<PAGE>
As filed with the Securities and Exchange Commission on September 21, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0418807
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(302) 478-6160
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ANTHONY J. SANTILLI, JR.
Chairman, President, Chief Executive Officer,
Chief Operating Officer and Director
American Business Financial Services, Inc.
Balapointe Office Center
111 Presidential Boulevard
Bala Cynwyd, PA 19004
(610) 668-2440
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JANE K. STORERO, ESQUIRE
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103-6998
(215) 569-5500
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legal facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
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. [ ]
<PAGE>
If this Form is a post-effective registration statement filed
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective registration statement filed
pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed Maximum
Amount Offering Price Per Proposed
Title of each class of to be Subordinated Maximum Amount of
Securities to be registered Registered Debenture(1) Offering Price Registration fee
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Subordinated Debentures............... $250,000,000 $1,000 $250,000,000 $73,750
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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 Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE STATE
SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, Dated September 18, 1998
[LOGO] AMERICAN BUSINESS FINANCIAL SERVICES, INC.
$250,000,000 of Debt Securities
The following terms apply to the subordinated investment notes and
the adjustable-rate, subordinated money market debt securities we are
offering. For a more detailed description of the terms of the securities
offered, see "Highlights of Terms of the Debt Securities," Prospectus Summary
- --Description of Securities Offered" and "Description of the Debt Securities
Offered and the Indenture."
<TABLE>
<CAPTION>
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Terms of Debt Securities Offered
- --------------------------------------------------------------------------------------------------------------------------
Investment Notes Money Market Notes
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Initial Purchase.......... $1,000 $1,000
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Annual Interest Rate..............Fixed upon issuance based upon the term Adjustable by the Company upon notice,
length chosen. but not less than 4.0% per year. No interest
on balances of less than $1,000.
- --------------------------------------------------------------------------------------------------------------------------
Payment of Interest...............Periodic cash payments. Interest paid in the form of additional
securities.
- --------------------------------------------------------------------------------------------------------------------------
Redemption by Holder..............Upon death or total disability for Redemptions of $500 or greater permitted
securities with maturities greater than upon 10 business days written notice to the
one year. Company.
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Redemption by Company.............Not redeemable. Redeemable upon 30 days written notice.
- --------------------------------------------------------------------------------------------------------------------------
Maturity..........................Three months to 120 months. No fixed maturity.
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Transferability...................Upon prior written consent of the Upon prior written consent of the
Company. Company.
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</TABLE>
We will receive approximately $243.8 million of the proceeds from the
sale of the Notes after paying expenses which we estimate to be $6.2 million.
We do not intend to utilize the services of registered broker-dealers to
assist with the sale of the Notes at this time. If we elect to use
broker-dealers on a best efforts basis in connection with future sales of the
Notes, it is anticipated that commissions of up to 10% of the sales price will
be paid to such brokers and we may agree to reimburse brokers for certain
costs and expenses. If brokers are utilized, expenses of the Offering will
increase and the proceeds we receive will be less than currently stated.
<PAGE>
We will provide the interest rates currently being offered on the
debt securities in a supplement to this Prospectus. You should read this
Prospectus and the supplement carefully before you invest.
We are not subject to state or federal statutes or regulations
applicable to banks and/or savings and loan associations with regard to
insurance, the maintenance of reserves, the quality or condition of our assets
or other matters. These debt securities are not certificates of deposit. The
payment of principal and interest on these debt securities is not guaranteed
by any governmental or private insurance fund or any other entity. Our
revenues from operations, including the securitization or sale of loans from
our portfolio, our working capital, and cash generated from additional debt
financing represent our sources of funds for the repayment of principal at
maturity and the ongoing payment of interest on these debt securities.
Further, we do not contribute funds to a separate account called a sinking
fund to repay the debt represented by these securities upon maturity.
There is no public trading market for these debt securities. Due to
the non-negotiable nature of these debt securities, it is unlikely that an
active trading market will develop.
An investment in these securities involves certain risks. These
securities are unsecured obligations which are subordinated to our senior
debt. You should consider carefully the risk factors and the other information
set forth in this prospectus before you decide to purchase these securities.
See "Risk Factors" on page 12 for information that should be considered by
prospective purchasers of these securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or passed
on the adequacy or accuracy of this Prospectus. Any representation to the
contrary is a criminal offense.
-----------------------------------------
The date of this Prospectus is ___________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Information Regarding this Prospectus.............................................................................1
Highlights of Terms of the Debt Securities Offered................................................................2
Prospectus Summary................................................................................................3
Risk Factors ....................................................................................................12
The Company......................................................................................................22
Use of Proceeds..................................................................................................22
Description of the Debt Securities Offered and the Indenture.....................................................23
Selected Consolidated Financial Data.............................................................................34
Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................................................36
Business.........................................................................................................57
Where You Can Find More Information..............................................................................75
Management.......................................................................................................77
Principal Stockholders...........................................................................................80
Market for Common Stock and Related Stockholder Matters..........................................................82
Plan of Distribution.............................................................................................83
Legal Matters....................................................................................................83
Experts..........................................................................................................83
Index to Consolidated Financial Statements......................................................................F-1
</TABLE>
INFORMATION REGARDING THIS PROSPECTUS
We wrote this Prospectus using the Securities and Exchange
Commission's ("SEC's") "Plain English" rule. This rule requires that we write
without the "legalese" typically found in most documents filed with the SEC in
order to provide you with a more meaningful and understandable document.
Although the tone and wording may differ from what you are familiar with, we
are not alone in adopting this progressive approach prior to the effective
date of such rule. Other well-known companies have started preparing their
documents using the Plain English rule. We voluntarily followed the Plain
English initiative because we are very committed to providing you with useful
and understandable information.
<PAGE>
<TABLE>
<CAPTION>
HIGHLIGHTS OF TERMS OF THE DEBT SECURITIES OFFERED
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Investment Notes Money Market Notes
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<S> <C> <C>
Types of Security Offered Unsecured, subordinated, fixed term note. Unsecured, adjustable rate, subordinated
debt security.
- -----------------------------------------------------------------------------------------------------------------------
Denomination of Initial Minimum purchase: $1,000 per security Minimum purchase: $1,000 per security
Purchase and Additional or any amount in excess thereof. or any amount in excess thereof.
Purchases
- -----------------------------------------------------------------------------------------------------------------------
Annual Interest Rate Fixed upon issuance. You may choose a The interest rate paid will be adjusted
term length and the interest rate by us from time-to-time in our sole
applicable to such security will be discretion provided that such rate shall
based upon the term length chosen. not be less than 4.0% per year. Holders
will be notified in writing at least 14
days prior to any decrease in the
interest rate to be paid. No interest
will be paid for any day on which the
principal balance is below $1,000.
- -----------------------------------------------------------------------------------------------------------------------
Payment of Interest Interest on Investment Notes with Interest will be compounded daily and
maturities of less than one year will be credited monthly at the end of each
compounded daily and paid at maturity. month. No checks will be issued in
Interest on Investment Notes with payment of interest. Accrued interest
maturities of one year or greater will will be added to principal in each
be compounded daily and, at the election account in the form of additional
of the holder, paid at maturity, securities.
monthly, quarterly, semi-annually or
annually.
- -----------------------------------------------------------------------------------------------------------------------
Redemption by Holder Investment Notes with maturities of less May be redeemed by the holder upon
than one year are not redeemable prior written notice to us with payment to be
to maturity. Investment Notes with made within 10 business days of our
maturities of one year or greater may be receipt of such notice from the holder.
redeemed by the holder following his/her Redemptions must be at least $500,
Total Permanent Disability, or by except for redemptions to close an
his/her estate after death, at the account.
principal amount plus accrued interest.
Otherwise, the holder will have no right
to cause redemption prior to maturity
(for joint holders, see "Description of
the Debt Securities Offered and the
Indenture--Provisions Related to
Investment Notes).
- -----------------------------------------------------------------------------------------------------------------------
Redemption by Company Not redeemable until maturity. Redeemable upon 30 days written notice
to the holder.
- -----------------------------------------------------------------------------------------------------------------------
Form/Transferability In fully registered form and In book-entry form and non-negotiable.
non-negotiable. Not transferable (A monthly statement will be issued, not
without our prior written consent. an individual promissory note.) Not
transferable without our prior written
consent.
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Maturity Investment Notes are offered with terms No fixed maturity.
to maturity of three to 120 months.
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Automatic Extension If we do not notify the holder of our Not applicable.
intention to repay the Investment Note
at least seven days prior to maturity or
if not redeemed by the holder within
seven days after its maturity date, the
Investment Note will be extended
automatically for a period equal to the
original term. Investment Notes to be
extended will be extended at a fixed
rate equal to the rate then being
offered on newly issued Investment Notes
of like tenor, term and denomination at
their respective maturity dates.
- -----------------------------------------------------------------------------------------------------------------------
Periodic Statements Quarterly statements detailing the Monthly statements detailing the current
current balance and interest rate paid balance and interest rate paid on each
on each note will be mailed to each account will be mailed to each holder no
holder no later than the tenth business later than the tenth business day
day following the end of each calendar following each month end.
quarter.
</TABLE>
-2-
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may
not contain all of the information that is important to you. To understand the
Offering fully, you should read the entire Prospectus carefully, including the
"Risk Factors" and the Consolidated Financial Statements and Notes thereto
before you decide to purchase these securities. References in this Prospectus
to "ABFS," "the Company," "we," "us," and "our" refer to American Business
Financial Services, Inc. and its subsidiaries.
General
We are a financial services company operating primarily in the
eastern region of the United States. We originate, sell and service loans to
businesses secured by real estate and other business assets ("Business Purpose
Loans"), non-conforming mortgage loans typically to credit-impaired borrowers,
secured by first and second mortgages on single-family residences ("Home
Equity Loans") and conforming and jumbo loans secured by first mortgages on
one-to four-unit residential properties ("First Mortgage Loans"). We also
originate small ticket leases (generally $5,000 to $250,000) and, to a lesser
extent, middle market leases (generally $250,001 to $1.0 million) for the
acquisition of business equipment ("Equipment Leases").
Our customers currently consist primarily of two groups. The first
category of customers includes credit-impaired borrowers who are generally
unable to obtain financing from banks or savings and loan associations that
have historically provided loans only to individuals with favorable credit
characteristics. These borrowers generally have impaired or unsubstantiated
credit characteristics and/or unverifiable income and respond favorably to our
marketing efforts. The second category of customers includes borrowers who
would qualify for loans from traditional lending sources but elect to utilize
our products and services. Our experience has indicated that these borrowers
are attracted to our loan products as a result of our marketing efforts, the
personalized service provided by our staff of highly trained lending officers
and our timely response to loan requests. Historically, both categories of
customers have been willing to pay our origination fees and interest rates
which are generally higher than those charged by traditional lending sources.
We also market First Mortgage Loans to borrowers with favorable credit
histories. The Company's lease customers are typically small businesses or
proprietorships with less than 100 employees with favorable credit histories.
Business Purpose Loans
We currently originate Business Purpose Loans in approximately nine
states in the eastern region of the United States through a retail network of
salespeople. We focus our marketing efforts on small businesses who do not
meet all of the credit criteria of commercial banks and small businesses that
our research indicates are predisposed to using our products and services.
-3-
<PAGE>
The Business Purpose Loans we originate are secured by real estate.
In substantially all cases, we receive additional collateral in the form of,
among other things, personal guarantees, pledges of securities, assignments of
contract rights, life insurance and lease payments and liens on business
equipment and other business assets, as available. Our Business Purpose Loans
are generally originated with fixed rates and typically have origination fees
of 5.0% to 6.0%. Business Purpose Loans typically have significant prepayment
fees which we believe tend to extend the average life of such loans and make
these loans more attractive products to securitize. We originated $52.3
million of Business Purpose Loans for the year ended June 30, 1998. See
"Business -- Lending and Leasing Activities -- Business Purpose Lending."
Home Equity Loans
We entered the Home Equity Loan market in 1991. We originate Home
Equity Loans primarily to credit-impaired borrowers through retail marketing
which includes telemarketing operations, direct mail, radio and television
advertisements. We currently originate Home Equity Loans in the eastern region
of the United States as well as in Illinois, Ohio, Indiana, Kentucky,
Missouri, Mississippi, Michigan and Tennessee. We originated $328.1 million of
Home Equity Loans during the year ended June 30, 1998.
In fiscal 1996, we entered into exclusive business arrangements with
several financial institutions pursuant to which we will purchase Home Equity
Loans that do not meet the underwriting guidelines of the selling institution
but meet our underwriting criteria (the "Bank Alliance Program"). We believe
that the Bank Alliance Program is a unique method of increasing our production
of Home Equity Loans to credit-impaired borrowers. We intend to expand our
Bank Alliance Program with financial institutions across the United States.
See "Business -- Lending and Leasing Activities -- Home Equity Lending."
First Mortgage Lending
We began offering First Mortgage Loans in October 1997 in connection
with our acquisition of New Jersey Mortgage and Investment Corp. ("NJMIC").
NJMIC has been originating mortgage loans since 1939. We originate First
Mortgage Loans for sale in the secondary market with servicing released. Our
first mortgage lending market area includes 29 states. We originated $33.7
million of First Mortgage Loans during the year ended June 30, 1998. See
"Lending and Leasing Activities -- First Mortgage Lending."
Equipment Leases
We began offering Equipment Leases in December 1994 to complement our
business purpose lending program. We originate leases throughout the United
States. We believe that cross-selling opportunities exist for offering lease
products to Business Purpose Loan customers and offering Business Purpose
Loans to lease customers. We originated $70.5 million of Equipment Leases
during the year ended June 30, 1998. In the past, we held leases in our
-4-
<PAGE>
portfolio to generate income. In fiscal 1998, we began securitizing our
Equipment Lease portfolio. We intend to continue to securitize our lease
portfolio subject to economic and market conditions. See "Business -- Lending
and Leasing Activities -- Leasing Activities."
Securitization of Loans and the Subordinated Debt Program
The ongoing securitization of loans and leases is a central part of
our current business strategy. A securitization involves the transfer of our
loans or leases to a trust in exchange for certificates or securities issued
by the trust. A portion of such certificates are then sold to investors.
Through June 30, 1998, we had securitized an aggregate of $545.9 million of
loans and leases, consisting of $129.4 million of Business Purpose Loans, and
$356.8 million of Home Equity Loans. In addition, during fiscal 1998, we
securitized $59.7 million of Equipment Leases. We retain the servicing rights
on all securitized loans and leases. See "Business --Securitizations."
We intend to continue to utilize funds generated from the
securitization of loans and leases as well as the sale of subordinated debt to
increase our loan and lease originations and to expand into new geographic
markets, with an initial focus on the continued expansion in the southeastern
and midwestern regions of the United States.
In addition to securitizations, we fund our operations with
subordinated debt that we market directly to individuals from our principal
operating office located in Pennsylvania and branch offices located in Florida
and Arizona. At June 30, 1998, we had $105.5 million in subordinated debt
outstanding which was sold through public offerings. Such debt had a weighted
average coupon of 9.35% and a weighted average maturity of 22.7 months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources."
Principal Offices
Our principal executive office is located at 103 Springer Building,
3411 Silverside Road, Wilmington, Delaware 19810. The telephone number at such
address is (302) 478-6160. Our principal operating office is located at Bala
Pointe Office Centre, 111 Presidential Boulevard, Bala Cynwyd, PA 19004. The
telephone number at such address is (610) 668-2440.
-5-
<PAGE>
Summary Consolidated Financial Data
Our consolidated financial information set forth below should be read
in conjunction with the more detailed Consolidated Financial Statements,
including the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Statement of Income Data: (Dollars in Thousands, except per share data)
Revenues:
<S> <C> <C> <C> <C> <C>
Gain on sale of loans................................... $41,316 $ 20,04 $ 8,721 $ 1,35 $ 110
Interest and fees....................................... 17,386 5,583 3,244 4,058 2,367
Other................................................... 2,285 856 129 143 156
-------- ------ ------- ------- -------
Total revenue.............................................. 60,987 26,482 12,094 5,551 2,633
Total expenses............................................. 43,097 17,480 8,974 4,657 2,299
-------- ------ ------- ------- -------
Operating income before income taxes and cumulative effect
of accounting change....................................... 17,890 9,002 3,121 894 334
Income before cumulative effect accounting change......... 11,454 5,940 2,319 581 137
Cumulative effect of accounting change on prior years...... --- -- -- -- (52)
Income taxes............................................... 6,436 3,062 802 313 197
-------- ------ ------- ------- -------
Net income................................................. $11,454 $5,940 $ 2,319 $ 581 $ 85
======== ====== ======= ======= =======
Per Common Share Data(1):
Income before cumulative effect of accounting change.... $ 3.26 $ 2.13 $ 1.01 $ .27 $ .04
Net income ............................................. 3.13 2.04 1.01 .27 .04
Cash dividends declared................................. .06 .06 0.03 -- --
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
(In Thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ 4,486 $ 5,014 $ 5,345 $ 4,734 $ 83
Loan and lease receivables, net available for sale......... 62,382 35,712 18,003 8,669 3,181
Other................................................... 4,097 1,144 534 328 5,538
Total assets............................................... 226,551 103,989 46,894 22,175 12,284
Subordinated debt ......................................... 115,182 56,486 33,620 17,800 7,171
Total liabilities.......................................... 183,809 73,077 42,503 20,031 10,721
Stockholders' equity....................................... 42,742 30,912 4,392 2,143 1,562
</TABLE>
- --------
(1) Per share information for fiscal year 1994 has been restated to reflect
the 3 for 2 stock split effected on November 1, 1995.
-6-
<PAGE>
<TABLE>
<CAPTION>
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Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Other Data: (Dollars in Thousands)
Originations:
<S> <C> <C> <C> <C> <C>
Business Purpose Loans.................................. $ 52,335 $ 38,721 $ 28,872 $ 18,170 $ 11,793
Home Equity Loans....................................... 328,089 91,819 36,479 16,963 22,231
First Mortgage Loans.................................... 33,671
Equipment Leases ....................................... 70,480 8,004 5,967 2,220 --
Loans and Leases sold:
Securitizations......................................... 384,700 115,000 36,506 9,777 --
Other................................................... 51,594 3,817 19,438 31,948 30,562
Total loan and lease portfolio serviced.................... 559,398 176,651 59,891 17,774 8,407
Average loan/lease size:
Business Purpose Loans.................................. 83 78 78 71 57
Home Equity Loans....................................... 62 51 47 46 51
First Mortgage Loans.................................... 154
Equipment Leases........................................ 21 11 11 12 --
Weighted average interest rate on loans and leases
originated:
Business Purpose Loans ................................ 15.96% 15.91% 15.83% 16.05% 16.03%
Home Equity Loans....................................... 11.95 11.69 9.94 12.68 8.65
First Mortgage Loans.................................... 8.22 -- -- -- --
Equipment Leases........................................ 12.19 15.48 17.22 15.85 --
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Financial Ratios:
<S> <C> <C> <C> <C> <C>
Return on average assets ................................. 6.93% 7.87% 6.71% 3.37% 0.87%
Return on average equity ................................. 31.10 33.65 70.96 31.36 5.58
Total delinquencies as a percentage of total portfolio
serviced, at end of period (1)......................... 3.01 2.15 2.30 3.84 6.85
Allowance for credit losses to total portfolio serviced,
at end of period....................................... 1.00 1.00 1.18 .87 .93
Real estate owned as a percentage of total portfolio
serviced, at end of period............................. .16 .34 1.01 4.29 2.63
Loan and lease losses as a percentage of the average total
portfolio serviced during the period................... .18 .08 .33 .66 .15
Pre-tax income as a percentage of total revenues.......... 29.33 33.99 25.81 16.11 12.69
Ratio of earnings to fixed changes....................... 1.77 1.98 1.40 1.35 1.16
</TABLE>
- ----------------
(1) Total delinquencies includes loans and leases delinquent over 30 days,
exclusive of real estate owned.
-7-
<PAGE>
Description of Debt Securities Offered
General. We are offering up to $250.0 million of subordinated
investment notes ("Investment Notes) and the adjustable rate subordinated
money market debt securities ("Money Market Notes") (collectively, the
"Notes")which represent debt obligations of our Company. The Notes will be
issued pursuant to an Indenture of Trust between us and First Trust National
Association, a national banking association as trustee (the "Indenture"). The
Notes are not insured, guaranteed or secured by any lien on any of our assets.
We do not intend to contribute funds to a separate fund (i.e., a sinking fund)
on a regular basis to provide funds to repay the Notes upon maturity. See
"Risk Factors -- Absence of Sinking Fund/No Security."
The Notes will be second in right of repayment (i.e., subordinated)
to all of our Senior Debt. As of June 30, 1998, there was $26.5 million of
Senior Debt outstanding. There is no limitation on the amount of Senior Debt
we may incur. Senior Debt is any indebtedness (whether outstanding on the date
hereof or hereafter created) incurred in connection with borrowings by us
(including our subsidiaries) from a bank, trust company, insurance company,
other institutional lender or other entity which lends funds in connection
with its primary business activities, whether or not such indebtedness is
specifically designated as being "Senior Debt." In addition, any indebtedness
of our subsidiaries, other than the Senior Debt, will have rights upon
liquidation or dissolution of the particular subsidiary prior to payment being
made to the holders of the Notes. Such debt totaled $6.5 million as of June
30, 1998. Our indebtedness, other than the Senior Debt, will have rights upon
liquidation or dissolution which ranks equally in right of payment to the
Notes offered hereby. As of June 30, 1998, we had $105.5 million of
indebtedness which ranks equally in right of payment with the Notes. See
"Description of the Debt Securities Offered and the Indenture -- Provisions
Related to All Securities."
We may reject your subscription in whole or in part, for any reason.
Subscriptions will be irrevocable upon acceptance by us. If your subscription
is not accepted by us, your subscription funds will be promptly refunded to
you without deduction of any costs and without interest. We expect that such
subscriptions will be refunded within 48 hours after we have received the
subscription. No minimum amount of Notes must be sold in the Offering. We may
withdraw or cancel the Offering at any time. In the event of such withdrawal
or cancellation, the Notes previously sold will remain outstanding until
maturity and pending subscriptions will be irrevocable. See "Plan of
Distribution."
These securities are not secured by any of our assets and are second
in right of payment to our Senior Debt. We are not subject to state or federal
statutes or regulations applicable to commercial banks and/or savings and loan
associations with regard to insurance, the maintenance of reserves, the
quality or condition of our assets or other matters. These securities are not
certificates of deposit. Payment of principal and interest on these securities
is not guaranteed by any governmental or private insurance fund or other
entity. Our revenues from operations, including the securitization or sale of
loans or leases from our portfolio, our working capital and cash generated
from additional debt financing represent our sources of funds for the
repayment of principal, at maturity, and the ongoing payment of interest on
these securities.
-8-
<PAGE>
Investment Notes. The Investment Notes are offered in minimum
denominations of $1,000 and any amount in excess thereof. The Investment Notes
are offered at fixed maturities ranging from three to 120 months. The term of
each Investment Note is established at the time of purchase. The interest rate
paid on the Investment Notes will change based upon the maturity you select.
The Investment Notes will be issued in fully registered form which
means each purchaser will receive a promissory note evidencing our repayment
obligation. The Investment Notes are not transferable to any person or entity
without our prior written consent. We reserve the right, in our reasonable
discretion, to withhold such consent for various reasons, including but not
limited to our determination that such transfer might result in a violation of
any state or federal securities or other applicable law. We may also require a
signature guarantee in connection with such transfer.
The term of the Investment Notes may, with our consent, be extended
in accordance with the procedure set forth below. We will provide notice to
the holder of an Investment Note regarding the upcoming maturity date. The
holder may request repayment for a period of up to seven days after the
maturity date of the Investment Note. As a courtesy, we provide a request for
repayment form with such notice. (Use of such form by a holder is not a
condition of repayment.) Requests for repayment may also be made to us by
letter. If the holder does not request repayment, the Investment Note will be
extended for an identical term. If we intend to repay the Investment Note and
to not permit the holder to extend the term we will notify the holder of our
intention at least seven days prior to the expiration of the applicable term.
Any Investment Notes which are so extended will be extended at the interest
rate then being offered by us for newly issued Investment Notes of like term
and denomination.
We will mail holders of the Investment Notes a quarterly statement
which will indicate the holder's current balance and interest paid. These
statements will be mailed to holders of the Investment Notes no later than the
tenth business day following each calendar quarter. We will also provide the
Trustee with quarterly reports regarding the Investment Notes. These quarterly
reports will contain the information requested by the Trustee such as the
outstanding balance and interest rate paid on the Investment Notes during the
preceding quarterly period. See "Highlights of Terms of the Debt Securities
Offered" on page 2 hereof.
Money Market Notes. The Money Market Notes are offered in minimum
denominations of $1,000 and any amount in excess thereof. The Money Market
Notes have no stated maturity and are redeemable in minimum amounts of $500
(or in lesser amounts to close an account) at the option of the holder upon
written notice to us. The payment due upon redemption shall be made within 10
business days of our receipt of such notice from the holder. The Money Market
Notes may also be redeemed by us at any time upon thirty days written notice
to the holder.
