6.6 LIMITATION ON SUITS....................................................................42
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT...................................................42
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.............................................................42
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.......................................................42
SECTION 6.10 PRIORITIES.............................................................................43
SECTION 6.11 UNDERTAKING FOR COSTS..................................................................43
SECTION 6.12 STAY, EXTENSION OR USURY LAWS..........................................................43
SECTION 6.13 OPTIONAL PRESERVATION OF TRUST ESTATE..................................................44
SECTION 6.14 SALE OF TRUST ESTATE...................................................................44
ARTICLE 7 - TRUSTEE...........................................................................................45
SECTION 7.1 DUTIES OF TRUSTEE......................................................................45
SECTION 7.2 RIGHTS OF TRUSTEE......................................................................47
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE...........................................................47
SECTION 7.4 TRUSTEE'S DISCLAIMER...................................................................47
SECTION 7.5 NOTICE OF DEFAULTS.....................................................................47
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS..........................................................48
SECTION 7.7 COMPENSATION AND INDEMNITY.............................................................48
SECTION 7.8 REPLACEMENT OF TRUSTEE.................................................................49
</TABLE>
ii
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<TABLE>
<S> <C> <C> <C>
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.......................................................50
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION..........................................................50
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY......................................50
SECTION 7.12 WITHHOLDING TAXES......................................................................50
ARTICLE 8 - DISCHARGE OF INDENTURE............................................................................50
SECTION 8.1 SATISFACTION AND DISCHARGE OF INDENTURE................................................50
SECTION 8.2 APPLICATION OF TRUST MONEY.............................................................51
SECTION 8.3 REPAYMENT TO COMPANY...................................................................51
ARTICLE 9 - AMENDMENTS, SUPPLEMENTS AND WAIVERS...............................................................52
SECTION 9.1 WITHOUT CONSENT OF HOLDERS.............................................................52
SECTION 9.2 WITH CONSENT OF HOLDERS................................................................52
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT....................................................53
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS......................................................53
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES..................................................53
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC........................................................53
ARTICLE 10 - MEETINGS OF SECURITYHOLDERS......................................................................54
SECTION 10.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.............................................54
SECTION 10.2 MANNER OF CALLING MEETINGS............................................................54
SECTION 10.3 CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS........................................54
SECTION 10.4 WHO MAY ATTEND AND VOTE AT MEETINGS...................................................55
SECTION 10.5 REGULATIONS MAY BE MADE BY TRUSTEE; CONDUCT OF THE MEETING; VOTING RIGHTS.............55
SECTION 10.6 EXERCISE OF RIGHTS OF TRUSTEE OR SECURITYHOLDERS MAY NOT BE HINDERED OR DELAYED
BY CALL OF MEETING..................................................................55
SECTION 10.7 EVIDENCE OF ACTIONS BY SECURITYHOLDERS................................................55
ARTICLE 11 - MISCELLANEOUS....................................................................................56
SECTION 11.1 TRUST INDENTURE ACT CONTROLS..........................................................56
SECTION 11.2 NOTICES...............................................................................56
SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS...........................................57
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT....................................57
SECTION 11.5 RULES BY PAYING AGENT AND REGISTRAR...................................................57
SECTION 11.6 LEGAL HOLIDAYS........................................................................57
SECTION 11.7 GOVERNING LAW.........................................................................57
SECTION 11.8 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.........................................58
SECTION 11.9 NO RECOURSE AGAINST OTHERS............................................................58
SECTION 11.10 SUCCESSORS............................................................................58
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
SECTION 11.11 DUPLICATE ORIGINALS...................................................................58
ARTICLE 12 - AGREEMENTS OF SERVICER...........................................................................58
SECTION 12.1 GENERAL...............................................................................58
SECTION 12.2 SERVICER ACTING AS CUSTODIAN..........................................................58
SECTION 12.3 REPRESENTATIONS AND WARRANTIES CONCERNING THE SERVICER................................59
SECTION 12.4 CORPORATE EXISTENCE; STATUS AS SERVICER; MERGER.......................................59
SECTION 12.5 PERFORMANCE OF OBLIGATIONS............................................................60
SECTION 12.6 THE SERVICER NOT TO RESIGN; ASSIGNMENT................................................60
SECTION 12.7 REPRESENTATIONS AND WARRANTIES AS TO THE CONTRACTS....................................61
SECTION 12.8 PURCHASE OF CERTAIN CONTRACTS.........................................................62
SECTION 12.9 INDEMNIFICATION.......................................................................63
SECTION 12.10 TERMINATION...........................................................................63
SECTION 12.11 AMENDMENT.............................................................................63
SECTION 12.12 INSPECTION AND AUDIT RIGHTS...........................................................64
</TABLE>
iv
<PAGE> 7
THIS INDENTURE, dated as of ______________, 1999, is between TRANSITION
AUTO FINANCE III, INC., a Texas corporation (the "Company"), having its
principal office at 5422 Alpha Road, Suite 100, Dallas, Texas 75240 and TRUST
MANAGEMENT, INC., a Texas Trust Company, 210 West Sixth Street, Suite 605, Fort
Worth, Texas 76102, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture and the issuance of its 11% Secured Notes due August 31, 2004 in the
maximum aggregate principal amount of $20,000,000 (the "Securities").
All acts necessary to make the Securities, when executed by the Company
and 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 Securities by the Holders (as herein defined) thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities, as follows:
GRANTING CLAUSES
The Company hereby Grants to the Trustee, for the exclusive benefit of
the Holders of the Securities, all of the Company's right, title and interest in
and to (a) all Contracts (as herein defined) hereafter acquired by the Company,
together with all related Contract Documents, and all payments or instruments
paid on account of such Contracts whenever received, and all other proceeds
(cash or non-cash) received in respect of such Contracts, (b) the Servicing
Agreements, (c) the Operating Account, (d) the Master Collections Account, (e)
the Sinking Fund Account, including all Eligible Investments therein and all
income from the investment of funds therein, (f) all Leased Vehicles, together
with any repossessed or returned Leased Vehicles (including any Leased Vehicle
returned upon termination of its Contract), and (g) all proceeds of the
conversion, voluntary or involuntary, of any of the foregoing into cash or other
liquid property, including, without limitation, all Net Liquidation Proceeds and
Insurance Proceeds (collectively, the "Trust Estate").
The foregoing Grants are made, however, in trust, to secure the
Securities equally and ratably without prejudice, priority or distinction,
except as expressly provided in the Indenture, between any Security and any
other Securities by reason of difference in time of issuance or otherwise, and
to secure (i) the payment of all amounts due on the Securities in accordance
with their terms, (ii) the payment of all other sums payable under this
Indenture, and (iii) compliance with the provisions of this Indenture, all as
provided in this Indenture.
1
<PAGE> 8
The Trustee acknowledges the foregoing Grants, accepts the trusts
hereunder in accordance with the provisions hereof and agrees to perform the
duties herein required to the best of its ability.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Accounts" means the Sinking Fund Account, the Master Collections
Account and the Operating Account established by the Company under the
provisions of Section 4.2.
"Affiliate" means, as to any Person, any other Person that 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 that owns
directly or indirectly 20% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
20% 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 Trustee's name, any fees payable for the
transfer of the ownership 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), any bank service charges and
account fees relating to the Accounts, the Company's pro rata share (based on
the relative amounts of funds attributable to the Contracts as compared to the
lease Contracts of all other Persons serviced by the Servicer) of the lockbox
fees, account fees and bank service charges relating to the Master Collections
Account, any legal and accounting fees for reports, certificates and opinions of
attorneys and independent accountants required under this Indenture, and any
Liquidation Expenses.
"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 ownership interest in the
Leased Vehicle is governed such that the ownership interest and a first priority
security interest in the Leased Vehicle may be transferred to the Company and a
second priority security interest in the related Leased Vehicle may be granted
in favor of the Trustee to permit the assignee to exercise all rights granted by
the Obligor under such Contract and such other documents and all rights
available under applicable law to the obligee under such Contract and that may,
to the extent
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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 that is not a Legal Holiday.
"Collection Period" means with respect to any Payment Date, the
calendar month immediately preceding the Payment Date.
"Common Stock" means the common stock issued or issuable by the
Company.
"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, and by its Treasurer, Assistant Treasurer, Controller, Assistant
Controller, Secretary or an Assistant Secretary, and delivered to the Trustee.
"Contract" means each lease contract that has been executed by an
Obligor and pursuant to which such Obligor leased the Leased Vehicle described
therein, agreed to pay the lease payments as therein provided in connection with
such lease, and undertook to perform certain other obligations as specified in
such contract and that is Granted to the Trustee pursuant to this Indenture as
security for the Securities. The term "outstanding Contracts" as of any date
means all Contracts other than Liquidated Contracts.
"Contract Documents" means with respect to each Contract, (i) the
original Contract; (ii) either the original Title Document for the related
Leased Vehicle showing the Company as the owner and first lienholder and the
Trustee as second lienholder or an official receipt from the responsible state
or local government authority showing that an application has been made (and the
required fees have been paid) for registration of the Title Documents for such
Leased Vehicle in the names of the Company as owner and first lienholder and the
Trustee as second lienholder (or such other evidence of ownership of the Leased
Vehicle by the Company and perfection of the security interest in the related
Leased Vehicle, as determined by the Trustee to be permitted or required to
transfer ownership of the Leased Vehicle to the Company and to perfect such
security interests under the laws of the applicable jurisdiction, or a guarantee
from the dealer conveying such Leased Vehicle that the Title Document for such
Leased Vehicle showing the Company as owner and first lienholder and the Trustee
as second lienholder has been applied for); (iii) the related Assignment; and
(iv) any agreement(s) modifying the Contract (including, without limitation, any
extension agreement(s)).
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"Contract Number" means with respect to any Contract included in the
Trust Estate, the number assigned to such Contract by the Servicer, which number
is set forth in the related Monthly Report.
"Contract Unavailability Notice" shall have the following meaning: in
the event that the Company determines, in its discretion, that it is unable, for
any reason outside its control, to purchase additional Leased Vehicles and
Contracts that conform with the purchasing criteria set forth in the Servicing
Agreements or in Exhibit A hereto, the Company may elect to provide notice of
such determination to the Trustee, such notice to be referred to herein as a
"Contract Unavailability Notice."
"Corporation" includes corporations, associations, companies and
business trusts.
"Default" means any event that is, or after notice or passage of time
would be, an Event of Default.
"Defaulted Contract" means with respect to any Collection Period, a
Contract (a) whose Obligor, at the end of such Collection Period is past due
with respect to at least one scheduled lease payment, or (b) with respect to
which the related Leased 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
Contracts, have not yet been collected as of the end of such Collection Period.
"Disbursement Certificate" means an Officers' Certificate of the
Company setting forth the individual items of Allowed Expenses to be paid by the
Company from funds in the Operating Account, agreeing that such items will be
promptly paid with such funds and certifying that such withdrawal of funds and
the payment of such Allowed Expenses conforms to the requirements of this
Indenture.
"Due Date" means as to any lease payment by an Obligor on a Contract,
the date upon which such lease payment 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
$3,000,000, or (ii) an account or accounts the deposits in which are fully
insured by the Federal Deposit Insurance Corporation.
"Eligible Additional Contract" means a Contract hereafter acquired by
the Company that, as of the date of such acquisition, satisfies the
representations and warranties contained in Section 4.4 of this Indenture.
"Eligible Investments" means any one or more of the following
obligations or securities:
(i) United States Obligations;
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(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 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 $3,000,000;
(iii) repurchase obligations with respect to any security
described in clause (i) entered into with a depository institution or
trust company, acting as principal, whose obligations have 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 that at the time of such investment has
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 and held as part of the Trust
Estate to exceed 10% of the aggregate outstanding balances and amounts
of all Contracts and Eligible Investments held as part of the Trust
Estate;
(v) commercial paper given the highest rating by Standard &
Poor's at the time of such investment; and
(vi) any publicly traded money market mutual fund that is
invested in the above-mentioned Eligible Investments.
"Event of Default" shall have the meaning provided in Section 6.1.
"Full Prepayment" with respect to a Contract means either of the
following: (i) payment to the Servicer of 100% of the outstanding lease payments
of a Contract plus early termination fees and/or other charges properly payable
under the Contract (exclusive of any Contract referred to in clause (ii) or
(iii) of the definition of the term "Liquidated Contract"), less any discount of
such lease payments to which the Obligor shall be entitled under the terms of
such Contract and applicable law by virtue of early payment of any lease
payment, or (ii) payment by the Servicer into the Master Collections Account of
the purchase price of a Contract in connection with the repurchase by Servicer
of the Contract.
"Grant" means to mortgage, pledge, assign and grant a security interest
in. A Grant of a Contract and the related Contract Documents, the related Leased
Vehicle, an Eligible Investment, the Servicing Agreements or any other
instrument shall include all rights, powers and options (but none of the
obligations, except to the extent required by law) of the Granting party
thereunder, including without limitation, the immediate and continuing right to
claim, collect, receive and give receipt for payments in respect of the Contract
and principal and interest payments in respect of the Eligible Investment,
Insurance Proceeds, Liquidation Proceeds, purchase prices and all other moneys
payable thereunder and all proceeds thereof, to give and receive notices and
other communications,
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to make waivers or other agreements, to exercise all rights and options, to
bring suit or other legal proceedings in the name of the Granting party or
otherwise, and generally to do and receive anything that the Granting party is
or may be entitled to do or receive thereunder or with respect thereto.
"Holder," "Securityholder" or "Noteholder" means a Person in whose name
a Security 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, such a Person
who (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 in the exercise of reasonable
care and such opinion or certificate shall state that the signer is Independent
within the meaning hereof.
"Insurance Proceeds" means the proceeds paid pursuant to any Physical
Damage Insurance Policy and amounts paid by any insurer under any other
insurance policy for damage or repair of a Leased Vehicle.
"Investment Company Act" means the Investment Company Act of 1940 (15
U.S.C. 90a-1 et seq.), as amended.
"Leased Vehicle" means, as to any Contract, the automobile (which may
be a passenger car, minivan, sport/utility vehicle or light truck) that
constitutes the subject of such Contract.
"Legal Holiday" shall have the meaning provided in Section 11.6 of this
Indenture.
"Liquidated Contract" means a Contract that (i) has been the subject of
a Full Prepayment, (ii) was a Defaulted Contract and with respect to which
Liquidation Proceeds that, in the Servicer's judgment, constitute the final
amounts recoverable in respect of such Contract have been realized and deposited
in the Master 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 that is brought current and
is no longer in default during such attempted liquidation) and the sale of any
property acquired in respect thereof, which expenses are not recoverable under
any insurance policy.
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"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 property acquired in
respect thereof, whether through receipt of Insurance Proceeds, repossession,
sale or otherwise.
"Master Collections Account" means the lockbox account established and
maintained by the Servicer.
"Master Purchasing Agreement" means the agreement between the
Company and Transition Leasing Management, Inc. pursuant to which Transition
Leasing (i) will acquire on behalf of the Company vehicles that are to become
Leased Vehicles and prepare and execute Contracts on the Company's behalf with
Obligors, and (ii) will prepare and execute on behalf of the Company the
necessary documents by which the Company may acquire existing Contracts from
Transition Auto Finance II, Inc.
"Maturity Date" means with respect to any Contract, the date on which
the last scheduled lease payment 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 interest payments on the Notes 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.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Net Capitalized Cost," with respect to a Leased Vehicle, means an
amount equal to 120% of the actual purchase price of the vehicle, less the
amount of the Lessee's down payment.
"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 Securities maintained by the
Registrar pursuant to Section 2.5.
"Obligor" means each Person who is indebted under a Contract or who has
acquired the Leased Vehicle subject to a Contract.
"Offering Amount" shall mean the $20,000,000 in aggregate principal
amount of 11% Secured Notes due August 31, 2004 that may be issued under this
Indenture.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of any Person.
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"Officers' 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 4.2.
"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" means, with respect to the Securities, as of the date of
determination, all the Securities theretofore authenticated and delivered under
this Indenture except:
(i) the Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) the Securities 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
Securities; provided that, if such Securities 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) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Trustee is presented that
any such Securities are held by a holder in due course; provided,
however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any Affiliates of the Company shall
be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or
waiver, only Securities 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. Securities so owned that have
been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is
not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor.
"Overdue Interest Rate" means the lesser of (i) an interest rate of 18%
per annum, or (ii) the highest lawful rate of interest.
"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 that may become
payable on any Securities on behalf of the Company.
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"Payment Date" with respect to any Security, means the (i) fifteenth
day of each calendar month (unless such day is a Legal Holiday, in which event
the next succeeding Business Day) commencing with the second calendar month
following the month in which the Security is issued, and (ii) the Stated
Maturity.
"Payment Date Statement" shall have the meaning provided in Section
5.1.
"Person" means any individual, corporation, partnership, joint venture,
joint adventure, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Damage Insurance Policy" means with respect to a Leased
Vehicle, any policy of physical damage, comprehensive or collision insurance
covering the Leased Vehicle pursuant to which the Servicer may obtain recoveries
for loss or damage to the Leased Vehicle.
"Purchase Date" means the date on which the Company remits funds from
the Operating Account to pay the purchase price for a Leased Vehicle or for an
Eligible Additional Contract.
"Purchased Contracts Certificate" means the Officer's Certificate of
the Company and the Servicer required to be delivered to the Trustee in
connection with the purchase of any Eligible Additional Contracts and designated
as such pursuant to Section 4.3.
"Record Date" for the interest payable on any Payment Date means the
first Business Day of the month in which such Payment Date occurs.
"Redemption Date" means any Payment Date which is subsequent to the
Sinking Fund Trigger Date and which is designated by the Company as the date
upon which the Company will redeem some or all of the Securities.
"Redemption Price" means with respect to any Security to be redeemed,
100% of the unpaid principal amount of such Security together with accrued and
unpaid interest on the unpaid principal amount thereof to the applicable
Redemption Date.
"Registrar" means the registrar for the Securities appointed by the
Company pursuant to Section 2.5 hereof, and any successor registrar appointed by
the Company hereunder.
"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
Leased Vehicle is registered.
"Responsible Officer" when used with respect to the Trustee means the
Chairman or Vice Chairman of the Board 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 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
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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 knowledge of and familiarity with the particular subject.
"Sale" has the meaning set forth in Section 6.14.
"Schedule of Contracts" means the list of Contracts attached hereto as
Schedule A, as such list may be supplemented from time to time hereafter
pursuant to Section 4.3, as being Granted to the Trustee as part of the Trust
Estate, which list or lists shall set forth, with respect to each Contract, the
Contract Number, the aggregate unpaid lease payments as of the date acquired by
the Company and as of the date of origination, the name of the Obligor, the
Maturity Date, the name of the originating person, and the vehicle
identification number for the Leased Vehicle, and the date on which the Contract
was originated.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Securities" or "Notes" means the 11% Secured Notes due August 31,
2004, that are issued under this Indenture, as amended from time to time.
"Securities Act of 1933" means the Securities Act of 1933, as amended.
"Securities Exchange Act of 1934" means the Securities Exchange Act of
1934, as amended.
"Servicer" means Transition Leasing Management, Inc., as servicer under
the Servicing Agreement, and its permitted successors and assigns, including any
successor servicer appointed pursuant to Section 5.10.
"Servicer Report Date" means the 10th day (or the Business Day next
following such day if such day is not a Business Day) of each month during the
existence of this Indenture.
"Servicing Agreements" means the Master Purchasing Agreement and the
Servicing Agreement, each dated as of ______________, 1999, between the Company
and the Servicer, providing, among other things, for the purchasing of Leased
Vehicles and Contracts and the 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 servicing agreement entered
into with a successor servicer pursuant to Section 5.10 and any separate
servicing agreement for the servicing of Contracts.
"Servicing Fees" means the compensation payable by the Company to the
Servicer under the Servicing Agreement.
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"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.
"Sinking Fund Account" means the trust account established and
maintained by the Company and designated as such pursuant to Section 4.2.
"Sinking Fund Trigger Date" means the earlier to occur of 25 months
from the release of funds from escrow or the receipt by the Trustee of a
Contract Unavailability Notice.
"Special Record Date" means the date determined pursuant to Section
2.11.
"Stated Maturity" means August 31, 2004.
"Subsidiary" means, with respect to the Company, any corporation,
partnership, joint venture or joint adventure whether now existing or hereafter
organized or acquired: (i) in the case of a corporation, of which a majority of
the securities having ordinary voting power for the election of directors or
other governing body of such corporation (other than securities having such
power only by reason of the happening of a contingency) are at the time owned by
the Company or one of more other Subsidiaries of the Company, or (ii) in the
case of a partnership, joint venture or joint adventure, in which the Company is
a general partner or joint venturer or joint adventurer.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
77aaa-77bbbb), as amended from time to time.
"Title Document" means, with respect to any Leased Vehicle, the
certificate of title for, or other evidence of ownership of, such Leased Vehicle
issued by the Registrar of Titles in the jurisdiction in which such Leased
Vehicle is registered.
"Trust Estate" shall have the meaning provided in the Granting Clauses
of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it, and thereafter means the successor.
"Trust Officer" means any Responsible Officer assigned by the Trustee
to administer its corporate trust matters.
"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 the United 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 Securities.
"indenture securityholder" means a Securityholder.
"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 Securities).
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 so
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
principles 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 2
THE SECURITIES
SECTION 2.1 FORMS GENERALLY.
The Securities 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
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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 Securities may be listed, or as may consistently herewith be determined by
the officers executing such Securities, as evidenced by their execution thereof.
Any portion of the text of any Security 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 Securities shall be inserted on the face of the Securities,
immediately prior to the paragraph stating that the certificate of
authentication on the Security must be executed by manual signature of the
Trustee as a condition to the validity of such Security:
"Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which provisions shall for all
purposes have the same effect as if set forth at this place."
The definitive Securities shall be printed, lithographed or engraved or produced
by any commercially reasonable manner, all as determined by the officers
executing such Securities, as evidenced by their execution thereof.
SECTION 2.2 FORMS OF SECURITY.
(a) The form of Security is as follows:
TRANSITION AUTO FINANCE III, INC.
11% SECURED NOTES DUE AUGUST 31, 2004
No. _________ CUSIP NO. _______ $__________
Transition Auto Finance III, 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
on August 31, 2004 (the "Stated Maturity" of such principal), 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 11% per annum, which interest shall be due and payable on
the fifteenth day of each calendar month (for such interest accruing during the
preceding month or months) commencing with the second calendar month after the
issuance hereof and upon the Stated Maturity (each a "Payment Date").