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Purchasers of Money Market Notes will not receive a promissory note
to document our repayment obligations. Only in certain limited circumstances
described herein will a certificate or note representing the securities be
issued to any holder. Instead, we will maintain a record of each holder's
interest in the security through the establishment and maintenance of an
account for each purchaser of such security. Upon subscription, a transaction
statement reflecting ownership will be issued to each purchaser upon our
acceptance of the purchaser's subscription. Such statement is not a negotiable
instrument, and no rights of ownership in a Money Market Note may be
transferred by the endorsement and delivery of such statement to a purchaser.
The Money Market Notes are not transferable to any other person or entity
without our prior written consent. We reserve the right, in our reasonable
discretion, to withhold such consent for various reasons, including but not
limited to our determination that such transfer might result in a violation of
any state or federal securities or other applicable law. We may require a
signature guarantee in connection with such transfer. Upon transfer of this
security, we will provide the transferee of the security with a transaction
statement which will evidence the transfer of the ownership of the account on
our records. We shall provide the Trustee with information regarding the
establishment of new accounts and transfers of existing accounts on a
bi-weekly basis.
The interest rate paid on the Money Market Notes will be adjusted by
us from time- to-time in our sole discretion provided that such rate shall not
be less than 4.0% per year. We will provide written notice to all holders of
the Money Market Notes at least 14 days prior to any decrease in the interest
rate to be paid thereon, which notice shall set forth the new interest rate to
be paid and the effective date of such change. We reserve the right to
increase the interest rate paid on the Money Market Notes at any time without
prior notice to the holders of the Money Market Notes. Interest on the Money
Market Notes will be compounded daily and credited monthly on the last day of
each calendar month. Instead of paying interest by check, accrued interest
will be paid in the form of additional Money Market Notes. No interest will be
paid on the Money Market Notes for any day during which the principal balance
of an account is less than $1,000.
We will mail holders of the Money Market Notes a monthly statement
which will indicate the holder's current balance (including interest credited
and withdrawals made) and interest rate paid on the securities during the
preceding calendar month. These statements will be mailed to holders of the
securities no later than the tenth business day following each month end. We
will provide the Trustee with quarterly reports regarding Money Market Notes.
These quarterly reports will contain the information requested by the Trustee
such as the outstanding balance, interest credited, withdrawals made and
interest rate paid on the accounts during the preceding quarterly period. See
"Highlights of Terms of the Debt Securities Offered" on page 2 hereof.
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Use of Proceeds
We intend to utilize the net proceeds resulting from the sale of the
Notes for our general corporate purposes, including financing the future
growth of our loan and lease portfolios, the repayment of our outstanding debt
and possible unspecified acquisitions of related businesses or assets
(although none are currently contemplated). No specific allocation of such
proceeds has been determined as of the date of this Prospectus. See "Use of
Proceeds."
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RISK FACTORS
Before you invest in our Notes, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus and the supplement provided to you with this prospectus before you
decide to purchase any securities offered hereby.
Some of the information in this prospectus may contain
forward-looking statements. Such statements can be identified by the use of
forward-looking language such as "will likely result," "may," "are expected
to," "is anticipated," "estimate," "projected," "intends to" or other similar
words. Such statements are subject to certain risks and uncertainties,
including but not limited to absence of insurance of the Notes, subordination
of debt represented by the Notes, absence of a sinking fund for the repayment
of the Notes, credit risk related to our borrowers, increase in non-performing
assets, market conditions and real estate values in our primary lending area,
lack of a public market for the Notes, competition, factors affecting our
ability to implement our growth strategy, our dependence on debt financing to
fund our operations, dependence on securitizations and fluctuations in
operating results, our ability to sustain levels of growth, geographic
concentration of our loans, risks associated with leasing activities,
contingent risks, state and federal regulation and licensing requirements
applicable to our lending activities, risks associated with Year 2000
compliance and environmental concerns that could cause our actual results to
differ materially from historical earnings and those presently anticipated or
projected. When considering such forward-looking statements, you should keep
in mind these risk factors and other cautionary statements in this prospectus.
You should not place undue reliance on any forward-looking statement which
speaks only as of the date made.
Absence of Insurance and Regulation
No governmental or private agency insures the Notes which represent
our debt obligations to purchasers of such notes. Consequently, an investment
in our Notes is not insured against loss and the purchaser is dependent solely
upon our earnings, proceeds from the sale or securitization of loans and
leases from our portfolio, our working capital and other sources of funds,
including proceeds from the continuing sale of subordinated debt and
institutional lines of credit for repayment of principal at maturity and the
ongoing payment of interest on the Notes. In addition, no public or private
entity guarantees the Notes or provides for the repayment if we do not have
sufficient funds to make principal and interest payments. Finally, since we
are not a commercial bank, savings bank or thrift institution, we are not
regulated or subject to examination in the same manner as commercial banks,
savings banks and thrift institutions. Thus, our operations are not subject to
the stringent regulatory requirements imposed upon the operations of such
entities and are not subject to periodic compliance examinations by federal
banking regulators designed to protect investors. See "Business" and
"Management's Discussion and Analysis of Financial Condition, and Results of
Operations."
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Subordination of Debt Represented by the Notes
The Notes will be second in right of repayment (i.e., subordinated)
to all of our Senior Debt. As of June 30, 1998, there was $26.5 million of
Senior Debt outstanding. There is no limitation on the amount of Senior Debt
we can incur. Senior Debt is any indebtedness incurred in connection with
borrowings by us (including our subsidiaries) from a bank, trust company,
insurance company, or from any other institutional lender, whether or not such
indebtedness is specifically designated as being "Senior Debt." If we were to
become insolvent, such Senior Debt would have a priority of right to repayment
in connection with our liquidation. In addition, any indebtedness of our
subsidiaries, other than the Senior Debt, will have rights upon liquidation or
dissolution of the particular subsidiary prior to payment being made to the
holders of the Notes. As of June 30, 1998, such debt totaled $6.5 million. As
a result, there is no guarantee of repayment of the Notes upon our
liquidation. See "Description of the Debt Securities Offered and the Indenture
- -- Provisions Related to All Securities."
Absence of Sinking Fund/No Security
The Notes are not secured by any of our assets. In addition, the
Company does not contribute funds on a regular basis to a separate account
called a sinking fund to repay the Notes upon maturity. Since no funds are set
aside periodically for the repayment of the Notes over their term, holders of
the Notes must rely on our revenues from operations and other sources for
repayment. See "Absence of Insurance and Regulation" and "Description of the
Debt Securities Offered and the Indenture -- General."
Limited Liquidity -- Lack of Trading Market
The Notes are our non-negotiable debt obligations which means the
Notes are not transferable without our prior written consent. In addition,
there is no established trading market for the Notes. Due to the
non-negotiable nature of the Notes and the lack of a market for the sale of
the Notes, even if we permitted a transfer, investors may be unable to
liquidate their investment. See "Description of the Debt Securities Offered
and the Indenture."
Decline in Collateral Value May Adversely Affect Loan-to-Value Ratios
Our business may be adversely affected by declining real estate
values. Any material decline in real estate values reduces the ability of
borrowers to use home equity to support borrowings and increases the
loan-to-value ratios of loans previously made by us, thereby weakening
collateral coverage and increasing the possibility of a loss in the event of a
borrower default. Further, delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions. As a result, there can be no
assurance that the market value of the real estate underlying such loans will
at any time be equal to or in excess of the outstanding principal amount of
such loans. See "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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Credit-Impaired Borrowers May Result in Increased Delinquency and Loss
Rates/Increase in Non-Performing Assets and Allowance for Losses
We market loans, in part, to borrowers who, for one reason or
another, are not able, or do not wish, to obtain financing from traditional
sources, such as commercial banks. Loans made to such borrowers may entail a
higher risk of delinquency and loss than loans made to borrowers who utilize
traditional financing sources. As a result, we may experience higher
delinquency rates and losses in the event of adverse economic conditions than
those experienced by traditional lenders. At June 30, 1998, total delinquent
loans as a percentage of our total portfolio serviced was 3.11% as compared to
2.26% at June 30, 1997. While we utilize underwriting standards and collection
procedures designed to mitigate the higher credit risk associated with lending
to such borrowers, no assurance can be given that such standards or procedures
will offer adequate protection against this risk. In the event loans sold and
serviced by us experience higher delinquencies, foreclosures or losses than
anticipated, our results of operations or financial condition could be
adversely affected. See "Business."
As our portfolio of loans and leases increased over the past two
years, the level of non-performing assets also increased. Our non-performing
assets delinquent over 30 days increased from $1.4 million on June 30, 1996 to
$16.8 million on June 30, 1998. Our total delinquencies as a percentage of the
total loan and lease portfolio serviced also increased from 2.3% at June 30,
1996 to 3.01% at June 30, 1998. Of the $16.8 million of delinquent loans and
leases at June 30, 1998, $8.6 million were delinquent over 90 days. As a
result, we have increased our allowance for credit losses to $5.6 million at
June 30, 1998 to cover potential credit losses.
We establish provisions for credit losses, which are charged to
operations, in order to maintain the allowance for credit losses at a level
which is deemed appropriate by management based upon an assessment of our
prior loss experience, the volume and type of lending being conducted,
industry standards, the level of delinquencies, economic conditions in our
market area and other factors. Although management uses its best judgment in
providing for credit losses, there can be no assurance that we will not have
to continue to increase our provision for credit losses in the future as a
result of future increases in non-performing assets or for other reasons. Any
substantial increase in the provision could have an adverse effect on our
results of operations in the period in which such provision is made. See "Risk
Factors -- Dependence Upon Securitizations and Fluctuations in Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Dependence Upon Securitizations and Fluctuations in Operating Results
In recent periods, gain on sale of loans and leases generated by our
securitizations has represented a substantial majority of our revenues and net
income. Gain on sale of loans and leases resulting from securitizations as a
percentage of total revenues was 67.7% for the year ended June 30, 1998. In
addition, we rely primarily on securitizations to generate cash proceeds for:
(i) repayment of our warehouse credit facilities, (ii) repayment of other
borrowings and (iii)
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origination of additional loans. Several factors affect our ability to
complete securitizations, including: (i) conditions in the securities markets
generally, (ii) conditions in the asset-backed securities markets specifically
and (iii) the credit quality of our loans and lease portfolios. Any
substantial reduction in the size or availability of the securitization market
for such assets could have a material adverse effect on our results of
operations and financial condition.
Our revenues and net income have fluctuated in the past and are
likely to fluctuate in the future principally as a result of the timing and
size of our securitizations. The strategy of selling loans and leases through
securitizations requires us to build an inventory of such assets over time,
during which time we incurs costs and expenses. Since we do not recognize
gains on the sale of such loans and leases until we consummate a
securitization, which may not occur until a subsequent period, our operating
results for a given period can fluctuate significantly as a result of the
timing and level of securitizations. If securitizations do not close when
expected, we could experience a loss for the period which could have a
material adverse effect on our results of operations. In addition, due to the
timing difference between the period when costs are incurred in connection
with the origination of loans and leases and their subsequent sale through the
securitization process, we may operate on a negative cash flow basis, which
could adversely impact our results of operations and financial condition.
We have made estimates of the interest only strips to be received in
connection with our securitizations based upon certain prepayment and default
assumptions. However, our actual prepayment and default experience may vary
materially from such estimates. As a result, the gain we recognize upon the
sale of loans and leases may be overstated to the extent that actual
prepayments or losses are greater than estimated. Higher levels of future
prepayments, delinquencies and/or liquidations could result in the decreased
value of interest only strips which would adversely affect our income in the
period of adjustment. See "Risk Factors -- Credit Impaired Borrowers May
Result in Increased Delinquency and Loss Rates/Increase in NonPerforming
Assets and Allowance for Losses," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Ability to Sustain Recent Levels of Growth and Operating Results
During fiscal 1998 and 1997, we experienced record levels of total
revenue and net income as a result of increases in loan originations and the
securitization of loans. Total revenue increased approximately $34.5 million,
or 130.2%, between fiscal 1997 and 1998 while net income increased
approximately $5.5 million, or 92.8%. Total revenue increased approximately
$14.4 million, or 119.0%, between fiscal 1996 and 1997 while net income
increased approximately $3.6 million, or 156.1%. Our ability to sustain the
level of growth in total revenue and net income experienced during fiscal 1998
and 1997 is dependent upon a variety of factors outside our control,
including: (i) interest rates, (ii) conditions in the asset-backed securities
markets, (iii) economic conditions in our primary market area, (iv)
competition, and (v) regulatory restrictions. As a result, the rate of growth
experienced in fiscal 1998 and 1997 may
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not be sustained in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Ability to Implement our Growth Strategy
Our growth strategy is dependent upon our ability to continue to
increase our loan and lease volume through geographic expansion while
maintaining our customary origination fees, interest rate spreads and
underwriting criteria. Implementation of this strategy will depend in large
part on our ability to: (i) expand our offices in markets with a sufficient
concentration of borrowers meeting our underwriting criteria; (ii) obtain
adequate financing on favorable terms to fund our growth strategy; (iii)
profitably securitize our loans and leases in the secondary market on a
regular basis; (iv) hire, train and retain skilled employees; (v) successfully
implement our marketing campaigns; and (vi) continue to expand in the face of
increasing competition from other lenders. Our failure with respect to any or
all of these factors could impair our ability to successfully implement our
growth strategy which could have a material adverse effect on our results of
operations and financial condition. See "Business."
Increased Competition Could Adversely Affect Results of Operations
The various segments of our lending and leasing businesses are highly
competitive. Certain lenders against which we compete have substantially
greater resources, greater experience, lower cost of funds, and a more
established market presence than us. To the extent our competitors increase
their marketing efforts to include our market niche of borrowers, we may be
forced to reduce the rates and fees we currently charges in order to maintain
and expand our market share. Any reduction in such rates or fees could have an
adverse impact on our results of operations. In addition, even after we have
made a loan to a borrower, the borrower may refinance the loan with another
lender at more favorable rates and terms. Furthermore, our profitability and
the profitability of other similar lenders may attract additional competitors
into this market. The addition of new competitors could affect our ability to
charge our current rates and fees. In addition, as we expand into new
geographic markets, we will face competition from companies with established
positions in these areas. There can be no assurance that we will be able to
continue to compete successfully in the markets we serve or expand into new
geographic markets. Such an event could have a material adverse effect on our
results of operations and financial condition. See "Business -- Competition."
Dependence Upon Debt Financing
For our ongoing operations, we are dependent upon borrowings,
including: (i) our unsecured subordinated debt, (ii) our warehouse credit
facilities, (iii) lines of credit, and (iv) funds received from the
securitization of loans and leases. We had $115.2 million of subordinated debt
outstanding at June 30, 1998 and had lines of credit and credit facilities of
$210.0 million, $26.5 million of which was being utilized on such date. At
June 30, 1998, subordinated debt scheduled to mature during the twelve months
ended June 30, 1999 totaled
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$62.9 million. Any failure to renew or obtain adequate funding under a
warehouse credit facility, or other borrowings, or any substantial reduction
in the size of or pricing in the markets for our loans or leases, could have a
material adverse effect on our results of operations and financial condition.
To the extent that we are not successful in maintaining or replacing existing
debt, we would have to curtail our loan and lease production activities or
sell loans and leases earlier than intended which could have a material
adverse effect on our results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Changes in Interest Rates May Adversely Affect Profitability
Our profitability is likely to be adversely affected during any
period of rapid changes in interest rates. Any future rise in interest rates
may: (i) adversely affect demand for our products, (ii) increase our cost of
funds, and (iii) adversely affect the spread between the rate of interest
received on loans and rates payable under our outstanding credit facilities or
the pass-through rate for interests issued in connection with loans and leases
securitized. In addition, any future decrease in interest rates will reduce
the amounts which we may earn on our newly originated loans and leases. A
decline in interest rates could also decrease the size of the loan portfolio
we service by increasing the level of prepayments.
In an attempt to mitigate the effect of changes in interest rates on
our fixed-rate mortgage loan portfolio prior to securitization, we implemented
a hedging strategy in August 1995. A hedging strategy involves the sale of
Treasury securities with the requirement to repurchase such securities at a
specified time in the future. We engaged in this strategy in an effort to
protect our assets from changes in market value as a result of fluctuations in
market interest rates. An effective hedging strategy is complex and no hedging
strategy can completely insulate us from interest rate risks. The nature and
timing of hedging transactions may impact the effectiveness of hedging
strategies. Poorly designed strategies or improperly executed transactions may
increase rather than mitigate risk. In addition, hedging involves transaction
and other costs, and such costs could increase as the period covered by the
hedging protection increases or in periods of rising and fluctuating interest
rates. As a result, we may be prevented from effectively hedging our interest
rate risks without reducing income in current periods. In addition, the sale
of Treasury securities is not an effective hedge against the risk that the
difference between the treasury rate and the rate needed to attract potential
investors of asset backed securities may widen.
We also experience interest rate risk to the extent that a portion of
our liabilities are comprised of subordinated debt with scheduled maturities
of one to ten years. At June 30, 1998, the Company had $52.3 million of
subordinated debt with scheduled maturities greater than one year. To the
extent that interest rates decrease in the future, the rates paid on such
liabilities could exceed the rates received on our newly originated loans
resulting in a decrease in our spread. Consequently, fluctuations in interest
rates may adversely affect our results of operations
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and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Interest Rate Risk Management."
Geographic Concentration of Loans
We currently originate loans in a limited geographic area which
primarily includes the states located in the eastern region of the United
States. This practice may subject us to the risk that a downturn in the
economy in such region of the country would more greatly affect us than if our
lending business was more geographically diversified. See "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Contingent Risks
Although we sell substantially all loans and leases we originate
through securitizations, such transactions involve an agreement that requires
that we replace or repurchase such loans or leases in very limited
circumstances. As a result of these provisions, we retain risk on
substantially all loans and leases sold. During the period of time that loans
and leases are held pending sale, we are subject to the various business risks
associated with the lending business including: (i) the risk of borrower
default, (ii) the risk of foreclosure, and (iii) the risk that a rapid
increase in interest rates would result in a decline in the value of loans to
potential purchasers.
In addition, documents governing our securitizations require us to
commit to repurchase or replace loans which do not conform to the
representations and warranties made by us at the time of sale. When borrowers
are delinquent in making monthly payments on loans included in a
securitization trust, we are required to advance interest payments with
respect to such delinquent loans to the extent that we deem such advances will
be ultimately recoverable. These advances require funding from our capital
resources but have priority of repayment from the succeeding month's
collections.
In the ordinary course of our business, we are subject to claims made
against us by borrowers and private investors arising from, among other
things: (i) losses that are claimed to have been incurred as a result of
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions by our employees, officers and agents (including our appraisers);
(ii) incomplete documentation; and (iii) failure to comply with various laws
and regulations applicable to our business. Although there are no currently
material claims or legal actions asserted against us, any claims asserted in
the future may result in legal expenses or liabilities which could have a
material adverse effect on our results of operations and financial condition.
See "Business -- Legal Proceedings."
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Risks Associated with Leasing Activities
We began offering Equipment Leases in December 1994. There are risks
inherent in our leasing activities which differ in certain respects from those
existing in our lending activities. While our Equipment Leases are secured by
a lien on the equipment leased, such equipment is subject to the risk of
damage, destruction or technological obsolescence prior to the termination of
the lease. In the case of our fair market value leases, lessees may choose not
to exercise their option to purchase the equipment for its fair market value
at the termination of the lease, with the result that we may be required to
sell such equipment to third party buyers at a discount or otherwise dispose
of such equipment. See "Business -- Lending and Leasing Activities."
Regulatory Restrictions and Licensing Requirements
Our lending business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and is
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on all or part of our home equity and first
mortgage lending activities. Our home equity and first mortgage lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended, the Federal Real
Estate Settlement Procedures Act and Regulation X, the Home Mortgage
Disclosure Act and the Federal Fair Debt Collection Practices Act, as well as
other federal and state statutes and regulations affecting our activities. We
are also subject to examinations by state regulatory authorities with respect
to originating, processing, underwriting, selling and servicing Home Equity
Loans and First Mortgage Loans. These rules and regulations, among other
things, impose licensing obligations, prohibit discrimination, regulate
collection, foreclosure and claims handling, payment features, mandate certain
disclosures and notices to borrowers and, in some cases, fix maximum interest
rates, and fees. Failure to comply with these requirements can lead to, among
other remedies, termination or suspension of licenses, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement actions.
The previously described laws and regulations are subject to
legislative, administrative and judicial interpretation, and certain of these
laws and regulations have been infrequently interpreted or only recently
enacted. Infrequent interpretations of these laws and regulations or an
insignificant number of interpretations of recently enacted regulations can
result in ambiguity with respect to permitted conduct under these laws and
regulations. Any ambiguity under the regulations to which we are subject may
lead to regulatory investigations or enforcement actions and private causes of
action, such as class action lawsuits, with respect to our compliance with the
applicable laws and regulations.
Although we believe that we have implemented systems and procedures
to facilitate compliance with the foregoing requirements and believe that we
are in compliance in all material respects with applicable local, state and
federal laws, rules and regulations, there can be
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no assurance that more restrictive laws, rules and regulations will not be
adopted in the future that could make compliance more difficult or expensive.
See "Business -- Regulation."
Dependence on Key Personnel
We believe that the success of our operations depends on the
continued employment of our senior level management. If members of the senior
level management were for some reason unable to perform their duties or were,
for any reason, to leave us, there can be no assurance that we would be able
to find capable replacements. We have entered into employment agreements with
three of our executive officers, including Anthony J. Santilli, Jr., our
Chairman, President and Chief Executive Officer. We also hold "key-man"
insurance for Anthony J. Santilli, Jr. and Beverly Santilli. See "Management."
Environmental Concerns
In the course of our business, we have acquired, and may acquire in
the future, properties securing loans which are in default. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or chemical releases at
such property, and may be held liable to a governmental entity or to third
parties for property damage, personal injury and investigation and cleanup
costs incurred by such parties in connection with the contamination. The
liability under such laws has been interpreted to apply to all current and
prior owners of the property unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such property, may
adversely affect the owner's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances also may be liable for the costs
of removal or remediation of such substances at the disposal or treatment
facility, whether or not the facility is owned or operated by such person. In
addition, the owner or former owners of a contaminated site may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such property.
Our ability to foreclose on the real estate collateralizing our
loans, if at any time such a foreclosure would be otherwise appropriate, may
be limited by these environmental laws. While we would not make a loan
collateralized by real property as to which we had knowledge of an
environmental risk or problem, it is possible that such a risk or problem
could become known after the subject loan has been made. See "Business -- Loan
and Lease Servicing."
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Management's Discretion Over Substantial Amount of the Proceeds of the
Offering and Possible Use for Future Unspecified Acquisitions
The net proceeds from the sale of the Notes will be utilized for
general corporate purposes, including: (i) financing the future growth of our
loan and lease portfolios; (ii) the repayment of our outstanding debt; and
(iii) the possible unspecified acquisitions of related businesses or assets
(although none are currently contemplated). Since no specific allocation of
such proceeds has been determined as of the date of this Prospectus,
management will have broad discretion in allocating the proceeds of the
Offering. See "Use of Proceeds."
Year 2000 Compliance
Many currently installed computer systems and software products use two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process loan or other transactions, send statements or late
notices, or engage in similar normal business activities.
We are in the process of conducting an analysis of our systems and
have begun taking the steps necessary to bring them into compliance. We
currently estimate that the costs associated with our Year 2000 compliance
program will be approximately $300,000. Although we currently estimate that
our Information Technology systems will be Year 2000 compliant by the end of
1999, no assurance can be given that we will meet this time frame. We are in
the process of developing a contingency plan in the event our systems are not
Year 2000 compliant on a timely basis. We are also in the process of
contacting vendors with which we do a material amount of business to determine
the extent to which these parties' systems (insofar as they relate to our
business) are subject to Year 2000 issues. We are currently unable to
predict and the extent to which Year 2000 issues will affect these third
parties, or the extent to which we would be vulnerable to the failure of these
parties to remediate any Year 2000 issues on a timely basis. The failure of
our vendors to convert their systems on a timely basis may have a material
adverse effect on us. We have not developed a contingency plan in the event
these vendors are not Year 2000 compliant on a timely basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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THE COMPANY
We are a financial services company operating primarily throughout
the eastern region of the United States. Through our principal direct and
indirect subsidiaries, American Business Credit, Inc. (ABC), HomeAmerican
Credit, Inc. (d/b/a Upland Mortgage and referred to herein as "HAC" or
"Upland"), American Business Leasing, Inc. ("ABL"), NJMIC and Federal Leasing
Corp. ("Federal"), we originate, service and sell Business Purpose Loans, Home
Equity Loans, First Mortgage Loans and Equipment Leases. We also underwrite,
process and purchase Home Equity Loans through the Bank Alliance Program and
originate a limited number of secured and unsecured consumer loans. See
"Business."
We were incorporated in Delaware in 1985 and began operations as a
finance company in 1988, initially offering Business Purpose Loans to
customers whose borrowing needs the Company believed were not being adequately
serviced by commercial banks. Since our inception, we have significantly
expanded our product line and geographic scope and currently offer our loan
products in 29 states and our lease products throughout the United States.
USE OF PROCEEDS
We intend to use the net proceeds resulting from the sale of the
Notes (estimated to be approximately $243.8 million net of estimated offering
expenses if all of the Notes offered hereby are sold) for general corporate
purposes. General corporate purposes may include: (i) financing the future
growth of our loan and lease portfolios; (ii) the repayment of warehouse
credit facilities, lines of credit and our maturing debt; and (iii) possible
future acquisitions of related businesses or assets. The precise amounts and
timing of the application of such proceeds depends upon many factors,
including, but not limited to, the amount of any such proceeds, actual funding
requirements and the availability of other sources of funding. Until such time
as the proceeds are utilized, they will be invested in short and long-term
investments, including, but not limited to, treasury bills, commercial paper,
certificates of deposit, securities issued by U.S. government agencies, money
market funds and repurchase agreements, depending on our cash flow
requirements. Our investment policies permit significant flexibility as to the
types of such investments that we may make. We may also maintain daily
unsettled balances with certain broker-dealers. While from time to time we may
consider potential acquisitions, as of the date of this Prospectus, we had no
commitments or agreements with respect to any material acquisitions.
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DESCRIPTION OF THE DEBT SECURITIES OFFERED AND THE INDENTURE
General
The Notes represent debt obligations of the Company and as such will
be issued pursuant to the Indenture between the Company and U.S. Bank Trust
National Association, a national banking association, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"), in effect on the date the Indenture is
qualified thereunder. The Notes are subject to all such terms, and holders of
the Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following includes a summary of certain provisions of
the Indenture, a copy of which is available from the Company upon request.
This summary does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below.
The Notes will be subordinated in right of payment to the prior
payment in full of all Senior Debt (as herein defined) of the Company, whether
outstanding on the date of the Indenture or thereafter incurred. There is no
limit on the amount of Senior Debt the Company may incur. See "-- Provisions
Related to All Securities -- Subordination."
The Notes are not secured by any collateral or lien. There are no
provisions for a sinking fund applicable to such debt. See "Risk Factors --
Absence of Sinking Fund/No Security."
Notes may be purchased in the minimum amount of $1,000 or any amount
in excess thereof. Separate purchases may not be accumulated to satisfy the
minimum denomination requirement.
Provisions Relating to Investment Notes
Maturity. The Investment Notes are offered by the Company at
maturities ranging from three to 120 months. The term of each Investment Note
will be chosen by the purchaser of such note upon subscription.
Form and Denominations/Transfers. The Investment Notes will be issued
in fully registered form. The Investment Notes are not negotiable instruments,
and no rights of record ownership therein can be transferred without the prior
written consent of the Company. Ownership of an Investment Note may be
transferred on the Company register only by written notice to the Company
signed by the owner(s) or such owner's duly authorized representative on a
form to be supplied by the Company and with the prior written consent of the
Company (which consent shall not be unreasonably withheld). The Company may
also, in its discretion, require an opinion from such noteholder's counsel
that the proposed transfer will not violate any applicable securities laws
and/or a signature guarantee in connection with such transfer. An Investment
Note may be purchased in the minimum amount of $1,000 or any amount in excess
thereof.
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Separate purchases may not be accumulated to satisfy the minimum denomination
requirement. See "Prospectus Summary -- Securities Offered."
Interest. The interest rates payable on the Investment Notes offered
hereby will be established by the Company from time to time based on market
conditions and the Company's financial requirements. The Company constantly
re-evaluates its interest rates based upon such analysis. Once determined, the
rate of interest payable on an Investment Note will remain fixed for the
original term of the Investment Note. The interest rate payable on an
Investment Note will be determined based upon the maturity date and term
established for such Investment Note upon subscription.
Interest on Investment Notes will be computed on the basis of an
actual calendar year and will compound daily. Interest on Investment Notes
with terms of less than twelve months will be paid at maturity. Purchasers of
Investment Notes with terms of twelve months or greater may elect to have
interest paid monthly, quarterly, semiannually, annually or at maturity. This
election may be changed one time by the holder during the term of these longer
term Investment Notes. Requests to change such election are required to be
made to the Company in writing. No specific form of change of election is
required to be submitted to the Company. Any interest not otherwise paid on an
interest payment date will be paid at maturity.
The Company reserves the right to vary from time to time, in its
discretion, the interest rates it offers on the Investment Notes based on
numerous factors other than length of term to maturity. Such factors may
include, but are not limited to: the desire to attract new investors;
Investment Notes in excess of certain principal amounts; Investment Notes
purchased for IRA and/or Keogh accounts; rollover investments; and Investment
Notes beneficially owned by persons residing in particular geographic
localities. The Company may make a decision to vary interest rates in the
future based on its fund raising objectives including, but not limited to, the
attraction of new investors in particular regions, the encouragement of the
rollover of Investment Notes by current holders, circumstances in the
financial markets and the economy, additional costs which may be incurred by
the Company in selling Investment Notes in a particular jurisdiction which may
at the time be relevant to the Company's operations and other factors.
Interest Accrual Date. Interest on the Investment Notes will accrue
from the date of purchase, which is deemed to be, for accepted subscriptions,
the date the Company receives funds, if received prior to 3:00 p.m. on a
business day, or the next business day if the Company receives such funds on a
non-business day or after 3:00 p.m. on a business day. For this purpose, the
Company's business days will be deemed to be Monday through Friday, except for
Delaware legal holidays.
Interest Withholding. With respect to those investors who do not
provide the Company with a fully executed Form W-8 or Form W-9, the Company
will withhold 31% of any interest paid. Otherwise, no interest will be
withheld, except on the Investment Notes held by foreign
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business entities. It is the Company's policy that no sale will be made to
anyone refusing to provide a fully executed Form W-8 or Form W-9.
Automatic Extension. If the Company does not notify the registered
holder of its intention to repay the Investment Note at least seven days prior
to maturity or if not redeemed by the holder within seven days, after its
maturity date, the Investment Note will be extended automatically for a term
identical to the term of the original Investment Note. The Investment Notes
will continue to renew as described herein absent some action permitted under
the Indenture and the Investment Notes by either the holder or the Company.
Interest shall continue to accrue from the first day of such renewed term.
Such Investment Note, as renewed, will continue in all its provisions,
including provisions relating to payment, except that the interest rate
payable during any renewed term shall be the interest rate which is then being
offered by the Company on similar Investment Notes being offered as of the
renewal date. If similar Investment Notes are not then being offered, the
interest rate upon renewal will be the rate specified by the Company on or
before the maturity date, or the Investment Note's current rate if no such
rate is specified. If the Company gives notice to a holder of the Company's
intention to repay an Investment Note at maturity, no interest will accrue
after the date of maturity. Otherwise, if a holder requests repayment within
seven days after its maturity date, the Company will pay interest during the
period after its maturity date and prior to repayment at the lower of: (i) the
lowest interest rate then being paid on debt securities being offered by the
Company to the general public; or (ii) the rate being paid on such Investment
Note immediately prior to its maturity. As a courtesy, the Company provides a
request for repayment form with such notice. Use of such form by a holder is
not a condition of repayment. Requests for repayment may also be made to the
Company by letter.
Place and Method of Payment. Principal and interest on the Investment
Notes will be payable at the principal executive office of the Company, as it
may be established from time to time, or at such other place as the Company
may designate for that purpose; provided, however, that payments may be made
at the option of the Company by check or draft mailed to the person entitled
thereto at his/her address appearing in the register which the Company
maintains for that purpose.
Redemption by the Company. The Company will have no right to prepay
an Investment Note. The holder has no right to require the Company to prepay
any such Investment Note prior to its maturity date as originally stated or as
it may be extended, except as indicated below.
Redemption by the Holder upon Death or Total Permanent Disability.
Except for Investment Notes with maturities of less than 12 months, an
Investment Note may be redeemed at the election of the holder following
his/her Total Permanent Disability, as established to the satisfaction of the
Company, or by his/her estate following his/her death. The redemption price,
in the event of such a death or disability, will be the principal amount of
the Investment Note, plus interest accrued and not previously paid, to the
date of redemption. If spouses are joint record owners of an Investment Note,
the election to redeem will apply when either record owner
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dies or becomes subject to a Total Permanent Disability. In other cases of
Investment Notes jointly held, the election will not apply.
The Company may modify the foregoing policy on redemption after death
or disability. However, no such modification will affect the right of
redemption applicable to any then outstanding Investment Note. Should the
Company modify such policy at a future date, written notice of such
modification will be sent to all owners of those outstanding Investment Notes
which were purchased while the policy was in effect (but such notice will not
affect the right to redeem such outstanding Investment Notes after the owner's
death or disability.)
For the purpose of determining the right of a holder to demand early
repayment of an Investment Note, Total Permanent Disability shall mean a
determination by a physician chosen by the Company that the holder, who was
gainfully employed on a full time basis at the time of purchase, is unable to
work on a full time basis, defined as working at least forty hours per week,
during the succeeding twenty-four months.
Quarterly Statements. The Company shall provide holders of the
Investment Notes with quarterly statements which will indicate, among other
things, the current account balance (including interest paid). Such statements
will be mailed not later than the tenth business day following the end of each
calendar quarter.
Provisions Relating to Money Market Notes
Maturity/Redemption. The Money Market Notes have no stated maturity
and are redeemable at any time in minimum amounts of $500 (except to close an
account) at the option of the holder upon not less than ten business days
written notice to the Company.
Form and Denominations/Transfers. The Money Market Notes are not
negotiable debt instruments and will be issued only in book-entry form. See
"--Book Entry System." Upon subscription, a transaction statement reflecting
the ownership of a Money Market Note will be issued to each purchaser upon the
Company's acceptance of the subscription. Such statement is not a negotiable
instrument, and no rights of record ownership therein can be transferred
without the prior written consent of the Company. Each holder of a Money
Market Note will receive a monthly statement indicating any transactions in
the holder's account, as well as interest credited. Ownership of a this
security may be transferred on the Company's register only by written notice
to the Company signed by the owner(s) or such owner's duly authorized
representative on a form to be supplied by the Company and with the prior
written consent by the Company (which consent shall not be unreasonably
withheld). The Company may also, in its discretion, require an opinion from
such holder's counsel that the proposed transfer will not violate any
applicable securities laws and/or a signature guarantee in connection with
such transfer. Upon transfer of a Money Market Note, the Company will provide
the new owner of such security with a transaction statement which will
evidence the transfer of the account on the Company's records.
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<PAGE>
Book-Entry System. Upon acceptance of an order, the Company will
credit its book-entry registration and transfer system to the account of the
purchaser of the Money Market Note, the principal amount of such security
owned of record by such purchaser. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such legal requirements may impair the ability to transfer
the record ownership of the Money Market Notes.
The record owners of these securities issued in a book-entry interest
form will not receive or be entitled to receive physical delivery of a note or
certificate evidencing such indebtedness. The registered owners of the
accounts established by the Company in connection with the purchase or
transfer of Money Market Notes shall be deemed to be the owners of the Money
Market Notes under the Indenture. Such person holding a book-entry interest in
the Money Market Notes must rely upon the procedures established by the
Trustee to exercise any rights of a holder of such securities under the
Indenture. The Company shall provide the Trustee with information regarding
the establishment of new accounts and the transfer of existing accounts on a
bi-weekly basis.
The information regarding the total amount of any principal and/or
interest (which shall be paid in the form of additional securities) due to
book-entry owners with regard to the Money Market Notes on any interest
payment date or upon redemption will be made available by the Company to the
Trustee upon the Trustee's request. On each interest payment date, the Company
will credit each account on the applicable interest payment date based upon
the applicable interest rate due on such account and the amount of these
securities held of record in the account. The Company shall have the
responsibility for determining the interest payments to be made to the
book-entry accounts and for maintaining, supervising and reviewing any records
relating to book-entry beneficial interests in these securities.
Book-entry interests in the accounts evidencing ownership of the
Money Market Notes are exchangeable for actual notes in denominations of
$1,000 and any amount in excess thereof and fully registered in such names as
the Company directs if: (i) the Company at its option advises the Trustee in
writing of its election to terminate the book-entry system, or (ii) after the
occurrence of an Event of Default, holders of the Money Market Notes
aggregating more than 50% of the aggregate outstanding amount of the Money
Market Notes advise the Trustee in writing that the continuation of a
book-entry system is no longer in the best interests of the holders of Money
Market Notes and the Trustee notifies all registered holders of these
securities, of the occurrence of any such event and the availability of
definitive notes to holders of these securities requesting such notes. Subject
to the foregoing, the book-entry interests in these securities shall not
otherwise be exchangeable for fully registered notes
Interest. The interest rates payable on the Money Market Notes
offered hereby will be adjusted by the Company from time to time in its sole
discretion provided that such rate shall not be less than 4.0% per year. The
Company will provide written notice to all holders of the Money Market Notes
at least 14 days prior to any decrease in the interest rate to be paid
thereon, which
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notice shall set forth the new interest rate to be paid and the effective date
of such change. The Company reserves the right to increase the interest rate
paid on the Money Market Notes at any time without prior notice to the holders
of the Money Market Notes. Investors may inquire about the interest rate then
being paid on the outstanding Money Market Notes by calling the Company at
(610) 668-2440.
Interest on each account with a balance of at least $1,000 accrues
daily and is credited monthly on the last day of each calendar month. Interest
accrued during each monthly period will not be paid by check but will be added
to the noteholder's principal balance of the account in the form of additional
securities. Interest will continue to accrue on the principal balance of each
security through the date of redemption. If a holder redeems the security in
full, the principal balance of the account (including accrued interest) will
be paid by check as soon as practicable. No interest shall be paid for any day
the principal amount in any account is less than $1,000.
Subject to the limitations set forth herein, the Company may vary, in
its discretion, the interest rates it offers on the Money Market Notes based
on numerous factors. Such factors may include, but are not limited to: the
desire to attract new investors; Money Market Notes in excess of certain
principal amounts; Money Market Notes purchased for IRA and/or Keogh accounts;
rollover investments; and Money Market Notes beneficially owned by persons
residing in particular geographic localities. As of the date hereof, the
Company is not offering Money Market Notes at varying rates to different
investors. However, the Company may make a decision to vary interest rates in
the future based on its fund raising objectives including, but not limited to,
the attraction of new investors in particular regions, circumstances in the
financial markets and the economy, any additional costs which may be incurred
by the Company in selling Money Market Notes in a particular jurisdiction
which may at the time be relevant to the Company's operations and other
factors.
Interest Accrual Date. Interest on the Money Market Notes will accrue
from the date of purchase, which is deemed to be, for accepted subscriptions,
the date the Company receives funds, if received prior to 3:00 p.m. on a
business day, or the next business day if the Company receives such funds on a
non-business day or after 3:00 p.m. on a business day. For this purpose, the
Company's business days will be deemed to be Monday through Friday, except for
Delaware legal holidays.
Interest Withholding. With respect to those investors who do not
provide the Company with a fully executed Form W-8 or Form W-9, the Company
will withhold 31% of any interest paid. Otherwise, no interest will be
withheld, except on Money Market Notes held by foreign business entities. It
is the Company's policy that no sale will be made to anyone refusing to
provide a fully executed Form W-8 or Form W-9.
Redemption by the Holder of Money Market Notes. The holder of the
Money Market Notes may redeem the security at any time in minimum amounts of
$500 (or any amount to close an account) upon not less than 10 business days
written notice to the Company.
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To the extent a holder of the Money Market Notes redeems the Money
Market Notes and purchases new ones, the redemptions are treated as being made
on a first-in, first-out basis.
Redemption by the Company. The Company will have the right to redeem
a Money Market Note at any time upon thirty days written notice to the holder
thereof.
Place and Method of Payment upon Redemption. Payments upon the
redemption of the Money Market Notes will be payable at the principal
executive office of the Company, as it may be established from time to time,
or at such other place as the Company may designate for that purpose; provided
however, that payments may be made at the option of the Company by check or
draft mailed to the person entitled thereto at his/her address appearing in
the register which the Company maintains for that purpose.
Reports to Trustee. The Company shall provide the Trustee with
quarterly reports which shall contain such information as the Trustee shall
reasonably request including information regarding the outstanding balance,
interest credited, withdrawals made and interest rate paid on each account
related to each Money Market Note maintained by the Company during the
preceding quarterly period.
Monthly Statements. The Company shall provide holders of the Money
Market Notes with monthly statements which will indicate, among other things,
the current account balance (including interest credited and withdrawals made,
if any) and the interest rate paid on the such securities as of the month end
preceding the issuance of the statement. Such statements will be mailed not
later than the tenth business day following each month end. The Company shall
provide additional statements as the holders of these securities may
reasonably request from time to time. Holders requesting such additional
statements may be required to pay all charges incurred by the Company in
providing such additional statements.
Provisions Related to All Securities
Subordination. The indebtedness evidenced by the Notes, and any
interest thereon, are subordinated to all Senior Debt of the Company. The term
Senior Debt is defined for this purpose to include any indebtedness (whether
outstanding on the date hereof or thereafter created) incurred by the Company
in connection with borrowings by the Company (including its subsidiaries) from
a bank, trust company, insurance company, or from any other institutional
lender, whether such indebtedness is or is not specifically designated by the
Company as being "Senior Debt" in its defining instruments. As of June 30,
1998, there was $26.5 million of Senior Debt outstanding. There is no
limitation under the Indenture on the amount of Senior Debt the Company can
incur. The Notes are not guaranteed by any subsidiaries of ABFS. Accordingly,
in the event of a liquidation or dissolution of a subsidiary of ABFS, the law
requires that creditors of that subsidiary be paid, or provision for such
payment be made, from the assets of that subsidiary prior to distributing any
remaining assets to ABFS as a shareholder of that subsidiary. Therefore, in
the event of liquidation or dissolution of a subsidiary, creditors
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of such subsidiary will receive payment of their claims prior to any payment
to the holders of the Notes. As of June 30, 1998, there was $6.5 million of
such debt outstanding. Any indebtedness of ABFS, other than that described as
Senior Debt and the debt of the subsidiaries, will have rights upon
liquidation or dissolution of ABFS which ranks equally in right of payment to
the Notes offered hereby. As of June 30, 1998, the Company had $105.5 million
of debt outstanding which ranks equally in right of payment to the Notes
offered.
For a discussion of the Company's status as a holding company and the
lack of insurance or guarantees in support of the Notes, see "Risk Factors --
Absence of Insurance and Regulation."
In the event of any liquidation, dissolution or any other winding up
of the Company, or of any receivership, insolvency, bankruptcy, readjustment,
reorganization or similar proceeding under the Federal Bankruptcy Code or any
other applicable federal or state law relating to bankruptcy or insolvency, or
during the continuation of any Event of Default (as described below), no
payment may be made on the Notes until all Senior Debt has been paid. In any
such event, holders of Senior Debt may also submit claims on behalf of holders
of the Notes and retain the proceeds for their own benefit until they have
been fully paid, and any excess will be turned over to the holders of the
Notes. If any distribution is nonetheless made to holders of the Notes, the
money or property distributed to them must be paid over to the holders of the
Senior Debt to the extent necessary to pay Senior Debt in full. See "Risk
Factors -- Subordination of Debt Represented by the Notes."
Events of Default. The Indenture provides that each of the following
constitutes an Event of Default: (i) default for 30 days in the payment of
interest when due on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment of principal when due on
the Notes (whether or not prohibited by the subordination provisions of the
Indenture) and continuation thereof for 30 days; (iii) failure by the Company
to observe or perform any covenant, condition or agreement with respect to the
liquidation, consolidation or merger or other disposition of substantially all
of the assets of the Company (after notice and provided such default is not
cured within 60 days after receipt of notice); (iv) failure by the Company for
60 days after notice to comply with certain other agreements in the Indenture
or the Notes; and (v) certain events of bankruptcy or insolvency with respect
to the Company.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least a majority in principal amount of the then outstanding
Notes may declare the unpaid principal of and any accrued interest on the
Notes to be due and payable immediately; provided, however, that so long as
any Senior Debt is outstanding, such declaration shall not become effective
until the earlier of (x) the day which is five Business Days after the receipt
by representatives of Senior Debt of such written notice of acceleration or
(y) the date of acceleration of any Senior Debt. In the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect
to the Company, all outstanding Notes will become due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture
or the Notes except as
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provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
Amendment, Supplement and Waiver. Except as provided herein, the
Indenture or the Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Notes then
outstanding, and any existing Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes.
Without the consent of each holder of the Investment Notes affected,
an amendment or waiver may not (with respect to any Investment Notes held by a
nonconsenting holder of Investment Notes): (i) reduce the principal amount of
any Investment Note whose holder must consent to an amendment, supplement or
waiver; (ii) reduce the principal of or change the fixed maturity of any
security or alter the redemption provisions thereof or the price at which the
Company shall offer to repurchase the Investment Note; (iii) reduce the rate
of or change the time for payment of interest, including default interest, on
any Investment Note; (iv) waive a Default or Event of Default in the payment
of principal or premium, if any, or interest on or redemption payment with
respect to the Investment Notes (except a rescission of acceleration of the
Investment Notes by the holders of at least a majority in aggregate principal
amount of the Investment Notes and a waiver of the payment default that
resulted from such acceleration); (v) make any Investment Note payable in
money other than that stated in the Investment Notes; (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Investment Notes to receive payments of principal of or
interest on the Investment Notes; (vii) make any change to the subordination
provisions of the Indenture that adversely affects holders of Investment
Notes; (viii) modify or eliminate holders' redemption rights (provided that no
modification or elimination is permitted as to any securities issued with such
right); or (ix) make any change in the foregoing amendment and waiver
provisions.
Without the consent of each holder of the Money Market Notes
affected, an amendment or waiver may not (with respect to any Money Market
Notes held by a nonconsenting holder of
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Money Market Notes): (i) reduce the principal amount of Money Market Notes
whose holders must consent to an amendment, supplement or waiver (other than
as a result of withdrawals made by the holder thereof); (ii) reduce the
principal of any Money Market Note (other than as a result of withdrawals made
by the holder thereof) or alter the redemption provisions thereof or the price
at which the Company shall offer to repurchase the Money Market Note; (iii)
reduce the rate of interest on the Money Market Notes, other than the rate
adjustments provided for pursuant to the terms of the Money Market Notes or
change the time for payment of interest, including default interest, on any
Money Market Note; (iv) waive a Default or Event of Default in the payment of
principal or premium, if any, or interest on or redemption payment with
respect to the Money Market Notes (except a rescission of acceleration of the
Money Market Notes by the holders of at least a majority in aggregate
principal amount of the Money Market Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Money Market Note payable
in money other than that stated in the Money Market Notes; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Money Market Notes to receive payments of
principal of or interest on the Money Market Notes; (vii) make any change to
the subordination provisions of the Indenture that adversely affects holders
of Money Market Notes; (viii) modify or eliminate redemption right of holders
of the Money Market Notes; or (ix) make any change in the foregoing amendment
and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
the Notes, the Company and/or the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency; to
provide for assumption of the Company's obligations to holders of the Notes in
the case of a merger or consolidation; to provide for additional certificates
or certificated securities; to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder,
including an increase in the aggregate dollar amount of Notes which may be
outstanding under the Indenture; to modify the Company's policy to permit
redemptions of the Investment Notes upon the death or Total Permanent
Disability of any holder of the Investment Notes (but such modification shall
not adversely affect any then outstanding security); or to comply with
requirements of the SEC in order to effect or maintain the qualification of
the Indenture under the Trust Indenture Act.
The Trustee. The Indenture contains certain limitations on the rights
of the Trustee, should it become a creditor of the Company, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions with the Company.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs.
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<PAGE>
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
No Personal Liability of Directors, Officers, Employees and
Stockholders. No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes, the Indenture or for any claim based on, in respect
to, or by reason of, such obligations or their creation. Each holder of the
Notes waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the SEC that such a waiver is against public policy.
Service Charges. The Company reserves the right to assess service
charges for replacing lost or stolen Investment Notes (for which an affidavit
from the holder will be required), changing the registration of any security
when such change is occasioned by a change in name of the holder, or a
transfer (whether by operation of law or otherwise) of a security by the
holder to another person.
Additional Securities. The Company may offer from time to time
additional classes of securities with terms and conditions different from the
Notes offered hereby. The Company will amend this Prospectus if and when it
decides to offer to the public any additional class of security hereunder.