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. Any
installment of interest that is not paid when and as due shall bear interest at
the Overdue Interest Rate from the date due to the date of payment thereof, but
only to the extent payment of such interest shall be lawful and enforceable.
This Note represents a general obligation of the Company.
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This Note is one of a duly authorized issue of Notes of the Company,
designated as its 11% Secured Notes Due August 31, 2004 (herein called the
"Notes"), all issued and to be issued under the Indenture dated as of
_______________, 1999 (herein called the "Indenture"), between the Company and
Trust Management, Inc. (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 terms used in
this Note that are capitalized, if not defined herein, are defined in the
Indenture and 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 business 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.
The payment of principal and accrued interest on the Notes, when due,
is secured by the Trust Estate, which consists of, among other things, a first
priority security interest in specific motor vehicle lease Contracts, the Leased
Vehicles described therein and the funds in the Sinking Fund Account.
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 Company and each surety, endorser, guarantor, and other party, if
any, now or hereafter liable for payment of any sums of money payable on this
Note, jointly and severally, waive presentment and demand for payment, notice of
intent to accelerate and notice of acceleration, protest and notice of protest
and nonpayment, and diligence in collecting or bringing suit against any party
hereon, and agree that their liability on this Note shall not be affected by any
renewal or extension in time of payment hereof, by any indulgence, or by any
release, modification, or substitution of any security for the payment of this
Note, and hereby consent to any and all extensions, renewals, replacements,
waivers, releases, or exchanges affecting this Note and the taking, release,
modification, or substitution of any security, with or without notice and before
or after maturity.
The Notes are redeemable at the option of the Company on any Payment
Date following the Sinking Fund Trigger Date, in whole or in part, at 100% of
the unpaid principal amount thereof, together with accrued and unpaid interest
thereon to the Redemption Date; 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 with the Paying Agent money sufficient to effect such
redemption. At least 10 but not more than 60 days prior to the Redemption Date,
the Company is required to mail a notice of redemption by first class mall 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.
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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 his attorney duly authorized in writing, and thereupon one or more new Notes
of authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of Notes representing more
than 50% of the principal amount of all Notes at the time outstanding.
The Indenture also contains provisions permitting the Holders of Notes
representing specified percentages of the principal amount of the Notes at the
time outstanding, on behalf of the Holders of all the Notes, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of Holders of the Note issued
thereunder.
The term "Company" as used in this Note includes any successor to the
Company under the Indenture.
The Notes are 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.
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
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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, and if from any such
circumstances the registered owner of this Note shall ever receive interest or
anything that might be deemed interest under applicable law that should exceed
the highest lawful rate, such amount that 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 registered owner of this Note for the use, forbearance
or detention of the indebtedness of the Company to the registered owner of this
Note shall, to the extent permitted 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.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall impair or affect the right of the registered owner of
this Note to receive payment of principal and interest on this Note, on or after
the respective due dates, or the right of the Trustee to bring suit for the
enforcement of any such payment on or after such respective dates, without the
consent of the registered owner.
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, Transition Auto Finance III, Inc. has caused this
instrument to be duly executed under its corporate seal.
Dated: ___________________________
TRANSITION AUTO FINANCE III, INC.
By:
---------------------------------------
(Authorized Officer)
[SEAL]
Attest:
- ------------------------------
(Authorized Officer)
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(b) The form of the Trustee's certificate of authentication is as
follows:
This is one of the Notes referred to in the within-mentioned Indenture.
--------------------------------------
--------------------------------------
as Trustee, Paying Agent and Registrar
By:
-----------------------------------
Authorized Signatory
SECTION 2.3 DENOMINATIONS.
The Securities shall be issuable only as registered securities in
authorized denominations with a minimum denomination of $1,000 and larger
denominations of integral multiples of $1,000 (in each case expressed in terms
of the principal amount thereof on the date of issuance).
SECTION 2.4 EXECUTION AND AUTHENTICATION.
(a) The Securities 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 Securities. The signature of any such Persons on the Securities may be
manual or facsimile.
(b) Securities bearing the manual or facsimile signatures of
individuals who were at any time the Officers of the Company 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 Securities.
(c) A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security on
behalf of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
(d) The Trustee shall authenticate Securities from time to time for
original issue in the aggregate Offering Amount upon a Company Order; provided,
however, the Trustee shall not be required to so authenticate more often than
once a week. The aggregate principal amount of Securities outstanding at any
time may not exceed that amount except as provided in Section 2.8.
(e) Notwithstanding anything contained herein to the contrary, each of
the Notes issued hereunder, with the consent of the Company and Trustee, may be
issued in book entry form as an uncertificated security in accordance with the
provisions of Article 8 of the Uniform Commercial Code as adopted in the state
of organization of the Company.
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SECTION 2.5 REGISTRAR AND PAYING AGENT.
(a) The Company shall appoint a registrar for the Securities (the
"Registrar") who shall maintain or cause to be maintained an office or agency
where Securities may be presented for registration or transfer or for exchange.
The Registrar shall keep a register of the Securities 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 (the "Paying Agents") who shall maintain or cause to
be maintained an office within the United States of America, at which the
Securities may be presented or surrendered for payment or at which the Paying
Agent may make payments of accrued interest on the Securities 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 as
Paying Agent.
SECTION 2.6 SECURITYHOLDER LISTS.
The Trustee shall preserve a list of the names and addresses of
Securityholders 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 five Business Days before each Payment Date 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
Securityholders.
SECTION 2.7 TRANSFER AND EXCHANGE.
Where a Security is presented to the Company or the Registrar with a
request to register a transfer of Securities, 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 Securities are presented to the Company or the Registrar
with a request to exchange them for an equal principal amount of Securities 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
exchanges, the Trustee shall authenticate Securities upon Company Request or
upon request of the Registrar. The Company may charge a reasonable fee to the
Holder for any transfer or exchange other than an exchange pursuant to Section
2.9, 3.7 or 9.5.
SECTION 2.8 REPLACEMENT SECURITIES.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the requirements for the issuance of
replacements 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
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Registrar from any loss that any of them may suffer if a Security is replaced.
The Company may charge for its expenses in replacing a Security.
SECTION 2.9 TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.10 CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Company shall forward to
the Trustee any Securities surrendered to them for transfer, exchange, payment
or cancellation and shall dispose of cancelled Securities as the Company directs
in accordance with applicable law. The Company may not issue new Securities to
replace Securities 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 Securities, it
shall pay the defaulted interest and, to the extent permitted by law, interest
on defaulted interest at the Overdue Interest Rate to the persons who are
Securityholders 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 subsequent
Special Record Date, the Trustee shall mail to each Securityholder a notice that
states the subsequent Special Record Date, the payment date for the defaulted
interest, and the amount of defaulted interest (plus any permitted interest
thereon) to be paid.
SECTION 2.12 PERSONS DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar and any
agent of the Company or of the Trustee may treat the Person whose name and
Security is registered on the Note Register as the owner of such Security for
the purpose of receiving payments of the principal of and interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee, nor any agent of the Company
shall be affected by notice to the contrary.
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ARTICLE 3
REDEMPTION
SECTION 3.1 REDEMPTION AFTER SINKING FUND TRIGGER DATE.
At any time on any Payment Date on or after the Sinking Fund Trigger
Date, the Securities may be redeemed, in whole or in part, at the option of the
Company at the Redemption Price for such Securities. If the Company elects to
redeem the Securities, it shall, not later than 45 days prior to the Payment
Date selected for redemption, deliver notice of such election to the Trustee,
together with a Company Order directing the Trustee to effect such redemption.
SECTION 3.2 SECURITIES NOT PREVIOUSLY DELIVERED TO TRUSTEE.
If the Company wishes to credit Securities it has not previously
delivered to the Trustee for cancellation against the principal amount of
Securities to be redeemed, it shall so notify the Trustee and it shall deliver
the Securities duly endorsed with the notice.
SECTION 3.3 SELECTION OF SECURITIES TO BE PURCHASED OR REDEEMED.
If less than all of the Securities are to be called for redemption, the
particular Securities to be redeemed shall be selected by the Trustee by lot or
by such other method as the Trustee deems appropriate.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed.
Securities and portions of Securities selected shall be in amounts of $1,000
or whole multiples of $1,000; except that if all of the Securities of a Holder
are to be redeemed, the entire outstanding amount of Securities held by such
Holder, even if not a multiple of $1,000, shall be purchased or redeemed. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) At least 10 days but not more than 60 days before the Redemption
Date, the Company shall mall a notice of redemption by first-class mail to each
Holder of Securities, with a copy thereof to Trustee.
(b) The notice shall identify the Securities to be redeemed by CUSIP
No. and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
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(iii) if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after
the redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Security;
(iv) the name and address of the Paying Agent;
(v) that the Securities must be delivered to Paying Agent at
the address stated in the notice for the Holder to receive the
Redemption Price; and
(vi) that interest on the Securities ceases to accrue on and
after the Redemption Date.
(c) At the Company's request, the Trustee shall give 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 of any Security shall
not impair or affect the validity of the redemption of any Security.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption under Section 3.4 has been given, the
Securities called for redemption must be redeemed on the designated Redemption
Date. Upon surrender to the Paying Agent, such Securities shall be paid at the
Redemption Price.
A notice of redemption under Section 3.4 may not be conditional. Unless
the Company shall default in the payment of the Redemption Price, no interest
shall accrue on the Securities for any period after the Redemption Date.
SECTION 3.6 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 Securities 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 Securities shall be limited to the Redemption
Price therefore, without any premium or penalty, and no interest shall accrue on
such Redemption Price for any period after the Redemption Date. If any Security
called for redemption shall not be so paid upon surrender for redemption because
of the failure of the Company to comply with the provisions of this Section 3.6,
interest shall be paid on the unpaid principal from the Redemption Date until
such principal is paid, and, to the extent lawful, on any interest not paid on
such unpaid principal, in each case at the rate provided in the Securities.
SECTION 3.7 SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the
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Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
ARTICLE 4
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 4.1 COLLECTION OF MONEYS.
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and may receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Trustee pursuant to this
Indenture. The Trustee shall hold all such money and property received by it as
part of the Trust Estate, and shall apply it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under the Servicing Agreements, the
Trustee may, and upon the request of the Holders of Securities representing more
than 50% of the principal amount of the Outstanding Securities shall, take such
action as may be appropriate to enforce such payment or performance including
the institution and prosecution of appropriate judicial proceedings. Any such
action shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and to proceed thereafter as provided in Article 7.
SECTION 4.2 SINKING FUND ACCOUNT; OPERATING ACCOUNT; MASTER COLLECTIONS ACCOUNT.
(a) Prior to the initial authentication and delivery of any Securities,
the Company shall open, at one or more depository institutions (which may be the
Trustee) (the "Custodians"), a trust account denominated "Sinking Fund
Account--Trust Management, Inc., as trustee in respect of the 11% Redeemable
Secured Notes Due June 30, 2002," (the "Sinking Fund Account"). The Sinking Fund
Account shall be an Eligible Account. Deposits to and withdrawals from the
Sinking Fund Account shall be made solely in accordance herewith, and the funds
in the Sinking Fund Account shall not be commingled with any other moneys,
except as expressly provided for herein. The Company shall also open a
commercial bank account in its own name for use in holding the Company's funds
and in paying the Company's expenditures (the "Operating Account"). The Sinking
Fund Account, the Master Collections 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 any 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 Master
Collections Account maintained by the Servicer. The Company agrees to provide or
cause to be provided payment books or will mail or cause to be mailed monthly
statements to all Obligors with remittance instructions directing all payments
to be remitted directly to the Master Collections Account. The Company agrees
that all cash, money orders, checks, notes, drafts and other items that it
otherwise receives and that are
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attributable to the Contracts shall be promptly deposited into the Master
Collections Account. The Company shall likewise deposit or cause to be deposited
in the Master Collections Account within two Business Days of receipt all Net
Liquidation Proceeds and Insurance Proceeds (net of any portion thereof applied
to the repair of any Leased Vehicle, released to an Obligor in accordance with
the normal servicing procedures of the Servicer). The Company shall cause the
Servicer to transfer to the Operating Account, at least weekly and more
frequently if deemed reasonable by the Company under the circumstances, all
funds (except any minimum sum necessary to avoid bank service charges) in the
Master Collections Account that are attributable to the Contracts.
(c) The Company shall cause the Servicer to maintain detailed
accounting books and records adequate to determine the respective share of the
funds (including all income earned thereon as determined by any allocation
method deemed reasonable by the Servicer) deposited or contained in the Master
Collections Account attributable to each motor vehicle lease contract, including
the Contracts, owned by the Company or serviced by the Servicer.
(d) The Company agrees that it shall not withdraw any funds in the
Operating Account except for an investment, transfer or payment of such funds in
accordance with the provisions of this Section 4.2 and Section 4.3.
(e) The Company may invest the funds in the Operating Account but only
in Eligible Investments that mature on or prior to the Business Day next
preceding the next Payment Date following the making of such investment.
(f) So long as the Securities have not been declared due and payable
pursuant to Section 6.2 and subject to the receipt by the Trustee of any
required certificates, 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 Sinking Fund Account of the amount that,
together with any amounts held in the Sinking Fund Account, is
sufficient for the payment, PRO RATA, of all interest due on the
Outstanding Securities 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 other 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, after the Sinking Fund Trigger Date or during the continuance
of an Event of Default, to the transfer to the Sinking Fund Account for
the PRO RATA payment of amounts owing on the Notes when due; and
FIFTH except during the continuance of an Event of Default, until the
Sinking Fund Trigger Date, to the purchase of Eligible Additional
Contracts in accordance with Section 4.3.
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All of the foregoing applications of 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 Sinking Fund Trigger Date, the Company shall cause to be
transferred from the Operating Account to the Sinking Fund Account an amount
that, together with any funds then held in the Sinking Fund Account, is
sufficient to pay the accrued interest due on the Outstanding Notes on such
Payment Date. After the Sinking Fund Trigger Date, upon the written request of a
Trust Officer from time to time or as otherwise determined by the Company 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
Sinking Fund Account the funds in the Operating Account (except any minimum
balance necessary to avoid bank service charges), less any Allowed Expenses for
which funds have not been previously withdrawn from the Operating Account.
(h) 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 Sinking Fund Account all of
the funds in the Operating Account, less any amounts due the Trustee under
Section 7.7.
(i) If the funds in the Operating Account exceed $250,000 for a period
of 60 consecutive days or longer, the Company shall promptly transfer from the
Operating Account to the Sinking Fund Account that portion of such funds
exceeding $250,000 at the end of such 60 day period. This provision shall not
apply to any proceeds from the sale of the Notes by the Company if the Company
elects to deposit such proceeds in the Operating Account, and for this purpose,
any proceeds from the sale of Notes shall be deemed to be the first funds used
by the Company for the purchase of Eligible Additional Contracts.
(j) Upon the Sinking Fund Trigger Date, the Company shall deposit in
the Sinking Fund Account any remaining net proceeds from the sale of the
Securities that have not been used for the purchase of Contracts.
(k) All payments of principal or accrued interest with respect to the
Securities shall be made from amounts held in the Sinking Fund Account. All
payments to be made from time to time to the holders of Securities out of funds
in the Sinking Fund Account pursuant to this Indenture shall be made by the
Trustee as the Paying Agent appointed by the Company, subject to Section 5.2.
All moneys deposited from time to time in the Sinking Fund Account, and all
investments made with such moneys, shall be held by the Trustee as part of the
Trust Estate as herein provided. No amounts contained in the Sinking Fund
Account shall be paid over to or at the direction of the Company, except as
provided in a Payment Date Statement delivered by the Company, that is in
compliance with provisions of Section 5.1 or 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 Sinking Fund Account shall be invested and
reinvested by the Trustee at the Company's direction
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in one or more Eligible Investments. All income or other gain from investment of
moneys deposited in the Sinking Fund 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 Noteholder, withdraw from the Operating Account
the funds necessary to pay the offering expenses incurred in connection with the
sale of the Notes, but not to exceed the limits set forth in the Company's final
prospectus filed with the SEC pursuant to which the Securities are offered and
sold on behalf of the Company.
SECTION 4.3 PURCHASE OF LEASED VEHICLES AND ELIGIBLE ADDITIONAL CONTRACTS.
(a) Leased Vehicles and Eligible Additional Contracts shall be
originated by the Servicer (or its contractors) for purchase by the Company
pursuant to the terms of the Servicing Agreements and this Indenture. In
carrying out its purchase obligations, the Servicer shall use its customary and
usual procedures in evaluating the purchase of motor vehicles and motor vehicle
lease Contracts and, to the extent more exacting, the procedures used by the
Servicer in respect to such motor vehicles and Contracts purchased by it for its
own account. The Company and the Servicer shall agree from time to time as to
which Leased Vehicles and Eligible Additional Contracts are to be purchased by
the Company through Servicer. The purchase prices for any such purchases shall
be payable from the funds in the Operating Account, notwithstanding the
provisions of Section 5.12. On or prior to each Servicer Report Date, the
Company shall deliver to the Trustee (or any duly appointed custodian for the
Contract Documents) the Contract Documents relating to such Contracts, with the
Contracts containing the notice required by Section 4.3(e). Also, on or prior to
each Servicer Report Date, the Company shall deliver to the Trustee a
supplemental Schedule A to this Indenture, reflecting all Contracts acquired by
or for the Company during the report period. If no Contracts were acquired
during the report period, it will not be necessary to file a supplemental
Schedule A for that period.
(b) Servicer agrees that any motor vehicle lease Contracts originated
by it that satisfy the criteria established in Section 4.4 of this Indenture
will be offered for sale to the Company, to the extent that the Company has
sufficient funds to purchase such Contracts.
(c) The purchase price payable by the Company for each Leased Vehicle
originated by the Servicer on the Company's behalf shall equal the original
purchase price of the Leased Vehicle, plus a fee to the Servicer equal to $150
per purchased Contract, plus 57.5% of the Obligor's down payment to the Company.
The purchase price payable by the Company for each Eligible Additional Contract
acquired from Transition Auto Finance II, Inc. ("TAF-II"), an affiliate of the
Company, shall be an amount equal to the sum of (i) the depreciated value of the
Leased Vehicle as of the date of the Company's purchase plus (ii) 57.5% of the
down payment originally paid by TAF-II with respect to such Leased Vehicle plus
(iii) $150. For this purpose, the depreciated value is calculated
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by amortizing over the term of the Lease the difference between the Net
Capitalized Cost of the Leased Vehicle and TAF-II's estimate, at the inception
of the lease, of the residual value of the Leased Vehicle at the expiration of
the lease.
(d) Servicer and the Company may amend the purchasing criteria set
forth in the Servicing Agreements 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 Holders of 50% of the aggregate principal amount of the
Outstanding Securities must be obtained.
(e) Each Eligible Additional Contract purchased by the Company pursuant
to this Section 4.3 shall be marked on its face with the following notice:
"NOTICE: THIS MOTOR VEHICLE LEASE CONTRACT HAS BEEN SOLD TO TRANSITION
AUTO FINANCE III, INC., AND IS SUBJECT TO A PERFECTED SECURITY INTEREST
OF TRUST MANAGEMENT, INC., AS TRUSTEE, UNDER AN INDENTURE DATED AS OF
______________, 1999 BETWEEN TRANSITION AUTO FINANCE III, INC. AND SAID
TRUSTEE."
A UCC-l financing statement properly describing each Eligible
Additional Contract and naming the Trustee as secured party shall be duly filed
in the appropriate filing office to perfect the Trustee's security interest in
such Contract.
(f) 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 (i) following the Sinking Fund Trigger
Date, or (ii) during the continuance of an Event of Default.
SECTION 4.4 REPRESENTATIONS AND WARRANTIES AS TO THE CONTRACTS.
With respect to each Contract, the Company covenants and agrees that,
effective as of the Purchase Date for such Contract, the following
representations and warranties shall be true and shall be reaffirmed by delivery
of the Purchased Contracts Certificate signed by the Servicer:
(a) Each Contract conforms with all applicable Federal, state
and local laws, regulations and official rulings.
(b) Each Contract (i) shall have been originated in the United
States of America and shall cover a Leased Vehicle purchased from a
dealer in the retail sale of the Leased Vehicle in the ordinary course
of such dealer's business, shall have been fully and properly executed
by the parties thereto and the full and complete title to such Leased
Vehicle shall have been validly assigned by such dealer to the Company
in accordance with its terms, (ii) shall have created or shall create
ownership of the Leased Vehicle in the name of the Company and a valid,
subsisting and enforceable first priority security interest in favor of
the Trustee in the Leased Vehicle, (iii) shall contain customary and
enforceable provisions such that the rights and remedies of the holder
thereof shall be adequate for realization
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against the collateral of the benefits of the Leased Vehicle, (iv)
shall provide for, in the event that such Contract is prepaid, a
prepayment that fully satisfies all required payments pursuant to the
Contract, (v) meets in all material respects all purchasing criteria
set forth on Exhibit A attached hereto, and (vi) shall not be a
Defaulted Contract.
(c) (i) The Title Document for the related Leased Vehicle
shows (or if a new or replacement Title Document is applied for with
respect to such Leased Vehicle, the official receipt from the
responsible state or local governmental authority indicating that an
application has been made and that the Title Document, when issued,
will show) the Servicer or the Company as the owner of the Leased
Vehicle and the Trustee as the holder of a first priority security
interest in such Leased Vehicle, (ii) within 30 days after the Purchase
Date for the Contract relating to the Leased Vehicle, the Title
Document for such Leased Vehicle will show the Company as owner of the
Leased Vehicle and the Trustee as the holder of a first priority
security interest in such Leased Vehicle, and (iii) the Company, upon
delivery of the Assignment, will have a valid and enforceable ownership
interest in the Leased Vehicle and the Trustee will have a first
priority security interest in the Leased Vehicle.
(d) Each Contract and the lease of the Leased Vehicle shall
have complied at the time it was originated or made in all material
respects with all requirements of applicable federal, state, and local
laws, and regulations thereunder, including, without limitation, usury
laws, the Federal Truth-In-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Federal Trade Commission Act, the Federal Reserve Board's
Regulations B, M and Z, and state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, and other consumer laws
and equal credit opportunity and disclosure laws.