Variations by State. The Company reserves the right to offer
different securities and to vary the terms and conditions of the offer
(including, but not limited to, additional interest payments and service
charges for all Notes) depending upon the state where the purchaser resides.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Our consolidated financial information set forth below should be read
in conjunction with the more detailed Consolidated Financial Statements,
including the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Statement of Income Data: (Dollars in Thousands, except per share data)
--------- ---------- ---------- ---------
Revenues:
<S> <C> <C> <C> <C> <C>
Gain on sale of loans................................... $ 41,316 $20,043 $ 8,721 $ 1,350 $ 110
Interest and fees....................................... 17,386 5,583 3,244 4,058 2,367
Other................................................... 2,285 856 129 143 156
--------- ------ ------- -------- -------
Total revenue.............................................. 60,987 26,482 12,094 5,551 2,633
Total expenses............................................. 43,097 17,480 8,974 4,657 2,299
--------- ------ ------- -------- -------
Operating income before income taxes and cumulative effect
of accounting change..................................... 17,890 9,002 3,121 894 334
Income before cumulative effect accounting change......... 11,454 5,940 2,319 581 137
Cumulative effect of accounting change on prior years...... --- -- -- -- (52)
Income taxes............................................... 6,436 3,062 802 313 197
--------- ------ ------- -------- -------
Net income................................................. $ 11,454 $5,940 $2,319 $ 581 $ 85
========= ====== ======= ======== =======
Per Common Share Data(1):
Income before cumulative effect of accounting change.... $ 3.26 $2.13 $1.01 $ .27 $ .04
Net income ............................................. 3.13 2.04 1.01 .27 .04
Cash dividends declared................................. .06 .06 0.03 -- --
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
(In Thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ 4,486 $ 5,014 $ 5,345 $ 4,734 $ 83
Loan and lease receivables, net available for sale......... 62,382 35,712 18,003 8,669 3,181
Other................................................... 4,097 1,144 534 328 5,538
Total assets............................................... 226,551 103,989 46,894 22,175 12,284
Subordinated debt ......................................... 115,182 56,486 33,620 17,800 7,171
Total liabilities.......................................... 183,809 73,077 42,503 20,031 10,721
Stockholders' equity....................................... 42,742 30,912 4,392 2,143 1,562
</TABLE>
- --------
(1) Per share information for fiscal year 1994 has been restated to reflect
the 3 for 2 stock split effected on November 1, 1995.
-34-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------
Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Other Data: (Dollars in Thousands)
Originations:
<S> <C> <C> <C> <C> <C>
Business Purpose Loans.................................. $ 52,335 $ 38,721 $ 28,872 $ 18,170 $ 11,793
Home Equity Loans....................................... 328,089 91,819 36,479 16,963 22,231
First Mortgage Loans.................................... 33,671
Equipment Leases ....................................... 70,480 8,004 5,967 2,220 --
Loans and Leases sold:
Securitizations......................................... 384,700 115,000 36,506 9,777 --
Other................................................... 51,594 3,817 19,438 31,948 30,562
Total loan and lease portfolio serviced.................... 559,398 176,651 59,891 17,774 8,407
Average loan/lease size:
Business Purpose Loans.................................. 83 78 78 71 57
Home Equity Loans....................................... 62 51 47 46 51
First Mortgage Loans.................................... 154
Equipment Leases........................................ 21 11 11 12 --
Weighted average interest rate on loans and leases
originated:
Business Purpose Loans ................................ 15.96% 15.91% 15.83% 16.05% 16.03%
Home Equity Loans....................................... 11.95 11.69 9.94 12.68 8.65
First Mortgage Loans.................................... 8.22 -- -- -- --
Equipment Leases........................................ 12.19 15.48 17.22 15.85 --
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ---------
Financial Ratios:
<S> <C> <C> <C> <C> <C>
Return on average assets ................................. 6.93% 7.87% 6.71% 3.37% 0.87%
Return on average equity ................................. 31.10 33.65 70.96 31.36 5.58
Total delinquencies as a percentage of total portfolio serviced,
at end of period (1)................................... 3.01 2.15 2.30 3.84 6.85
Allowance for credit losses to total portfolio serviced,
at end of period....................................... 1.00 1.00 1.18 .87 .93
Real estate owned as a percentage of total portfolio serviced,
at end of period....................................... .16 .34 1.01 4.29 2.63
Loan and lease losses as a percentage of the average total
portfolio serviced during the period................... .18 .08 .33 .66 .15
Pre-tax income as a percentage of total revenues.......... 29.33 33.99 25.81 16.11 12.69
Ratio of earnings to fixed changes........................ 1.77 1.98 1.40 1.35 1.16
</TABLE>
- -----------------
(1) Total delinquencies includes loans and leases delinquent over 30 days,
exclusive of real estate owned.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information is intended to assist you in understanding
and evaluating the financial condition and results of operations of the
Company, for the years ended June 30, 1998, 1997 and 1996. The information in
this section should be read in conjunction with the Company's Consolidated
Financial Statements and the accompanying Notes thereto, beginning on page
F-1, "Selected Consolidated Financial Data" beginning on page 34 of this
Prospectus and other detailed information regarding the Company appearing in
this Prospectus. All operations of the Company are conducted through ABC and
its subsidiaries.
General
ABFS is a financial service organization operating primarily in the
eastern region of the United States. The Company, through its principal direct
and indirect subsidiaries, originates sells and services Business Purpose
Loans, Home Equity Loans, First Mortgage Loans and Equipment Leases. The
Company also underwrites, processes and purchases Home Equity Loans through
the Bank Alliance Program. Loans originated by the Company primarily consist
of fixed rate loans secured by first or second mortgages on single family
residences. The Company's customers include credit impaired borrowers and
other borrowers who would qualify for loans from traditional sources but who
the Company believes are attracted to the Company's loans and lease products
due to the Company's personalized service and timely response to loan or lease
applications. The Company originates loans and leases through its retail
branch network comprised of 31 offices. A significant portion of the Company's
loan and lease production is securitized with the Company retaining the right
to service the loans and leases.
The ongoing securitization of loans and leases is a central part of
the Company's current business strategy. Prior to 1995, the Company sold
substantially all of the loans it originated in the secondary market with
servicing released. Since such time, the Company has sold loans through
securitizations with servicing retained in order to fund growing loan and
lease originations and to provide additional sources of revenue through
retained mortgage servicing rights. In fiscal 1998, the Company began
securitizing its lease portfolio. The Company has completed nine
securitizations aggregating $129.4 million in Business Purpose Loans, $356.8
million in Home Equity Loans and $59.7 million in Equipment Leases. Such
securitizations generated gain on the sale of loans and leases of $41.3
million, $20.0 million and $8.6 million, respectively, for fiscal years ended
June 30, 1998, 1997 and 1996. In recent periods, gain on sale of loans and
leases generated by the Company's securitizations have represented a
substantial majority of the Company's revenues and net income. Gain on sale of
loans and leases resulting from securitizations as a percentage of total
revenues was 67.7 %, 75.5% and 71.1% for the years ended June 30, 1998, 1997
and 1996, respectively. The Company relies primarily on securitizations to
generate cash proceeds for repayment of its warehouse credit facilities and
other borrowings and to enable the Company to originate additional loans and
leases. Several factors affect the Company's ability to complete
securitizations, including conditions in the securities markets generally,
conditions in the asset-backed securities markets specifically and credit
quality of the portfolio of loans and leases serviced by the Company. Any
substantial
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<PAGE>
reduction in the size or availability of the securitization market for the
Company's loans and leases could have a material adverse effect on the
Company's results of operations and financials condition.
The Company's quarterly revenues and net income have fluctuated in
the past and may fluctuate in the future principally as a result of the timing
and size of its securitizations. The strategy of selling loans and leases
through securitizations requires the Company to build an inventory of loans
and leases over time, during which time the Company incurs costs and expenses.
Since the Company does not recognize gains on sale until it consummates a
securitization, which may not occur until a subsequent quarter, the Company's
operating results for a given quarter can fluctuate significantly as a result
of the timing and level of securitizations. If securitizations do not close
when expected, the Company could experience a loss for the quarter which could
have a materially adverse effect on the Company's results of operations. In
addition, due to the timing difference between the period when costs are
incurred in connection with the origination of loans and leases and their
subsequent sale through the securitization process, the Company may operate a
negative cash flow basis, which could adversely impact the Company's results
of operations and financial condition. See "Risk Factors -- Dependence on
Securitization and Fluctuations in Operating Results" and "-- Results of
Operations."
The Company also relies upon funds generated by the sale of
subordinated debt and other borrowings to fund its operations. At June 30,
1998, the Company had $115.2 million of subordinated debt outstanding and
credit facilities and lines of credit totaling $210.0 million, of which $26.5
million was drawn upon on such date. The Company expects to continue to rely
on such borrowings to fund loans and leases prior to securitization. See "Risk
Factors --Dependence on Debt Financing" and "-- Liquidity and Capital
Resources."
Acquisition of NJMIC
Effective October 1, 1997, the Company acquired all of the issued and
outstanding stock of NJMIC, a mortgage and leasing company based in Roseland,
New Jersey. The purchase price for the NJMIC stock consisted of an initial
payment of $11.0 million in cash, $5.0 million in notes payable and issuance
of 20,240 shares of the Company's common stock, par value $0.001 per share
(the "Common Stock"), and includes contingent payments of up to $4.0 million
in the future if NJMIC achieves certain performance targets. On October 1,
1997, NJMIC had total assets of $19.6 million, liabilities of $18.7 million,
including subordinated debt of $9.9 million, and stockholders' equity of
$900,000. The acquisition of NJMIC was accounted for using the purchase method
of accounting and resulted in the recognition of $16.9 million in goodwill
which is being amortized using the straight-line method over 15 years and is
included in other assets. Any contingent payments will result in an increase
in the amount of recorded goodwill.
NJMIC is a diversified residential lender, which directly and through
its subsidiary offers a range of loan and lease products, including Home
Equity Loans, First Mortgage Loans and Equipment Leases. First Mortgage Loans
are underwritten pursuant to Federal Home Loan Mortgage Corporation ("FHLMC")
or Federal National Mortgage Association ("FNMA") standards and also include
Federal Housing Authority ("FHA") and Veterans' Administration
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<PAGE>
("VA") loans. Historically, NJMIC originated loans for sale to third parties
with servicing released. The Company intends that NJMIC will continue to
originate First Mortgage Loans for sale in the secondary market and that the
majority of Home Equity Loans originated by NJMIC will be securitized and sold
pursuant to the Company's current securitization program. NJMIC originates
loans secured by real estate in 29 states. Such loans are originated through
NJMIC's eight-state network of six branch sales offices and three satellite
offices. Home Equity Loan customers primarily include credit-impaired
borrowers, while borrowers on First Mortgage Loans are generally borrowers
with favorable credit histories. See Note 1 of the Notes of the Consolidated
Financial Statements for additional information regarding the acquisition of
NJMIC.
Through its subsidiary, Federal, NJMIC originates Equipment Leases
throughout the United States. Such leases are generally sold through
securitizations with servicing retained. The Company intends to continue to
securitize these leases in the future subject to economic and market
conditions.
Certain Accounting Considerations
As a fundamental part of its business and financing strategy, the
Company securitizes the majority of its loans and leases in trusts. A trust is
a multi-class security which derives its cash flows from a pool of mortgages.
The Company sells the regular interests in the trust and retains the residual
interests in the trust.
Gains on servicing released loan and lease sales equal the difference
between the net proceeds to the Company from such sales and the loans' net
carrying value of the loans and leases. The net carrying value of loans and
leases is equal to their principal balance plus unamortized origination
costs/fees. Gains from these sales, which are pre-approved by the buyers, are
recorded as fee income.
Gains on servicing retained sales of loans and leases through
securitization represent the difference between the net proceeds to the
Company and the allocated cost of loans and leases securitized. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 125, the
allocated cost of the loans and leases securitized is determined by allocating
their net carrying value between the loans and leases securitized, the
residual interests and the mortgage servicing rights retained by the Company
based upon their relative fair values. At origination, the Company classifies
the residual interests as trading securities, which are carried at fair value.
The differences between the fair value of residual interests and their
allocated costs is recorded as gain on securitization and is included in gain
on sale of loans and leases revenue.
In a securitization, the Company exchanges loans or leases for regular
interests and a residual interest in a trust. The regular interests are
immediately sold to the public for cash. As the holder of the residual interest,
the Company is entitled to receive certain excess cash flows. These cash flows
are the difference between the payments made by the borrowers and the sum of the
scheduled and prepaid principal and interest paid to the holders of the regular
interests, servicing fees, trustee fees and, if applicable, insurance fees. In
order to meet the overcollateralization levels
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<PAGE>
which are established in the securitization documentation, the trust initially
retains such cash flow. The Company begins receiving these excess cash flows
after the overcollateralization requirements, which are specific to each
securitization. The overcollateralization causes the aggregate principal
amount of the loans or leases in the related pool to exceed the aggregate
principal balance of the outstanding regular interests. The excess serves as
credit enhancement for the regular interests of the trust.
The calculation of the fair value of the residual interest (interest
only strip receivable) is based upon the present value of the future expected
excess cash flows and utilizes certain estimates made by management at the time
loans and leases are sold. These estimates include the discount rate used to
calculate present value and the rate of prepayment. The rate of prepayment of
loans may be affected by a variety of economic and other factors, including
prevailing interest rates and the availability of alternative financing to
borrowers. The effect of those factors on loan prepayment rates may vary
depending on the type of loan or lease. Estimates of prepayment rates are made
based on management's expectation of future prepayment rates, which are based,
in part, on the historical rate of repayment of the Company's loans and other
considerations. Accordingly, the Company's estimates are subjective and there
can be no assurance as to the accuracy of management's estimates. Although the
Company believes it has made reasonable estimates of prepayment rates and
default assumptions, the actual prepayment and default experience may materially
vary from its estimates. The gain recognized by the Company upon the sale of
loans and leases will have been overstated if prepayments or losses are greater
than estimated. To the extent that prepayments, delinquencies and/or
liquidations differ from the Company's estimates, adjustments of the Company's
gain on sale of loans and leases during the period of adjustment may be
required. Higher levels of future prepayments, delinquencies and/or liquidations
could result in decreased interest only strips which would adversely affect the
Company's income in the period of adjustment. The Company establishes a reserve
for loan and lease losses equal to one percent of the amount securitized and
evaluates such reserve periodically for adequacy. Losses, of which there have
been none to date, would be charged to operations as incurred.
The timing of sales of the Company's loans and leases may impact the
Company's earnings from quarter to quarter. Accordingly, both the timing of
sales of the Company's loans and leases and the amount of loans and leases
sold will impact the Company's earnings from quarter to quarter. Subsequent to
the initial recognition of the interest-only strip receivables, on going
assessments are made to determine the fair value of the expected future excess
cash flows based upon current market conditions. At June 30, 1998, the
Company's investments in interest only strips were $75.1 million and its
investment in the overcollateralization was $25.3 million. See "Risk Factors
- -- Dependence Upon Securitizations and Fluctuations in Operating Results."
When loans or leases are sold through a securitization, the Company
retains the servicing on the loans or leases sold which is recognized as a
separate asset for accounting purposes. The Company determines the fair value
of servicing rights by computing the present value of projected net cash flows
expected to be received over the life of the loans or leases securitized. Such
projections incorporate assumptions, including servicing costs, prepayment
rates and
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<PAGE>
discount rates, consistent with those a related third party would utilize to
value such servicing rights. These assumptions are similar to those used by
the Company to value the interest only strips. The Company periodically
evaluates capitalized servicing rights for impairment, which is measured as
the excess of unamortized cost over fair value. The Company has generally
found that non-conforming borrowers are payment sensitive rather than interest
rate sensitive. Therefore, the Company does not consider interest rates as a
predominant risk characteristic for purposes of evaluating impairment. As of
June 30, 1998, servicing rights totaled $18.5 million.
Financial Condition
June 30, 1998 compared to June 30, 1997. Total assets increased
$122.6 million, or 117.9%, to $226.6 million at June 30, 1998 from $104.0
million at June 30, 1997 due primarily to increases in loans and leases
available for sale, other receivables and other assets. Loans and leases
available for sale increased $26.7 million, or 74.7%, to $62.4 million at June
30, 1998, from $35.7 at June 30, 1998. The increase was the result of
increases in originations, net of sales, of $44.2 million during year ended
June 30, 1998 as compared to $19.7 million for the year ended June 30, 1997.
Other receivables consist primarily of the interest only strips and
overcollateralizations created in connection with the Company's
securitizations. The interest only strips increased $45.3 million, or 152.0%,
to $75.1 million at June 30, 1998, from $29.8 million at June 30, 1997.
Overcollateralizations increased $16.2 million, or 178.0% to $25.3 million at
June 30, 1998 from $9.1 million at June 30, 1997. Other assets increased $26.1
million, or 141.8%, to $44.5 million at June 30, 1998 from $18.4 million at
June 30, 1997 due primarily to an increase in mortgage servicing rights
obtained in connection with the Company's loan and lease securitizations and
the recognition of $16.2 million of goodwill, net of amortization, resulting
from the acquisition of NJMIC.
Total liabilities increased $110.7 million, or 151.4%, to $183.8
million at June 30, 1998 from $73.1 million at June 30, 1997 due primarily to
a net increase in outstanding debt and to a lesser extent increases in other
liabilities. The net increase in debt of $88.1 million was due to net sales of
subordinated debt of $49.2 million during the year ended June 30, 1998, an
increase in institutional debt of $26.5 million due to growth in the Company's
lending and leasing activities, and a net increase of $12.4 million of debt
assumed and incurred in the acquisition of NJMIC. At June 30, 1998, the
Company had $115.2 million of subordinated debt outstanding. The Company's
ratio of total debt to equity at June 30, 1998 was 3.4:1 compared to 1.8:1 a
June 30, 1997. This increase was due to the use of additional borrowings to
fund lending and leasing activities and the additional debt assumed as
described above.
Accounts payable and accrued expenses increased $9.5 million, or
155.7%, to $15.6 million at June 30, 1998 due to growth in the Company's
lending and leasing activities resulting in larger accruals for interest
expense and other operating expenses. Deferred income taxes increased $6.3
million, or 137.0%, to $10.9 million at June 30, 1998 from $4.6 million at
June 30, 1997. Tax accruals on the Company's income for the year ended June
30, 1998 resulted in $5.9 million of the increase, the remaining $400,000 was
acquired through the acquisition of NJMIC.
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<PAGE>
Stockholders' equity increased $11.8 million to $42.7 million at June
30, 1998 from $30.9 million at June 30, 1997 due to net income for the year
ended June 30, 1998 which was slightly offset by dividends paid.
June 30, 1997 compared to June 30, 1996. Total assets increased $57.1
million, or 121.7%, to $104.0 million at June 30, 1997 from $46.9 million at
June 30, 1996 due primarily to increases in loans and lease receivables
available for sale, other receivables and other assets. The increase in loan
and lease receivables available for sale of $17.7 million, or 98.3%, to $35.7
million at June 30, 1997 from $18.0 million at June 30, 1996 was due to the
Company's strategy of building an inventory of loans for ultimate sale in
securitizations. Other receivables, consists primarily of the interest only
strips and overcollateralizations related to the Company's securitizations.
The excess spread increased $25.5 million, or 190.3%, to $38.9 million at June
30, 1997, from $13.4 million at June 30, 1996. Other assets increased $11.9
million, or 183.1%, to $18.4 million at June 30, 1997 from $6.5 million at
June 30, 1996 due primarily to an increase in mortgage servicing rights
obtained in connection with the Company's loan securitizations.
Total liabilities increased $30.6 million, or 72.0%, to $73.1 million
at June 30, 1997 from $42.5 million at June 30, 1996 primarily due to
increases in all categories of liabilities. The net increase in debt of $20.5
million was due to net sales of subordinated debt of $22.8 million during the
year ended June 30, 1997 and a decrease in institutional debt of $2.3 million
as the Company repaid its institutional debt with proceeds from its
securitizations. At June 30, 1997, the Company had $56.5 million of
subordinated debt outstanding. The Company's ratio of total debt to equity at
June 30, 1997 was 1.8:1 compared to 8.2:1 at June 30, 1996. This decrease was
due to additional equity raised during a public offering in February 1997.
Accounts payable and accrued expenses increased $3.0 million, or 96.8%, to
$6.1 million at June 30, 1997 from $3.1 million at June 30, 1996 due to growth
in the Company's activities resulting in larger accruals for interest expense
and other operating expenses. Deferred income taxes increased $3.1 million, or
206.7%, to $4.6 million at June 30, 1997 from $1.5 million at June 30, 1996
due to tax accruals on the Company's income for the year ended June 30, 1997.
Stockholders' equity increased $26.5 million to $30.9 million at June
30, 1997 from $4.4 million at June 30, 1996 due to a public offering of the
Company's Common Stock and net income slightly offset by dividends paid on the
Company's Common Stock. On February 14, 1997 the Company raised $20.7 million
of equity through the sale of 1,150,000 shares of its Common Stock in an
underwritten public offering.
Results of Operations
During fiscal 1998 and 1997, the Company experienced record levels of
total revenues and net income as a result of increases in originations and
securitizations. Total revenue increased $34.5 million and net income
increased $5.5 million for the fiscal year ended June 30, 1998, as compared to
the fiscal year ended June 30, 1997. Total revenue increased $14.4 million, or
119.0%, between fiscal 1997 and 1996 while net income increased $3.6 million,
or 156.1%, during the same fiscal period. The Company's ability to sustain the
level of growth in total revenue and net income experienced during these
periods is dependent upon a variety of
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<PAGE>
factors outside the control of the Company, including interest rates,
conditions in the asset-backed securities markets, economic conditions in the
Company's primary market area, competition and regulatory restrictions. As a
result, the rate of growth experienced during fiscal 1998 and 1997, may not be
sustained in the future. See "Risk Factors -- Ability of the Company to
Sustain Recent Levels of Growth and Operating Results."
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997.
Total Revenue. Total revenue increased $34.5 million, or 130.2%, to
$61.0 million for the year ended June 30, 1998 from $26.5 million for the year
ended June 30, 1997. The increase was attributable to increases in gain on
sale of loans and leases through securitizations, interest and fee income and
servicing income.
Gain on Sale of Loans and Leases. Gain on sale of loans and leases
increased $21.3 million, or 106.5%, to $41.3 million for the year ended June
30, 1998 from $20.0 million for the year ended June 30, 1997. The increase was
the result of sales of $54.1 million of Business Purpose Loans, $270.9 million
of Home Equity Loans and $59.7 million of Equipment Leases through
securitization in fiscal 1998 compared to the sale of $38.1 million of
Business Purpose Loans and $76.9 million of Home Equity Loans in fiscal 1997.
The Company did not participate in a sale of leases through securitization
during the year ended June 30, 1997. The Company recognized net gains of $41.3
million (representing the fair value of the interest only and residual strips
of $46.9 million less $5.6 million of costs associated with these
transactions) on the Company's participation in $384.7 million of loans and
leases sold through securitizations during the year ended June 30, 1998 as
compared to net gains of $20.0 million recognized in connection with the sale
of loans through securitizations during the year ended June 30, 1997.
Interest and Fee Income. Interest and fee income increased $11.8
million, or 210.7%, to $17.4 million for the year ended June 30, 1998 from
$5.6 million for the year ended June 30, 1997. The increase was primarily due
to increases in interest income as a result of the increased amount of loans
and leases retained in the Company's portfolio prior to securitization and an
increase in fee income as a result of an increase in loans sold with servicing
released and other ancillary fees earned in connection with loan and lease
originations.
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<PAGE>
Interest income consists primarily of interest income the Company
earns on the loans and leases held in its portfolio. Interest income increased
$5.8 million, or 123.4%, to $10.5 million for the year ended June 30, 1998 as
compared to $4.7 million for the year ended June 30, 1997. The increase was
attributable to increased gross originations of Business Purpose Loans, Home
Equity Loans and Equipment Leases as shown below.
Loan and Lease Originations
Year Ended June 30,
----------------------------------
1998 1997
----------- -----------
(In Thousands)
Business Purpose Loans $ 52,335 $ 38,721
Home Equity Loans 328,089 91,819
First Mortgage Loans 33,671 --
Equipment Leases 70,480 8,004
Fee income includes premiums earned when loans are closed, funded and
immediately sold, with servicing released, to unrelated third party purchasers
as well as other ancillary fees earned (application fees, commitment fees,
document preparation fees and late charges earned on loans and leases held in
portfolio) in connection with loan and lease originations. Fee income
increased $6.0 million, or 762.5%, to $6.9 million for the year ended June 30,
1998 from $843,000 for the year ended June 30, 1997. The increase in fee
income was due to an increase in ancillary fees earned in connection with
increased originations and an increase in fees earned upon the sale of loans
to third parties. During the year ended June 30, 1998, the Company sold
approximately $51.6 million of loans to third parties as compared to $3.8
million during the year ended June 30, 1997.
Servicing Income. Servicing income increased $1.3 million, or 161.5%,
to $2.1 million for the year ended June 30, 1998 from $803,000 for the year
ended June 30, 1997 as a result of an increase in the average serviced
portfolio to $368.0 million during the year ended June 30, 1998 from $118.3
million during the year ended June 30, 1997. As a percentage of the average
servicing portfolio, servicing income decreased to 0.58% for the year ended
June 30, 1998 from 0.68% for the year ended June 30, 1997.
Total Expenses. Total expenses increased $25.6 million, or 146.3%, to
$43.1 million for the year ended June 30, 1998 from $17.5 million for the year
ended June 30, 1997. This increase was related to the increase in loan and
lease originations, costs associated with a larger serviced portfolio of loans
and leases, geographic expansion of the Company's market area through the
opening of several new offices and the acquisition and operation of NJMIC and
subsidiaries.
Interest Expense. Interest expense increased $8.0 million, or 153.8%,
to $13.2 million for the year ended June 30, 1998 from $5.2 million for the
year ended June 30, 1997. The increase was attributable to increases in the
amount of the Company's subordinated debt outstanding, greater utilization of
the Company's warehouse lines of credit to fund loans and
-43-
<PAGE>
leases and debt assumed and incurred in connection with the acquisition of
NJMIC. Average subordinated debt outstanding was $85.8 million during the year
ended June 30, 1998 compared to $44.4 million during the year ended June 30,
1997. Average interest rates paid on the subordinated debt increased to 9.52%
for the year ended June 30, 1998 from 9.29% for the year ended June 30, 1997
due to increases in the rates offered by the Company on its subordinated debt
offered in order to attract additional funds and higher rates paid on
subordinated debt assumed in the acquisition of NJMIC. Interest expense on
lines of credit was $4.2 million for the year ended June 30, 1998 compared to
$461,000 for the year ended June 30, 1997. The Company incurred and assumed
approximately $14.5 million of debt in the acquisition of NJMIC resulting in
approximately $1.1 million of additional interest expense for the year ended
June 30, 1998.
Provision for Credit Losses. The Company maintains an allowance for
credit losses based upon management's estimate of the expected collectibility
of loans and leases outstanding based upon a variety of factors, including,
but not limited to, economic conditions and credit and collateral
considerations. The allowance is increased through the provision for credit
losses. The Company had an allowance for credit losses of $5.6 million at June
30, 1998 as compared to $1.8 million at June 30, 1997. The provision for
credit losses increased by $1.4 million, or 116.7%, to $2.6 million for the
year ended June 30, 1998 from $1.2 million for the year ended June 30, 1997.
The ratio of the allowance for credit losses to total net loan and lease
receivables serviced was 1.0% at June 30, 1998 and June 30, 1997. Total
delinquencies were $16.8 million at June 30, 1998 as compared to $3.8 million
at June 30, 1997. The Company's loans and leases delinquent more than 30 days
as a percentage of the total portfolio serviced (the "delinquency rate") was
3.01% at June 30, 1998 as compared to 2.15% at June 30, 1997. The increase in
the delinquency rate was attributable to the maturation of the Company's total
portfolio serviced, which was $559.4 million at June 30, 1998, and $176.7
million at June 30, 1997. See " -- Asset Quality."
Employee Related Costs. Payroll and related costs increased $3.4
million, or 212.5% to $5.0 million for the year ended June 30, 1998 from $1.6
million for the year ended June 30, 1997. The increase was primarily the
result of additional staff needed in the Home Equity and Equipment Leasing
subsidiaries to support the increased marketing efforts, loan and lease
originations and servicing activities and the addition of personnel added
through the acquisition of NJMIC. Management anticipates that these expenses
will continue to increase in the future as the Company's expansion continues
and loan and lease originations continue to increase.
Sales and Marketing Expenses. Sales and marketing expenses increased
$7.2 million, or 102.9%, to $14.2 million for the year ended June 30, 1998
from $7.0 million for the year-end June 30, 1997. The increase was
attributable to greater usage of newspaper, direct mail and television
advertising relating to the Company's originations of Home Equity Loans,
Business Purpose Loans and Equipment Leases. Subject to market conditions, the
Company plans to continue to expand its market area. As a result, it is
anticipated that sales and marketing expense will continue to increase in the
future.
-44-
<PAGE>
General and Administrative Expenses. General and administrative
expenses increased $6.5 million, or 180.6%, to $10.1 million for the year
ended June 30, 1998 from $3.6 million for the year ended June 30, 1997. The
increase was attributable to increases in rent, telephone, office expenses,
professional fees and other expenses incurred as a result of previously
discussed increases in loan and lease originations, servicing and branch
operations experienced during the year ended June 30, 1998. In addition, the
Company began amortizing the goodwill recorded from the acquisition of NJMIC
on the straight-line method over fifteen years resulting in a charge of
$780,000 for the year ended June 30, 1998.
Income Taxes. Income taxes increased $3.3 million, or 106.5%, to $6.4
million for the year ended June 30, 1998 from $3.1 million for the year ended
June 30, 1997 due to an increase in income before income taxes and an increase
in the effective tax rate from 34% for the year ended June 30, 1997 to 36% for
the year ended June 30, 1998.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Total Revenue. Total revenue increased $14.4 million, or 119.0%, to
$26.5 million for the year ended June 30, 1997 from $12.1 million for the year
ended June 30, 1996. The increase in total revenue was primarily the result of
increased gains on sales of loans through securitizations.
Gain on Sale of Loans. Gain on sale of loans increased $11.3 million,
or 129.9%, to $20.0 million for the year ended June 30, 1997 from $8.7 million
for the year ended June 30, 1996. This increase was primarily the result of
sales of $38.1 million of Business Purpose Loans and $76.9 million of Home
Equity Loans through securitization in September 1996 and March 1997 compared
to the sale of $27.5 million of Business Purpose Loans and $9.0 million of
Home Equity Loan through securitizations in October 1995 and May 1996. The
Company recognized net gains of $20.0 million (representing the fair value of
the interest only and residual strips of $21.5 million less $2.7 million of
costs associated with these transactions) on the Company's participation in
the $115.0 million of loans sold through securitizations during the year ended
June 30, 1997. The Company recognized $1.2 million of gain on sale of loans
through mortgage servicing rights received in connection with prior
securitizations. Given the unseasoned nature of the loans securitized, the
Company lacked sufficient experience to estimate and record the value of late
and other ancillary fees.
Interest and Fee Income. Interest and fee income consists of interest
income, fee income and amortization of origination costs. Interest and fee
income increased $2.5 million, or 73.5%, to $5.9 million for the year ended
June 30, 1997 from $3.4 million for the year ended June 30, 1996 due to an
increase in interest income as a result of an increased amount of loans
retained in portfolio prior to securitization.
Interest income consists primarily of interest income the Company
earns on the loans and leases held in its portfolio. Interest income increased
$2.5 million, or 113.6%, to $4.7 million for the year ended June 30, 1997 as
compared to $2.2 million for the year ended June 30, 1996. The increase was
attributable to increased originations of Business Purpose Loans, Home Equity
-45-
<PAGE>
Loans and Equipment Leases described below, as well as management's decision
to retain such loans and leases in portfolio in contemplation of future
securitizations.
During the year ended June 30, 1997, the Company originated
approximately $91.8 million of Home Equity Loans, $38.7 million of Business
Purpose Loans and $8.0 million of Equipment Leases. During the year ended June
30, 1996, the Company originated $36.5 million of Home Equity Loans, $28.9
million of Business Purpose Loans and $6.0 million of Equipment Leases.
Approximately $15.3 million of Home Equity Loans originated during fiscal 1996
were sold to third parties (with servicing released). Beginning in October
1995, as part of the Company's securitization strategy, the Company placed
Home Equity Loans into its held for sale portfolio until ultimate sale as part
of a securitization. Prior to the implementation of the securitization
strategy, the Company originated and immediately sold such loans. As a result
of the Company's securitization strategy, the Company holds a greater amount
of Home Equity Loans in its portfolio thereby generating an increase in
interest income and a decrease in fee income, as described below.
Fee income includes premium and points earned when loans are closed
or funded and immediately sold to unrelated third party purchasers as well as
other ancillary fees collected in connection with loan and lease originations.
Fee income increased $100,000, or 6.7%, from $1.5 million for the year ended
June 30, 1996 to $1.6 million for the year ended June 30, 1997. The increase
in fee income was due to an increase in ancillary fees collected in connection
with increased originations partially offset by a reduction in fees earned
upon the sale of loans to third parties.
The third component of interest and fee income is amortization of
origination costs. During the year ended June 30, 1997, amortization of
origination costs was $418,000 compared to $305,000 recognized during the year
ended June 30, 1996. The increase was attributable to an increase in the
amortization of lease origination costs resulting from an increase in the
Equipment Lease portfolio.
Total Expenses. Total expenses increased $8.5 million, or 94.4%, to
$17.5 million for the year ended June 30, 1997 from $9.0 million for the year
ended June 30, 1996. This increase was related to the increase in loan and
lease originations for the year ended June 30, 1997 as well as the costs
associated with a larger portfolio of loans and leases serviced and the
opening of several new office locations.
Interest Expense. Interest expense increased $2.5 million, or 92.6%,
to $5.2 million for the year ended June 30, 1997 from $2.7 million for the
year ended June 30, 1996. The increase was primarily attributable to an
increase in the amount of the Company's subordinated debt outstanding. Average
subordinated debt outstanding was $44.4 million during the year ended June 30,
1997 compared to $25.0 million during the year ended June 30, 1996. Average
interest rates paid on the subordinated debt increased to 9.29% for the year
ended June 30, 1997 from 9.02% for the year ended June 30, 1996 due to an
increase in the volume of debt with maturities of greater than one year which
bear higher interest rates than shorter term debt. Interest expense on lines
of credit utilized by the Company for the year ended June 30, 1997 was
$461,000
-46-
<PAGE>
compared to $120,000 for the year ended June 30, 1996. The increase was due to
the Company's utilization of its warehouse lines of credit to fund Home Equity
Loans and Business Purpose Loans.
Provision for Credit Losses. The Company had an allowance for credit
losses of $1.8 million at June 30, 1997. The allowance is increased through a
provision for credit losses. The provision for credit losses increased by
$473,000, or 71.4%, to $1.2 million (includes a $100,000 provision related to
the Company's loan and lease portfolio and a $1.1 million provision related to
the Company's securitizations) for the year ended June 30, 1997 from $681,000
(includes a $397,000 provision related to the Company's loan and lease
portfolio and a $284,000 provision related to the Company's securitizations)
for the year ended June 30, 1996. See Note 3 of the Notes to Consolidated
Financial Statements. The ratio of the allowance for credit losses to total
net loan and lease receivables serviced was 1.00% at June 30, 1997 and 1.18%
at June 30, 1996. From the inception of the Company's business in 1988 through
June 30, 1997, the Company has experienced a total of approximately $351,000
in net loan and lease losses. The Company's delinquency rate as a percentage
of the total portfolio serviced was 2.15% at June 30, 1997 and 2.30% at June
30, 1996.
Employee Related Costs. Payroll and related costs increase $400,000,
or 33.3%, to $1.6 million for the year ended June 30, 1997 from $1.2 million
for the year ended June 30, 1996. The increase was due to an increase in the
number of employees as a result of the Company's growth in loan and lease
originations and an increase in loans and leases serviced. Management
anticipates that these expenses will continue to increase in the future as the
Company's expansion and increasing originations continue.
Sales and Marketing Expenses. Sales and marketing expenses increased
$4.3 million, or 159.3%, to $7.0 million for the year ended June 30, 1997 from
$2.7 million for the year ended June 30, 1996. The Company increased its
advertising costs for newspaper, direct mail and radio campaigns related to
its business purpose and home equity loan products. In addition, the Company
initiated a television-advertising program for the sale of its home loan
equity products. Subject to market conditions, the Company plans to continue
to expand its service area throughout the eastern United States. As a result,
it is anticipated that sales and marketing expenses will continue to increase
in the future.
General and Administrative Expenses. General and administrative
expenses increased $1.6 million, or 80.0%, to $3.6 million for the year ended
June 30, 1997 from $2.0 million for the year ended June 30, 1996. This
increase was primarily attributable to increases in rent, telephone, office
expense, professional fees and other expenses incurred as a result of
previously discussed increases in loan and lease originations and servicing
experienced during the year ended June 30, 1997.
Income Taxes. Income taxes increased $2.3 million, or 287.5%, to $3.1
million for the year ended June 30, 1997 from $802,000 for the year ended June
30, 1996 due to an increase in income before taxes and an increase in the
effective tax rate from 25.7% for the year ended June 30, 1996 to 34.0% for
the year ended June 30, 1997.
-47-
<PAGE>
Asset Quality
The following table provides data concerning delinquency experience,
real estate owned ("REO") and loss experience for the Company's loan and lease
portfolio serviced. The Company did not originate First Mortgage Loans prior
to October, 1997.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
Delinquency by Type Amount % Amount % Amount %
- ------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Business Purpose Loans (Dollars in Thousands)
Total portfolio serviced................... $101,250 $ 68,979 $ 37,950
========== ========== ==========
Period of delinquency......................
<S> <C> <C> <C> <C> <C> <C>
31-60 days............................. $ 1,236 1.22%$ 1,879 2.72%$ 86 .23%
61-90 days............................. 928 .92 462 .67 118 .31
Over 90 days........................... 3,562 3.52 718 1.04 1,033 2.72
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ 5,726 5.66%$ 3,059 4.43%$ 1,237 3.26%
========== ========== ========== ========== ========== ==========
REO........................................ $ 611 $ 605 $ 608
========== ========== ==========
Home Equity Loans
Total portfolio serviced................... $345,924 $ 98,179 $ 17,224
========== ========== ==========
Period of delinquency......................
31-60 days............................. $ 3,726 1.08%$ 262 .27%$ - -
61-90 days............................. 1,022 .30 341 .35 - -
Over 90 days........................... 3,541 1.02 83 .08 - -
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ 8,289 2.40%$ 686 .70% - -
========== ========== ========== ========== ========== ==========
REO........................................ $ 311 $ - $ -
========== ========== ==========
First Mortgage Loans
Total portfolio serviced................... $ 3, 761 $ - $ -
========== ========== ==========
Period of delinquency......................
31-60 days............................. $ - - $ - - $ - -
61-90 days............................. - - - - - -
Over 90 days........................... - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ - - $ - - $ - -
========== ========== ========== ========== ========== ==========
REO........................................ $ - - $ - - $ - -
========== ========== ========== ========== ========== ==========
Equipment Leases
Total portfolio serviced................... $108,463 $ 9,461 $ 4,607
========== ========== ==========
Period of delinquency......................
31-60 days............................. $ 1,000 .92%$ 29 .31% $ 23 .50%
61-90 days............................. 320 .30 - - 14 .30
Over 90 days........................... 1,478 1.36 4 .04 41 .89
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ 2,798 2.58%$ 33 .35% $ 78 1.69%
========== ========== ========== ========== ========== ==========
Other Loans
Total portfolio serviced................... $ - $ 32 $ 110
========== ========== ==========
Period of delinquency......................
31-60 days............................. $ - - $ - - $ - -
61-90 days............................. - - - - 18 16.36%
Over 90 days........................... - - 32 100.00% 50 45.45
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ - - $ 32 100.00% $ 68 61.81%
========== ========== ========== ========== ========== ==========
</TABLE>
(TABLE CONTINUED ON NEXT PAGE)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Company Combined
- -------------------------------------------
Total portfolio serviced................... $559,398 $176,651 $ 59,891
========== ========== ==========
Period of delinquency......................
31-60 days............................. $ 5,962 1.07% $ 2,170 1.23% $ 109 .18%
61-90 days............................. 2,270 .41 803 .45 150 .25
Over 90 days........................... 8,581 1.53 837 .47 1,124 1.87
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies.................... $ 16,813 3.01% $ 3,810 2.15% $ 1,383 2.30%
========== ========== ========== ========== ========== ==========
REO........................................ $ 922 $ 605 $ 608
========== ========== ==========
Losses experienced during the period....... $ 667 .12% $ 98 .06% $ 129 .22%
========== ========== ========== ========== ========== ==========
Allowance for credit losses ...............
at end of period....................... $ 5,594 1.00% $ 1,764 1.00% $ 707 1.18%
========== ========== ========== ========== ========== ==========
</TABLE>
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<PAGE>
The following table sets forth the Company's loss experience for the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
Business Purpose Loans.................. $ 138 $ 34 $ 92
Home Equity Loans....................... - - -
Other Loans............................. - - 37
Equipment Leases........................ 529 64 -
------------- -------------- --------------
Total losses................... $ 667 $ 98 $ 129
============== ============== ==============
</TABLE>
Since the Company sells all of the First Mortgage Loans it originates
in the secondary market with servicing released, the Company has not
experienced any losses on such loans to date. As a result such loans do not
appear in the table above.
The increase in the dollar amount of the Company's loans and leases
delinquent over 30 days to $16.8 million at June 30, 1998 as compared to $3.8
million at June 30, 1997 reflects the continued growth of the Company's loan
and lease portfolio serviced. The Company's total delinquencies as a
percentage of the total loan and lease portfolio serviced increased from 2.15%
at June 30, 1997 to 3.01% at June 30, 1998. The increase in the dollar amount
of the Company's loans and leases delinquent at June 30, 1997 as compared to
June 30, 1996 reflects the continued growth of the Company's loan and lease
portfolio serviced. The Company's loans and leases delinquent over 30 days
increased to $3.8 million at June 30, 1997 from $1.4 million at June 30, 1996.
Total delinquencies, as a percentage of the total loan and lease portfolio
serviced were 2.15% at June 30, 1997 as compared to 2.30% at June 30, 1996.
See "Risk Factors -- Credit-Impaired Borrowers May Result in Increased
Delinquency and Loss Rates/Increase in NonPerforming Assets and Allowance for
Losses."
Interest Rate Risk Management
The Company's profitability is largely dependent upon the spread
between the effective rate of interest received on the loans originates or the
pass-through rate for interests issued in connection with the securitization
of loans. The Company's spread may be negatively impacted to the extent it
holds fixed-rate mortgage loans in its held for sale portfolio prior to
securitization. The adverse effect on the Company's spread may be the result
of increases in interest rates during the period the loans are held prior to
securitization or as a result of an increase in the rate required to be paid
to investors in connection with the securitization.
The Company implemented a hedging strategy in an attempt to mitigate
the effect of changes in interest rates on its fixed-rate mortgage loan
portfolio between the date of origination and securitization. This strategy
involves short sales of a combination of U.S. Treasury securities with a
duration, which closely matches the duration of the certificates sold in the
securitization process. The settlement date of the short sale, as well as the
buy back of the Treasury securities coincides with the anticipated settlement
date of the underlying securitization.
-49-
<PAGE>
At June 30, 1998, the Company had no outstanding short sales. During the year
ended June 30, 1998, the Company incurred a loss of approximately $2.0 million
on short sales of securities. The Company also prefunds loan originations in
connection with its loan securitizations, which enables the Company to
determine in the current period the rate to be received by the investors on
loans to be originated and securitized in a future period.
The nature and quantity of hedging transactions are determined by the
Company's management based on various factors, including market conditions and
the expected volume of mortgage loan originations and purchases.
The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of
its fixed-rate mortgage loans held for sale. However, an effective interest
rate risk management strategy is complex and no such strategy can completely
insulate the Company from interest rate changes. The nature and timing of
hedging transactions may impact the effectiveness of hedging strategies.
Poorly designed strategies or improperly executed transactions may increase
rather than mitigate risk. In addition, hedging involves transaction and other
costs, and such costs could increase as the period covered by the hedging
protection increases. In the event of a decrease in market interest rates, the
Company would experience a loss on the purchase of Treasury securities to
cover the short sale which would be reflected on the Company's financial
statements during the period in which the purchase of the Treasury securities
occurred. Such loss would be offset by the income realized from the
securitization in future periods. As a result, the Company may be prevented
from effectively hedging its fixed-rate loans held for sale, without reducing
the Company's income in current periods due to the costs associated with the
Company's hedging activities.
In the future, the Company intends to continue to engage in short
sales of Treasury securities as part of its interest rate risk management
strategy and may utilize prefunding accounts as an additional hedge. The sale
of Treasury securities is not however an effective hedge against the risk that
the difference between the treasury rate and the rate needed to attract
potential investors of asset backed securities (the "Spread") may widen.
The Company also experiences interest rate risk to the extent that as
of June 30, 1998 approximately $52.3 million of its liabilities were comprised
of subordinated debt with scheduled maturities of greater than one year. To
the extent that interest rates decrease in the future, the rates paid on such
liabilities could exceed the rates received on new loan originations resulting
in a decrease in the Company's spread. See "Risk Factors -- Changes in
Interest Rates May Adversely Affect Profitability."
Interest Rate Sensitivity
The Company's primary market risk exposure is interest rate risk.
Profitability may be directly affected by the level of and fluctuations in,
interest rates, which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings, which are tied
to various maturities of the London Inter-Bank Offered Rate ("LIBOR"). The
profitability of the Company may be adversely affected during any period of
unexpected or rapid
-50-
<PAGE>
changes in interest rates. A substantial and sustained increase in interest
rates could adversely affect the Company's ability to originate and purchase
loans. A significant decline in interest rates could increase the level of
loan prepayments, thereby decreasing the size of the Company's loan servicing
portfolio. To the extent that servicing rights and interest only strips have
been capitalized on the books of the Company, higher than anticipated rates of
loan prepayments could require the Company to write down the value of such
servicing rights and interest only strips, adversely impacting earnings during
the period of adjustment. Fluctuating interest rates also may affect the net
interest income earned by the Company resulting from the difference between
the yield to the Company on loans held pending securitization and the interest
paid by the Company for funds borrowed under the Company's warehouse
facilities. See "Risk Factors Changes in Interest Rates may Adversely Affect
Profitability."
The Company manages its interest rate risk on servicing and interest
only strips by requiring prepayment fees on Business Purpose and Home Equity
Loans, where permitted by law. Currently, approximately 75% of the Business
Purpose Loans and 69% of the Home Equity Loans have prepayment fees.
The Company manages its interest rate risk on loans in portfolio
awaiting securitization by using short sales of Treasury securities. See "-
Interest Rate Risk Management."
The following table provides information about the Company's
financial instruments that are sensitive to changes in interest rates. For
debt obligations, the table presents principal cash flows and related average
interest rates by expected maturity dates. For interest only strips and
servicing rights, the table presents principal cash flows and related
prepayment assumptions
<TABLE>
<CAPTION>
Amount Maturing in Years Ending June 30,
------------------------------------------------------------------------------------------------
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
------- ------ ----- ------ ----- ---------- ----- -------
(Dollars in Thousands)
Rate Sensitive Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Only Strips $ 21,685 $ 19,785 $ 15,752 $ 13,487 $ 11,805 $ 100,670 $ 183,184 $ 100,426
Prepayment rate 3%-24% 9%-24% 13%-24% 13%-24% 13%-24% 13%-24% 13%-24%
Servicing Rights $ 2,761 $ 4,228 $ 4,218 $ 3,505 $ 2,909 $ 11,799 $ 29,420 $ 18,531
Prepayment rate 3%-24% 9%-24% 13%-24% 13%-24% 13%-24% 13%-24% 13%-24%
Rate Sensitive Liabilities
Fixed interest rate
borrowings $ 62,873 $ 16,406 $ 9,960 $ 7,824 $ 9,208 $ 8,911 $ 115,182 $ 115,182
Average interest rate 8.77% 9.62% 10.03% 10.87% 10.58% 11.19% 10.24%
Variable interest rate
borrowings 26,488 -- -- -- -- -- $ 26,488 $ 26,488
Average interest rate 7.04% -- -- -- -- -- 7.07%
</TABLE>
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<PAGE>
Liquidity and Capital Resources
The Company's business requires continual access to short and
long-term sources of debt financing. The Company's cash requirements arise
from loan and lease origination and purchases, advances and funding of
overcollateralization requirements in connection with securitizations,
repayment of debt upon maturity, payment of operating and interest expenses
and capital expenditures.
The Company continues to rely significantly on securitizations to
generate cash for the repayment of debt and to fund its ongoing operations. As
a result of the terms of the securitizations, the Company will receive less
cash flow from the portfolio of loans and leases securitized than it would
otherwise receive absent securitizations. Additionally, pursuant to the terms
of the securitizations, the Company will act as the servicer of the loans and
leases and in that capacity will be obligated to advance funds in certain
circumstances which may create greater demand on the Company's cash flow than
either selling or maintaining portfolios of loans and leases. See "-- General"
and "-- Results of Operations."
Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan and
lease portfolios. Any delay or impairment of the Company's ability to
securitize its loans and leases, as a result of market conditions or
otherwise, could adversely affect the Company's results of operations. See
"Risk Factors -- Dependence Upon Securitizations and Fluctuations in Operating
Results."
To a limited extent, the Company intends to continue to augment the
interest and fee income it earns on its loan and lease portfolios, by selling
loans and leases either at the time of origination or from its portfolio to
unrelated third parties. These transactions also create additional liquid
funds available for lending activities.
The Company also relies on borrowings such as its subordinated debt
and warehouse credit facilities to fund its operations. At June 30, 1998, the
Company had a total of $115.2 million of subordinated debt outstanding,
including $9.5 million and $127,000 issued by NJMIC and American Business
Finance Corporation ("ABFC"), respectively, and available credit facilities
totaling $210.0 million, of which $26.5 million was drawn upon at such date.
Effective October 1, 1997, ABFS assumed $9.9 million of subordinated
debt previously issued by NJMIC. Of this amount, $9.5 million was outstanding at
June 30, 1998 and included maturity dates ranging from August 1998 to May 2003.
In addition during the year ended June 30, 1998, ABFS sold $71.6 million in
principal amount of subordinated debt (including redemptions and repurchases by
investors) pursuant to a registered public offering with maturities ranging
between one day and ten years. As of June 30, 1998, ABFS has approximately
$105.5 million of subordinated debt outstanding (exclusive of subordinated debt
of its subsidiaries, NJMIC and ABFC). The proceeds of such sales of debt have
been used to fund general operating and lending activities. The Company intends
to meet its obligation to repay such debt as it matures with income generated
through its lending activities. The utilization of funds for the repayment of
such obligations should not adversely affect the Company's operations.