(e) Each Contract shall represent the genuine, legal, valid
and binding payment obligation in writing of the Obligor, enforceable
by the holder thereof in accordance with its terms subject to the
effects of bankruptcy, insolvency, reorganization or other similar laws
affecting the enforceability of creditors' rights generally.
(f) No provision of a Contract shall have been waived, amended
or modified, except as disclosed in writing by Servicer.
(g) No right of rescission, setoff, counterclaims or defense
shall have been asserted or threatened with respect to any Contract.
(h) The Assignment constitutes an enforceable sale and
transfer of the Leased Vehicle and the Contract from the Person from
whom they are purchased to the Company and it is the intention of the
Servicer that the beneficial interest in and title to the Leased
Vehicles and the Contracts not be part of Servicer's estate in the
event of the filing of a bankruptcy petition by or against Servicer
under bankruptcy law.
(i) Immediately prior to the Assignment herein contemplated,
the Person from whom such Leased Vehicle or Contract is purchased by
the Company had good and
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marketable title to each Leased Vehicle or Contract free and clear of
all liens, encumbrances, security interests, and rights of others and,
immediately upon the transfer thereof pursuant to the Assignment, the
Company shall have good and marketable title to each Leased Vehicle and
Contract, free and clear of all liens, encumbrances, security interests
and rights of others.
(j) No Contract shall have been originated in, or shall be
subject to the laws of, any jurisdiction under which the sale, transfer
and assignment of such Contract to the Company or the Trustee would be
unlawful, void or voidable.
SECTION 4.5 GENERAL PROVISIONS REGARDING SINKING FUND ACCOUNT.
(a) The Company shall not direct the Trustee to make any investment of
any funds in the Sinking Fund Account or to sell any investment held in the
Sinking Fund Account except under the following terms and conditions: (i) (A)
each such 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 such
issuer of such investment, such pledge may be so registered), (B)any instrument
evidencing such investment shall be delivered directly to the Trustee or its
agent; and (ii) the proceeds of each such sale of an investment shall be
remitted by the purchaser thereof directly to the Trustee for deposit into the
Sinking Fund Account.
(b) If any amounts are needed for disbursement from the Sinking Fund
Account and sufficient uninvested funds are not available to make such
disbursement, in the absence of a Company Order for the liquidation of the
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 Sinking Fund Account.
(c) The Trustee shall not in any way be held liable by reason of any
insufficiency in the Sinking Fund Account resulting from any loss on any
Eligible Investment included therein except that the Trustee shall remain liable
on Eligible Investments that are obligations of the Trustee in its commercial
capacity.
(d) All investments of funds in the Sinking Fund Account and all sales
of Eligible Investments held in the Sinking Fund 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 not be invested, in which case
such funds shall remain deposited in the Sinking Fund Account) or may be a
general, standing order authorizing the Trustee to act on written instructions
of specified personnel or agents of the Company. In order to insure that the
Trustee can invest funds in the Sinking Fund Account or sell any investment in
the Sinking Fund 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.
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(e) In the event that:
(i) 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
Sinking Funds Account,
(ii) a Default or Event of Default shall have occurred and be
continuing but the Securities shall not have been declared due and
payable pursuant to Section 6.2, or if the Securities shall have been
declared due and payable following an Event of Default, amounts
collected or receivable from the related Trust Estate are being applied
in accordance with Section 6.13, or
(iii) an Event of Default shall have occurred and be
continuing, the Securities shall have been declared due and payable
pursuant to Section 6.2, and amounts collected or receivable from the
related Trust Estate are being applied in accordance with Section 6.10,
the Trustee shall invest and reinvest the funds then in the Sinking Fund Account
to the fullest extent practicable in Eligible Investments. All investments made
pursuant to clause (i) above shall mature on the next Business Day following the
date of such investment, all such investments made pursuant to clause (ii) above
shall mature no later than the next Payment Date, and all investments made
pursuant to clause (iii) above shall mature no later than the first date
following the date of such investment on which the Trustee proposes to make a
distribution to Noteholders pursuant to Section 6.10.
SECTION 4.6 RELEASES.
(a) The lien of this Indenture shall be released from a Liquidated
Contract (including any related Contract Documents and Leased Vehicle),
notwithstanding the provisions of Section 5.12, if:
(i) in the event that such Liquidated Contract has been paid
in full, the Trustee receives the certificate of a Servicing Officer
identifying such Contract and certifying that such Contract has been
fully paid and all proceeds received in respect of such Contract have
been deposited in the Master Collections Account;
(ii) in the event that such Liquidated Contract is required to
be purchased by the Servicer pursuant to the Servicing Agreements, the
Trustee receives a certificate of a Servicing Officer (A) identifying
the Contract to be released, (B) requesting the release thereof, and
(C) certifying that the correct repurchase price therefor has been
deposited in the Master Collections Account; and
(iii) in the event that such Liquidated Contract is a
"Liquidated Contract" by virtue of clause (ii) of the definition
thereof, the Trustee receives the certificate of a Servicing Officer to
the effect that such Contract is a Defaulted Contract that became a
Liquidated Contract during the related Collection Period, and there has
been deposited in the Master
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Collections Account any related Net Liquidation Proceeds that, in the
Servicer's judgment, constitute the final amounts recoverable in
respect of such Contract.
(b) Each certificate of a Servicing Officer required by subsection (a)
above, shall contain a statement to the effect that the release of the
Liquidated Contract from the lien for this Indenture will not impair the
security under this Indenture in contravention of its provisions, after taking
into account the amounts deposited in the Master Collections Account on the
account of such Liquidated Contract.
SECTION 4.7 REPORTS BY TRUSTEE.
The Trustee shall report and account to the Company in writing (using
such form as the Trustee shall choose in its sole discretion) with respect to
the Sinking Fund 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 accounting of deposits into and payments from the
Sinking Fund Account.
SECTION 4.8 TRUST ESTATE; CONTRACT DOCUMENTS.
(a) Subject to the payment of its fees and expenses the Trustee may,
and when required by the provisions of this Indenture shall, execute instruments
to release property from the lien of this Indenture, or convey the Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Trustee as provided in this Article 4 shall be bound
to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) In order to facilitate the servicing of the Contracts by the
Servicer, the Trustee hereby acknowledges that the Servicer is authorized in the
name and on behalf of the Company, to execute instruments of satisfaction or
cancellation, or of partial or full release or discharge, and other comparable
instruments with respect to the Contracts and with respect to the Leased
Vehicles.
(c) Upon Company Order, the Trustee shall, at such time as there are no
Securities Outstanding, release and transfer, without recourse, all of the Trust
Estate that secured the Securities (other than any cash held for the payment of
the Securities pursuant to Sections 4.2(b) or 8.2).
ARTICLE 5
COVENANTS
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
(a) Interest payable on any Security shall be paid to the Person in
whose name such Security (or one or more predecessor Securities) is registered
at the close of business on the Record
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Date for such 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 a Security, which shall be payable only upon presentation and
surrender as provided in subsection (b) of this Section 5.1.
Checks for interest shall be mailed without requiring that
such Security be submitted for notation of payment. Checks returned undelivered
will be held by the Paying Agent 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 Securities and of any Securities 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 Securities is payable as
specified in the form of Security set forth in Section 2.2. Any installment of
interest that is not paid when and as due shall bear interest at the Overdue
Interest Rate from the date due to the date of payment thereof, but only to the
extent payment of such interest shall be lawful and enforceable. The principal
of each Security shall be payable at the Stated Maturity thereof unless such
Security becomes due and payable at an earlier date by declaration of
acceleration, call for redemption or otherwise. The final payment of principal
of each Security (or the Redemption Price thereof of the Securities called for
redemption) shall be payable upon presentation and surrender thereof on or after
its Stated Maturity to the Paying Agent. The Trustee upon Company Order shall
notify the Person in whose name a Security 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 Security will be paid.
Such notice shall be mailed no earlier than the sixtieth (60th) day, and no
later than the twentieth (20th) day, prior to such Payment Date and shall
specify that such final payment will be payable only upon presentation and
surrender of such Securities and shall specify the name and address of the
Paying Agent where such Securities may be presented and surrendered for payment
of such installment. Notices in connection with redemptions of Securities shall
be mailed to Securityholders as provided in Section 3.2.
(c) All computations of interest due with respect to any Securities
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 Securities from time to time.
(d) On each Servicer Report Date, the Company shall transmit to the
Trustee the Monthly Report (a "Payment Date Statement"), which shall set forth,
with respect to the next succeeding Payment Date, the amount of interest payable
on such Payment Date on each Outstanding Security. On the last Servicer Report
Date prior to the Stated Maturity, the Company shall transmit to the Trustee a
final Payment Date Statement setting forth, with respect to the Stated Maturity,
the amount of accrued interest and principal payable on the Stated Maturity on
each Outstanding Security. Each Payment Date Statement 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 Securities.
(e) The Company at any time may terminate its obligation to pay an
installment of interest if it deposits with the Trustee, or the Trustee holds in
the Sinking Fund Account as of the
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related Payment Date, money sufficient to pay the installment when due. The
Company shall designate the installment.
(f) Subject to the foregoing provisions of this Section 5.1, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to unpaid
principal and interest, if any, that were carried by such other Security.
SECTION 5.2 MONEY FOR SECURITY 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 Securities 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 Securities) in the making of any payment
required to be made with respect to the Securities; and
(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 or the Leased Vehicles,
and (2) all lawful claims for labor, materials and supplies that, if
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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's Board of Directors 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's Board of
Directors, 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 that shall cause it to become, or to be deemed to be, an "investment
Company" as defined under the provisions of the Investment Company Act.
SECTION 5.6 COMPLIANCE CERTIFICATES.
(a) Commencing with the fiscal year ending December 31, 1999, the
Company shall deliver to the Trustee within 120 days after the end of each
fiscal year of the Company a certificate of a firm of independent accountants
with respect to the compliance by the Company and the Servicer, in all material
respects, with their respective obligations arising under this Indenture. If
such accountant knows of such a default, the certificate shall describe the
default.
(b) Commencing with the fiscal quarter ending December 31, 1999, on or
before 45 days after the end of each fiscal quarter of the Company, the Company
shall deliver an Officers' Certificate to the Trustee to the effect that a
review of the activities of the Company during the Company's preceding fiscal
quarter has been made under the supervision of the officers executing such
Officers' Certificate with a view to determining whether during such period the
Company and the Servicer have performed and observed all of their obligations
under this Indenture, and either (A) stating that to the best of their knowledge
no Default by the Company or the Servicer under this Indenture has occurred and
is continuing, or (B) if such a Default has occurred and is continuing,
specifying such Default and the nature and status thereof.
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(c) The Company will deliver to the Trustee an Officers' 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 as may reasonably be
requested by the Trustee. The certificates required under this Section 5.6 need
not comply with Section 11.4.
(d) The Company will deliver to the Trustee within 15 days after the
occurrence thereof written notice of any Default.
SECTION 5.7 REPORTING.
(a) Commencing with the fiscal year ending December 31, 1999, 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) that the Company
may be required to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, within 15 days after it files them with the
SEC. The Company also shall comply with the other provisions of TIA Section
314(a).
(b) Until the Company has a class of equity securities registered under
the Securities Exchange Act of 1934, the Company will prepare, for the first
three quarters of each fiscal year, commencing with the fiscal quarter ending
December 31, 1999, summary reports containing unaudited cash basis financial
statements of the Company. In addition, the Company will prepare, for each
fiscal year, an annual report containing complete audited financial statements
of the Company including, but not limited to, a balance sheet, a statement of
income and shareholders' equity, a statement of changes in financial position
and all appropriate notes. The annual financial statements will be prepared in
accordance with generally accepted accounting principles consistently applied,
except for changes with which the Company's independent public accountants
concur. Quarterly statements may be subject to year-end adjustments. The Company
will cause a copy of the respective quarterly or annual report to be mailed to
the Trustee and to each of the Holders of the Securities within 45 days after
the close of each of the first three quarters of each fiscal year and within 120
days after the close of each fiscal year, at such Holder's address appearing on
the Note Register.
SECTION 5.8 PROTECTION OF TRUST ESTATE.
The Company will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as is necessary or advisable to:
(i) grant more effectively all or any portion of the Trust
Estate,
(ii) maintain or preserve the lien of this Indenture or carry
out more effectively the purposes hereof,
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(iii) perfect, publish notice of, or protect the validity of,
any Grant made or to be made by this Indenture,
(iv) enforce any of the Contract Documents, or
(v) preserve and defend title to the Trust Estate and the
rights of the Trustee and the Securityholders in such Trust Estate
against the claims of all persons and parties.
SECTION 5.9 OPINIONS AS TO TRUST ESTATE.
(a) Upon the initial Company Order to the Trustee for the
authentication of Notes under this Indenture, the Company shall deliver to the
Trustee an Opinion of Counsel (i) that this Indenture, together with the filing
referred to in the next sentence, creates as security for the Notes a security
interest in the Contracts, and identifiable cash proceeds thereof in the
Operating Account and the Sinking Fund Account; (ii) that a financing statement
with respect to the Contracts has been filed with the Texas Secretary of State
pursuant to the Texas Uniform Commercial Code, as amended, or with the
appropriate government official of the state(s) in which title(s) to the Leased
Vehicle(s) may be registered; (iii) that the security interest in the Trust
Estate has been perfected and is a valid first priority security interest; and
(iv) that no other filings in any jurisdiction or any other actions are
necessary to perfect the security interest of the Trustee in the Trust Estate,
as constituted as of the date of such opinion, as against any third parties.
(b) On or before December 15, in each calendar year commencing with
1999, the Company shall furnish to the Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and re-filing of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and re-filing of this Indenture, any indentures
supplemental hereto and any other requisite documents and the execution and
filing of any financing statements and continuation statements that will, in the
opinion of such counsel, be required to maintain the lien and security interest
of this Indenture until December 15 in the following calendar year. In rendering
such opinion, such counsel may rely upon an Officers' Certificate of the
Servicer as to the filing of any financing statements and to the effect that no
further assignment of the related Contract or satisfaction and discharge thereof
has been recorded and that the original financing statements so filed have not
been discharged.
SECTION 5.10 PERFORMANCE OF OBLIGATIONS; Servicing Agreements.
(a) The Company will punctually perform and observe all of its
obligations and agreements contained in the Servicing Agreements.
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(b) The Company will not take any action or permit any action to be
taken by others that would release any Person from any of such Person's
covenants or obligations under any of the Contract Documents or under any
instrument included in the Trust Estate, or that 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
Agreements or such Contract Documents 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
Agreements, 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 Agreements with respect to the
Contracts, the Company may remedy such failure. So long as any such default
under the Servicing Agreements shall be continuing, the Trustee may, and upon
the direction of the Holders of Securities representing more than 25% of the
aggregate principal amount of the Outstanding Securities the Trustee shall,
direct the Company to, and the Company shall, terminate all of the rights and
powers of the Servicer under the Servicing Agreements. Unless directed or
permitted by the Trustee or the Holders of Securities representing not less than
50% of the aggregate principal amount of the Outstanding Securities, the Company
may not waive any such default under the Servicing Agreements or terminate the
rights and powers of the Servicer under the Servicing Agreements.
(d) Upon any termination of the Servicer's rights and powers, all
rights, powers, duties, obligations and responsibilities of the Servicer with
respect to the related Contracts (except for any obligations of the Servicer to
indemnify the Company) shall vest in and be assumed by the Company, or any
servicing agent that the Company may designate, and the Company or its servicing
agent shall be the successor in all respects to the Servicer in its capacity as
servicer with respect to such Contracts under the Servicing Agreements (except
for any obligations of the Servicer to indemnify the Company). The Company may
resign as the Servicer by giving written notice of such resignation to the
Trustee and in such event will be released from such duties and obligations,
such release not to be effective until the date a new servicer enters into a
servicing agreement with the Company as provided below and has been approved in
writing by the Trustee. Any successor servicer shall enter into a servicing
agreement with the Company substantially similar to the Servicing Agreement. The
Company may make such arrangements for the compensation of such successor
servicer as it and such successor servicer shall agree, provided that such
compensation of the successor servicer shall not be in excess of that payable to
the Servicer under the Servicing Agreements, unless the Servicer or the Company
agrees to pay such additional compensation.
SECTION 5.11 NEGATIVE COVENANTS.
The Company will not:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Indenture;
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(ii) obtain or carry insurance relating to the Contracts
separate from that required by the Servicing Agreement, unless the
Trustee shall be named therein as a loss payee;
(iii) claim any credit on, or take any deduction from, the
principal of or interest payable in respect to the Securities by reason
of the payment of any taxes levied or assessed upon any part of the
Trust Estate;
(iv) engage in any business or activity other than in
connection with the purchase, collection and servicing of lease
Contracts or consumer obligations secured by motor vehicles, the
repossession and resale of motor vehicles and the raising of capital,
both debt and equity, and any other incidental businesses or
activities, without the consent of the Holders of a majority of the
aggregate principal amount of the Securities then outstanding;
(v) without the consent of the Holders of a majority of the
aggregate principal amount of the Securities then outstanding, create,
incur, assume or in any manner become liable in respect of any
indebtedness other than the Securities, any indebtedness incurred for
the purpose of the purchase of lease Contracts or consumer obligations
relating to or secured by motor vehicles (including any related
borrowing and transactional costs), any Allowed Expenses and any other
amounts incurred in the ordinary course of the Company's business;
(vi) dissolve or liquidate in whole or in part;
(vii) merge or consolidate with any corporation, partnership
or other entity other than another direct or indirect wholly-owned
Subsidiary of an Affiliate of the Company or the Servicer; any such
merger or consolidation with another Subsidiary of 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 (iv) 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 or Default shall exist with respect
to the Securities;
(viii) (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;
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(ix) (1) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations
under this Indenture, except as may be expressly permitted hereby, (2)
permit any lien, charge, security interest, mortgage or other
encumbrance (other than the lien of this Indenture) to be created on or
extend to or otherwise arise upon or burden the Trust Estate or any
part thereof or any interest therein or the proceeds thereof, or (3)
permit the lien of this Indenture not to constitute a valid first
priority security interest in the Trust Estate; or
(x) originate or acquire any Contract with 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 the Indenture and the Servicing Agreements with respect
to such Contract, (3) necessary to maintain the enforce ability of such
Contract and the security interest in the related Leased 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.
(xi) enter into any transaction with the Servicer, or any
Affiliate of the Servicer on terms less favorable to the Company than
could be obtained from an independent third party in an arms-length
transaction.
SECTION 5.12 SUBSTITUTION OR RELEASE OF COLLATERAL OR WITHDRAWAL OF CASH IN
TRUST ESTATE.
(a) The Company shall furnish to the Trustee an Officer's Certificate
stating the fair value of any property or securities the deposit of which with
the Trustee is to be the basis for the withdrawal or release of any cash,
property or securities constituting a part of the Trust Estate. If the fair
value to the Company of any such securities and all other such securities made
the basis for the withdrawal or release of any cash, property or securities
constituting part of the Trust Estate since the commencement of the then current
calendar year, as set forth in the Officer's Certificates with respect thereto,
is 10% or more of the aggregate principal amount of the Notes at that time
Outstanding, and if the fair value of such securities so delivered is at least
$25,000 and one percent of the aggregate principal amount of the Notes at that
time outstanding, the Company shall furnish a certificate of an Independent
appraiser or financial expert as to the fair value of the securities so
delivered. If the property so delivered has been used or operated by a Person
other than the Company, within six months prior to the date of acquisition by
the Company, in a business similar to that in which it has been or is to be used
or operated by the Company, and if the fair value to the Company of such
property is not less than $25,000 and not less than one percent of the aggregate
principal amount of the Notes at that time Outstanding, the Company shall
furnish an opinion of an Independent engineer, appraiser or other expert
covering the fair value to the Company of the property so subjected to the lien
of the Indenture.
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(b) The Company shall furnish to the Trustee an Officer's Certificate
as to the fair value of any property or securities to be released from the lien
of this Indenture and stating that in the opinion of the signer the proposed
release will not impair the security under this Indenture in contravention of
its provisions. If the fair value of such property or securities and of all
other property or securities released since the commencement of the then current
calendar year, as set forth in such Officer's Certificates required by the
preceding sentence, is 10% or more of the aggregate principal amount of the
Notes at the time Outstanding and if the fair value of the property or
securities proposed to be released is at least $25,000 and one percent of the
aggregate principal amount of the Notes at the time Outstanding, the Company
shall furnish an opinion of an Independent engineer, appraiser or other expert
with respect to the same subject matter required to be set forth in such
Officer's Certificate.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security 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 Security when the same becomes due and payable at the Stated
Maturity, upon redemption or otherwise;
(3) the Company falls to comply with any of its other
agreements in the Securities 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 alter 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 Trustee of such
notice from the Holders of not less than 25% in aggregate principal
amount of the Securities then Outstanding;
(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 m
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 Securities representing at least 25 % of the aggregate
principal amount of the Outstanding Securities, the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured;
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(5) if (i) the validity or effectiveness of this Indenture or
any Grant under 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 Agreements, in each case except as may
be expressly permitted hereby and thereby, (ii) any lien, charge,
security interest, mortgage or other encumbrance (exclusive of any
mechanic's lien on any Leased Vehicle) shall be created on or extend to
or otherwise arise upon or burden the Trust Estate or any part thereof
or any interest therein or the proceeds thereof, or (iii) this
Indenture shall not constitute a valid first priority security interest
in the Trust Estate, and if any of the foregoing Defaults shall
continue for a period of 30 days after receipt by the Company of
written notice 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 Trustee of such
notice from the Holders of Securities representing at least 25 % of the
aggregate principal amount of the Outstanding Securities; or
(6) the Company, pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in 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.
The term "Bankruptcy Law" means title 11, U.S. Code, or any similar
Federal or State law for the relief of debtors.
SECTION 6.2 ACCELERATION.
If an Event of Default occurs and is continuing, the Trustee may, or at
the direction of the Holders of at least 25 % in principal amount of the
Securities shall, by notice to the Company, declare the principal amount of all
the Securities together with accrued interest thereon to be due and
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payable immediately, and upon any such declaration such principal and accrued
and unpaid interest shall become immediately due and payable, notwithstanding
anything contained in this Indenture or the Securities to the contrary. The
Holders of a majority in principal amount of the Outstanding Securities may, by
written notice to the Trustee, rescind an acceleration and its consequences if
all existing Events of Default have been cured or waived, all expenses relating
to the Default have been paid and if the rescission would not conflict with any
judgment or decree.
SECTION 6.3 REMEDIES.