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<PAGE>
The Company's subsidiaries have an aggregate $100.0 million Interim
Warehouse and Security Agreement with Prudential Securities Credit
Corporation.
In July 1997, the Company and certain of its subsidiaries obtained a
$110.0 million warehouse credit facility from a syndicate of banks led by
Chase Bank of Texas N.A. Under this warehouse facility, the Company may obtain
advances, subject to certain conditions, including sublimits based upon the
type of collateral securing the advance. Interest rates on the advances are
based upon 30-day LIBOR plus a margin. The Company's obligations under the
facility are collateralized by certain pledged loans and leases and other
collateral related there to. The facility also requires the Company to meet
certain financial ratios and contains restrictive covenants, including
covenants limiting loans to and transactions with affiliates, the insurance of
additional debt, and the types of investments that can be made by the Company
and its subsidiaries. The facility has a term of two years.
As of June 30, 1998, the Company had $90.7 million of debt scheduled
to mature during the year ending June 30, 1999 which was comprised of maturing
subordinated debt, warehouse facilities and other debt incurred in connection
with the acquisition of NJMIC. The Company currently expects to refinance the
maturing debt through extensions of maturing debt or new debt financing and,
if necessary, may retire the debt through cash flow from operations and loans
and lease sales or securitizations. The Company intends to continue to utilize
debt financing to fund its operations in the future. Any failure to renew or
obtain adequate finding under a warehouse credit facility, or other
borrowings, or any substantial reduction in the size of or pricing in the
markets for the Company's loans and leases, could have a material adverse
effect on the Company's results of operations and financial condition. To the
extent the Company is not successful in maintaining or replacing existing
financing, it would have to curtail its loan and lease production activities
or sell loan and lease production activities or sell loans and leases rather
than securitize them, thereby having a material adverse effect on the
Company's results of operations and financial condition. See "Risk Factors --
Dependence Upon Debt Financing."
The Company leases its corporate headquarters facilities under a
five-year operating lease expiring in January 2003 at a minimum annual rental
of approximately $1.9 million. The lease contains a renewal option for an
additional period at increased annual rental. The Company also leases a
facility in Roseland, New Jersey which functions as the loan production
headquarters for NJMIC and its subsidiaries at an annual rental cost of
approximately $575,000. The current lease term expires on July 31, 2003 and
contains a renewal option for an additional term of five years at an increased
annual rental. In addition, the Company leases branch offices on a short-term
basis in various cities throughout the United States. The leases for the
branch offices are not material to the Company's operations. See Note 11 of
the Notes to Consolidated Financial Statements for information regarding the
Company's lease payments.
Many existing computer programs, including those utilized by the
Company, use only two digits to identify a year in the date field. These
programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
-53-
<PAGE>
In 1997, the Company established its Year 2000 Task Force to assess
the Company's Year 2000 issues and to implement the Company's Year 2000
compliance program. Such task force includes members of the Company's
Information Technology Department, Finance Department and certain officers of
the Company's operating subsidiaries. The Company has completed an initial
assessment of its core information technology systems and is in the process of
testing the remainder of its information technology systems as well as
non-information technology systems, which include the Company's
telecommunication systems, business machines and building and premises
systems.
The Company's core applications systems are currently client/server
based and hosted by Intel servers or a Unisys mainframe. The Company is
currently in the process of replacing all core systems for business
functionality and growth reasons which are unrelated to the Year 2000 issue.
The Company commenced this replacement process in 1996 and currently
anticipates that it will be completed by the end of 1999. It is the Company's
intention to have all systems that will be developed or acquired as part of
this replacement process to be Year 2000 compliant.
Based upon the current status of the its Year 2000 compliance
program, the Company has targeted the fourth quarter of 1999 for completion of
the Year 2000 compliance program. The Company is in the process of developing
a contingency plan in the event its systems are not Year 2000 compliant on a
timely basis. As part of its Year 2000 compliance program, the Company intends
to hire a consultant to validate the Company's assessment of its Year 2000
Issue and to assist the Company's internal Information Technology Department
in managing the Year 2000 compliance program. The Company currently estimates
that the costs directly associated with its Year 2000 compliance program will
be approximately $300,000. The funds necessary to complete the Year 2000
compliance program will come from the Company's Information Technology
operating budget.
As part of its Year 2000 compliance program, the Company is
contacting and surveying vendors with whom which the Company does a material
amount of business to determine whether these parties' systems (to the extent
they relate to the Company's business) are subject to the Year 2000 issue. The
failure of the Company's vendors to convert their systems on a timely basis
may have a material adverse effect on the Company's operations. The Company is
in the process of developing a contingency plan in the event these vendors are
not Year 2000 compliant on a timely basis. See "Risk Factors -- Year 2000
Compliance."
Recent Accounting Pronouncements
Set forth below are recent accounting pronouncements which may have a
future effect on the Company's operations. These pronouncements should be read
in conjunction with the significant accounting policies, which the Company has
adopted that are set forth in the Note 1 of the Notes to the Company's
Consolidated Financial Statements.
In February, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share" which is effective for annual and interim periods ending after
December 15, 1997, and requires retroactive application to all periods
presented. It supersedes the presentation of basic earnings per Share, which
does not consider the effect of common stock equivalents. The computation of
diluted
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<PAGE>
earnings per share gives effect to all dilutive potential common shares that
were outstanding during the period. The adoption of this standard did not have a
material effect on the Company's net income per share in years ended June 30,
1998, 1997 and 1996.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" which is effective for annual and interim periods beginning after
December 15, 1997. This statement requires that all items that are required to
be recognized under accounting standards as comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. Currently, the Company does not have any items which
would be required to be reported under SFAS No. 130. See Note 1 to the Company's
Consolidated Financial Statements.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of and Enterprise Related Information" which is effective for
financial statements issued for years beginning after December 15, 1997. This
statement established standards for the method that public entities report
information about operating segment in annual financial statements and
requires that those enterprises report selected information about operating
results in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographical areas and major customers. The adoption of this standard is not
expected to have a material effect on the Company's financial reporting.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of recognized asset or liability
or an unrecognized firm commitment, (b) a hedge of the exposure to variable
cash flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign currency denominated
forecasted transaction.
SFAS No. 133 amends SFAS No. 52 "Foreign Currency Translation" to
permit special accounting for a hedge of a foreign currency forecasted
transaction with a derivative. It supersedes SFAS No. 80 "Accounting for
Futures Contracts, Risk and Financial Instruments with Concentrations of
Credit Risk" and No. 119 "Disclosure and Derivative Financial Instruments and
Fair Value of Financial Instruments." Such statement also amends SFAS No. 107
"Disclosures about Fair Value of Financial Instruments" to include in SFAS No.
107 the disclosure provisions about concentrations of credit risk from SFAS
No. 105. SFAS No. 133 also nullifies or modifies the consensus reached on a
number of issues addressed by the Emerging Issues Task Force.
SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal
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<PAGE>
quarter following June 15, 1999. On that date, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
Earlier application of all of the provisions of this statement is encouraged,
but it is permitted only as of the beginning of any fiscal quarter that begins
after issuance of this Statement. This statement should not be applied
retroactively to financial statements of prior periods. The Company has not
completed an analysis of the potential effects of SFAS No. 133 on the
Company's financial condition and results of operations. See Note 1 to the
Company's Consolidated Financial Statements.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars (except with respect to securities
which are carried at market value), without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.
-56-
<PAGE>
BUSINESS
General
ABFS is a financial services company operating primarily in the
eastern region of the United States. The Company, through its principal direct
and indirect subsidiaries, originates, sells and services Business Purpose
Loans, Home Equity Loans and First Mortgage Loans. The Company also originates
Equipment Leases. In addition, the Company commenced implementation of the
Bank Alliance Program in fiscal 1996 pursuant to which it has entered into
exclusive business arrangements with several financial institutions pursuant
to which the Company will purchase Home Equity Loans that do not meet the
underwriting guidelines of the selling institution but that do meet the
Company's underwriting criteria.
The Company's customers currently consist primarily of two groups.
The first category of customers includes credit-impaired borrowers who are
generally unable to obtain financing from banks or savings and loan
associations that have historically provided loans only to individuals with
favorable credit characteristics. These borrowers generally have impaired or
unsubstantiated credit characteristics and/or unverifiable income and respond
favorably to the Company's marketing efforts. The second category of customers
includes borrowers who would qualify for loans from traditional lending
sources but elect to utilize the Company's products and services. The
Company's experience has indicated that these borrowers are attracted to the
Company's loan products as a result of its marketing efforts, the personalized
service provided by the Company's staff of highly trained lending officers and
the timely response to loan requests. Historically, both categories of
customers have been willing to pay the Company's origination fees and interest
rates which are generally higher than those charged by traditional lending
sources. The Company also markets First Mortgage Loans to borrowers with
favorable credit histories. The Company's lease customers are typically small
businesses or proprietorships with less than 100 employees with favorable
credit histories.
The Company was incorporated in Delaware in 1985, began operations in
1988 and initially offered Business Purpose Loans. The Company currently
originates Business Purpose Loans through a retail network of salespeople in
Pennsylvania, Delaware, New Jersey, New York, Virginia, Maryland, Connecticut
and Ohio. The Company focuses its marketing efforts on small businesses who do
not meet all of the credit criteria of commercial banks and small businesses
that the Company's research indicates are predisposed to using the Company's
products and services.
The Business Purpose Loans originated by the Company are secured by
real estate. In substantially all cases, the Company receives additional
collateral in the form of, among other things, personal guarantees, pledges of
securities, assignments of contract rights, life insurance and lease payments
and liens on business equipment and other business assets, as available. The
Company's Business Purpose Loans are generally originated with fixed rates and
typically have origination fees of 5.0% to 6.0%. The weighted average interest
rate received on the Business Purpose Loans originated by the Company was
15.96% for the year ended June 30, 1998. Business Purpose Loans typically have
significant prepayment fees which the Company believes tend to extend the
average life of such loans and make these loans more attractive products to
securitize. The Business Purpose Loans securitized in the Company's last two
securitizations
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<PAGE>
had a weighted average loan-to-value ratio (based solely upon the real estate
collateral securing the loans) of 60.5% at the time of securitization.
The Company's strategy for expanding its business purpose lending
program focuses on motivating borrowers through the investment in retail
marketing and sales efforts rather than on emphasizing discounted pricing or a
reduction in underwriting standards. The Company utilizes a proprietary training
program involving extensive and on-going training of its loan officers. The
Company originated $52.3 million of Business Purpose Loans for the year ended
June 30, 1998. See "--Lending and Leasing Activities --Business Purpose
Lending."
ABFS entered the Home Equity Loan market in 1991. The Company
originates Home Equity Loans primarily to credit-impaired borrowers through
retail marketing which includes telemarketing operations, direct mail, radio
and television advertisements. The Company currently originates Home Equity
Loans in Pennsylvania, New Jersey, New York, Delaware, Maryland, Maine,
Virginia, West Virginia, Georgia, North Carolina, South Carolina, Florida,
Connecticut, Illinois, Ohio, Indiana, Kentucky, Missouri, Mississippi,
Michigan and Tennessee. The Company originated $328.1 million of Home Equity
Loans during the year ended June 30, 1998. The weighted average interest rate
on Home Equity Loans originated by the Company was 11.95% for the year ended
June 30, 1998.
The Company initiated the Bank Alliance Program in fiscal 1996. The
Company believes that the Bank Alliance Program is a unique method of
increasing the Company's production of Home Equity Loans to credit-impaired
borrowers. Currently, the Company has entered into agreements with eight
financial institutions which provide the Company with the opportunity to
underwrite, process and purchase Home Equity Loans generated by the branch
networks of such institutions which consist of approximately 1,000 branches
located in Pennsylvania, Delaware, New Jersey and Maryland. The Company is
also negotiating with other financial institutions regarding their
participation in the program. The Company intends to expand its Bank Alliance
Program with financial institutions across the United States. See "--Lending
and Leasing Activities -- Home Equity Lending."
ABFS began offering First Mortgage Loans in October 1997 in
connection with its acquisition of NJMIC. NJMIC has been originating mortgage
loans since 1939. The Company originates First Mortgage Loans for sale in the
secondary market with servicing released. The Company's first mortgage lending
market area includes 29 states. The Company originated $33.7 million of First
Mortgage Loans during the year ended June 30, 1998. See "-- Lending and
Leasing Activities -- First Mortgage Lending."
ABFS began offering Equipment Leases in December 1994 to complement
its business purpose lending program. The Company originates leases on a
nationwide basis. The Company originated $70.5 million of Equipment Leases
during the year ended June 30, 1998. The weighted average interest rate
received on the Equipment Leases originated by the Company was 12.19% for the
year ended June 30, 1998. In the past, the Company held all Equipment Leases
originated in its lease portfolio to generate interest income. In fiscal 1998,
the Company began securitizing its Equipment Lease portfolio. The Company
intends to continue to securitize its Equipment Lease portfolio subject to
market and economic conditions. See "--Lending and Leasing Activities."
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<PAGE>
From the inception of the Company's business in 1988 through June 30,
1998, the Company has experienced total net loan and lease losses of
approximately $1.0 million. The Company's losses on its total loan and lease
portfolio serviced totaled $667,000, $98,000 and $129,000, respectively, for
the years ended June 30, 1998, 1997 and 1996. The Company's loans and leases
delinquent over 30 days (excluding real estate owned) represented 3.01% of the
total loan and lease portfolio serviced at June 30, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset Quality."
The ongoing securitization of loans and leases is a central part of
the Company's current business strategy. Through June 30, 1998, the Company
had securitized an aggregate of $545.9 million of loans and leases, consisting
of $129.4 million of Business Purpose Loans and $356.8 million of Home Equity
Loans. In addition, during fiscal 1998, the Company securitized $59.7 million
of Equipment Leases. The Company retains the servicing rights on its
securitized loans and leases. See "--Securitizations."
In addition to securitizations, the Company funds its operations with
subordinated debt that the Company markets directly to individuals from the
Company's principal operating office located in Pennsylvania and branch
offices located in Florida and Arizona. At June 30, 1998, the Company had
$115.2 million in subordinated debt outstanding which was sold through public
offerings. Such debt had a weighted average coupon of 9.35% and a weighted
average maturity of 22.7 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company intends to continue to utilize funds generated from the
securitization of loans and leases as well as the sale of subordinated debt to
increase its loan and lease originations and to expand into new geographic
markets, with an initial focus on the continued expansion in the southeastern
and midwestern regions of the United States.
Subsidiaries
ABFS' only activity as of the date hereof has been: (i) acting as the
holding company for its operating subsidiaries and (ii) raising capital for
use in the Company's lending operations. ABFS is the parent holding company of
ABC and its primary subsidiaries, Upland, Processing Service Center, Inc.
("PSC"), ABL and ABC Holdings Corporation ("Holdings") and NJMIC and its
subsidiary, Federal. The Company and its direct and indirect subsidiaries are
collectively referred in this Prospectus as the "Company."
ABC, a Pennsylvania corporation incorporated in 1988 and acquired by
the Company in 1993, originates, services and sells Business Purpose Loans.
HAC, a Pennsylvania corporation incorporated in 1991, originates and sells
Home Equity Loans. HAC acquired Upland Mortgage Corp. in 1996 and since such
time has conducted business as "Upland Mortgage." Upland also purchases Home
Equity Loans through the Bank Alliance Program. PSC processes Home Equity Loan
applications for financial institutions as part of the Bank Alliance Program.
Incorporated in 1994, ABL commenced operations in 1995 and originates and
services Equipment Leases.
NJMIC, a New Jersey corporation organized in 1938 and acquired by the
Company in October 1997, is currently engaged in the origination and sale of
Home Equity Loans, as well as
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<PAGE>
First Mortgage Loans. NJMIC originates loans secured by real estate located in
29 states. Such loans are originated through NJMIC's eight-state network of
six branch sales offices and three satellite offices. NJMIC has been offering
mortgage loans since 1939. Historically, NJMIC sold loans it originated in the
secondary market with servicing released. The Company intends to continue to
sell First Mortgage Loans originated by NJMIC in the secondary market with
servicing released. The Company intends to securitize Home Equity Loans
originated by NJMIC pursuant to the Company's current securitization program.
NJMIC's wholly-owned subsidiary, Federal, is a Delaware corporation
which was organized in 1974. Federal generally originates leases throughout
the United States and sells such leases through securitizations and maintains
the servicing on such leases.
Holdings, a Pennsylvania corporation, was incorporated in 1992 to
hold properties acquired through foreclosure.
The Company's indirect subsidiaries, ABFS 1995-1, Inc., ABFS 1995-2,
Inc., ABFS 1996-1, Inc., ABFS 1996-2, Inc., ABFS 1997-1, Inc., ABFS 1997-2,
Inc., ABFS 1998-1, Inc., ABFS 1998-2, Inc., ABFS 1998 A-1, Inc., ABFS 1998
A-2, Inc., ABFS Finance LLC and ABFS Residual LLC, were incorporated to
facilitate the Company's securitizations. Certain of such companies are
Delaware investment holding companies. The stock of such subsidiaries is held
by various subsidiaries of ABFS. In connection with the acquisition of NJMIC
and Federal, the Company acquired FLC Financial Corp. and FLC II Financial
Corp., the Delaware investment holding companies incorporated to facilitate
the securitization of Federal's leases. The stock of such companies is held by
Federal. None of these corporations engage in any business activity other than
holding the subordinated certificate, if any, and the interest only and
residual strips created in connection with the Company's securitizations. See
"--Securitizations."
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<PAGE>
The following chart sets forth organizational structure of ABFS.(1)
------------------------------------------------
ABFS
------------------------------------------------
(Holding Company)
(Issues subordinated debentures)
------------------------------------------------
AMERICAN BUSINESS CREDIT, INC.
------------------------------------------------
(Originates and services Business Purpose Loans)
------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOME AMERICAN
NEW JERSEY CREDIT, INC. PROCESSING SERVICE AMERICAN ABC
MORTGAGE AND d/b/a CENTER, INC. BUSINESS HOLDINGS
INVESTMENT CORP. UPLAND LEASING, INC. CORP.
MORTGAGE (2)
(Originates and (Originates, (Processes Bank (Originates and (Holds foreclosed
services First purchases and Alliance Program services Equipment real estate)
Mortgage and Home services Home Home Equity Loans) Leases)
Equity Loans) Equity Loans)
|
|
|
|
FEDERAL
LEASING CORP.
(Originates
Equipment Leases)
</TABLE>
- --------
(1) In addition, to the corporations pictured above, the Company organizes a
special purpose corporation for each of its securitizations. Such
corporations are indirect subsidiaries of ABFS.
(2) Loans purchased by Upland represent loans acquired through the Bank
Alliance Program.
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<PAGE>
Lending and Leasing Activities
General. The following table sets forth certain information
concerning the loan and lease origination, purchase and sale activities of the
Company for the years indicated. The Company did not originate First Mortgage
Loans prior to October 1997.
<TABLE>
<CAPTION>
----------------------------------------
1998 1997 1996
------------ ------------ --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans/Leases Originated/Purchased
(Net of Refinances)
Business Purpose Loans......................... $ 52,335 $ 38,721 $ 28,872
Home Equity Loans.............................. $ 328,089 $ 91,819 $ 36,479
First Mortgage Loans........................... $ 33,671 -- --
Equipment Leases............................... $ 70,480 $ 8,004 $ 5,967
Other Loans.................................... -- $ 39 $ 240
Number of Loans/Leases Originated/Purchased
Business Purpose Loans......................... 632 498 371
Home Equity Loans.............................. 5,292 1,791 772
First Mortgage Loans........................... 218 -- --
Equipment Leases............................... 3,350 743 530
Other Loans.................................... -- 8 52
Average Loan/Lease Size
Business Purpose Loans......................... $ 83 $ 78 $ 78
Home Equity Loans.............................. $ 62 $ 51 $ 47
First Mortgage Loans........................... $ 154 -- --
Equipment Leases............................... $ 21 $ 11 $ 11
Other Loans.................................... -- $ 5 $ 5
Weighted Average Interest Rate on Loans/Leases
Originated/Purchased
Business Purpose Loans......................... 15.96% 15.91% 15.83%
Home Equity Loans.............................. 11.95% 11.69% 9.94%
First Mortgage Loans........................... 8.22% -- --
Equipment Leases............................... 12.19% 15.48% 17.22%
Other Loans.................................... -- 20.83% 24.50%
Weighted Average Term (in months)
Business Purpose Loans......................... $ 172 184 169
Home Equity Loans.............................. $ 244 218 194
First Mortgage Loans........................... $ 340 -- --
Equipment Leases............................... $ 49 40 42
Other Loans.................................... -- 59 50
Loans/Leases Sold
Business Purpose Loans......................... 54,135 $ 38,083 $ 28,252
Home Equity Loans.............................. 292,549 $ 80,734 $ 24,325
First Mortgage Loans........................... 29,910 -- --
Equipment Leases............................... 59,700 $ -- $ 2,259
Other Loans.................................... -- $ 58 $ 1,108
Number of Loans/Leases Sold
Business Purpose Loans......................... 629 497 378
Home Equity Loans.............................. 4,561 1,631 512
First Mortgage Loans........................... 192 -- --
Equipment Leases............................... 3,707 -- 193
Other Loans.................................... -- 8 252
Weighted Average Rate on Loans/Leases
Originated..................................... 11.63% 13.09% 12.97%
</TABLE>
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<PAGE>
The following table sets forth information regarding the average
loan-to-value ratios for loans originated by the Company during the periods
indicated. The Company did not originate any First Mortgage Loans prior to
October 1997.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
Loan Type 1998 1997 1996
------------- ---------- --------- --------
<S> <C> <C> <C>
Business Purpose Loans............................. 60.5% 60.0% 58.9%
Home Equity Loans.................................. 76.6 72.0 68.8
First Mortgage Loans............................... 79.9 -- --
</TABLE>
The following table shows the geographic distribution of the
Company's loan and lease originations and purchases during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 % 1997 % 1996 % 1995 %
------------ ---------- --------- --------- --------- ---------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ 150,048 31.06% $ 53,834 38.85% $ 33,324 46.57% $ 17,913 46.57%
New Jersey.................... 128,025 26.38 40,725 29.39 20,986 29.33 16,300 42.38
New York...................... 54,907 11.31 8,343 6.02 7,417 10.36 1,534 3.99
Florida....................... 23,905 4.93 3,670 2.65 674 0.94 149 0.39
Georgia....................... 23,084 4.76 10,092 7.28 181 0.25 98 0.25
Virginia...................... 13,138 2.71 5,469 3.95 104 0.15 111 0.29
California.................... 12,709 2.62 -- -- -- -- -- --
Maryland...................... 11,748 2.42 5,010 3.61 4,408 6.16 1,191 3.10
Delaware...................... 10,823 2.23 3,117 2.25 2,724 3.81 481 1.25
Connecticut................... 5,964 1.23 2,005 1.45 87 0.12 5 0.01
North Carolina................ 5,144 1.06 4,245 3.06 78 0.11 6 0.02
Texas......................... 6,430 1.33 -- -- -- -- -- --
Other......................... 38,650 7.98 2,073 1.49 1,575 2.20 673 1.75
------------ ---------- --------- --------- --------- ---------- --------- ---------
Total................ $ 484,575 100.00% $138,583 100.00% $71,558 100.00% $ 38,461 100.00%
============ ========== ========= ========= ========= ========== ========= =========
</TABLE>
Business Purpose Lending. Through its subsidiary, ABC, the Company
originates Business Purpose Loans to corporations, partnerships, sole
proprietors and other business entities for various business purposes
including, but not limited to, working capital, business expansion, equipment
acquisition and debt-consolidation. The Company does not target any particular
industries or trade groups and, in fact, takes precautions against
concentrations of loans in any one industry group. All Business Purpose Loans
are collateralized by a first or second mortgage lien on a principal residence
or some other parcel of real property, such as office and apartment buildings
and mixed use buildings, owned by the borrower, a principal of the borrower,
or a guarantor of the borrower. In addition, such loans are generally further
collateralized by personal guarantees, pledges of securities, assignments of
contract rights, life insurance and lease payments and liens on business
equipment and other business assets, as available.
Business Purpose Loans generally range from $15,000 to $350,000 and
had an average loan size of approximately $83,000 for the loans originated
during the year ended June 30, 1998. Generally, Business Purpose Loans are
made at fixed rates and for terms ranging from five to 15
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years. Such loans generally have origination fees of 5.0% to 6.0% of the
aggregate loan amount. For the year ended June 30, 1998, the weighted average
interest rate received on such loans was 15.96% and the average loan-to-value
ratio was 60.5% for the loans originated by the Company during such period.
During the year ended June 30, 1998, the Company originated $52.3 million of
Business Purpose Loans.
Generally, the Company computes interest due on its outstanding loans
using the simple interest method. Where permitted by applicable law, a
prepayment fee is imposed. Although prepayment fees imposed vary based upon
applicable state law, the prepayment fees provided for in the Company's
Business Purpose Loan documents generally amount to a significant portion of
the outstanding loan balance. The Company believes that such prepayment terms
tend to extend the average life of such loans and make such loans more
attractive products to securitize. Whether a prepayment fee is imposed and the
amount of such fee, if any, is negotiated between the Company and the
individual borrower prior to consummation of the loan. See
"--Securitizations."
Home Equity Lending. The Company originates Home Equity Loans
primarily to credit-impaired borrowers through Upland and NJMIC. Historically,
Home Equity Loans originated and funded by the Company were sold to one of
several third party lenders, at a premium and with servicing released.
Currently, the Company builds portfolios of Home Equity Loans for the purpose
of securitizing such loans.
Home Equity Loan applications are obtained from potential borrowers
over the phone and in person. The loan request is then processed and closed.
The loan processing staff generally provides its home equity borrowers with a
loan approval within 24 hours and closes its Home Equity Loans within
approximately seven to ten days of obtaining a loan approval.
Home Equity Loans generally range from $15,000 to $250,000 and had an
average loan size of approximately $62,000 for the loans originated during the
year ended June 30, 1998. Generally, Home Equity Loans are made at fixed rates
of interest and for terms ranging from 5 to 30 years. Such loans generally
have origination fees of approximately 2.0% of the aggregate loan amount. For
the year ended June 30, 1998, the weighted average interest rate received on
such loans was 11.95% and the average loan-to-value ratio was 76.6% for the
loans originated by the Company during such period. During the year ended June
30, 1998, the Company originated $328.1 million of Home Equity Loans. The
Company attempts to maintain its interest and other charges on Home Equity
Loans competitive with the lending rates of other finance companies and banks.
Where permitted by applicable law, a prepayment fee may be imposed and is
generally charged to the borrower on the prepayment of a Home Equity Loan
except in the event the borrower refinances a Home Equity Loan with the
Company.
In fiscal 1996, Upland, in conjunction with PSC, implemented the Bank
Alliance Program which is designed to provide an additional source of Home
Equity Loans. The Bank Alliance Program targets traditional financial
institutions, such as banks, which because of their strict underwriting and
credit guidelines have generally provided mortgage financing only to the most
credit-worthy borrowers. This program enables such financial institutions to
originate loans to credit-impaired borrowers in order to achieve certain
community reinvestment objectives and to generate fee income and subsequently
sell such loans to Upland.
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Under this program, a borrower who fails to meet a financial
institution's underwriting guidelines will be referred to PSC which will
process the loan application and underwrite the loan pursuant to Upland's
underwriting guidelines. If the borrower qualifies under Upland's underwriting
standards, the loan will be originated by the financial institution and
subsequently sold to Upland.
Since the introduction of this program, agreements have been entered
into with eight financial institutions which provide the Company with the
opportunity to underwrite, process and purchase loans generated by the branch
networks of such institutions which consist of approximately 1,000 branches
located in Pennsylvania, Delaware, New Jersey and Maryland. During fiscal
1998, the Company purchased $22.3 million of loans, pursuant to this program.
The Company continues to market this program to other regional and national
banking institutions. The Company is also negotiating with other financial
institutions regarding their participation in the program.
First Mortgage Loans. In October 1997 in connection with its
acquisition of NJMIC, the Company commenced originating First Mortgage Loans
secured by one-to four-unit residential properties located primarily in the
eastern region of the United States. Such properties are generally
owner-occupied single family residences but may also include second homes and
investment properties. Such loans are generally made to borrowers with
favorable credit histories and are underwritten pursuant to FHLMC or FNMA
standards to permit their sale in the secondary market. NJMIC typically sells
such loans to third parties with servicing released. NJMIC also originates FHA
and VA loans which are subsequently sold to third parties with servicing
released. NJMIC originates such loans for sale in the secondary market. During
the year ended June 30, 1998, NJMIC originated $33.7 million of First Mortgage
Loans.
Leasing Activities. The Company through its indirect subsidiaries,
ABL and Federal, originates Equipment Leases to corporations, partnerships,
other entities and sole proprietors on various types of business equipment
including, but not limited to, computer equipment, automotive equipment,
construction equipment, commercial equipment, medical equipment and industrial
equipment. The Company generally does not target credit-impaired borrowers.
All such lessees must meet certain specified financial and credit criteria.
The Company originates leases throughout the United States.
Generally, the Company's Equipment Leases are of two types: (i)
finance leases which have a term of 12 to 60 months and provide a purchase
option exercisable by the lessee at $1.00 or 10% of the original equipment
cost at the termination of the lease, and (ii) fair market value or true
leases which have a similar term but provide a purchase option exercisable by
the lessee at the fair market value of the equipment at the termination of the
lease. The Company's Equipment Leases generally range in size from $5,000 to
$250,000, with an average lease size of approximately $21,000 for the leases
originated during the year ended June 30, 1998. Leases in excess of $250,000
are generally sold on a non-recourse basis to third parties. The Company's
leases generally have maximum terms of five years. The weighted average
interest rates received on such leases for the year ended June 30, 1998 was
12.19%. During the year ended June 30, 1998, the Company originated $70.5
million of Equipment Leases. Generally, the interest rates and other terms and
conditions of the Company's Equipment. Leases are competitive with the leasing
terms of other leasing companies in its market area.
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In the past all leases originated by ABL were generally held in the
Company's lease portfolio. Historically, Federal sold all leases originated by
it through securitizations with servicing retained. At June 30, 1998, the
principal value of the Company's lease portfolio totaled $11.4 million. Such
leases are serviced by ABL or Federal. ABL has developed relationships with
third party purchasers of leases and from time to time will sell a portion of
the leases it originates to such third parties. The sale of leases to third
party purchasers may or may not require ABL to retain the servicing rights to
such leases. During fiscal 1998, the Company completed a securitization of
$59.7 million of Equipment Leases. The Company intends to continue to
securitize its lease portfolio subject to market and economic conditions. See
"Risk Factors -- Risks Associated with Leasing Activities."
Marketing Strategy
The Company concentrates its marketing efforts primarily on two
potential customer groups, one of which, based on historical profiles,
displays a pre-disposition for being customers of the Company's loan and lease
products and the other being credit-impaired borrowers that satisfy the
Company's underwriting guidelines. The Company also markets First Mortgage
Loans and leases to borrowers with favorable credit histories.
The Company's marketing efforts for Business Purpose Loans focus on
the Company's niche market of selected small businesses located in the
Company's market area which generally includes the eastern region of the
United States. The Company targets businesses which it believes would qualify
for loans from traditional lending sources but would elect to utilize the
Company's products and services. The Company's experience has indicated that
these borrowers are attracted to the Company as a result of its marketing
efforts, the personalized service provided by the Company's staff of highly
trained lending officers and the timely response to loan applications.
Historically, such customers have been willing to pay the Company's
origination fees and interest rates which are generally higher than those
charged by traditional lending sources.
The Company markets Business Purpose Loans through various forms of
advertising, and a direct sales force. Advertising media utilized includes
large direct mail campaigns and newspaper and radio advertising. The Company's
commissioned sales staff, which consists of full-time highly trained sales
persons, are responsible for converting advertising leads into loan
applications. The Company utilizes a proprietary training program involving
extensive and on-going training of its lending officers. The Company's sales
staff utilizes significant person-to-person contact to convert direct mail
advertising into loan applications and maintains contact with the borrower
throughout the application process.
The Company markets Home Equity Loans through telemarketing, direct
mail campaigns as well as television, radio and newspaper advertisements. The
Company's television advertising campaign initiated in September 1996 was
designed to complement the other forms of advertising utilized by the Company.
The Company's integrated approach to media advertising is intended to maximize
the effect of the Company's advertising campaigns. The Company also utilizes a
network of loan brokers.
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The Company's marketing efforts for Home Equity Loans are
concentrated in the eastern region of the United States. In connection with
the acquisition of NJMIC, the Company expanded its branch office network to
include the states of Illinois, Ohio and Delaware in addition to its offices
in Georgia, Maryland, South Carolina and Florida. The Company may open
additional sales offices in other states in the future. Loan processing,
underwriting, servicing and collection procedures are performed at the
Company's main office in Pennsylvania. The Company also utilizes the Bank
Alliance Program as an additional source of loans. See "--Lending and Leasing
Activities -- Home Equity Lending."
The Company markets First Mortgage Loans through its network of loan
brokers. The Company's marketing efforts for First Mortgage Loans are
concentrated in the mid-Atlantic region of the United States.
The Company, through ABL and Federal, markets its Equipment Leases
throughout the United States. The Company's marketing efforts in the leasing
area are focused on the Company's niche market of distributors of small to
medium-sized office, industrial and medical equipment. ABL and Federal
primarily obtain their equipment leasing customers through equipment
manufacturers, brokers and vendors with whom they have a relationship and
through a direct sales force.
Loan and Lease Servicing
Generally, the Company services the loans and leases it maintains in
its portfolio or which are securitized by the Company in accordance with its
established servicing procedures. Servicing includes collecting and
transmitting payments to investors, accounting for principal and interest,
collections and foreclosure activities, and disposing of real estate owned. At
June 30, 1998, the Company's total servicing portfolio included 22,253 loans
and leases with an aggregate outstanding balance of $559.4 million. The
Company generally receives servicing fees of 0.50% to 0.75% per annum based
upon the outstanding balance of securitized loans serviced and the Company's
responsibilities related to collections and accounting for such loans. The
Company's servicing and collections activities will continue to be centralized
at the Company's principal operating office located in Bala Cynwyd,
Pennsylvania.
In servicing its loans and leases, the Company typically sends an
invoice to borrowers on a monthly basis advising them of the required payment
and its due date. The Company initiates the collection process immediately
after a borrower fails to make a monthly payment. More specifically, when a
loan or lease becomes 45 to 60 days delinquent, it is transferred to the
Company's work-out department. The work-out department attempts to reinstate a
delinquent loan or lease, seek a payoff, or occasionally enter into a
modification agreement with the borrower to avoid foreclosure. All proposed
work-out arrangements are evaluated on a case-by-case basis, based upon the
borrower's past credit history, current financial status, cooperativeness,
future prospects and the reasons for the delinquency. If the loan or lease
becomes delinquent 61 days or more and a satisfactory work-out arrangement
with the borrower is not achieved or the borrower declares bankruptcy, the
matter is immediately referred to counsel for collection. Legal action may be
initiated prior to a loan or lease becoming delinquent over 60 days if
management determines that the circumstances warrant such action.
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The Company believes that the low level of delinquencies experienced
by the Company during prior periods is due, in large part, to the Company's
maintenance of a high level of borrower contact and a servicing relationship
appropriate to the Company's borrowing base and a consistent application of
the Company's underwriting guidelines. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset Quality."
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until it is sold. When property
is acquired or expected to be acquired by foreclosure or deed in lieu of
foreclosure, it is recorded at the lower of cost or estimated fair value, less
estimated cost of disposition. After acquisition, all costs incurred in
maintaining the property are expensed.
The Company's ability to foreclose on certain properties may be
affected by state and federal environmental laws which impose liability on the
property owner for the costs related to the investigation and clean up of
hazardous or toxic substances or chemicals released on the property. Although
the Company's loans are primarily secured by residential real estate, there is
a risk that the Company could be required to investigate or clean up an
environmentally damaged property which is discovered after acquisition by the
Company. To date, the Company has not been required to perform any
investigation or clean up activities nor has it been subject to any
environmental claims. See "Risk Factors -- Environmental Concerns."
The Company in its capacity as the servicer of securitized loans and
leases is obligated to advance funds (an "Advance") in respect of each monthly
loan or lease payment that accrued during the collection period for the loans
or leases but was not received, unless the Company determines that such
Advances will not be recoverable from subsequent collections in respect to the
related loans or leases. See "-- Securitizations."
Underwriting Procedures and Practices
Summarized below are certain of the policies and practices which are
followed in connection with the origination of Business Purpose Loans, Home
Equity Loans and First Mortgage Loans and the origination of Equipment Leases.
It should be noted that such policies and practices will be altered, amended
and supplemented as conditions warrant. The Company reserves the right to make
changes in its day-to-day practices and policies in its sole discretion.
The Company's loan underwriting standards are applied to evaluate
prospective borrowers' credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral. Initially, the borrower is
required to fill out a detailed application providing pertinent credit
information. As part of the description of the borrower's financial condition,
the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability
to repay the debt as well as sufficient income and equity, loan processing
personnel obtain and review an independent credit bureau report on the credit
history of the borrower and verification of the borrower's income by obtaining
and reviewing one or more of the borrower's pay stubs, income tax returns,
checking account statements, W-2 tax forms or verification of business or
employment forms. Once all applicable employment, credit and property
information is obtained, a determination is made as to whether sufficient
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unencumbered equity in the property exists and whether the prospective
borrower has sufficient monthly income available to meet the borrower's
monthly obligations.
Generally, Business Purpose Loans collateralized by residential real
estate must have an overall loan-to-value ratio (based solely on the
independent appraised fair market value of the real estate collateral securing
the loan) on the properties collateralizing the loans of no greater than 75%.
Business Purpose Loans collateralized by commercial real estate must generally
have an overall loan-to-value ratio (based solely on the independent appraised
fair market value of the real estate collateral securing the loan) of no
greater than 60% percent. In addition, in substantially all instances, the
Company also receives additional collateral in the form of, among other
things, personal guarantees, pledges of securities, assignments of contract
rights, life insurance and lease payments and liens on business equipment and
other business assets, as available. The Business Purpose Loans originated by
the Company had an average loan-to-value ratio of 60.5% for the year ended
June 30, 1998.
The maximum acceptable loan-to-value ratio for Home Equity Loans held
in portfolio or securitized is generally 90%. The Home Equity Loans originated
by the Company had an average loan-to-value ratio of 76.6% for the year ended
June 30, 1998. Occasionally, exceptions to these maximum loan-to-value ratios
are made if other collateral is available or if there are other compensating
factors. Title insurance is generally obtained in connection with all real
estate secured loans.
The Company generally does not lend more than 95% of the appraised
value in the case of First Mortgage Loans, other than FHA and VA Loans. The
Company generally requires private mortgage insurance on all such First
Mortgage Loans with loan-to-value ratios in excess of 80% at the time of
origination in order to reduce its exposure. The Company obtains mortgage
insurance certificates from the FHA on all FHA loans and loan guaranty
certificates from the VA on all VA loans regardless of the loan-to-value ratio
on the underlying loan amount.
In determining the adequacy of the mortgaged property as collateral,
an appraisal is made of each property considered for financing. The appraisal
is completed by an independent qualified appraiser and generally includes
pictures of comparable properties and pictures of the subject property's
interior. With respect to Business Purpose, Home Equity Loans and First
Mortgage Loans, the appraisal is completed by an independent qualified
appraiser on a FNMA form. See "Risk Factors -- Decline in Collateral Value May
Adversely Affect Loan-to-Value Ratios."
In the leasing area, while a security interest in the equipment is
retained in connection with the origination of the lease, the lease is not
dependent on the value of the equipment as the principal means of securing the
lease. The underwriting standards applicable to leases place primary emphasis
on the borrower's financial strength and its credit history. The Company's
lease underwriting criteria includes a review of the subject company's credit
reports, financial statements, bank references and trade references, as well
as the credit history and financial statements of the principals of the
borrower. The Company typically obtains personal guarantees on its Equipment
Leases.
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Securitizations
The sale of the Company's Business Purpose Loans, Home Equity Loans
and Equipment Leases through securitizations is an important objective of the
Company. In furtherance of this objective, since 1995 the Company has sold in
the secondary market senior interests in nine pools of loans it securitized.
The nine pools of loans securitized were comprised of $129.4 million of
Business Purpose Loans, $356.8 million of Home Equity Loans and $59.7 million
of Equipment Leases.
Generally, a securitization involves the transfer by the Company of
receivables representing a series of loans or leases to a single purpose trust
in exchange for certificates or securities issued by the trust. The
certificates represent an undivided ownership interest in the loans or leases
transferred to the trust. The certificates consist of a class of senior
certificates and interest only strips and may also include a class of
subordinated certificates. In connection with securitizations, the senior
certificates are sold to investors and the subordinate certificates, if any,
and the interest only strips are typically retained by the Company. As a
result of the sale of the senior certificates, the Company receives a cash
payment representing a substantial portion of the principal balance of the
loans held by the trust. The senior certificates entitle the holder to be
repaid the principal of its purchase price and the certificates bear interest
at a stated rate of interest. The stated rate of interest is typically
substantially less than the interest rate required to be paid by the borrowers
with respect to the underlying loans. As a consequence, the Company is able to
receive cash for a portion of its portfolio and to pay the principal and
interest required by the senior certificates with the cash flows from the
underlying loans or leases owned by the trust. However, since the interest in
the loans or leases held by the Company (the subordinate certificate and the
interest only strips) is subordinate to the senior certificate, the Company
retains a significant portion of the risk that the full value of the
underlying loans or leases will not be realized. Additionally, the holder of
the senior certificates will receive certain additional payments on account of
principal in order to reduce the balance of the senior certificates in
proportion to the subordinated amount held by the Company. The additional
payments of principal are designed to increase the senior certificate holder's
protection against loan and lease losses. In the typical subordination
structure, the Company, as the holder of the interest only strips will be
entitled to receive all of the remaining interest in the loans or leases at
the time of the termination of the trust. See "Risk Factors -- Dependence Upon
Securitizations and Fluctuations in Operating Results."
The pooling and servicing agreements that govern the distribution of
cash flows from the loans and leases included in the securitization trusts
require the over-collateralization of the senior certificates by using
interest receipts on the loans or leases to reduce the outstanding principal
balance of the senior certificates to a pre-set percentage of the loans or
leases. The over-collateralization percentage may be reduced over time
according to the delinquency and loss experience of the loans and leases. The
Company's interest in each over-collateralized amount is reflected in the
Company's financial statements as an other receivable. To the extent that a
loss is realized on the loans or leases, losses will be paid first out of the
interest only strips received and ultimately out of the over-collateralization
amount available to the interest only strips, and the subordinated
certificates, if available. If losses exceed the Company's projected amount,
the excess losses will result in a reduction in the value of the interest only
strips held by
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the Company. See "Risk Factors -- Dependence Upon Securitizations and
Fluctuations in Operating Results."
The Company may be required either to repurchase or to replace loans
or leases which do not conform to the representations and warranties made by
the Company in the pooling and servicing agreements entered into when the
loans or leases are pooled and sold through securitizations. As of June 30,
1998, the Company had not been required to repurchase or replace any such
loans or leases. When borrowers are delinquent in making scheduled payments on
loans or leases included in a securitization trust, the Company is required to
advance interest payments with respect to such delinquent loans or leases to
the extent that the Company deems such advances will be ultimately
recoverable. These advances require funding from the Company's capital
resources but have priority of repayment from the succeeding month's
collection.
The Company generally retains the servicing rights with respect to
all loans and leases securitized. See "-- Loan and Lease Servicing."
The Company's securitizations are often structured to provide for a
portion of the loans or leases included in the trust to be funded with loans
or leases originated by the Company during a period subsequent to the
securitization. The amount of the aggregate trust value to be funded in the
future is referred to as the "prefunded account." The loans or leases to be
included in such account must be substantially similar in terms of collateral,
size, term, interest rate, geographic distribution and loan-to-value ratio as
the loans or leases initially transferred to the trust. To the extent the
Company fails to originate a sufficient number of qualifying loans or leases
for the prefunded account within the specified time period, the Company's
earnings during the quarter in which the funding was to occur would be
reduced.
The securitization of loans and leases during the years ended June
30, 1998, 1997 and 1996 generated gain on sale of loans and leases of $41.3
million, $20.0 million and $8.7 million, respectively. Such gains contributed
to the Company's record levels of revenue and net income during such periods.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Risk Factors -- Dependence upon Securitizations and
Fluctuations in Operating Results."
Subject to market conditions, the Company anticipates that it will
continue to build portfolios of Business Purpose Loans, Home Equity Loans, and
Equipment Leases and enter into securitizations of these portfolios. The
Company believes that a securitization program provides a number of benefits
by allowing the Company to diversify its funding base, provide liquidity and
lower its cost of funds.
Competition
The Company competes for Business Purpose Loans against many other
finance companies and financial institutions. Although many other entities
originate Business Purpose Loans, the Company has focused its lending efforts
on its niche market of businesses which may qualify for loans from traditional
lending sources but who the Company believes are attracted to
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the Company's products as a result of the Company's marketing efforts and
responsive customer service and rapid processing and closing periods.
The Company has significant competition for Home Equity Loans.
Through Upland and NJMIC, the Company competes with banks, thrift
institutions, mortgage bankers and other finance companies, which may have
greater resources and name recognition. The Company attempts to mitigate these
factors through a highly trained staff of professionals, rapid response to
prospective borrowers' requests and maintaining a short average loan
processing time. In addition, the Company recently implemented the Bank
Alliance Program in order to generate additional loan volume. See "-- Lending
and Leasing Activities -- Home Equity Lending."
The Company has significant competition for Equipment Leases. Through
ABL and Federal, the Company competes with banks, leasing and finance
companies with greater resources, capitalization and name recognition
throughout its market area. It is the intention of the Company to capitalize
on its vendor relationships, cross-selling opportunities, and the efforts of
its direct sales force to combat these competitive factors. See "Risk
Factors--Increased Competition Could Adversely Affect Results of Operations."
Regulation
General. The home equity and first mortgage lending business is
highly regulated by both federal and state laws. All Home Equity and First
Mortgage Loans must meet the requirements of, among other statutes, the
Federal Truth in Lending Act ("TILA"), the Federal Real Estate Settlement
Procedures Act ("RESPA"), the Equal Credit Opportunity Act of 1974, as amended
("ECOA") and their accompanying Regulations Z, X and B, respectively.
Truth in Lending. The TILA and Regulation Z promulgated thereunder
contain certain disclosure requirements designed to provide consumers with
uniform, understandable information with respect to the terms and conditions
of loans and credit transactions in order to give consumers the ability to
compare credit terms. TILA also guarantees consumers a three day right to
cancel certain transactions and imposes specific loan feature restrictions on
certain loans of the type originated by the Company. Management of the Company
believes that it is in compliance with TILA in all material respects. If the
Company were found not to be in compliance with TILA, certain aggrieved
borrowers could have the right to rescind their loans and to demand, among
other things, the return of finance charges and fees paid to the Company.
Other fines and penalties can also be imposed under TILA and Regulation Z.
Other Lending Laws. The Company is also required to comply with the
ECOA, which prohibits creditors from discriminating against applicants on
certain prohibited bases, including race, color, religion, national origin,
sex, age or marital status. Regulation B promulgated under ECOA restricts
creditors from obtaining certain types of information from loan applicants.
Among other things, it also requires certain disclosures by the lender
regarding consumer rights and requires lenders to advise applicants of the
reasons for any credit denial. In instances where the applicant is denied
credit or the rate or charge for loans increases as a result of information
obtained from a consumer credit reporting agency, another statute, the Fair
Credit Reporting Act of 1970, as amended, requires lenders to supply the
applicant with the name and address of the reporting agency whose credit
report was used in determining to reject a loan application, and
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certain additional information and disclosures. In addition, the Company and
NJMIC are subject to the Fair Housing Act and regulations thereunder, which
broadly prohibit certain discriminatory practices in connection with the
Company's home equity lending business.
The Company is also subject to RESPA. RESPA imposes, among other
things, limits on the amount of funds a borrower can be required to deposit
with the Company in any escrow account for the payment of taxes, insurance
premiums or other charges; limits on fees paid to third parties; and various
disclosure requirements.
In addition, the Company is subject to various other federal and
state laws, rules and regulations governing, among other things, the licensing
of, and procedures that must be followed by, mortgage lenders and servicers,
and disclosures that must be made to consumer borrowers. Failure to comply
with such laws, as well as with the laws described above, may result in civil
and criminal liability.
Upland is licensed and regulated by the departments of banking or
similar entities in the various states in which it is licensed. The rules and
regulations contain such licensing and licensed entities activities, among
other things, prohibit discrimination, collection, foreclosure and claims
handling, payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, and fees. Failure to
comply with these requirements can lead to termination or suspension of
licenses, certain rights of rescission for mortgage loans, individual and
class action lawsuits and administrative enforcement actions. Upland maintains
compliance with the various federal and state laws through its in-house
counsel which continually review Upland's documentation and procedures and
monitor and apprise Upland on various changes in the laws.
The previously described laws and regulations are subject to
legislative, administrative and judicial interpretation, and certain of these
laws and regulations have been infrequently interpreted or only recently
enacted. Infrequent interpretations of these laws and regulations or an
insignificant number of interpretations of recently enacted regulations can
result in ambiguity with respect to permitted conduct under these laws and
regulations. Any ambiguity under the regulations to which the Company is
subject may lead to regulatory investigations or enforcement actions and
private causes of action, such as class action lawsuits, with respect to the
Company's compliance with the applicable laws and regulations.
Although the Company believes that it has implemented systems and
procedures to facilitate compliance with the foregoing requirements and
believes that it is in compliance in all material respects with applicable
local, state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations, and judicial and
administrative interpretations thereof will not be adopted in the future that
could make compliance more difficult or expensive.
Employees
At June 30, 1998, the Company employed 619 people on a full-time
basis and 19 people on a part-time basis. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
employee relations to be good.
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Property
Except for real estate acquired in foreclosure as part of the
Company's normal course of business, neither ABFS nor its subsidiaries
presently hold title to any real estate for operating purposes. The interests
which the Company presently holds in real estate are in the form of mortgages
against parcels of real estate owned by Upland's or ABC's borrowers or
affiliates of Upland's or ABC's borrowers and real estate acquired through
foreclosure.