(a) If an Event of Default shall have occurred and be continuing, the
Trustee may, subject to Section 6.2, do one or more of the following:
(i) make demand and institute judicial proceedings in equity
or law for the collection of all amounts then payable on the
Securities, or under this Indenture, whether by declaration or
otherwise, enforce all judgments obtained, and collect from the Company
the Trust Estate securing the Securities and moneys adjudged due;
(ii) subject to Section 6.14, sell the Trust Estate securing
the Securities or any portion thereof or rights or interest therein, at
one or more public or private Sales called and conducted in any manner
permitted by law;
(iii) institute judicial proceedings in equity or at law from
time to time for the complete or partial foreclosure of this Indenture
with respect to the Trust Estate; and
(iv) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Trustee or the Holders of the Securities hereunder.
(b) The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceedings. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or an acquiescence in the Event of Default. No remedy
is exclusive of any other remedy.
All available remedies are cumulative.
SECTION 6.4 WAIVER OF PAST DEFAULTS.
Subject to Section 9.2, the Holders of a majority in principal amount
of the Outstanding Securities may, by written notice to the Trustee, waive an
existing Default and its consequences. When a Default is waived in accordance
herewith, it is cured and shall stop continuing.
SECTION 6.5 CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on 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 Securityholders not joining in such direction, or that would involve
the Trustee in personal liability.
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SECTION 6.6 LIMITATION ON SUITS.
(a) A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of the Outstanding Securities make 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 expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity and the
Event of Default has not been waived; and
(v) the Trustee has received no contrary direction from the
Holders of a majority in principal amount of the Outstanding Securities
during such 60-day period.
(b) A Securityholder may not use this Indenture to prejudice the rights
Of another Securityholder or to obtain a preference or priority over another
securityholder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, 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 in payment of interest or principal specified in
Section 6.1(1) or (2) occurs and is continuing, the Trustee may recover 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 Securityholders 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,
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adjustment or composition affecting the Securities 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 Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities
for principal and interest, respectively;
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 shall fix a Special Record Date and payment date pursuant to Section
2.11 hereof for any payment to Securityholders under this Section 6.10.
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, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in principal
amount of the Outstanding Securities.
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 Securities 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.
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SECTION 6.13 OPTIONAL PRESERVATION OF TRUST ESTATE.
(a) If the Securities have been declared due and payable following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Trustee may, in its sole discretion, refrain from
selling the Trust Estate and may apply all amounts received with respect to such
Trust Estate to the payment of the principal of and interest on the Securities
as and when such principal and interest would have become due pursuant to the
terms hereof and of the Securities if there had not been a declaration of
acceleration of the maturity of the Securities, provided that:
(i) the Trustee shall have determined that the amounts
receivable with respect to such Trust Estate are sufficient to provide
the funds required to pay the principal of and interest on the
Securities as and when such principal and interest would have become
due pursuant to the terms hereof and of the Securities if there had not
been a declaration of acceleration of the maturity of the Securities;
and
(ii) the Securityholders shall not have directed the Trustee
in accordance with Section 6.5 (subject, however, to Section 6.14(b))
to sell the Trust Estate securing the Securities.
(b) the Trustee may, but need not, obtain and rely upon an opinion of
an independent investment banking firm as to the feasibility of any action
proposed to be taken in accordance with Section 6.13(a) and as to the
sufficiency of the amounts receivable with respect to the Trust Estate to make
the required payments of principal of and interest on the Securities, which
opinion shall be conclusive evidence as to such feasibility or sufficiency.
(c) If the conditions of Section 6.13(a) are not satisfied after the
Securities have been declared due and payable following an Event of Default or
the Trustee does not determine to take the action specified in Section 6.13(a),
then all amounts collected by the Trustee with respect to the Securities
pursuant to this Article 6 or otherwise shall be applied in accordance with
Section 6.10.
(d) Notwithstanding anything in this Indenture to the contrary, if the
Securities have been declared due and payable, then Trustee may, in its sole
discretion, retain the Trust Estate without compliance with this Section 6.13
and apply all amounts received with respect to the Trust Estate to the payment
of principal and interest on the Securities as and when such principal and
interest would have become due pursuant to the terms hereof and of the
Securities if there had not been a declaration of acceleration of the maturity
of the Securities.
SECTION 6.14 SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of the Trust
Estate pursuant to Section 6.3 shall not be exhausted by any one or more Sales
as to any portion of such Trust Estate remaining unsold, but shall continue
unimpaired until the entire such Trust Estate shall have been sold or all
amounts payable on the Securities secured thereby and under this Indenture with
respect thereto shall have been paid. The Trustee may from time to time postpone
any Sale by public
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announcement made at the time and place of such Sale. The Trustee hereby
expressly waives its rights to any amount fixed by law as compensation for any
Sale.
(b) (i) Without the consent or direction to the contrary by the Holders
of a majority in principal amount of the Securities then Outstanding, the
Trustee shall not sell or otherwise dispose of the Trust Estate following an
Event of Default for an amount less than the sum of (x) the amount of fees and
expenses of such sale that are reimbursable to the Trustee and (y) the entire
amount that would be distributable to the Holders of the Securities, in full
payment thereof in accordance with Section 6.10, and (ii) without the consent of
or direction to the contrary by the Holders of a majority in principal amount of
the Securities then Outstanding, at any public Sale at which no other Person
bids an amount equal to or greater than the amount described in clause (y)
above, the Trustee shall bid an amount at least equal to $1.00 more than the
highest other bid.
(c) The Trustee may bid for and acquire any portion of the Trust Estate
in connection with a public Sale thereof. The Securities need not be produced in
order to complete any such sale. The Trustee may, subject to this Indenture,
hold, lease, operate, manage or otherwise deal with any property so acquired in
any manner permitted by law.
(d) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Estate in
connection with a Sale thereof. In addition, the Trustee is hereby irrevocably
appointed the agent and attorney-in-fact of the Company to transfer and convey
its interest in any portion of the Trust Estate in connection with a Sale
thereof (including changing the designation of the secured party on any
certificate of title or financing statements), and to take all action necessary
to effect such Sale. No purchaser or transferee at such a Sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(e) Notwithstanding anything in this Indenture to the contrary, if an
Event of Default specified in Section 6.1(1) or (2) is the Event of Default, or
one of the Events of Default, on the basis of which the Securities have been
declared due and payable, then the Trustee may, in its sole discretion, sell the
Trust Estate without compliance with this Section 6.14.
ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) For so long as any Notes remain outstanding, the Trustee shall:
(i) maintain the custodianship of the documentation delivered
to it evidencing title or perfected security interest in the Company's
assets;
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(ii) verify all funds deposited in the trust account for the
benefit of the Securityholders and use its best efforts to verify all
payments called for under the terms of this Indenture;
(iii) verify the delivery of all reports and other instruments
required pursuant to the terms of this Indenture and the Securities
Exchange Act of 1934;
(iv) examine all reports or other instruments furnished to the
Trustee pursuant to the terms of this Indenture and determine, based on
the information provided, whether there is a violation of any of the
terms and conditions set forth in this Indenture;
(b) 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 their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(c) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(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.
(d) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, breach of this Indenture or
its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (c)
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
direction received by it from the Holders of not less than a majority
in principal amount of the Notes at the time Outstanding.
(e) The Trustee shall not be liable for any action or omission taken or
not taken by the Servicer of any kind or nature.
(f) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives written indemnity and security satisfactory to it
against any loss, liability or expense and no provision of this Indenture or any
other document shall require the Trustee to expend or risk its own funds or
otherwise incur 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 to believe that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it; provided,
however, that in the event that the Trustee determines that there has been an
Event of Default, the Trustee shall not be entitled to such indemnification and
security other than that provided in this Indenture as a condition to
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providing notice of such default to the Securityholders in accordance with the
terms of this Indenture and to taking appropriate remedial action.
(g) 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.
(h) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraph (b), (c), (d) and (e) of this Section.
SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document. The Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document,
but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records, and premises of the Company, personally
or by agent or attorney, to the extent reasonably required by such inquiry or
investigation.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with counsel of its selection and the
advice of such counsel or any opinion of counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(f) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the principal corporate trust office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliate with the same rights it would have if it were not the 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 makes no representation as to the validity or adequacy of
this Indenture or the Securities. It shall not be accountable for the Company's
use of the proceeds from the Securities and shall not be responsible for any
statement in the Securities, other than its certificate of authentication, or in
any prospectus used in the sale of the Securities, other than statements
provided in writing by the Trustee for use in such prospectus.
SECTION 7.5 NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Securityholder notice of the Default
within 90 days after it obtains actual knowledge of the
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Default. Except in the case of a Default in payment on any Security, 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 Securityholders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
(a) Within 60 days after each December 31 beginning with December 31,
1999, the Trustee shall, to the extent required by TIA Section 313(a), mail to
each Securityholder a brief report dated as of such December 31 that complies
with TIA Section 313(a). The Trustee also shall also, to the extent required by
TIA Section 313(b), comply with TIA Section 313(b)(l) 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 Securityholders shall be filed with
the SEC and each national securities exchange on which the Securities are
listed. The Company shall notify the Trustee if and when the Securities are
listed on any national securities exchange (as defined in the Securities
Exchange Act of 1934) or quoted on NASDAQ.
(c) Within 60 days after each December 31 beginning with December 31,
1999, the Trustee shall mail to each Securityholder a brief report which
indicates whether the Trustee has fulfilled its obligations under this Indenture
and whether there have been any known uncured defaults under this Indenture.
SECTION 7.7 COMPENSATION AND INDEMNITY.
(a) 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.
Such expenses may include the reasonable compensation and expenses of the
Trustee's agents and counsel. The Company 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, expenses and
disbursements of any kind or nature whatsoever (including, reasonable attorneys'
fees) that may be imposed on, incurred by or asserted against Trustee or its
successors, or their respective officers, directors, employees, agents and
attorneys, in connection with the performance of its duties hereunder. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent. The Company need not reimburse any expense
or indemnify against any loss or liability incurred by the Trustee through the
Trustee's negligence or bad faith, other than to the extent that such negligence
or bad faith is excused pursuant to Sections 7.1 and 7.2.
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(b) To secure the Company's payment of these obligations, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on the Securities. Such obligations shall survive the satisfaction and
discharge of this Indenture.
(c) When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(7) or (8), the expenses and the compensation
for the services are intended to constitute expenses of administration under any
Bankruptcy Law.
(d) The provisions of this Section 7.7 shall survive the satisfaction
and discharge or other termination of this Indenture.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
(a) The Trustee may resign at any time upon 30 days prior written
notice to the Company. The Holders of a majority in principal amount of the
Outstanding Securities 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 falls 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 Securityholder.
(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 Holders of a majority in principal amount of the Securities 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
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
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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 or if
the Trustee consolidates with, merges or converts into, or transfers a
substantial portion of its corporate trust assets to a Person that is
wholly-owned by the Trustee or by the Trustee's parent (of which the Trustee is
a wholly-owned subsidiary), the resulting, surviving or transferee Person
without any further act shall be the successor Trustee.
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 $1,000,000 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 Securities, 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
Securities of any withholding taxes imposed thereon and with respect to any
reporting requirements in connection therewith.
ARTICLE 8
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 Securities 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 Securities theretofore authenticated and delivered
(other than Securities that have been destroyed, lost or stolen and
that have been replaced or paid as provided in Section 2.8) have been
delivered to the Trustee for cancellation; or
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(B) all such Securities 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 Securities not theretofore delivered to the
Trustee for cancellation, the principal at Stated Maturity of such
Securities, 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 Officers' Certificate
and an Opinion of Counsel, each 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
Securities 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,
or the Securities 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 Securities in full. The Trustee and the
Paying Agent shall pay to the Company upon request 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, Securityholders entitled to such funds
must look to the Company for the payment of such unclaimed principal or
interest.
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ARTICLE 9
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 Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency in this
Indenture or the Securities;
(ii) to effect a merger or consolidation in conformance with
Section 5.11(vii);
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
(iv) to make any change that does not materially adversely
affect the rights of any Securityholder; 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 provision
of this Indenture or the Securities without notice to or consent of any
Securityholder if the waiver does not adversely affect the rights of any
Securityholder, provided that the Indenture or the Securities reflect the terms
of such waiver.
SECTION 9.2 WITH CONSENT OF HOLDERS.
(a) The Company and the Trustee may amend or supplement this Indenture
or the Securities without notice to any Securityholder but with the written
consent of the Holders of at least a majority in principal amount of the
Securities. The Holders of a majority in principal amount of the Securities may
waive compliance by the Company with any provision of this Indenture or the
Securities without notice to any Securityholder. However, without the consent of
each Securityholder affected, an amendment, supplement or waiver, including a
waiver pursuant to Section 6.4, may not:
(i) reduce the amount of Securities 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 Security;
(iii) reduce the principal of or extend the Stated Maturity of
any Security;
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(iv) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of a
Trust Estate or terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the
security afforded by the lien of this Indenture; or
(v) make any Security payable in money other than that stated
in the Security.
(b) After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities
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 of a
Security shall bind the holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security. 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 Securityholder 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 of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security concerning the
change terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for the Security shall issue, and
the Trustee shall authenticate, a new Security 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 or Securityholders. 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,
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and such approval shall evidence the Company's determination that such
amendment, supplement or waiver does not adversely affect the rights of the
Securityholders.
ARTICLE 10
MEETINGS OF SECURITYHOLDERS
SECTION 10.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Securityholders 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 default hereunder and its consequences;
(b) to remove the Trustee, or 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 Securities 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 Securityholders 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 of the Securities 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
Securities are present in person or by proxy, or if notice is waived before or
alter the meeting by the Holders of all Securities outstanding, and if the
Company and the Trustee are either present or have, before or after the meeting,
waived notice.
SECTION 10.3 CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS.
In case at any time the Company or the Holders of not less than 50% in
aggregate principal amount of the Securities then outstanding shall have
requested in writing that the Trustee call a meeting of Securityholders 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 Securities in the amount above specified may determine
the time and place for such meeting and may call such meeting by mailing notice
thereof.
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SECTION 10.4 WHO MAY ATTEND AND VOTE AT MEETINGS.
To be entitled to vote at any meetings of Securityholders, a person
shall (a) be a Holder of one or more Securities, or (b) be a person appointed by
an instrument in writing as proxy for the Holder of Securities. The only persons
who shall be entitled to be present or to speak at any meeting of
Securityholders 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 Securityholders, to prove the holding of
Securities, 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 Securityholder or proxy shall be entitled to
one vote for each $1,000 principal amount of Securities held by him; provided,
however, that the Company shall not be entitled to vote any Securities held of
record by it. At any meeting of Securityholders, the presence of persons holding
or representing any number of Securities shall be sufficient for a quorum.
SECTION 10.6 EXERCISE OF RIGHTS OF TRUSTEE OR SECURITYHOLDERS 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 Securityholders 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 Securityholders or by the Securities.
SECTION 10.7 EVIDENCE OF ACTIONS BY SECURITYHOLDERS.
Whenever the Holders of a specified percentage in aggregate principal
amount of the Securities 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 securityholders in person or by attorney or written proxy, or (b)
the Holders of Securities voting in favor thereof at any meeting of
Securityholders called and held in accordance with the provisions of this
Article 10, or (c) by a combination thereof. The Trustee may require proof of
any matter concerning the execution of any instrument by a Securityholder or his
attorney or proxy as it shall deem necessary.
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ARTICLE 11
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 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: Transition Auto Finance III, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attn: Ken Lowe, President
if to the Trustee: Trust Management, Inc.
210 West Sixth Street, Suite 605
Fort Worth, Texas 76102
Attn: Robert C. Finley, President
if to the Servicer: Transition Leasing Management, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attn: Ken Lowe, President
(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 Securityholder shall be
mailed first class, postage prepaid to him at his address as it appears on the
Note Register of the Registrar and shall be sufficiently given to him if so
mailed within the time prescribed. If the Company mails a notice or
communication to Securityholders, it shall mail a copy to the Trustee at the
same time.
(d) Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
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SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
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 Officers' 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
Securities.
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SECTION 11.8 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
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 Securities 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
Securityholders.
SECTION 11.10 SUCCESSORS.
All agreements of the Company and the Servicer in this Indenture and
the Securities 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.
ARTICLE 12
AGREEMENTS OF SERVICER
SECTION 12.1 GENERAL.
The Servicer agrees that all covenants, representations and warranties
made by the Servicer in the Servicing Agreements with respect to the Contracts
shall also be for the benefit of the Trustee and the Holders.
SECTION 12.2 SERVICER ACTING AS CUSTODIAN.
The Servicer acknowledges that any collections or proceeds from the
Contracts in the Master 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 and bailee of the
Company and the Additional Lender, if any, at all times.
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SECTION 12.3 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 Agreements or this Indenture.
SECTION 12.4 CORPORATE EXISTENCE; STATUS AS SERVICER; MERGER.
(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
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necessary to protect the validity and enforceability of the Contract Documents,
this Indenture and the Servicing Agreements.
(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 Agreements.
SECTION 12.5 PERFORMANCE OF OBLIGATIONS.
(a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Indenture and the Servicing
Agreements.
(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 12.6 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. No such
resignation shall affect the obligation of the Servicer to repurchase any
Contract pursuant to Section 12.9.
(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 12.5 (b), and provided further that the Servicer may
contract with industry qualified third parties for the performance of its duties
under the Servicing Agreements and this Indenture, except that any such contract
shall not relieve the Servicer from liability for its obligations under the
Servicing Agreements and this Indenture.
(c) For a period of 90 days after the occurrence of any Subsidiary
Payment Default (as hereinafter defined), the Trustee shall have the right to
remove the Servicer and terminate the Servicing Agreement upon delivery of
written notice of removal and termination to the Servicer. As used in this
Section 12.7(c), the term "Subsidiary Payment Default" shall mean any default in
the payment of principal and interest on any other Asset-Backed Securities (as
hereinafter defined) issued (i) by an entity owned or controlled by Transition
Leasing or any affiliate of Transition Leasing and formed for the purpose of
issuing Asset-Backed Securities, (ii) in connection with the same business plan
as that of the Company and (iii) in connection with a business plan utilizing
Transition Leasing as servicer. As used in this Section 12.7(c), the term
"Asset-Backed Securities" means securities that provide a stated rate of return
to holders of such securities and that are primarily paid, as to both return of
investment and return on investment, by the cash flow from the collateral
securing such payment obligations.
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SECTION 12.7 REPRESENTATIONS AND WARRANTIES AS TO THE CONTRACTS.
With respect to each Contract, the Servicer represents and warrants to
the Company, effective as of the date each such Contract is executed by the
Company, as follows:
(a) All of the representations and warranties with respect to
the Servicer set forth in Section 12.4 continue to be true and correct;
(b) In acting with respect to each Contract, Servicer shall
comply in all material respects with, all applicable Federal, state and
local laws, regulations and official rulings;
(c) Each Contract (i) shall have been originated in the United
States of America by the Servicer in the ordinary course of an
automobile dealer's business, shall have been fully and properly
executed by the parties thereto, (ii) shall contain customary and
enforceable provisions such that the rights and remedies of the holder
thereof shall be adequate for realization against the Contract lessee
for the benefits of the Contract, (iii) shall have met, at the time of
its execution, in all material respects all purchasing criteria set
forth on EXHIBIT A attached hereto and in the Servicing Agreements, and
(iv) shall not be a Defaulted Contract.
(d) (i) The Title Document for the related Leased Vehicle
shows (or if a new or replacement Title Document is applied for with
respect to such Leased Vehicle, the official receipt from the
responsible state or local governmental authority indicating that an
application has been made and that the Title Document, when issued,
will show) the Company as the owner of the Leased Vehicle and the
Trustee, on behalf of the Trust, as the holder of a first priority
security interest in such Leased Vehicle, (ii) within 120 days after
the Purchase Date for the Contract relating to the Leased Vehicle, the
Title Document for such Leased Vehicle will show the Company as the
owner of the Leased Vehicle and the Trustee, on behalf of the Trust, as
the holder of a first priority security interest in such leased
Vehicle, and (iii) the Company, upon execution of the Contract, will
own the Leased Vehicle and the Trustee, on behalf of the Trust,
delivery of the Assignment, will have a valid and enforceable security
interest in the Leased Vehicle.
(e) Each Contract and the sale or lease of each Leased Vehicle
shall have complied at the time it was originated in all material
respects with all requirements of applicable federal, state, and local
laws, and regulations thereunder, including without limitation, usury
laws, the Federal Truth-In-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Federal Trade Commission Act, the Federal Reserve Board's
Regulations B and Z, and state adaptations of the National Consumer Act
and of the Uniform Consumer Credit Code, and other consumer laws and
equal credit opportunity and disclosure laws.
(f) Each Contract shall represent the genuine, legal, valid,
and binding payment obligation in writing of the Obligor, enforceable
by the holder thereof in accordance with its
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terms subject to the effect of bankruptcy, insolvency, reorganization,
or other similar laws affecting the enforcement of creditor's rights
generally.
(g) No provision of a Contract shall have been waived, amended
or modified, except as disclosed in writing by Servicer.
(h) No right of rescission, set off, counterclaim, or defense
shall have been asserted or threatened with respect to any Contracts.
(i) It is the intention of the Servicer that the beneficial
interest in and title to the Contracts not be part of Servicer's estate
in the event of the filing of a bankruptcy petition by or against
Servicer under bankruptcy law.
(j) No Contract shall have been originated in, or shall be
subject to the laws of, any jurisdiction under which the execution of
such Contract would be unlawful, void, or voidable.
SECTION 12.8 PURCHASE OF CERTAIN CONTRACTS.
(a) The representations and warranties of the Servicer set forth in
Section 12.8 with respect to each Contract shall survive delivery of the
Contract Documents to the Company and shall continue so long as such Contract
remains outstanding. Upon discovery by the Company, the Servicer or the Trustee
that any of such representations or warranties was incorrect as of the time made
or that any of the Contract Documents relating to any such Contract has not been
properly executed by the Obligor or the Servicer or contains a material defect
or has not been received by the Company, the party making such discovery shall
give prompt notice to the Trustee (other than in cases where the Trustee has
given notice thereof) and to the other party (or parties in cases where the
Trustee has given notice thereof). If any such defect, incorrectness or omission
materially and adversely affects the interest of the Holders in and to the
related Contracts, the Servicer shall, within 90 days after discovery thereof or
receipt of notice thereof, cure the defect or eliminate or otherwise cure the
circumstances or condition in respect of which the representation or warranty
was incorrect as of the time made. If the Servicer is unable to do so, it shall
purchase such Contract from the Company through a deposit into the Master
Collections Account no later than the end of the calendar month after which such
90-day period expired of an amount equal to the product of (x) the
Price/Payments Ratio multiplied by (y) the aggregate unpaid installments on the
Contract. Upon any such purchase, the Company shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Servicer any Contract purchased hereunder.
(b) It is understood that, without limiting the meaning of the term
"materially and adversely affects", the interest of the Holders shall be deemed
materially and adversely affected if (i) the Company, the Trustee or any of such
Holders are put under any obligation to pay any other Person any sum of money as
a result of a defect or misrepresentation described in subsection (a) above, or
(ii) the Trustee or the Majority Holders, acting reasonably, determine, by
written notice
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<PAGE> 69
to the Company, that such defect or misrepresentation materially and adversely
affects the interests of the Holders in and to a Contract.
(c) At the time of any purchase by the Servicer of any Contract,
pursuant to the provisions of subparagraph (a) above or otherwise, the Servicer
shall certify to the Trustee in writing that (i) such purchase is not for the
purpose of recognizing gains or decreasing losses resulting from market value
changes in the Company's portfolio of Contracts and Leased Vehicles (ii) such
purchase is at the price determined by the following formula: the purchase price
paid by the Company for the Contract (and the Leased Vehicle related thereto),
less the amount of any lease payments received by the Company after the
acquisition of the Contract.
SECTION 12.9 INDEMNIFICATION.
Servicer hereby indemnifies and holds harmless 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, expenses and disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Trustee or its successors, or their respective officers,
directors, employees, agents or attorneys, due to (i) any breach by Servicer of
its representations, warranties or covenants provided for in the Servicing
Agreements or this Indenture, or (ii) any action or inaction of Servicer, or
through Servicer, in any way relating to, or arising out of, the Servicing
Agreements or this Indenture, any and all transfers or assignments of the
Contracts, or any of the transactions contemplated herein or therein or the
creation or collection or enforcement of any of the Contracts. Servicer,
however, does not assume the risk of uncollectibility and does not indemnify
Trustee and/or its successors, or their officers, directors, employees, agents
or attorneys, against the uncollectibility of all or any part of the Contracts
as against the Obligor thereof, except for uncollectibility resulting from a
breach by Servicer of any warranty, representation or covenant contained herein.
The indemnities contained in this Section shall survive any termination of this
Indenture or the Servicing Agreements.
SECTION 12.10 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 Leased Vehicle securing a
Contract.
SECTION 12.11 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
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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
12.12(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.
SECTION 12.12 INSPECTION AND AUDIT RIGHTS.
The Servicer agrees that, upon reasonable prior notice, it will permit
any representative of the Trustee, during the Servicer's normal business hours,
to examine all of the books of account, records, reports and other papers of the
Servicer relating to the Contracts, to make copies and extracts therefrom, to
cause such books to be audited by independent accountants selected by the
Trustee, and to discuss the affairs, finances and accounts relating to the
Contracts with the Servicer's officers, employees and independent accountants
(and by this provision the Servicer hereby authorizes said accountants to
discuss with such representatives such affairs, finances and accounts), all at
such reasonable times and as often as may be reasonably requested. Any expense
incident to the reasonable exercise by the Trustee of any right under this
Section shall be borne by the Trustee and reimbursed to it by the Company under
Section 7.7.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the date and year first above written.
TRUST MANAGEMENT, INC.,
Attest: AS TRUSTEE
By:
- -------------------------------- --------------------------------
Title: Title:
-------------------------- -----------------------------
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<PAGE> 71
Attest: TRANSITION AUTO FINANCE III, INC.
By:
- -------------------------------- --------------------------------
Secretary Ken Lowe, President
The undersigned Transition Leasing Management, 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 guaranteeing or otherwise
covenanting to pay the Notes or perform any of the Company's obligations
hereunder.
Attest: Transition Leasing Management, Inc.
By:
- -------------------------------- --------------------------------
Secretary Ken Lowe, President
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Ken Lowe, President of Transition Auto Finance III, 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
---------------------------------------------------
Notary Public Printed or Typed Name
My Commission Expires:
-----------------------------
65
<PAGE> 72
STATE OF TEXAS Section
Section
COUNTY OF TARRANT Section
BEFORE ME, the undersigned authority, on this day personally appeared
____________ _____________________, ____________________ of Trust Management,
Inc., 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 trust company.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
___________, 1998.
[SEAL] ---------------------------------------------------
Notary Public in and for the State of Texas
---------------------------------------------------
Notary Public Printed or Typed Name
My Commission Expires:
-----------------------------
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<PAGE> 73
EXHIBIT A
LEASED VEHICLE AND CONTRACT PURCHASE CRITERIA
TRANSITION AUTO FINANCE III, INC.
The following purchasing criteria shall govern all purchases of Leased
Vehicles and Eligible Additional Contracts by Transition Auto Finance III, Inc.
(the "Company") and by Transition Leasing Management, Inc. (the "Buyer") acting
on behalf of the Company, and no Leased Vehicle or Contract shall be purchased
that does not meet such criteria in all material respects.
I. VEHICLE CRITERIA
a. No vehicle that is to become a Leased Vehicle may be purchased
by the Buyer if the vehicle is more than four model years old.
No Contract may be acquired by the Buyer if the Contract is
secured by a Leased Vehicle that, at the time of lease, was
more than four model years old.
b. The purchase price payable by the Buyer for each vehicle that
is to become a Leased Vehicle (and thus to become subject to a
Contract) shall never exceed that amount that the Dealer shall
have received by bank draft upon the delivery of the Leased
Vehicle. With respect to any Leased Vehicle (and the Contract
related thereto) the Buyer may acquire from Transition Auto
Finance II, Inc. ("TAF-II"), the Purchase Price for such
Leased Vehicle payable by Buyer shall be an amount equal to
the sum of (i) the depreciated value of the Leased Vehicle as
of the date of the Company's purchase from TAF-II plus (ii)
57.5% of the down payment originally paid by TAF-II with
respect to the Contract related to such Leased Vehicle plus
(iii) $150. For this purpose, the depreciated value is
calculated by amortizing over the term of the Lease the
difference between the Net Capital Cost of the Leased Vehicle
and TAF-II's estimate, at the inception of the lease, of the
residual value of the Leased Vehicle at the expiration of the
lease.
c. In addition, with respect to any Leased Vehicle (the "Subject
Vehicle") and the Contract related thereto (the "Subject
Contract") the Buyer may acquire from TAF-II, the Subject
Contract may not be in default at the time of purchase by
Buyer and may not be purchased if another Leased Vehicle and
Contract within TAF-II's portfolio both satisfies the criteria
specified within this Exhibit A and was entered into as of a
date prior to the date of such Subject Contract.
II. DOWN PAYMENT RATIO
Obligors on all Contracts must have made a down payment in cash and/or
net trade-in allowance of not less than 15% of the actual price paid by
draft to the selling automobile Dealer for the related Leased Vehicle;
provided, however, that the down payment for any Leased Vehicle which
is more than three model years old shall equal at least 20% of the
actual purchase price.
EXHIBIT A - Page 1
<PAGE> 74
III. CONTRACT TERMS
A. Each Contract must have an original term of 48 months or less.
B. Each Contract shall be in the form of industry-standard
consumer automobile lease Contracts.
IV. CREDIT CRITERIA
A. With respect to each Obligor on each Contract, the Buyer shall
perform all credit checks and reviews that are standard for
the motor vehicle lease industry and shall supply the
verification information to the Company at the time of
acquisition of each Contract.
B. In addition to the credit checks and reviews set forth in
paragraph IV.A. above, each Obligor must satisfy the following
criteria:
1. Verifiable home telephone number in Obligor's
residence;
2. Residence:
(a) Evidence of purchase, lease or rental
agreement in Obligor's name;
(b) Stability - Review length of time at last
two addresses, as well as time in area;
3. Employment: At least one year with last two
employers;
4. Obligor has verifiable income (check stub, W-2, 1099,
tax return, or bank statements);
5. Ratio of Obligor's net disposable income to gross
generally should exceed 60%;
6. References:
(a) Five relatives;
(b) Five personal.
7. Valid Texas driver's license;
8. If a previous bankruptcy, must have been discharged,
or if open, need letter of permission from bankruptcy
trustee.
9. Certain exceptions for first-time buyers permitted.
EXHIBIT A - Page 2
<PAGE> 75
EXHIBIT B
MONTHLY REPORT CERTIFICATE
For Month: _______________, ________ (the "Collection Period")
(year)
Company: Transition Auto Finance III, Inc.
Servicer: Transition Leasing Management, Inc.
Indenture: Dated as of __________________, 1999
Trustee: Trust Management, Inc.
I. INTEREST PAYMENTS ON NOTES (INDENTURE SECTION 5.1)
A. EXHIBIT I hereto sets forth a listing of the interest and any
principal payable to each Noteholder on the next Payment Date.
The Company certifies that computation of interest has been
made in conformance with the Indenture.
All capitalized terms used herein and not otherwise herein defined
shall have the same meaning as set forth in the Indenture.
Company and Servicer certify that, to the best of their knowledge, the
foregoing and attached information is true and correct.
Dated: ____________________, ________.
TRANSITION LEASING MANAGEMENT, INC.
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
TRANSITION AUTO FINANCE III, INC.
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
EXHIBIT B - Page 1
<PAGE> 76
EXHIBITS DESCRIPTION
-------- -----------
I Noteholder Interest Report
EXHIBIT B - Page 2
<PAGE> 77
EXHIBIT C
TRUSTEE'S FEE SCHEDULE
TRANSITION AUTO FINANCE III, INC.
11% SECURED NOTES
DUE AUGUST 31, 2004
Acceptance Fee $
---------------
Annual Administration Fee $
---------------
(annually per
Paying Agent/Registrar Services $ account maintained)
---------------
Interest Checks $ each
---------------
Corrections to Schedule A $ each
(certificate registration request) ---------------
All out-of-pocket expenses such as long distance telephone, stationery,
insurance, courier, attorney or accountant expense, etc., will be billed at cost
to the Company. The Trustee understands that the closing of the Note issuance
will be completed in Fort Worth and there will not be any travel expenses
charged to the Company. These fees do not include servicing responsibilities
should the Trustee be involved due to a removal of the Servicer. The Trustee
would present servicing fees at that time. These fees do not include arbitrage
accounting or excess yield calculations, if required. If the common trust funds
of Trustee are utilized, there will be 0.5% annual fee deducted from the
account. If Trustee's duties are modified to any great extent, Trustee reserves
the right to re-evaluate its fees. Extraordinary services will be charged
according to time and scope of services.
EXHIBIT C - Page 1
<PAGE> 78
SCHEDULE A
SCHEDULE OF CONTRACTS OWNED BY
TRANSITION AUTO FINANCE III, INC.
SCHEDULE A - Page 1
<PAGE> 1
EXHIBIT 10.1
MASTER PURCHASING AGREEMENT
This Master Purchasing Agreement (this "Agreement") effective as of
this _____ day of _______________, 1999, by and between Transition Leasing
Management, Inc., a Texas corporation ("Acquisition Agent") and Transition Auto
Finance III, Inc., a Texas corporation ("Buyer").
BACKGROUND STATEMENT
Buyer has no paid employees, and intends to rely upon Acquisition Agent
to acquire assets in the name of, and for the benefit of, Buyer. This Agreement,
under which from time to time Acquisition Agent will acquire on behalf of,
Buyer, and Buyer will agree to buy (i) motor vehicles that will be made subject
to motor vehicle lease contracts and liens on such vehicles securing the
obligations, and (ii) existing lease contract, shall govern the purchase and
transfer of the vehicles and obligations for the benefit of Buyer and the
servicing and other incidents thereof, and each shall be subject to the
warranties, representations and agreements herein.
STATEMENT OF AGREEMENT
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Acquisition Agent agree as follows:
1. DEFINITIONS. Unless the context requires otherwise, the following
terms shall for all purposes of this Agreement have the meanings hereinafter
specified:
a. "CERTIFICATE OF TITLE" shall mean a certificate of title
under the Certificate of Title Act, as amended (Transportation Code, Chapter
501, Vernon's Texas Codes Annotated) or a certificate of title under a statute
of another jurisdiction under the law of which indication of a security interest
on the certificate is required as a condition of perfection.
b. "CLOSING DATE" shall mean a business day mutually agreed
upon by Acquisition Agent and Buyer upon which the Contracts will be acquired by
Buyer.
c. "CONTRACT" shall mean a valid and enforceable motor vehicle
lease contract that is secured by a lien on a Leased Vehicle and that meets the
purchasing criteria set forth on EXHIBIT A attached hereto.
d. "CONTRACT DOCUMENTS" shall mean all documents and proof of
delivery evidencing and relating to the Contracts as Buyer may reasonably
request.
e. "DEALER" shall mean the motor vehicle dealer who sold a
Leased Vehicle to the Acquisition Agent or to the Buyer.
f. "LEASED VEHICLE" shall mean a new or late model automobile
that is not more than four model years old at the time of lease (including
passenger cars, minivans, sport/utility vehicles and light trucks), together
with all accessories thereto, securing an Obligor's obligations under the
respective Contract.
<PAGE> 2
g. "MASTER COLLECTIONS ACCOUNT" shall be a lockbox account in
the name of and owned by Acquisition Agent, which shall serve to collect all
Contract payments from Obligors and all other receipts relating to Contracts, as
further described and governed in the Servicing Agreement.
h. "MONTHLY REPORT CERTIFICATE" shall mean a certificate, in
such form as may be agreed from time to time by Acquisition Agent and Buyer,
signed by an officer of the Acquisition Agent, which shall confirm the adherence
of Acquisition Agent to all terms and conditions of this Agreement since the
date of the most recent previously issued Monthly Report Certificate, and the
conformance of the Contracts acquired by the Buyer in the immediately preceding
calendar month to the purchasing criteria set forth in EXHIBIT A, and shall
include such information regarding such Contracts as may be agreed from time to
time by Buyer and Acquisition Agent, which information may include all or some
of the following: a listing of Contracts setting forth, for each such Contract,
the Contract number, the aggregate unpaid lease payments as of the date acquired
by the Buyer and as of the date of origination, the name of the Obligor, the
maturity date, the name of the Dealer, the vehicle identification number for the
Leased Vehicle, the date on which the Contract was originated, the Purchase
Price, the Dealer's sale price, original cost and sale preparation expenses for
the Leased Vehicle, the amounts of deferred down payments and installments, the
maturity date, the aggregate unpaid lease payments as of the date of acquisition
by the Buyer and a calculation of the various ratios required by the purchasing
criteria set forth on EXHIBIT A.
i. "OBLIGOR" shall mean the person who has leased a Leased
Vehicle subject to a Contract and who is indebted under that Contract.
j. "PURCHASED CONTRACTS" shall mean all Contracts purchased by
Buyer from Transition Auto Finance Inc. (a Texas corporation) (hereinafter,
"TAF-II"), in accordance with the terms and conditions of this Agreement.
k. "SERVICING AGREEMENT" shall mean the Servicing Agreement
duly executed by Acquisition Agent and Buyer and dated of even date herewith.
l. "TAF-II" shall mean Transition Auto Finance Inc., a Texas
corporation, which is a wholly-owned subsidiary of Acquisition Agent and an
affiliate of Buyer.
2. PROCEDURE FOR PURCHASE. At any time and from time to time until the
termination of this Agreement, the Buyer may request the Acquisition Agent (i)
to solicit from Dealers offers to sell to Buyer vehicles eligible to become
Leased Vehicles, (ii) to solicit persons to become Obligors under Contracts, and
(iii) to do the work needed to negotiate and originate Contracts for and on
behalf of Buyer. Acquisition Agent shall be obligated to use reasonable efforts
to perform those functions on behalf of Buyer as soon as practicable following
any such request by the Buyer. In addition, with respect to the portfolio of
Contracts owned by TAF-II, Acquisition Agent shall be obligated to perform the
clerical and ministerial functions on behalf of Buyer necessary to enable Buyer
to acquire such Contracts from TAF-II, to the extent that Buyer has sufficient
funds available for that purpose and requests Acquisition Agent to do so. The
Buyer shall be obligated to purchase vehicles eligible to become Leased Vehicles
from Dealers through the Acquisition Agent, and to purchase from TAF-II any
Contracts properly offered for sale to it, in
-2-
<PAGE> 3
accordance with the terms of this Agreement, up to a maximum aggregate Purchase
Price of any dollar amount that may be specified by the Buyer in its request.
Payment of the purchase price by Buyer shall be made at the time of the
sale to Buyer from TAF-I or the purchase by Acquisition Agent on Buyer's behalf
of each Leased Vehicle. At all times during the term of this Agreement, Buyer
shall retain the right to audit any or all Contracts for adherence to the terms
and conditions of this Agreement. Acquisition Agent shall cooperate in all
material respects with the audit of such Contracts. Within ninety (90) days
following the end of each calendar year, Acquisition Agent shall supply a
compliance letter from its independent certified public accounting firm stating
that purchasing activities and transactions covered under this Agreement were
performed in all material respects in accordance with its terms and conditions.
Buyer shall be reimbursed by Acquisition Agent, and receive a repurchase price
equal to the Buyer's original purchase price less any lease payments made on
such Contract after the Buyer's acquisition of the Contract, for any and all
Contracts that are sold to Buyer that do not meet the terms and conditions set
forth in this Agreement.
3. PURCHASE PRICE; COMPENSATION. The Purchase Price (herein so called)
payable by the Buyer for each Leased Vehicle or Contract shall be an amount set
forth in the Monthly Report Certificate. The Purchase Price for a Leased Vehicle
shall never exceed that amount that a Dealer shall receive from bank draft upon
the delivery of the Leased Vehicle. With respect to any Leased Vehicle (and the
Contract related thereto) the Buyer may acquire from TAF-I, the Purchase Price
for such Leased Vehicle payable by Buyer shall be an amount equal to the sum of
(i) the sum of (a) the depreciated value of the Leased Vehicle as of the date of
the Company's purchase plus (b) 57.5% of the down payment received by TAF-I with
respect to such Leased Vehicles (which percentage amount represents the
marketing fee paid by TAF-I to Transition Leasing with respect to such Leased
Vehicle) plus (ii) 57.5% of the down payment received by TAF-I with respect to
the Contract related to such Leased Vehicle.
Buyer shall pay to Acquisition Agent, on or before the fifteenth day of
each month, a purchase administration fee of $100 (the "Purchase Administration
Fee"), a documentary fee of $50 (the "Documentary Fee"), and a marketing fee
equal to 57.5% of the Obligor's down payment with respect to given Contract, as
to each Contract acquired by Buyer from or through Acquisition Agent under this
Agreement during the prior calendar month.
4. TERM. This Agreement shall commence as of the date first written
above and shall continue until _______________, 2002, unless mutually extended
or terminated; provided, however, that in the event of a termination of the
Servicing Agreement, Buyer shall be permitted to terminate this Agreement on ten
days' prior written notice to the Acquisition Agent.
5. OTHER DOCUMENTS. Acquisition Agent or Buyer shall execute and
deliver any and all other documents, opinions, certificates, and evidence of the
Contracts as may be reasonably requested by Buyer in connection with the
transactions contemplated by this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF ACQUISITION AGENT. In order to
induce Buyer to enter into this Agreement and to purchase Contracts, Acquisition
Agent represents, warrants and covenants to Buyer as follows:
-3-
<PAGE> 4
a. Acquisition Agent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. Acquisition
Agent is duly qualified to transact business, and is in good standing, in each
jurisdiction where the nature of its business or properties requires such
qualification and where the failure to so qualify could have a material adverse
effect on the business operations or financial condition of Acquisition Agent.
Acquisition Agent has all requisite power, authority, licenses and permits
material to the ownership and operations of its properties and to the carrying
on of its business.
b. Acquisition Agent has all requisite corporate power and
authority to execute and deliver, and to perform under, this Agreement.
c. The execution and delivery of, and performance by
Acquisition Agent under, this Agreement and any and all related documents have
been duly authorized by all requisite corporate action of Acquisition Agent and
are not in contravention of any applicable law.
d. This Agreement constitutes the valid, legal and binding
obligation of Acquisition Agent, enforceable against Acquisition Agent in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights generally.
e. No consent, approval or authorization of, registration with
or declaration to any tribunal, person or entity, including, without limitation,
the Obligors on the Contracts, or approval by the stockholders of Acquisition
Agent, is required in connection with the execution and delivery of this
Agreement or any Assignment or in connection with the performance by Acquisition
Agent of any covenant or agreement contained herein or in any Monthly Report
Certificates.
f. The execution, delivery, performance of or compliance with
the terms of this Agreement or any and all Monthly Report Certificates will not
cause Acquisition Agent to be in default or in violation (nor has any event or
condition occurred that, with notice or lapse of time or both, would constitute
a default or violation) under (a) any credit or loan agreement, indenture,
mortgage or deed of trust, or other material agreement, undertaking or
arrangement (written or oral) to which it is a party or by which it may be bound
or (b) its Articles of Incorporation or Bylaws.
g. Acquisition Agent is not, and the execution, delivery,
performance of or compliance with the terms of this Agreement and any and all
activities governed herein will not cause Acquisition Agent to be, in violation
of any laws in any respect that could have any material adverse effect
whatsoever upon the validity, performance or enforceability of any of the terms
of this Agreement.
h. There is no litigation or action at law or in equity
pending, or, to its knowledge, threatened against it and no proceeding of any
kind is pending or, to its knowledge, threatened, by any federal, state or local
governmental or administrative body, which will or might materially affect
Acquisition Agent or its ability to consummate the transactions contemplated
hereby.
i. Each Contract will conform with, and in acting with respect
to such Contract, Acquisition Agent will have complied in all material respects
with, all applicable federal, state and local laws, regulations and official
rulings.
-4-
<PAGE> 5
j. Each Contract (a) shall have been originated in the United
States of America and covers a Leased Vehicle purchased from a Dealer in the
retail sale of the Leased Vehicle in the ordinary course of such Dealer's
business, shall have been fully and properly executed by the parties thereto and
the full and complete title to such Leased Vehicle shall have been validly
assigned by such Dealer to Acquisition Agent as Buyer's Agent, or directly to
Buyer in accordance with its terms, (b) shall reflect Buyer as the owner of the
Leased Vehicle and shall have created or shall create a valid, subsisting, and
enforceable first priority security interest in favor of Buyer in the Leased
Vehicle and a valid, subsisting and enforceable second priority security
interest in favor of the Trustee in the Leased Vehicle, (c) shall contain
customary and enforceable provisions such that the rights and remedies of the
holder thereof shall be adequate for realization against the collateral of the
benefits of the security, (d) shall provide for, in the event that such Contract
is prepaid, a prepayment that fully pays the principal balance, (e) met at the
time of the Leased Vehicle's purchase from the originating Dealer in all
material respects all purchasing criteria set forth on EXHIBIT A attached
hereto, and (f) shall have been validly assigned to Buyer.
k. Each Contract and the sale of the Leased Vehicle shall have
complied at the time it was originated or made and at the execution of this
Agreement shall comply in all material respects with all requirements of
applicable federal, state, and local laws and regulations hereunder, including,
without limitation, usury laws, the Federal Truth-In-Lending Act, the Consumer
Leasing Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal
Trade Commission Act, the Federal Reserve Board's Regulations B, M and Z, and
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, and other consumer laws and equal credit opportunity and disclosure
laws.
l. Each Contract shall represent the genuine, legal, valid and
binding payment obligation in writing of the Obligor, enforceable by the holder
thereof in accordance with its terms subject to the effects of bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement of
creditors' rights generally.
m. (i) The Certificate of Title for such Leased Vehicle shows
(or if a new or replacement Certificate of Title is applied for with respect to
such Leased Vehicle, the official receipt from the responsible state or local
government authority indicating that an application has been made and that the
Certificate of Title, when issued, will show (within 30 days) the Buyer as the
owner and the holder of a first priority security interest in such Leased
Vehicle, (ii) within 30 days after the Purchase Date of the Contract or the
Leased Vehicle, the Certificate of Title for such Leased Vehicle will show the
Buyer as the owner and the holder of a first priority security interest in such
Leased Vehicle, and the Trustee as the holder of a second priority security
interest in such Leased Vehicle, and (iii) the Buyer, upon delivery or the
transfer to it, will have a valid and enforceable first priority security
interest in the Leased Vehicle to the same extent as the security interest of
the Person named as the original secured party under the related Contract and
the Trustee will have a valid and enforceable second priority security interest.
n. No provision of a Contract shall have been waived, without
the express written consent of the Company.
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<PAGE> 6
o. No right of rescission, setoff, counterclaim, or defense
shall have been asserted or threatened with respect to any Contract.
p. It is the intention of the Acquisition Agent that the
transfer and assignment herein contemplated constitute a sale of the Leased
Vehicles and Contracts to Buyer and that the beneficial interest in and title to
the Contracts not be part of Acquisition Agent's estate in the event of the
filing of a bankruptcy petition by or against Acquisition Agent under bankruptcy
law. Immediately prior to the transfer and assignment to Buyer herein
contemplated, Dealer had good and marketable title to each Leased Vehicle free
and clear of all liens, encumbrances, security interests, and rights of others
and, immediately upon the transfer thereof, Buyer shall have good and marketable
title to each Leased Vehicle and each Contract, free and clear of all liens,
encumbrances, security interests, and rights of others.
q. No Contract shall have been originated in, or shall be
subject to the laws of, any jurisdiction under which the sale, transfer, and
assignment of such Contract under this Agreement or pursuant to transfers of the
Contract, shall be unlawful, void, or voidable.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. In order to induce
Acquisition Agent to enter into this Agreement and to purchase Leased Vehicles
and Contracts, Buyer represents, warrants and covenants to Acquisition Agent as
follows:
a. Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas. Buyer is duly qualified
to transact business, and is in good standing, in each jurisdiction where the
nature of its business or properties requires such qualification and where the
failure to so qualify could have a material adverse effect on the business
operations or financial condition of Buyer. Buyer has all requisite power,
authority, licenses and permits material to the ownership and operation of its
properties and to the carrying on of its business.
b. Buyer has all requisite corporate powers and authority to
execute and deliver, and to perform under, this Agreement.
c. The execution and delivery of, and performance by Buyer
under, this Agreement and any and all related documents have been duly
authorized by all requisite corporate actions of Buyer and are not in
contravention of any applicable law.
d. This Agreement constitutes the valid, legal and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect,
affecting the enforcement of creditors' rights generally.
e. No consent, approval or authorization of, registration with
or declaration to any tribunal, person or entity, including, without limitation,
the Obligors on the Contracts, or approval by the stockholders of Buyer, is
required in connection with the execution and delivery of this Agreement or in
connection with the performance by Buyer of any covenant or agreement contained
herein.
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<PAGE> 7
f. The execution, delivery, performance of or compliance with
the terms of this Agreement will not cause Buyer to be in default or in
violation (nor has any event or condition occurred that, with notice or lapse of
time or both, would constitute a default or violation) under (a) any credit or
loan agreement, indenture, mortgage or deed of trust, or other material
agreement, undertaking or arrangement (written or oral) to which it is a party
or by which it may be bound or (b) its Articles of Incorporation or bylaws.
g. Buyer is not, and the execution, delivery, performance of
or compliance with the terms of this Agreement and any and all activities
governed herein will not cause Buyer to be, in violation of any laws in any
respect that could have a material adverse effect whatsoever upon the validity,
performance or enforceability of any of the terms of this Agreement.
h. There is no litigation or action at law or in equity
pending, or, to its knowledge, threatened against it and no proceeding of any
kind is pending or, to its knowledge, threatened, by any federal, state or local
governmental or administrative body, which will or might materially affect Buyer
or its ability to consummate the transactions contemplated hereby.
8. SERVICING AGREEMENT; COLLECTION OF PURCHASED RECEIVABLES.
Concurrently with the execution of this Agreement, Acquisition Agent and Buyer
shall enter into the Servicing Agreement, whereby Acquisition Agent, as an
independent contractor, will collect, in accordance with the terms and
conditions set forth therein, for the account of Buyer all payments due to Buyer
under all Contracts.
9. NO ASSUMPTION. The Acquisition Agent does not, and shall not be
deemed to, assume any obligations of the Buyer relating to the transactions
contemplated herein. Buyer does not, and shall not be deemed to assume any
obligations of Acquisition Agent relating to the Contracts or the transactions
giving rise to the Contracts. To the extent that Acquisition Agent has not
completed performance of any contract pursuant to which a Contract was
generated, Acquisition Agent hereby covenants and agrees to complete such
contract in order that the Obligor will continue not to have any rights to
set-off, counterclaim or dispute. Accordingly, Acquisition Agent hereby
indemnifies and holds harmless Buyer, its successors and assigns, and their
respective officers, directors, agents and attorneys against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever that
may be imposed on, incurred by or asserted against Buyer, its successors and
assigns, or their respective officers, directors, agents and attorneys due to
(i) any breach by Acquisition Agent of its representations, warranties or
covenants provided for in this Agreement or in the Servicing Agreement, or (ii)
any action or inaction of Acquisition Agent, or through Acquisition Agent, in
any way relating to, or arising out of, this Agreement, any and all Monthly
Report Certificates, or any of the transactions contemplated herein or therein
or the creation or collection or enforcement of any of the Contracts.
Acquisition Agent, however, does not assume the risk of uncollectibility and
does not indemnify Buyer, its successors and assigns, and their respective
officers, directors, agents and attorneys, against, the uncollectibility of all
or any part of the Contracts as against the Obligor thereof, except for
uncollectibility resulting from a violation of state, federal or local laws or
regulations and except as a result of a breach by Acquisition Agent of any
warranty, representation or covenant contained herein. The indemnities contained
in this Section shall survive any termination of this Agreement.
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10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Acquisition Agent may contract with industry-qualified parties for the
performance of any or all of its obligations to acquire and service Contracts as
contemplated and governed herein. Any such contract, however, shall not relieve
Acquisition Agent from liability for its obligations hereunder.
11. MODIFICATIONS AND WAIVERS. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege hereunder. All rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies that the parties hereto may
otherwise have at law or in equity. No waiver shall be valid in the absence of
the written and signed consent of the party against which enforcement of such is
sought.
12. NOTICE. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telegraphic or telecopy
communication) and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, or if telegraphed when delivered
to the telegraph company, or if telecopied when transmitted, or otherwise when
delivered in person to the addressee and a receipt given for, in all such
instances addressed to the respective party as follows:
To Acquisition Agent: Transition Leasing Management, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attention: Ken Lowe, President
To Buyer: Transition Auto Finance II, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attention: Ken Lowe, President
or at such other address as the addressees may, by written notice received by
the other party hereto, designate as the appropriate address for purposes of
notice hereunder.
13. AMENDMENT. This Agreement may be amended, supplemented or modified
only with the written consent of the parties hereto.
14. CHOICE OF LAW. THIS AGREEMENT, AND THE VALIDITY AND ENFORCEABILITY
HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF TEXAS.
15. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, the legality, validity and enforceability of the
remaining provisions of this Agreement shall not be affected thereby, and in
lieu of each such illegal, invalid or unenforceable provision there shall be
added
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<PAGE> 9
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
16. ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which for all purposes is to be deemed an original.
18. SURVIVAL. All covenants, agreements, undertakings, indemnities,
representations and warranties made herein shall survive both the execution and
the termination hereof, and shall not be affected by any investigation made by
any party.
19. FURTHER ASSURANCES. Acquisition Agent shall furnish to Buyer at the
request of the Buyer such additional information concerning the Contracts as
Buyer may from time to time reasonably request in order to establish compliance
with the terms and conditions of this Agreement, and shall execute, acknowledge
and deliver, or cause to be executed, acknowledged or delivered, such
supplements hereto and such further instruments as may reasonably be required or
appropriate and permitted by law to further express the intention, or to
facilitate the performance of, this Agreement.
TRANSITION LEASING MANAGEMENT, INC.
By:
-------------------------------
Ken Lowe, President
TRANSITION AUTO FINANCE III, INC.
By:
-------------------------------
Ken Lowe, President
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<PAGE> 10
MASTER PURCHASING AGREEMENT
EXHIBIT A
QUALIFIED CONTRACT CRITERIA
The following purchasing criteria shall govern all purchases of Leased
Vehicles by Buyer and no Leased Vehicle or Contract shall be acquired that does
not meet the following criteria without specific written permission of
Acquisition Agent and Buyer.
I. VEHICLE CRITERIA.
a. No vehicle that is to become a Leased Vehicle may be
purchased by the Buyer if the vehicle is more than four model years old. No
Contract may be acquired by the Buyer if the Contract is secured by a Leased
Vehicle that, at the time of lease, was more than four model years old.
b. The purchase price payable by the Buyer for each vehicle
that is to become a Leased Vehicle (and thus to become subject to a Contract)
shall never exceed that amount that a Dealer shall receive from bank draft upon
the delivery of the Leased Vehicle. With respect to any Leased Vehicle (and the
Contract related thereto) the Buyer may acquire from TAF-I, the Purchase Price
for such Leased Vehicle payable by Buyer shall be an amount equal to the sum of
(i) the value of Leased Vehicle on a "average wholesale" basis, as determined by
reference to the "Texas Edition" of the "Official Used Car Market Guide" in
effect as of the date of the Buyer's purchase plus (ii) 57.5% of the down
payment received by TAF-I with respect to the Contract related to such Leased
Vehicle.
c. In addition, with respect to any Leased Vehicle (the
"Subject Vehicle") and the Contract related thereto (the "Subject the Buyer may
acquire from TAF-I, the Subject Contract may not be in default at the time of
purchase by Buyer and may not be purchased if another Leased Vehicle and
Contract within TAF-I's portfolio both satisfies the criteria specified within
this Exhibit A and was entered into as of a date prior to the date of such
Subject Contract.
II. DOWN PAYMENT RATIO. Obligors on all Contracts must have made a
payment on the Contract in cash and/or net trade-in allowance equal to not less
than 15% or, in the case of Leased Vehicles which are four model years old 20%,
of the actual purchase price paid to the dealer who sold the related Leased
Vehicle to the Buyer or to TAF-I, as the case may be.
a. Each Contract must have an original term of 48 months or
less.
b. Each Contract shall be in the form of industry-standard
consumer automobile lease contracts.
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<PAGE> 11
IV. CREDIT CRITERIA.
a. With respect to each Obligor on each Contract, the
Acquisition Agent shall perform all credit checks and reviews that are standard
for the motor vehicle lease industry and shall supply the verification
information to the Buyer at the time of acquisition of each Contract.
b. In addition to the credit checks and reviews set forth in
IV.a. above, each Obligor must satisfy the following criteria:
1. Verifiable home telephone number in Obligor's residence;
2. Residence:
(A) Evidence of purchase, lease or rental agreement
in Obligor's name;
(B) Stability- Review time lived at last two
addresses, as well as time in area;
3. Employment: At least one year with last two employers;
4. Obligor has verifiable income (check stub, W-2, 1099, tax
return, or bank statements);
5. Ratio of Obligor's net spendable income to gross
generally exceed 60%;
6. References:
(A) Five relatives;
(B) Five personal;
7. Current Texas driver's license;
8. If a previous bankruptcy, must have been discharged at
least one year, or if open, need letter of permission from bankruptcy trustee;
9. Exceptions for first-time buyers.
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<PAGE> 1
EXHIBIT 10.2
SERVICING AGREEMENT
THIS SERVICING AGREEMENT, dated as of _______________, 1999 (the
"Servicing Agreement"), is entered into by and between Transition Leasing
Management, Inc., a Texas corporation ("Transition Leasing"), in its capacity as
servicer of certain motor vehicles lease contracts (the "Servicer"), and
Transition Auto Finance III, Inc., a Texas corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of that certain Master
Contract Acquisition Agreement dated of even date herewith between Transition
Leasing and Buyer relating to the acquisition of certain motor vehicles and
motor vehicle lease contracts by Buyer from or through Transition Leasing (the
"Master Contract Acquisition Agreement;" all capitalized terms used herein and
not otherwise herein defined shall have the same meaning as set forth in the
Master Contract Acquisition Agreement or the Indenture). Buyer desires to
acquire certain Leased Vehicles and Contracts that will be described in Monthly
Report Certificates to be delivered by Transition Leasing to Buyer pursuant to
Section 2 of the Master Contract Acquisition Agreement; and
WHEREAS, Buyer has requested the Servicer to undertake the collection
and servicing responsibilities with respect to any and all of the Contracts and
to account to Buyer therefor as provided herein;
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT OF AND ACCEPTANCE BY THE SERVICER OF SERVICING
OBLIGATIONS.
A. The Servicer, on behalf of Buyer, shall during the term of
the Servicing Agreement manage, administer and collect each of the Contracts and
shall exercise discretionary powers involved in such management, administration
and collection, and shall bear all costs and expenses incurred in connection
therewith, that may be necessary or advisable in carrying out the Agreement. In
the management, administration and collection of the Contracts, the Servicer
shall use at least the same care and apply the same policies that it would
exercise if it owned the Contracts, including but not limited to the servicing
criteria as set forth in EXHIBIT A attached hereto.
B. The Servicer shall have the full power and authority to do
those things in connection with such servicing, administration and collection
activities that it may deem necessary or desirable in order to maximize receipts
collected from Obligors or foreclosure and sale of Lease Vehicles underlying the
Contracts. Without limiting the generality of the foregoing, the Servicer is
hereby authorized and empowered to execute and deliver, on behalf of Buyer,
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, in order to evidence payments
received with respect to the Contracts and, after the delinquency of any
Contracts and to the extent permitted under and in compliance with applicable
law and regulations, to commence enforcement proceedings with respect to such
Contracts; PROVIDED, HOWEVER, that the Servicer shall not commence any legal
action against an Obligor in the name of Buyer without the prior written consent
of Buyer, which Buyer shall furnish the Servicer to carry out its servicing and
administrative duties hereunder.
<PAGE> 2
2. TERM. The Servicing Agreement shall commence as of the date first
written above and shall continue so long as the Buyer has any outstanding
Contracts that remain to be collected, absent a Servicer Event of Default (as
defined herein below).
3. COMPENSATION. In exchange for the services provided to Buyer as
described and governed herein, Servicer shall receive on or before the fifteenth
day of the month following a month in which such services are provided, and upon
receipt by Buyer of all required, duly prepared and properly executed Monthly
Report Certificates from Acquisition Agent, a Contract Servicing Fee (herein so
called) equal to Twenty and 00/100 Dollars ($20.00) times the aggregate number
of Contracts serviced by Servicer during the previous month. Such aggregate
number of Contracts shall equal the sum of all Contracts identified in the
Monthly Report Certificates, less all Contracts that have been previously paid
in full by their Obligors, and less all Contracts in which an Obligor default
has occurred and Servicer has assigned the related Leased Vehicle for
repossession.
Additionally, any third-party expenditures pursuant to Section II(C)
and III(A) of EXHIBIT A to the Servicing Agreement with respect to any
particular Contract shall be paid for from the proceeds from collection or from
resale of the repossessed Leased Vehicle relating to that Contract.
4. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
represents, warrants and covenants to Buyer that:
A. ORGANIZATION AND GOOD STANDING. The Servicer is a
corporation duly organized, existing and in good standing under the laws of
Texas, and has full corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently contemplated, and to execute, deliver and perform its
obligations under the Servicing Agreement.
B. DUE QUALIFICATION. The Servicer is duly qualified and has
registered as a foreign corporation in each state where such qualification is
required in order to service the Contracts as required by the Servicing
Agreement and has obtained all necessary licenses, approvals or consents as are
required under applicable law to perform its duties hereunder.
C. DUE AUTHORIZATION. The execution, delivery and performance
of the Servicing Agreement has been duly authorized by the Servicer by all
necessary corporate action on the part of the Servicer.
D. BINDING OBLIGATION. The Servicing Agreement constitutes a
legal, valid and binding obligation of the Servicer, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights in general
and such enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
E. NO VIOLATION. The execution and delivery of the Servicing
Agreement by the Servicer and the performance of the transactions contemplated
by the Servicing Agreement and the fulfillment of the terms hereof applicable to
the Servicer, will not conflict with, violate, result in any breach of any of
the material terms and provisions of, or constitute (with or without notice or
lapse
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<PAGE> 3
of time or both) a default under, any requirement of law applicable to the
Servicer or any indenture, contract, agreement, mortgage, deed of trust or other
instrument to which the Servicer is a party or by which it is bound.
5. COVENANTS OF THE SERVICER. From and after the date hereof until such
time as the Servicing Agreement terminates, Servicer, as an independent
contractor, shall at its own expense, direct all Obligors on the Contracts to
remit all collections and payments directly to, or otherwise cause all payments
on the Contracts to be deposited in, Servicer's Master Collections Account.
Servicer shall have no ownership in or authority to amend, modify, change or
terminate the Master Collections Account without the prior written consent of
the Buyer. Servicer agrees and covenants that all Obligors will utilize payment
books with remittance instructions or monthly statements directing all payments
to be remitted directly to the Master Collections Account, and Servicer
additionally agrees that all cash, checks, notes, drafts or other items that it
receives otherwise than through the Master Collections Account attributable to
the Contracts including proceeds from resale of repossessed Leased Vehicles,
Leased Vehicles returned upon the expiration of their lease terms and recoveries
on insurance claims, shall be deposited in the Master Collections Account within
two business days of receipt.
The Servicer acknowledges that any collections or proceeds from the
Contracts in the Master Collection Account, or otherwise in the possession or
control of the Servicer, are the Buyer's property and subject to the security
interest granted to the Trustee under the Indenture. In holding such proceeds
and collections, the Servicer agrees to act as custodian and bailee of the Buyer
and the Trustee at all times. The Servicer agrees, for the benefit of the Buyer,
the Trustee and the holders of the Notes, to act as such custodian and bailee,
and to hold and deal with such proceeds and collections, as custodian and bailee
for the Buyer and the Trustee, in accordance with the provisions of the
Indenture. It is intended that the Trustee, as a secured party, shall be deemed
to have possession of such proceeds and collections for purposes of Section
9-305 of the UCC of the state in which such property is located.
A. OPERATIONS. The Servicer shall collect the Contracts in an
orderly and efficient manner consistent with good business practices and in
accordance with all applicable federal, state and local laws and regulations.
B. RECORDS. So long as Buyer has not given notice of
termination pursuant to SECTION 9, the Servicer shall (i) hold in trust and
safely keep all Contract Closing Documents and such other documents as may be
required for the enforcement of the Contracts; (ii) keep such accounts and other
records as will enable Buyer to determine the status of the Contracts; (iii)
keep such books and records at its offices identified in SECTION 14 herein; and
(iv) permit Buyer and its representatives at any time to inspect, audit, check
and make abstracts from Servicer's accounts, records, correspondence and other
papers pertaining to the Contracts, together with the account balance of such
accounts and the payment history related thereto. The Servicer shall provide
Buyer with monthly reports updating the information relating to account balances
and activity and certifying the amounts collected on the Contracts during the
preceding month.
C. CONTINUATION STATEMENTS. If Buyer so requests, the Servicer
shall execute and file documents that shall reflect Buyer as the owner of the
Leased Vehicle, including registration of the Certificates of Title in the name
of Buyer and/or any other documents requested
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<PAGE> 4
by Buyer or that may be required by law to preserve fully and protect the
interest of Buyer in and to the Contracts.
D. PRINCIPAL EXECUTIVE OFFICE. The Servicer shall not, without
providing thirty days' notice to Buyer, and without filing such amendments to
any previously filed financing statements as Buyer may require,(i) change the
county where its principal executive office or the offices where the records
relating to the Contracts are kept, or (ii) change its name, identity or
corporate structure in any manner that would, could or might make any financing
statement or continuation statement filed by Buyer or the Servicer or any
provision hereof seriously misleading within the meaning of Section 9-402(7) of
any applicable enactment of the Uniform Commercial Code.
E. NO IMPAIRMENT. The Servicer will duly fulfill all
obligations on its part to be fulfilled under or in connection with each
Contract and will do nothing to materially impair the rights of Buyer in the
Contracts.
F. COMPLIANCE WITH LAW. The Servicer will comply, in all
material respects, with all acts, rules, regulations, orders, decrees and
directions of any governmental authority applicable to the Contracts or any part
thereof; PROVIDED, HOWEVER, that the Servicer may contest any act, regulation,
order, decree or direction in any reasonable manner that shall not materially
and adversely affect the rights of Buyer in the Contracts. The Servicer will
comply, in all material respects, with any obligation of a holder of a Contract
to the Obligor thereof arising under such Contract or under applicable law.
G. SECURITY INTEREST. Except for the transfers of Contracts to
the Buyer under the Master Contract Acquisition Agreement, the Servicer will not
sell, pledge, assign or transfer to any other person, or grant, create, incur,
assume or suffer to exist any lien on any Contracts, or the books or records
relating to any Contracts, or any interest therein; the Servicer will
immediately notify Buyer of the existence of any lien on any Contracts; the
Servicer shall defend the right, title and interest of Buyer in, to and under
the Contracts, whether now existing or hereafter transferred to Buyer, against
all claims of third parties claiming through or under the Servicer.
H. PAYMENT OF FEES AND EXPENSES OF TRUSTEE. The Servicer
shall, if the Buyer does not so pay, pay the fees and expenses of the Trustee
under the Indenture as such fees and expenses become payable from time to time
pursuant to Section 7.7 of the Indenture, and hereby agrees to indemnify the
Trustee and its agents as provided in said Section 7.7. The Servicer shall be
entitled to seek reimbursement for such fees and expenses from any funds of the
Buyer that are not subject to the lien of the Indenture.
I. SERVICING COMPENSATION. As compensation for the performance
of its obligations under the Servicing Agreement and subject to the terms of
this SECTION 5(I), the Servicer shall be entitled to receive payment of the
Servicing Fees from the Buyer, out of amounts available for that purpose in the
Operating Account pursuant to Section 4.2 of the Indenture. 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 4.2(f) of the Indenture and
after creation of a reserve to pay all interest due on the Outstanding
Securities on the next Payment Date, any deficiency being carried over and not
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<PAGE> 5
payable (without accountability for interest) until sufficient amounts become
available for that purpose in the Operating Account. The Servicer shall 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 and can be reimbursed
out of related Liquidation Proceeds.
J. 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 Leased
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 lease contracts and as shall be in compliance with all applicable laws, and,
in connection with the repossession of any Leased Vehicle or any Defaulted
Contract, may commence or 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 Buyer or the Trustee, on behalf of the Buyer or on behalf of the Trustee.
The Servicer's obligations under this Section are subject to the provision that,
in the case of damage to a Leased Vehicle from an insured cause, the Servicer
shall not be required to expend its own funds in repairing such motor vehicle
unless it shall determine (i) that such restoration will increase the
Liquidation Proceeds of the related Contract, after reimbursement to itself for
such expenses, and (ii) that such expenses will be recoverable by it either as
Liquidation Expenses or as expenses recoverable under an applicable insurance
policy. The Servicer shall be responsible for all other costs and expenses
incurred by it in connection with any action taken in respect of a Defaulted
Contract; provided, however, that it shall be entitled to reimbursement of such
costs and expenses to the extent they constitute Liquidation Expenses or
expenses recoverable under an applicable insurance policy. All Liquidation
Proceeds (net of Liquidation Expenses) and Insurance Proceeds (net of expenses
incurred by the Servicer and recoverable under the related insurance policy and
net of the portion thereof applied to the repair of any Leased Vehicle or
released to an Obligor in accordance with the Servicer's normal servicing
procedures) shall be deposited in the Master Collections Account to the extent
required by the Servicing Agreement.
K. APPOINTMENT OF CUSTODIAN FOR CONTRACT DOCUMENTS. Except as
otherwise provided in the Indenture, upon delivery of the Contract Documents to
the Trustee for any Contracts purchased by the Buyer under Section 4.3 of the
Indenture, possession of the Contract Documents will be retained by the Trustee
or any other financial institution appointed by the Buyer and the Trustee to act
as custodian and bailee of the Contract Documents for the Trustee and the Buyer.
If another financial institution is appointed, it is intended that the Trustee,
as secured party, shall be deemed to have possession of the Contract Documents
for purposes of Section 9-305 of the UCC of the state in which the Contract
Documents are located.
L. COLLECTING TITLE DOCUMENTS NOT DELIVERED AT THE CLOSING
DATE. If the Title Document for a Leased Vehicle does not reflect the Buyer as
owner and first lienholder and the Trustee as second lienholder at the time of
the Buyer's purchase direct from a Dealer of the Leased Vehicle, the Servicer
shall confirm, prior to the Buyer's purchase, that an appropriate application
has been made to transfer the title of the Title Document to the Buyer with
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such Title Document reflecting the Buyer as owner and first lienholder and the
Trustee as second lienholder.
In the case of any Contract in respect of which the Title Document for
the related Leased Vehicle showing the Buyer as owner and first lienholder and
the Trustee as second 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 ownership noted thereon to the Buyer and the second lien in
favor of the Trustee. In the case of any Contract in respect of which the Title
Document for the related Leased Vehicle showing the Buyer as owner and first
lienholder and the Trustee as second 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
Trustee (or other financial institution appointed as custodian for the Contract
Documents) as promptly as possible. If such Title Document showing the Buyer as
owner and first lienholder and Trustee as second lienholder is not received by
the Trustee (or other custodian) within 30 days after the Purchase Date, then
the representation and warranty in Section 4.4 of the Indenture in respect of
such Contract shall be deemed to have been incorrect in a manner that materially
and adversely affects the Security holders.
The Servicer shall deliver to the Trustee on a monthly basis a listing
of Contracts that as of the date prior to such delivery do not show the Buyer as
owner and first lienholder and the Trustee as second lienholder on the Title
Documents for such Contracts.
Any fees charged for the transfer of ownership or liens on the Title
Documents for the Leased Vehicles into or out of the Buyer's or Trustee's name,
as appropriate, shall be paid by the Buyer as an Allowed Expense.
M. REPORTING BY THE SERVICER. On or prior to each Servicer
Report Date, the Servicer shall render to the Buyer the Monthly Report, in
respect of the immediately preceding Collection Period, which shall set forth
the following:
(i) A confirmation that all proceeds (including all
written instruments, Full Prepayments, Net
Liquidation Proceeds and Net Insurance Proceeds)
received by Servicer during such Collection Period
and attributable to the Contracts (and any related
Leased Vehicles) owned the Buyer have been deposited
into the Master Collections Account;
(ii) A confirmation that all funds that were deposited
into the Master Collections Account during such
Collection Period and that were attributable to the
Contracts and related Leased Vehicles owned by the
Buyer have been transferred to the Operating Account;
(iii) Attached to the Monthly report should be detailed
collection, receivables and delinquencies reports
listing, by Contract Number, the daily proceeds
received from each Contract during such Collection
Period and deposited in the Master Collections
Account (including any Net Liquidation Proceeds and
Net Insurance Proceeds and any prepayments by
Obligors) and the unpaid
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installment balance and the past due installments as
of the end of the Collection Period for each
Contract;
(iv) Attached to the Monthly Report should be a detailed
repossession, liquidation and loss report listing, by
Contract Number, Contracts assigned for repossession,
the repossessions of Leased Vehicles, the sales of
repossessed Leased Vehicles or Leased Vehicles
returned upon the termination of their Contracts and
resulting proceeds, any Net Insurance Proceeds and
any other Net Liquidation Proceeds during the
Collection Period; and
(v) Any other information relating to the Contracts
reasonably requested by the Buyer or the Trustee.
On or before 45 days after the end of each fiscal quarter of the
Servicer, the Servicer shall deliver an Officers' Certificate to the Buyer and
the Trustee to the effect that a review of the activities of the Servicer during
the Servicer's preceding fiscal quarter has been made under the supervision of
the officers executing such Officers' Certificate with a view to determining
whether during such period the Servicer has performed and observed, in all
material respects, its obligations under the Indenture and the Servicing
Agreement, and either (A) stating that to the best of their knowledge no default
by the Servicer under the Indenture or the Servicing Agreement has occurred and
is continuing, or (B) if such a default has occurred and is continuing,
specifying such default and the nature and status thereof. Such certificate need
not comply with Section 11.4 of the Indenture.
N. ANNUAL ACCOUNTANTS' REPORTS. On or before 120 days after
the end of each fiscal year of the Servicer, the Servicer and the Buyer shall
deliver to the Trustee separate reports, prepared by a firm of independent
accountants selected by the Servicer and the Buyer, that (i) they have examined
the balance sheets of the Servicer and the Buyer is 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, (ii) they have also examined certain
documents and the records to the Contracts, (iii) their examination as described
under clauses (i) and (ii) above was made in accordance with generally accepted
auditing standards and accordingly included such tests of the accounting records
and such other auditing procedures as they considered necessary in the
circumstances, and (iv) their examination described under clauses (i) and (ii)
above disclosed no exceptions that, in their opinion, were material, relating to
such Contracts, or, if any such exceptions were disclosed thereby, setting forth
such exceptions that, in their opinion, were material.
O. CORPORATE EXISTENCE; STATUS OF SERVICER; MERGER. 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, the Indenture and the Servicing
Agreement.
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 that acquires by conveyance,
transfer or lease substantially all the assets of the Servicer as an entirety is
an entity
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<PAGE> 8
organized and existing under the laws of the United States or any state or the
District of Columbia and executes and delivers to the Buyer and the Trustee an
agreement in form and substance reasonably satisfactory to the Buyer 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 the Indenture and the Servicing
Agreement.
P. THE SERVICER NOT TO RESIGN; ASSIGNMENT. The Servicer shall
not resign from the duties and obligations hereby imposed on it except upon
determination by its Board of Directors that by reason of change in applicable
legal requirements the continued performance by the Servicer of its duties under
the Indenture would cause it to be in violation of such legal requirements in a
manner that would result in a material adverse effect on the Servicer or its
financial condition, said determination to be evidenced by a resolution of its
Board of Directors to such effect. No such resignation shall become effective
unless and until a new servicer acceptable to the Buyer is willing to service
the Contracts and enters into a servicing agreement with the Buyer in form and
substance substantially similar to the Servicing Agreement. No such resignation
shall affect the obligation of the Servicer to repurchase any Contract pursuant
to the Servicing Agreement.
The Servicer may not assign the Servicing Agreement or any of its
rights, powers, duties or obligations hereunder, provided that the Servicer may
assign the Indenture and in connection with a consolidation, merger, conveyance,
transfer or lease made in compliance with SECTION 5(O) and provided further that
the Servicer may contract with industry qualified third parties for the
performance of its duties under the Servicing Agreement, except that any such
contract shall not relieve the Servicer from liability for its obligations under
the Servicing Agreement.
Q. PURCHASE OF CERTAIN CONTRACTS. The representations and
warranties of the Servicer set forth in Section 4.4 of the Indenture with
respect to each Contract shall survive delivery of the Contract Documents to the
Trustee and shall continue so long as such Contract remains outstanding. Upon
discovery by the Buyer, the Servicer or the Trustee that any of such
representations or warranties was incorrect as of the time made or that any of
the Contract Documents relating to any such Contract has not been properly
executed by the Obligor or the Servicer or contains a material defect or has not
been received by the Trustee, the party making such discovery shall give prompt
notice to the other and to the Trustee (other than in cases where the Trustee
has given notice thereof). If any such defect, incorrectness or omission
materially and adversely affects the interest of the Security holders in and to
the related Contract, the Servicer shall, within 90 days after discovery thereof
or receipt of notice thereof, cure the defect or eliminate or otherwise cure the
circumstances or condition in respect of which representation or warranty was
incorrect as of the time made. If the Servicer is unable to do so, it shall
purchase such Contract from the Buyer through a deposit into the Master
Collections Account no later than the end of the Collection Period during which
such 90-day period expired of an amount equal to the purchase price paid by the
Buyer for such Contract less any lease payments from the Obligor relating to the
Contract after the Buyer's purchase of the Contract. Upon such deposit, the
Servicer shall be entitled to request a release of the defective Contract from
the lien of the Indenture pursuant to Section 4.4(a) of the Indenture. Upon any
such purchase, the Buyer and the Trustee shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Servicer any Contract purchased hereunder.
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<PAGE> 9
It is understood that, without limiting the meaning of the term
"materially and adversely affects," the interest of the Securityholders shall be
deemed materially and adversely affected if (i) the Buyer, the Trustee or of any
such Securityholders are put under any obligation to pay any other Person any of
such money as a result of any such defect or misrepresentation, or (ii) the
Trustee or the Holders of Securities representing not less than 25% of the
aggregate principal amount of the Outstanding Securities, acting reasonably,
determine, by notice to the Buyer, that such defect or misrepresentation
materially and adversely affects the interests of the Holders of Securities in
and to a Contract.
6. MAINTENANCE OF INTERNAL CONTROL AND PROCEDURES. Servicer shall, at
all times during the term of the Servicing Agreement, follow internal control
procedures consistent with loan servicing industry standards and, at the request
of Buyer, will supply same in written form for review purposes.
7. COMPUTER. Servicer shall, at all times during the term of the
Servicing Agreement, utilize in the operation of its business the industry
standard computer software and contract information maintenance system, such
system to be approved by Buyer.
8. SERVICER EVENTS OF DEFAULT. The occurrence and continuation of any
one of the following events shall be a "Servicer Event of Default" under the
Servicing Agreement:
A. Failure on the part of the Servicer to remit collections on
the Contracts to the Master Collections Account when due and continuance of such
failure for four Business Days; or
B. An involuntary case is commenced or filed against the
Servicer under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency or similar
law, or for the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or of any
substantial part of its property, or for the winding up of the affairs of,
liquidation, dissolution, or reorganization of the Servicer and the continuance
of such case or filing unstayed for a period of thirty consecutive days; or
C. An order for relief shall be entered in a case under title
11 of the United States Code on which the Servicer is a debtor, or the Servicer
shall become insolvent or admit in writing it s inability to pay its debts as
they come due, or the commencement by the Servicer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or the consent by
the Servicer to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Servicer or of any substantial part of its property or the making by the
Servicer of an assignment for the benefit of creditors or the failure by the
Servicer generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer in furtherance of any of the foregoing.
D. Failure by Servicer to service and collect amounts due from
Obligors under Contracts in accordance with the servicing criteria described in
EXHIBIT A attached hereto.
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9. REMEDIES.
A. If a Servicer Event of Default shall have occurred, Buyer
may, by notice given in writing to the Servicer, terminate all of the rights and
obligations of the Servicer under the Servicing Agreement. Notwithstanding any
termination of the rights and obligations of the Servicer, the Servicer shall
remain responsible for any acts or omissions to act by it as Servicer prior to
such termination.
B. Buyer is hereby authorized and empowered (upon the failure
of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer
as attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Servicer to execute or deliver such documents or instruments, and
to do and accomplish all other acts or things necessary or appropriate to effect
the purposes of a transfer of servicing rights to a successor servicer.
C. The Servicer agrees to cooperate with Buyer and any
successor servicer in effecting the termination of the responsibilities and
rights of the Servicer to conduct servicing hereunder, including, without
limitation, the transfer to such successor servicer of all authority of the
Servicer to service the Contracts provided for under the Servicing Agreement.
D. In the event the rights and responsibilities of the
Servicer are terminated, as provided above, Buyer may take such steps as may be
appropriate or necessary to protect and preserve the Trust Estate, and to assure
the orderly transfer of authority and responsibility to the successor Servicer,
and to assure that title to all assets of the Trust Estate are vested in Buyer,
with security interests vested in Buyer and Trustee (including all steps deemed
necessary or advisable by the Trustee), and to do or accomplish all other acts
or things necessary or appropriate to effect such vesting and assumption,
including, without limitation, directing the Obligors to remit Lease payments
and all other payments in respect of the Contracts to an account or address
designated by the Buyer or such new servicer. This right of termination is
cumulative and not exclusive of all other rights and remedies from time to time
conferred upon or reserved to the Buyer or the Trustee that either of them may
have at law or in equity. The right or remedy may be exercised from time to time
and as often as deemed expedient. No delay or omission in insisting upon the
strict observance or performance of any provision of the Servicing Agreement, or
in exercising any right or remedy, shall be construed as a waiver or
relinquishment of such provision, nor shall it impair such right or remedy.
10. COVENANTS OF THE BUYER. From and after the date hereof until such
time as this Servicing Agreement shall terminate, Buyer shall maintain its right
to do business in Texas as a corporation organized under the laws of the State
of Texas, and shall maintain all licenses and qualifications necessary for it to
conduct its business. It will provide to Servicer all assistance reasonably
requested by Servicer to enable Servicer to perform its obligations under this
Servicing Agreement.
11. SUCCESSORS AND ASSIGNS. The Servicing Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The Servicer may contract with industry-qualified
parties for the performance of any or all of its obligations arising hereunder
but no such contract shall relieve Servicer from liability for its performance
hereunder.
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12. BUYER EVENT OF DEFAULT; SERVICER'S REMEDIES. In the event that
Buyer should fail to pay any fees or compensation due under the Servicing
Agreement, within ten (10) days of the date they are due, or are submitted for
payment, whichever is less, or shall fail to perform any of its duties or to
observe or perform any other term, covenant, condition or agreement provided
within the Servicing Agreement, said failure shall constitute an event of
default by the Buyer. In the event of such default, Servicer shall have the
option of terminating the Servicing Agreement in addition to all remedies
available in equity or law.
13. MODIFICATIONS AND WAIVERS. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, not shall any waiver of any right, power or privilege hereunder operate
as a waiver of any other right, power of privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege hereunder. All rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies that the parties hereto may
otherwise have at law or in equity. No waiver shall be valid in the absence of
the written and signed consent of the party against which enforcement of such is
sought.
14. NOTICE. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telegraphic or telecopy
communication) and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, or if telegraphed when delivered
to the telegraph company, or if telecopied when transmitted, or otherwise when
delivered in person to the addressee and a receipt given for, in all such
instances addressed to the respective party as follows:
To Servicer: Transition Leasing Management, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attn: Ken Lowe, President
To Buyer: Transaction Auto Finance III, Inc.
5422 Alpha Road, Suite 100
Dallas, Texas 75240
Attn: Ken Lowe, President
15. AMENDMENT. The Servicing Agreement may be amended, supplemented or
modified only with the written consent of the parties hereto.
16. CHOICE OF LAW. THE SERVICING AGREEMENT, AND THE VALIDITY AND
ENFORCEMENT HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS.
17. SEVERABILITY. If any provision of the Servicing Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term of the Servicing Agreement, the legality, validity and
enforceability of the remaining provisions of the Servicing Agreement, shall not
be affected thereby, and in lieu of each such illegal, invalid or unenforceable
provision there shall be added automatically as a part of the Servicing
Agreement a provision as
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similar in terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
18. ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof.
19. COUNTERPARTS. The Servicing Agreement may be executed in one or
more counterparts, each of which for all purposes is to be deemed an original.
20. SURVIVAL. All covenants, agreements, undertakings, indemnities,
representations and warranties made herein shall survive both the execution and
the termination hereof and shall not be affected by any investigation made by
any party.
21. FURTHER ASSURANCES. Servicer shall furnish to Buyer at the request
of the Buyer such additional information concerning the Contracts as Buyer may
from time to time reasonably request in order to establish compliance with the
terms and conditions of the Servicing Agreement, and shall execute, acknowledge
and deliver, or cause to be executed, acknowledged or delivered, such
supplements hereto and such further instruments as may reasonably be required or
appropriate and permitted by law to further express the intention, or to
facilitate the performance of the Servicing Agreement.
"BUYER"
Transition Auto Finance III, Inc.
By:
--------------------------------
Ken Lowe, President
"SERVICER"
TRANSITION LEASING MANAGEMENT, INC.
By:
--------------------------------
Ken Lowe, President
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SERVICING AGREEMENT
EXHIBIT A
SERVICING CRITERIA
At all times during the term of this Servicing Agreement as set forth
in Section 2 therein, Servicer shall perform its duties in material accordance
with the Servicing Agreement, and observe the following covenants and criteria
(referred to as the "servicing criteria"):
I. SERVICING ACTIVITY REPORT
A. Servicer shall prepare a Monthly Report Certificate (the
"Certificate") signed by an officer of Servicer who shall certify as to the
authenticity and accuracy therein, that all Contracts managed by Servicer were
collected and repossessed in accordance with the terms and conditions of the
Servicing Agreement, including the servicing criteria described herein, and that
no Servicing Event of Default as described in Section 8 of the Servicing
Agreement has occurred since the date of the last such Certificate.
B. The Certificate shall contain collection information on
each Contract since the date of the last such Certificate, including adequately
segregated information of all past due accounts, repossessions, charge-offs, and
extensions. Supporting documents shall be made available to Buyer on a demand
basis, and such records shall be properly and safely maintained.
C. The Certificate shall be delivered to Buyer on or before
the tenth day of the month following the month covered thereunder.
II. COLLECTION POLICY
A. All Obligors under related Contracts will be issued a
preprinted payment book, monthly statements or other remittance advice or
instructions that will specifically request that all payments be made to
Servicer's Master Collections Account lockbox.
B. Servicer shall contact any Obligor on a past due Contract
within ten days after the payment due date for the purpose of pursuing
collections and shall adequately update all credit and collection file records
with respect to such activities.
C. Any material extensions, modifications, or acceptances of
partial payments by Obligors, and any related necessary Contract amendments
and/or default waivers by Servicer, shall be approved by the chief credit
officer or president of Servicer or its assigns, and all necessary third party
charges and explanations relating thereto shall be documented in the collection
file records.
III. OBLIGOR DEFAULT
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A. If, at any time, an Obligor is more than thirty days past
due on a payment owed by him under a Contract, Servicer shall engage an
independent third party contractor to repossess the Leased Vehicle.
B. Following repossession of a Leased Vehicle, (i) Servicer
will proceed to cause the Leased Vehicle to be sold at an automobile auction and
deliver the proceeds to Buyer, or (ii), if the Obligor has not previously
defaulted, Servicer may, in its discretion upon the exercise of reasonable
judgment as to the financial responsibility of Obligor and any other pertinent
factors, allow Obligor to regain possession of the Leased Vehicle upon payment
of late charges and repossession costs. In the situation in which Obligor is
allowed to regain possession of the Leased Vehicle, Obligor will be advised that
if default occurs a second time, the Leased Vehicle will be repossessed and
sold, and Obligor will not be given the opportunity to cure the default and
regain possession of the Leased Vehicle, unless otherwise required by applicable
law.
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EXHIBIT 10.3
PROCEEDS ESCROW AGREEMENT
Agreement entered on the ___ day of July, 1999 by and among Transition
Auto Finance III, Inc. ("Issuer"), Great Nation Investment Corporation
("Dealer"), and Texas Community Bank, a National Association, as defined by
Section 3(a)(6) of the Securities and Exchange Act of 1934, (the "Escrow
Agent").
WHEREAS, with the assistance of Dealer, the Issuer proposes to offer
and sell up to $20,000,000 aggregate principal amount of its Secured Notes (the
"Notes") to be issued under a Trust Indenture between the Issuer and Trust
Management Inc. Trustee (the "Trustee").
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The Escrow Agent agrees to act as escrow agent in connection with the
offering and sale of Notes and, as such, to establish an appropriate account and
to receive the proceeds from the sale of the Notes for deposit therein until the
earlier of the termination of this Agreement or the termination of the offering
and sale of the Notes (the "Termination Date").
2. Checks or other items for the payment of all or a part of the purchase
price of the Notes (all such items together with all proceeds thereof, the
"Escrowed Property") shall be payable to Escrow Agent, or endorsed by the Dealer
or Issuer to Texas Community Bank and delivered daily to Escrow Agent. The
Escrow Agent will credit the proceeds to an escrow cash account (the "Escrow
Account") to be held by it under the terms of this Agreement subject to Rule
15c2-4 under the Securities Act of 1934. All subscribers' checks or other items
for the payment of the purchase price of Notes shall be transmitted by Dealer to
the Escrow Agent by noon of the next business day upon receipt by Dealer.
3. The Escrowed Property, together with all interest earned thereon,
shall be held by the Escrow Agent until the earlier of (a) the time that the
Escrow Agent has received proceeds from the sale of the Notes in the aggregate
principal amount of $250,000, or more, or (b) the date of ______________, 1999
at which time the escrow will terminate.
4. Upon termination of the escrow, the Escrow Agent shall release the
Escrowed Property, together with all interest earned thereon to be distributed
to either (a) the Issuer, or such other party or parties, as required to carry
out the purpose of the Note offering if the minimum amount of the Notes have
been sold within the required time period described above, or (b) the
subscribers if the minimum amount of Notes have not been sold within such
period.
5. If at any time to the completion of this escrow said Escrow Agent is
advised by the appropriate securities or state agency that the registration to
sell said notes has been revoked, said Escrow Agent shall thereupon return all
funds and the interest earned thereon to the respective subscribers.
6. Escrow Agent shall deposit all funds received in insured accounts such
that each Investor that deposits funds is insured to the maximum amount allowed
under FDIC regulations, irrespective of the aggregate amount of funds received
from all Investors. The Escrow Agent shall invest such collected funds deposited
in the Escrow Account in short term investments to the extent permitted by the
Texas Banking Commission, provided however, that any such funds held subject to
any minimum escrow contingency shall be invested subject to Rule 15c2-4. The
Escrow Agent shall in
<PAGE> 2
no event be liable for any loss resulting from any change in interest rates
applicable to funds so invested.
Interest on funds invested pursuant to this Section shall accrue from
the date of investment of such funds until such funds are released from escrow
pursuant to paragraph 4.
7. The Escrow Agent's and Dealer's obligations and duties in connections
herewith are confined to those specifically enumerated in this Agreement. The
Escrow Agent and Dealer shall not be in any manner liable or responsible for the
sufficiency, correctness, genuineness or validity of any instruments received by
or deposited with them or with reference to the form of execution thereof, or
the identity, authority, or rights of any person executing, delivering, or
depositing same, and neither the Escrow Agent nor the Dealer shall be liable for
any loss that may occur by reason of forgery, false representation or the
exercise of their discretion in any particular manner or for any other reason,
except for their own gross negligence or willful misconduct.
8. Escrow Agent shall receive compensation for its services as set forth
in the separate schedule of fees as made a part hereof by reference.
9. The Escrow Agent may act pursuant to the written advice of counsel
with respect to any matter relating to this Escrow Agreement and shall not be
liable for any action taken or omitted in accordance with such advice.
10. The Escrow Agent (and any other successor escrow agent) may at any
time resign as such by delivering all of the Escrowed Property to the successor
escrow agent jointly designated by the other parties hereto in writing, or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent will take effect
on the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction), or (b) the day which is thirty (30) days after the date
of delivery of its written notice of resignation to the other parties hereto. If
at that time the Escrow Agent has not received a designation of a successor
escrow agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Escrowed Property until receipt of a designation of successor
escrow agent or a written disposition instruction by the Issuer and Dealer or a
final order of a court of competent jurisdiction.
11. If any controversy arises between the parties hereto or with any third
person, the Escrow Agent shall not be required to determine the same or to take
any action but may await the settlement of any such controversy by final
appropriate legal proceeding, or otherwise as the Escrow Agent may require, or
the Escrow Agent may, in its discretion, institute such appropriate interpleader
or other proceedings in connection therewith as it may deem proper,
notwithstanding anything in this Agreement to the contrary. In any such event,
the Escrow Agent shall not be liable for interest or damages to the Issuer or
subscribers. In the event Escrow Agent should institute, or be named as a party
in, any legal proceedings to determine the lawful owner of the Escrowed
Property, Escrow Agent shall be entitled to recover from the contending parties
to said legal proceedings, reasonable attorney's fees and expenses which shall
be incurred by Escrow Agent in said proceedings.
12. This Escrow Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and assigns,
heirs, administrators, and representatives
-2-
<PAGE> 3
and shall not be enforceable by or inure to the benefit of any third party
except as provided in Section 10 with respect to a resignation by the Escrow
Agent. No party may assign any of its rights or obligations under this Escrow
Agreement without the written consent of the other parties. This Escrow
Agreement shall be construed in accordance with and governed by the laws of the
State of Texas with regard to conflict of law principals.
13. This Escrow Agreement may only be modified in writing by all of the
parties hereto, and no waiver hereunder shall be effective unless in writing
signed by the party to be charged.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
DEALER:
GREAT NATION INVESTMENT CORPORATION
By:
----------------------------------------
Date:
--------------------------------------
Attest:
-----------------------
ISSUER:
TRANSITION AUTO FINANCE III, INC.
By:
----------------------------------------
Date:
--------------------------------------
Attest:
-----------------------
ESCROW AGENT:
TEXAS COMMUNITY BANK, A National Association
By:
----------------------------------------
Date:
--------------------------------------
Attest:
-----------------------
-3-
<PAGE> 1
EXHIBIT 10.5
<TABLE>
<S> <C> <C> <C>
TRANSITION AUTO FINANCE II, INC. SUBSCRIPTION
$20,000,000 - 11% SECURED NOTES DUE AUGUST 31, 2004 AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
BY COMPLETING AND EXECUTING THIS PAGE, THE INVESTOR HEREBY (i) ACKNOWLEDGES READING AND UNDERSTANDING THE MATERIAL ON THE REVERSE
SIDE, AND (ii) REPRESENTS, WARRANTS, ACKNOWLEDGES AND AGREES TO ALL PROVISIONS SET FORTH BELOW AND ON THE REVERSE SIDE.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Amount: $ 4. SPECIAL PAYMENT DIRECTIONS: Complete this section to
----------------------------------------- direct payment checks and Form 1099s to an address other
than the residence address given in 2 above. (Note: If the
1. INVESTOR TYPE - (Check One) investment is made through an IRA, trustee or clearing
(REFER TO THE SIGNATURE REQUIREMENTS IN SUBSCRIPTION broker, payments must go to custodian, trustee or clearing
INSTRUCTIONS ON REVERSE SIDE) broker unless other authorization is attached hereto):
[] Individual [] IRA -------------------------------------------------------------
[] Joint Tenant with right of [] Custodian, Uniform Gift Name
survivorship to Minors
[] Trust [] Pension or Profit -------------------------------------------------------------
[] Corporation [] Keogh Plan Address
[] General Partnership [] Other
-------------------- -------------------------------------------------------------
City & State Zip Code
-------------------------------------------------------------
2. INVESTOR DATA - (Please Print) Account No. (for payment to a designated account)
- -----------------------------------------------------------------
Name of Investor 5. INVESTOR SUITABILITY: (Read Carefully and Initial) My
income and net worth meet both the minimum required
suitability standards as stated in the Prospectus, and (if
- ----------------------------------------------------------------- applicable) the higher suitability standards applying to my
Social Security or Tax ID# state of residence. (By signing, fiduciaries signing for
beneficiaries represent that the beneficiaries meet the
applicable suitability standards.) IRA Investors must
- ----------------------------------------------------------------- initial, not the IRA Trustee.
2nd Investor Name
Investor's Initials 2nd Investor's Initials
--- ---
- -----------------------------------------------------------------
2nd Investor Social Security #
6. SIGNATURES - Signature must be identical to name of
RESIDENT ADDRESS OF INVESTOR: investor. Unless the investor's registered representative
signs on behalf of the investor, the investor must sign
- ----------------------------------------------------------------- below. Investment advisors may not sign on behalf of the
Street (Please do not use a P.O. Box) investor.
- ----------------------------------------------------------------- -------------------------------------------------------------
City & State Zip Code Signature of Investor Date
- ----------------------------------------------------------------- -------------------------------------------------------------
Home Phone Business Phone Print Name
-------------------------------------------------------------
3. SPECIAL REGISTRATION DIRECTIONS - Please complete this section Signature of Second Investor Date
if the Note should be registered in the name of an IRA, trustee
or clearing broker (for the benefit of the investor's account). An -------------------------------------------------------------
authorized representative of the custodian, trustee or clearing Print Name
broker must execute to evidence consent (see instruction 1
on reverse hereof). -------------------------------------------------------------
Registered Representative's Signature (if signing on behalf
of investor)
- -----------------------------------------------------------------
Name of Custodian, Trustee or Clearing Brokerage Firm
7. REGISTERED REPRESENTATIVE STATEMENT - I, the Registered
Representative for the foregoing investor, hereby represent
- ----------------------------------------------------------------- that:
Address
(1) I have reasonable grounds to believe, on the basis of
information obtained from the investor concerning his age,
- ----------------------------------------------------------------- educational level, knowledge of investment, investment
City & State Zip Code objectives, other investments, financial situation, needs
and any other information known by me that (a) the investor
is or will be in a financial position appropriate to enable
- ----------------------------------------------------------------- him to realize to a significant extent the merits and risks
Tax ID # Business Phone described in the Prospectus, (b) the investor has a fair
market net worth sufficient to sustain the risks inherent
in this investment, including loss of investment and lack
- ----------------------------------------------------------------- of liquidity, (c) the investor satisfies both the minimum
Signature of Authorized Representative of Custodian, Trustee or required suitability standards stated in the Prospectus and
Clearing Brokerage Firm (if applicable) the higher suitability standards for the
investor's state of residence, and (d) this investment is
otherwise suitable for the investor;
- -----------------------------------------------------------------
Name and Title of Authorized Representative (2) I will maintain on file documents indicating that a
Prospectus has been delivered to the investor and disclosing
the basis upon which the determination of suitability was
- ----------------------------------------------------------------- reached and have, prior to execution of this Subscription
Agreement, informed the investor of all pertinent facts
relating to the liquidity and marketability of the Notes
during the term of the investment; and
(3) If I am signing in 6 above on behalf of the investor,
information regarding the investor set forth above and
the representations, warranties, acknowledgments, and
agreements of the investor on the reverse side hereof are
FOR USE OF TRANSITION AUTO FINANCE III, INC. true and complete and are binding upon the investor.
Amount: $ Acceptance Date:
---------------- ------------------ -------------------------------------------------------------
Registered Representative's Signature Date
Investor #: Investor State:
------------------ -------------------
-------------------------------------------------------------
Print Name Phone
-------------------------------------------------------------
Broker/Dealer Firm Name
-------------------------------------------------------------
Address
-------------------------------------------------------------
City & State Zip Code
</TABLE>
<PAGE> 2
SUBSCRIPTION AGREEMENT
The investor(s) signatory hereto ("Subscriber") represents, warrants,
acknowledges and agrees as follows:
1. Subscriber hereby subscribes for the principal amount of 11% Secured Notes
(the "Note") issued by Transition Auto Finance III, Inc. ("Issuer"), as
specified on the reverse side hereof, encloses and hereby tenders the amount set
forth on the reverse side hereof as full payment for the Note for which he is
subscribing, and hereby agrees, subject to the Issuer's acceptance of his
subscription, to become a Noteholder in an amount equal to the amount tendered.
Subscriber agrees that he may not revoke, cancel, terminate or withdraw his
subscription or his Subscription Agreement without the prior written consent of
the Issuer, and acknowledges that the Issuer may reject his subscription for any
reason whatsoever. The minimum investment is $5,000 (or $2,000 for individual
Retirement Accounts).
2. Subscriber hereby acknowledges receipt of a copy of the current Prospectus
for Transition Auto Finance III, Inc. 11% Secured Notes Due June 30, 2002
("Prospectus") and understands that the Note being acquired will be governed by
the terms of the Indenture referenced in such Prospectus and such other
documents as may be referenced therein. Subscriber further understands and
agrees that, following Issuer's acceptance of his subscription, he shall receive
a Note that shall evidence his status as a Noteholder of Issuer, such Note to be
in the form specified in the Indenture. The information set forth on the
signature page hereof is true and accurate and Subscriber has proper authority
to execute this Subscription Agreement and make this Investment.
3. Subscriber hereby represents that this purchase is made for the
Subscriber's own account and not with a view toward distribution. Subscriber
understands that it is not anticipated that an active market will ever develop
for the Note, and that accordingly it may be impossible for Subscriber to
liquidate his investment in the Note, even in the event of an emergency. Any
transfer of the Note must comply with the requirements of the Prospectus, the
Note and with any additional requirements imposed by laws or by any governmental
authorities.
4. Subscriber hereby acknowledges that the Escrow Agent's sole role in the
offering described in the Prospectus is that of escrow agent, and that the
Escrow Agent has not reviewed the Prospectus and makes no representations
whatsoever as to the nature of such offering or the compliance of such offering
with any applicable state or federal laws, rules or regulations. Subscriber also
understands that the Issuer (and not the Escrow Agent) will make all
computations regarding the amount of interest (if any) that will be paid to such
Subscriber with respect to his subscription payment.
5. TAX REPRESENTATIONS: Under penalties of perjury, Subscriber hereby
certifies that (i) the number shown on this form and on the accompanying IRS
Work W-9 is Subscriber's correct taxpayer identification number, and (ii) that
Subscriber is not subject to backup withholding because (A) Subscriber has not
been notified that Subscriber is subject to backup withholding as a result of a
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified Subscriber that Subscriber is no longer subject to backup
withholding. Under penalties of perjury, unless express written disclosure to
the contrary is delivered to the Issuer together with this form, Subscriber
certifies that Subscriber is not a non-resident alien individual, a foreign
partnership, a foreign corporation, or a foreign estate or trust, which would be
a foreign person within the meaning of Section 1441, 1146 and 7701(a) of the
Internal Revenue Code of 1986, as amended, and that Subscriber will notify the
Issuer before a change in Subscriber's foreign status.
- --------------------------------------------------------------------------------
SUBSCRIPTION INSTRUCTIONS
1. Complete all applicable items and sign and date this Subscription
Agreement in the places indicated. Subscribers should use full names (not
initials). If you have previously subscribed for a Note in this offering and
wish to subscribe for an additional Note, please complete the entire
Subscription for the new Note. NO SUBSCRIPTION AGREEMENT WILL BE PROCESSED
UNLESS FULLY COMPLETED AND ACCOMPANIED BY THE APPROPRIATE PAYMENT. Parts 3 and 4
need not be completed unless the investor wishes to provide special payment
delivery instructions (Part 4) or to register his Note in the name of an IRA,
trustee or clearing brokerage firm. A separate IRS Form W-9 must be completed,
executed and submitted by the custodian, trustee or clearing brokerage firm.
2. Make your subscription check payable to "Great Nation Investment
Corporation" for the amount entered under "Amount Enclosed" in the Subscription
Agreement. Mail or deliver your signed Subscription Agreement and your check to
your Registered Representative.
3. Registered Representatives: Please forward signed Subscription
Agreements and checks to Great Nation Investment Corporation, 5408 A Bell
Street, Amarillo, Texas 79109, Attention: Mr. Pat Treat.
The following signature and other documentation requirements have been
established for the following forms of ownership of the Notes:
JOINT TENANTS AND TENANTS IN COMMON: The signatures of all joint tenants and
tenants in common investors are required unless a separate document, signed by
all parties and designating one a the agent of the other(s) for purposes of
signing the Subscription Agreement, accompanies the Subscription Agreement.
CORPORATION: The signature(s) of an officer(s) authorized to sign on behalf of
the Corporation is (are) required.
PARTNERSHIP: Specify whether the Subscriber is a general or limited partnership.
If it is a general partnership, the signatures of all partners are required. If
it is a limited partnership, the signatures of all general partners are
required.
TRUST: The Subscription Agreement must be signed by the trustee.
UNIFORM GIFTS TO MINORS ACT: The required signature is that of the custodian,
not of the parent (unless the parent has been designated as the custodian). Only
one child is permitted in each investment under the Uniform Gifts to Minors Act.
Different requirements may apply in your state. Please consult your attorney for
information regarding these requirements.
If you have any questions regarding these requirements, please call TRANSITION
AUTO FINANCE III, INC., AT 972-404-0042.
<PAGE> 1
EXHIBIT 10.7
CUSTODIAL AGREEMENT
This Custodial Agreement is made and entered into this ___ day of June,
1999, by and between Transition Auto Finance III, Inc. (the "Company") and Trust
Management, Inc., a Texas corporation ("TMI").
W I T N E S S E T H
WHEREAS, Company and TMI entered into that certain Indenture dated as
of 1996 (the "Indenture");
WHEREAS, pursuant to the Indenture, Company proposes to issue up to
$20,000,000 of 11% Secured Notes (the "Notes");
WHEREAS, to secure payment of the Notes, Company has granted TMI, in
its capacity as Trustee under the Indenture (the "Trustee"), a security interest
in, among other things, certain automobile lease contracts (the "Contracts") and
all of the related title documents (the "Title Documents") (the Contracts and
the Title Documents being hereinafter referred as the "Contract Documents");
WHEREAS, Company wishes to engage TMI to serve as custodian for the
Contract Documents pledged to TMI in its capacity as Trustee, and TMI wishes to
serve as custodian for such Contract Documents, all as more particularly
provided for herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TMI shall serve as Custodian for the Contract Documents and for any
other property delivered to TMI from time to time by Company pursuant to this
Agreement (collectively, the "Custodial Property"). In such capacity, TMI shall
at all times maintain possession of the Custodial Property as custodian and
bailee for itself, in the capacity as Trustee under the Indenture.
2. TMI may in its discretion hold the Custodial Property on deposit at
other financial institutions provided, however, that any Custodial Property held
at other institutions shall at all times be readily deliverable upon direction
of Company.
3. For its services hereunder, TMI shall be entitled to compensation as
shown on Exhibit "A" attached hereto, which compensation shall be paid by
Company upon receipt of invoice. Without limiting Company's liability to pay
such compensation, it is agreed that TMI shall have the right, but shall not be
under any duty, to collect such compensation from the Custodial Property or the
proceeds therefrom upon Company's failure to pay the same.
4. Company shall indemnify and hold TMI, its officers, directors,
employees, agents and representatives (collectively, the "TMI Affiliated
Parties") harmless from all costs, damages, attorneys' fees, expenses,
liabilities, suits or other claims arising out of or in connection with any
action taken or not taken by one or more of the TMI Affiliated Parties either
pursuant thereto or at the direction of Company. The TMI Affiliated Parties
shall be protected in acting upon any written
<PAGE> 2
notice, request, waiver, consent, certificate, receipt, authorization, or other
paper or document which they believe to be genuine and what it purports to be.
The TMI Affiliated Parties shall not be liable for anything which they may do or
refrain from doing in connection with this Agreement except their own gross
negligence or willful misconduct.
5. Notices and other communications to be delivered to Company pursuant
to this Agreement will be effective only if in writing and delivered to:
Transition Auto Finance III, Inc.
5442 Alpha Road, Suite 100
Dallas, Texas 75240
Attn: Kenneth Lowe, President
Notices, instructions and other communications to TMI pursuant to this
Agreement will be effective only if in writing and delivered to:
Trust Management, Inc.
210 West 6th Street
Suite 605
Fort Worth, Texas 76102
6. TMI shall keep adequate records of its activities as Custodian. Such
records shall be available to Company or persons authorized by Company for
inspection during TMI's regular business hours.
7. TMI may confer with legal counsel in the event of any dispute or
questions as to the construction of any of the provisions hereof, or its duties
hereunder, and it shall incur no liability and it shall be fully protected in
acting in accordance with the opinions of such counsel.
8. TMI may resign as Custodian upon giving written notice thirty (30)
days before the termination shall become effective. Upon termination, TMI, if
necessary shall deduct proper charges payable to it pursuant to paragraph 3, and
shall deliver the remainder of the Custodial Property to the person designated
in the notice of termination.
Executed this ___ day of ______________, 1999.
TRANSITION AUTO FINANCE III, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
TRUST MANAGEMENT, INC., a Texas
Corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE> 1
EXHIBIT 24.1
CONSENT OF COUNSEL
Drenner & Stuart, L.L.P., a limited liability partnership, hereby
consents to the use of its name under the heading "Legal Matters" in the
Prospectus constituting a part of the Form SB-2 Registration Statement filed by
Transition Auto Finance III, Inc. ("TAF-III") for the registration of
$20,000,000 in aggregate principal amount of 11% Secured Promissory Notes to be
issued by TAF-III.
/s/ Drenner & Stuart, L.L.P.
----------------------------------
Drenner & Stuart, L.L.P.
June 10, 1999
<PAGE> 1
EXHIBIT 24.2
CONSENT OF COUNSEL
Kuperman, Orr, Mouer & Albers, P.C., a professional corporation, hereby
consents to the use of its name under the heading "Legal Matters" in the
Prospectus constituting a part of the Form SB-2 Registration Statement filed by
Transition Auto Finance III, Inc. ("TAF-III") for the registration of
$20,000,000 in aggregate principal amount of 11% Secured Promissory Notes to be
issued by TAF-III.
/s/ Kuperman, Orr, Mouer & Albers, P.C.
----------------------------------------
Kuperman, Orr, Mouer & Albers, P.C.
June 10, 1999
<PAGE> 1
EXHIBIT 24.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of our report
included herein dated June 9, 1999 relating to the financial statements of
Transition Auto Finance III, Inc., and to our firm being named under the caption
"Experts" in the Prospectus.
Sprouse & Winn, L.L.P.
Austin, Texas
June 10, 1999