The Company presently leases office space at 111 Presidential
Boulevard, Bala Cynwyd, Pennsylvania, just outside the city limits of
Philadelphia. The Company is currently leasing its office space under a five
year lease with a current year annual rental cost of approximately $1.9
million. Such lease contains a five-year renewal option at an increased annual
rental amount. The Company also leases the Roseland, New Jersey office which
functions as the headquarters for NJMIC and its subsidiaries. The current
lease term expires on July 31, 2003. Such lease contains a renewal option for
an additional term of five years. This office facility has a current annual
rental cost of approximately $575,000. In addition, the Company leases branch
offices on a short term basis in various cities throughout the United States.
Management does not believe that the leases for the branch offices are
material to the Company's operations.
Legal Proceedings
On October 23, 1997, a class action suit was filed in the Superior
Court of New Jersey at Docket No. L-12066-97 against NJMIC by Alfred G. Roscoe
on behalf of himself and others similarly situated. Mr. Roscoe is seeking
certification that the action may be maintained as a class action as well as
unspecified compensatory damages and injunctive relief. In his complaint, Mr.
Roscoe alleges that NJMIC violated New Jersey's Mortgage Financing on Real
Estate Law, N.J.S.A. 46:10A-1 et seq. by requiring him and other borrowers to
pay or reimburse NJMIC for attorneys' fees and costs in connection with loans
made to them by NJMIC. Mr. Roscoe further asserts that NJMIC's alleged actions
violated New Jersey's Consumer Fraud Act, N.J.S.A. 56:8- 1, et seq. and
constitute common law fraud and deceit. NJMIC filed a motion for summary
judgment seeking to dismiss the suit. The Superior Court granted NJMIC's
motion and the case was dismissed with prejudice on February 20, 1998. Mr.
Roscoe filed a Notice of Appeal with the Superior Court. NJMIC intends to
vigorously defend the appeal filed by Mr. Roscoe.
Pursuant to the terms of the Agreement for Purchase and Sale of Stock
of NJMIC between the Company and the former stockholders of NJMIC, such former
stockholders are required to indemnify the Company up to $16.0 million in
connection with any losses related to, caused by or arising from NJMIC's
failure to comply with applicable law to the extent such losses exceed
$100,000. Such former stockholders have agreed to defend the Company in this
suit.
Additionally, from time to time, the Company is involved as plaintiff
or defendant in various other legal proceedings arising in the normal course
of its business. While the ultimate outcome of these various legal proceedings
cannot be predicted with certainty, it is the opinion of management that the
resolution of these legal actions should not have a material effect on the
Company's financial position, results of operations or liquidity.
-74-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We filed a Registration Statement on Form S-2 (together with all
exhibits and schedules thereto, the "Registration Statement") with the SEC,
with respect to the registration of the Notes offered by this Prospectus. This
Prospectus does not contain all of the information set forth in such
Registration Statement and the exhibits thereto. For further information
pertaining to the Company, the Notes offered by this Prospectus and related
matters, you should review the Registration Statement, including the exhibits
filed as a part thereof. Each statement in this Prospectus referring to a
document filed as an exhibit to such Registration Statement is qualified by
reference to the exhibit for a complete statement of its terms and conditions.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. So long as we are subject to the SEC's
reporting requirements, we will continue to furnish the reports and other
information required thereby to the SEC. We will furnish all holders of the
Notes with copies of our annual reports containing audited financial
statements and an opinion thereon expressed by our independent auditors and
will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.
You may read and copy any reports, statements and other information
we file at the SEC's public reference room in Washington, D.C. 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
operations of the public reference room. Our SEC filings are also available on
the SEC's Internet site (http://www.sec.gov).
Our Common Stock is traded on the NASDAQ National Market System under
the symbol "ABFI." You may also read reports, proxy statements and other
information we file at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006.
The SEC allows us to "incorporate by reference" the information we
file with them, which means we can disclose information to you be referring
you to those documents. Information incorporated by reference is part of this
Prospectus. Later information filed with the SEC updates and supersedes this
Prospectus.
We incorporate by reference any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), until the Offering is completed.
-75-
<PAGE>
You may request a copy of those filings, other than exhibits, at no
cost, by contacting us at:
American Business Financial Services, Inc.
Bala Pointe Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
(610) 668-2440
Attn: Jeffrey M. Ruben, Esquire
-76-
<PAGE>
MANAGEMENT
General
The present management structure of our Company is as follows:
Anthony J. Santilli, Jr. is Chairman, President, Chief Executive Officer,
Chief Operating Officer and a Director of the Company. Beverly Santilli is
President of ABC and an Executive Vice President and Secretary of ABFS.
Jeffrey M. Ruben is Senior Vice President and General Counsel of the Company.
David M. Levin, CPA is the Senior Vice President - Finance and Chief Financial
Officer. Harold Sussman, Michael DeLuca, Richard Kaufman and Leonard Becker
are non-employee directors of our Company and take no part in the day-to-day
operating activities of our Company. All directors and executive officers of
our Company hold office during the term for which they are elected and until
their successors are elected and qualified.
The following table sets forth information regarding our Company's
Board of Directors and executive officers:
<TABLE>
<CAPTION>
Name Age(1) Position
- -------------------------------------------- ------------ ---------------------------------------------------
<S> <C> <C>
Anthony J. Santilli, Jr..................... 55 Chairman, President, Chief Executive Officer, Chief
Operating Officer and Director
Leonard Becker.............................. 75 Director
Michael DeLuca.............................. 67 Director
Richard Kaufman............................. 56 Director
Harold E. Sussman........................... 73 Director
Beverly Santilli............................ 39 Executive Vice President and Secretary of ABFS and
President of ABC
Jeffrey M. Ruben............................ 35 Senior Vice President and General Counsel of ABFS
David M. Levin.............................. 53 Senior Vice President - Finance and Chief Financial
Officer(2)
</TABLE>
- -----------------------
(1) As of June 30, 1998.
(2) Albert W. Mandia will become the Company's Chief Financial Officer on
October 1, 1998. See "-- Executive Officers who are not also Directors.
Directors
Our Amended and Restated Certificate of Incorporation currently
provides that the Board shall consist of not less than one nor more than
fifteen directors and that within these limits the number of directors shall
be as established by the Board. The Board has set the number of directors at
five or until their successors are elected and qualified. Our Amended and
Restated Certificate of Incorporation provides that the Board of Directors
shall be divided into three classes, having staggered terms of office, which
are as equal in number as possible. The members of each class of directors are
to be elected for a term of three years. Our Amended and Restated Articles of
Incorporation does not permit stockholders to cumulate their votes for the
election of directors.
-77-
<PAGE>
The principal occupation of each of our directors is set forth below.
All directors have held their present position for at least five years unless
otherwise indicated.
Anthony J. Santilli, Jr. is the Chairman, President, Chief Executive
Officer and Chief Operating Officer of the Company and is an executive officer
of its subsidiaries. He has held the positions with the Company since early
1993 when the Company became the parent company of ABC and the positions with
the subsidiaries since the formation of ABC in June 1988.
Prior to the founding of ABC in 1988, Mr. Santilli was Vice President
and Department Head of the Philadelphia Savings Fund Society ("PSFS"). As
such, Mr. Santilli was responsible for PSFS' commercial relationships with
small and middle market business customers. Mr. Santilli also served as the
secretary of PSFS' Asset/Liability Committee and Policy Committee from May
1983 to June 1985 and June 1986 to June 1987, respectively.
Leonard Becker is a former 50% owner and officer of the SBIC of the
Eastern States, Inc., a federally licensed small business corporation which
made medium term loans to small business concerns. For the last 30 years, Mr.
Becker has been heavily involved in the investment in and management of real
estate; and, has been involved in the ownership of numerous shopping centers,
office buildings and apartments. Mr. Becker formerly served as a director of
Eagle National Bank and Cabot Medical Corp.
Michael DeLuca was President, Chairman of the Board, Chief Executive
Officer and a former owner of Bradford-White Corporation, a manufacturer of
plumbing products, for a period of approximately thirty years. Presently, Mr.
DeLuca serves as a Director of BWC-West, Inc., Bradford-White International
and is Chief Executive Officer and a Director of Lux Products Corporation.
Richard Kaufman is Chairman and Chief Executive Officer of Academy
Industries, Inc., a paper converting company, a position he has held since
December 1996. From 1982 to 1996, he was self employed and involved in making
and managing investments for his own benefit. From 1976 to 1982, Mr. Kaufman
was President and Chief Operating Officer of Morlan International, Inc., a
cemetery and financial services conglomerate. From 1970 to 1976, Mr. Kaufman
served as a Director and Vice President-Real Estate and Human Services
Division of Texas International, Inc., an oil and gas conglomerate.
Harold E. Sussman is currently a principal in and Chairman of the
Board of the real estate firm of Colliers, Lanard & Axilbund, a major
commercial and industrial real estate brokerage and management firm in the
Philadelphia area, with which he has been associated since 1972.
-78-
<PAGE>
Executive Officers who are not also Directors
The following is a description of the business experience of each
executive officer who is not also a director.
Beverly Santilli is Executive Vice President and Secretary of ABFS
and President of ABC. Mrs. Santilli is responsible for all sales, marketing
and human resources for ABC and for the day-to-day operation of ABC. Prior to
joining ABC and from September 1984 to November 1987, Mrs. Santilli was
affiliated with PSFS initially as an Account Executive and later as a
Commercial Lending Officer with such institution's Private Banking Group. Mrs.
Santilli is the wife of Anthony J. Santilli, Jr.
Jeffrey M. Ruben is Senior Vice President and General Counsel of ABFS
and its subsidiaries. Mr. Ruben is responsible for the Company's legal and
regulatory compliance matters. From June 1990 until he joined the Company in
April 1992, Mr. Ruben was an attorney with the law firm of Klehr, Harrison,
Harvey, Branzburg & Ellers in Philadelphia, Pennsylvania. From December 1987
until June 1990, Mr. Ruben was employed as a credit analyst with the CIT Group
Equipment Financing, Inc. From July 1985 until December 1987, Mr. Ruben was a
Portfolio Administrator with LFC Financial Corp. in Radnor, Pennsylvania. Mr.
Ruben is a member of the Pennsylvania and New Jersey Bar Associations. Mr.
Ruben holds both a New Jersey Mortgage Banker License and a New Jersey
Secondary Mortgage Banker License.
David M. Levin is Senior Vice President - Finance and Chief Financial
Officer of the Company. He has held these positions since May 1995 and October
1995, respectively. Prior to joining the Company, Mr. Levin was associated
with Fishbein & Company, P.C., Certified Public Accountants (previous auditors
for the Company), as a staff member from 1983 to 1988 and as a shareholder
from 1989 to 1995. Mr. Levin is a Certified Public Accountant.
Alfred W. Mandia, age 50, is currently Executive Vice President of the
Company. Effective October 1, 1998, Mr. Mandia will become an executive officer
of the Company and will hold the title of the Chief Financial Officer. From
19974 to 1998, Mr. Mandia was associated with CoreStates Financial Corp. where
he most recently held the position of Chief Financial Officer.
-79-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of August 31, 1998 by our
directors and executive officers and each person known to be the beneficial
owners of five percent or more of our Common Stock, and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name, Position and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned(1) of Class
- ----------------------------------------------------------- ----------------------------- ---------------------
<S> <C> <C>
Anthony J. Santilli, Jr., Chairman, President, 927,044(2) (3) 25.9
Chief Executive Officer, Chief Operating
Officer and Director of ABFS
and Beverly Santilli, President of ABC
and Executive Vice President and Secretary of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
Michael DeLuca, Director of ABFS 199,735(4) 5.6
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 175,561(4) 4.9
1126 Bryn Tyddyn Drive
Gladwyne, PA 19035
Leonard Becker, Director of ABFS 116,230(4) 3.3
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Harold E. Sussman, Director of ABFS 106,711(4) 3.0
Colliers, Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 25,500(5) (6)
Senior Vice President and General
Counsel of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
David M. Levin 17,500(7) (6)
Senior Vice President - Finance and Chief
Financial Officer of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
Wellington Management Company, LLP 474,400(8) 13.5
75 State Street
Boston, MA 02109
Bay Pond Partners, L.P., Wellington Hedge Management, 291,500(9) 8.3
LLC and Wellington Hedge Management, Inc.
75 State Street
Boston, MA 02109
All executive officers and directors as a group (eight 1,568,281(10) 41.9
persons)
</TABLE>
<PAGE>
- ----------------
(1) The securities "beneficially owned" by an individual are determined
in accordance with the definition of "beneficial ownership" set forth
in the regulations of the SEC. Accordingly they may include
securities owned by or for, among others, the wife and/or minor
children or the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right
to acquire under outstanding stock options within 60 days after the
date of this table. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Shares listed are held in joint tenancy by Mr. and Mrs. Santilli.
(3) Includes options to purchase 27,500 shares of Common Stock awarded to
Mr. Santilli pursuant to our 1997 Employee Stock Option Plan, all of
which are currently exercisable. Also includes options to purchase
12,500 and 5,000 shares of Common Stock awarded to Mrs. Santilli
pursuant to our 1997 Employee Stock Option Plan, of which options to
purchase 14,000 shares are not currently within 60 days of the Record
Date.
(4) Includes options to purchase 27,500 shares of Common Stock awarded to
each of our non-employee directors pursuant to our 1995 Stock Option
Plan for Non-Employee Directors, all of which are currently
exercisable.
(5) Includes 500 shares held directly and an option to purchase 7,500
shares of Common Stock awarded to Mr. Ruben pursuant to our 1997
Employee Stock Option Plan which option is currently exercisable.
Also includes options to purchase 12,500 and 5,000 shares of Common
Stock awarded to Mr. Ruben pursuant to our 1997 Employee Stock Option
Plan, of which options to purchase 14,000 shares are exercisable
within 60 days of the Record Date.
(6) Less than one percent.
(7) Includes options to purchase 12,500 and 5,000 shares of Common Stock
awarded to Mr. Levin pursuant to our 1997 Employee Stock Option Plan,
of which options to purchase 14,000 shares are not currently within
60 days of the Record Date.
(8) As reported in an amended Schedule 13G dated January 12, 1998 filed
by Wellington Management Company, LLP ("WMC"). Of the 474,000 shares
reported as beneficially owned by WMC, shared voting was reported
with respect to 460,000 shares and shared dispositive power was
reported with respect to 474,000 shares. All of the shares
beneficially owned by WMC are owned of record by clients of WMC, none
of which hold more than 5.0% of such shares except for Bay Pond
Partners, L.P. See Footnote 9 below.
(9) As reported in a Schedule 13G dated February 17, 1998 by Bay Pond
Partners, L.P. ("BPP"), a limited partnership, its general partner,
Wellington Hedge Management, LLC ("WHML"), and Wellington Hedge
Management, Inc. ("WHMI") the managing member of WHML. Each of BPP,
WHML and WHMI reported shared voting and dispositive power with
respect to the shares beneficially owned by them.
(10) Includes options to purchase 222,500 shares of Common Stock awarded
to our directors and officers pursuant to the our stock option plans
of which options to purchase 45,000 shares of Common Stock are not
currently exercisable.
-80-
<PAGE>
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is currently traded on the NASDAQ National Market
System under the symbol "ABFI." Our Common Stock began trading on the NASDAQ
National Market System on February 14, 1997. Prior to February 14, 1997, our
Common Stock had been traded on the PHLX under the symbol "AFX" since May 13,
1996. Prior to the commencement of trading on the PHLX, there was no active
trading market for our Common Stock.
The following table sets forth the high and low sales prices of our
Common Stock from the date on which our Common Stock commenced trading on the
PHLX through August 31, 1998. On August 31, 1998, the closing price of the
Common Stock on the NASDAQ National Market System was $17.0625.
Quarter Ended High Low
- ------------------------------------------- ------------- --------------
September 30, 1996......................... $19.50 $11.13
December 31, 1996 ......................... 20.00 17.25
March 31, 1997............................. 24.50 19.00
June 30, 1997.............................. 22.50 18.50
September 30, 1997......................... 24.00 19.50
December 31, 1997.......................... 28.00 20.625
March 31, 1998............................. 27.50 20.50
June 30, 1998.............................. 25.50 22.00
September 30, 1998(1)...................... 21.75 16.125
- ------------------------
(1) Represents the period July 1, 1998 through August 31, 1998.
As of August 31, 1998, there were 103 record holders and
approximately 1,200 beneficial holders of our Common Stock.
During fiscal 1998, dividends paid on our Common Stock outstanding
was $0.06 per share, for an aggregate dividend payment of $210,788. The
payment of dividends in the future is in the sole discretion of our Board of
Directors and will depend, among other things, upon earnings, capital
requirements and financial condition, as well as other relevant factors.
As a Delaware corporation, we may not declare and pay dividends on
its capital stock if the amount paid exceeds an amount equal to the excess of
our net assets over paid-in-capital or, if there is no excess, its net profits
for the current and/or immediately preceding fiscal year.
As of June 30, 1998, there were 452,500 shares of our Common Stock
subject to options. In addition, there were an additional 154,488 shares
reserved for issuance under our option plans.
-81-
<PAGE>
PLAN OF DISTRIBUTION
Currently, the services of a broker-dealer or dealers as an agent to
assist in the sales of the Notes offered hereby are not being utilized. We may
employ the services of a National Association of Securities Dealers, Inc.
("NASD") member broker-dealer in the future for purposes of offering the Notes
on a "best-efforts" or agency basis. If an agreement concerning the use of the
services of any broker-dealer is reached, we may pay any such broker-dealers
an estimated commission ranging from .5% to 10% of the sale price of any Notes
sold through any such broker-dealer, depending on numerous factors. We may
also agree to indemnify such broker-dealer against certain liabilities,
including liabilities under the Securities Act and to reimburse such
broker-dealer for its costs and expenses, up to a maximum to be determined,
based upon the total dollar value of the Notes sold. We will otherwise offer
the Notes through its employees in accordance with Rule 3a4-1 under the
Exchange Act.
We reserve the right to reject any subscription hereunder, in whole
or in part, for any reason. Subscriptions will be irrevocable upon receipt by
us. In the event a subscription is not accepted, your subscription funds will
be promptly refunded to the subscriber, without deduction of any costs and
without interest. We expect that subscriptions will be refunded within 48
hours after receipt of the subscription. Once your subscription has been
accepted, the applicable subscription funds will be promptly deposited in our
account. A receipt will be sent to you as soon as practicable thereafter after
acceptance of your subscription. No minimum number of Notes must be sold in
the Offering. You will not know at the time of subscription whether we will be
successful in completing the sale of any or all of the Notes offered hereby.
We reserve the right to withdraw or cancel the Offering at anytime. In the
event of such withdrawal or cancellation, subscriptions previously received
will be irrevocable and no subscription funds will be refunded.
LEGAL MATTERS
Blank Rome Comisky & McCauley LLP, Philadelphia, Pennsylvania will
deliver an opinion stating that the Notes when issued as contemplated by this
Prospectus will be binding obligations of the Company.
EXPERTS
The Consolidated Financial Statements of the Company and subsidiaries
as of June 30, 1998 and 1997 and for the years ending June 30, 1998, 1997 and
1996 included in this Prospectus, have been audited by BDO Seidman, LLP,
independent certified public accountants, as set forth in their report
appearing herein and have been included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-82-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants........................F-2
Consolidated Balance Sheets...............................................F-3
Consolidated Statements of Income.........................................F-5
Consolidated Statements of Stockholders' Equity...........................F-6
Consolidated Statements of Cash Flows.....................................F-7
Notes to Consolidated Financial Statements...............................F-10
F-1
<PAGE>
Report of Independent Certified Public Accountants
American Business Financial Services, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1998 and 1997,
and the related consolidated statements of income and stockholders' equity, and
cash flows for each of the years in the three year period ended June 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Business
Financial Services, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the each of
the years in the three year period ended June 30, 1998 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
- ----------------------------
Philadelphia, Pennsylvania
September 11, 1998
F-2
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 4,485,759 $ 5,013,936
Loan and lease receivables, net
Available for sale 62,381,973 35,711,821
Other 4,096,554 1,143,566
Interest only strips and other receivables 100,736,564 39,644,161
Prepaid expenses 2,572,182 1,181,654
Property and equipment, net 7,784,663 2,863,345
Other assets 44,493,365 18,430,049
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 226,551,060 $ 103,988,532
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Subordinated debt and notes payable $ 144,584,819 $ 56,486,229
Accounts payable and accrued expenses 15,563,254 6,081,630
Deferred income taxes 10,863,538 4,630,981
Other liabilities 12,797,283 5,877,664
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 183,808,894 73,076,504
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, par value $.001
Authorized, 1,000,000 shares
Issued and outstanding, none
Common stock, par value $.001
Authorized, 9,000,000 shares
Issued and outstanding, 3,523,406 shares in 1998
and 3,503,166 shares in 1997 3,523 3,503
Additional paid-in capital 23,255,957 22,669,477
Retained earnings 20,082,718 8,839,080
- --------------------------------------------------------------------------------------------------------------------
43,342,198 31,512,060
Note receivable (600,032) (600,032)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 42,742,166 30,912,028
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 226,551,060 $ 103,988,532
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gain on sales of loans $ 41,316,062 $ 20,042,579 $ 8,720,776
Interest and fees 17,386,098 5,583,432 3,244,539
Servicing income 2,128,011 803,476 106,177
Other income 156,521 52,266 22,824
- --------------------------------------------------------------------------------------------------------------------
Total revenues 60,986,692 26,481,753 12,094,316
- --------------------------------------------------------------------------------------------------------------------
Expenses
Interest 13,189,832 5,174,925 2,667,858
Provision for credit losses 491,168 105,941 396,811
Employee-related costs 5,029,603 1,618,479 1,203,260
Sales and marketing 14,237,316 6,964,074 2,685,173
General and administrative 10,149,060 3,616,647 2,020,551
- --------------------------------------------------------------------------------------------------------------------
Total expenses 43,096,979 17,480,066 8,973,653
- --------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 17,889,713 9,001,687 3,120,663
Provision for income taxes 6,435,297 3,061,854 801,967
- --------------------------------------------------------------------------------------------------------------------
Net income $ 11,454,416 $ 5,939,833 $ 2,318,696
- --------------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic $ 3.26 $ 2.13 $ 1.01
- --------------------------------------------------------------------------------------------------------------------
Diluted $ 3.13 $ 2.05 $ 1.01
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years ended June 30, 1998, 1997 and 1996
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Total
-----------------------
Number of Paid-In Retained Note Stockholders'
Shares Amount Capital Earnings Receivable Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 2,128,154 $ 2,128 $ 1,331,892 $ 809,394 $ -- $ 2,143,414
Options exercised 225,012 225 599,807 -- (600,032 ) --
Cash dividends
($.03 per share) -- -- -- (70,595 ) -- (70,595)
Net income -- -- -- 2,318,696 -- 2,318,696
- ---------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 2,353,166 2,353 1,931,699 3,057,495 (600,032 ) 4,391,515
Common stock issued
in acquisition 1,150,000 1,150 20,737,778 -- -- 20,738,928
Cash dividends
($.06 per share) -- -- -- (158,248) -- (158,248)
Net income -- -- -- 5,939,833 -- 5,939,833
- ---------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 3,503,166 3,503 22,669,477 8,839,080 (600,032 ) 30,912,028
Common stock issued
in acquisition 20,240 20 499,980 -- -- 500,000
Nonemployee options -- -- 86,500 -- -- 86,500
Cash dividends
($.06 per share) -- -- -- (210,778 ) -- (210,778)
Net income -- -- -- 11,454,416 -- 11,454,416
- ---------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 3,523,406 $ 3,523 $ 23,255,957 $ 20,082,718 $ (600,032 ) $ 42,742,166
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 11,454,416 $ 5,939,833 $ 2,318,696
Adjustments to reconcile net income to
net cash (used in) operating activities
(Gain) on sales of loans/leases (41,316,052 ) (20,051,241 ) (8,685,463 )
Amortization of origination fees
and costs 68,257 419,620 305,136
Amortization of servicing rights 1,651,522 520,670 69,489
Provision for credit losses- loans/leases 491,168 105,941 396,811
Provision for credit losses-securitizations 2,089,674 1,048,725 284,417
Provision for credit losses acquired from 1,916,029 -- --
subsidiary
Accounts written off (667,339 ) (96,639 ) (129,063 )
Non employee stock options 86,500 -- --
Depreciation and amortization
of property and equipment 1,669,263 513,323 318,493
Amortization of financing and
organization costs 1,171,110 537,653 505,012
Amortization of goodwill 779,880 -- --
Loans and leases originated (486,196,294 ) (136,357,451 ) (54,505,000 )
Sale of loans and leases 477,610,052 143,571,512 52,093,789
(Decrease) in accrued interest and
fees on loan and lease receivables 6,164,413 (1,288,364 ) (268,010 )
(Increase) in other receivables (55,135,729 ) (23,636,513 ) (9,902,163 )
(Increase) in prepaid expenses (1,390,528 ) (1,266,059 ) (747,114 )
(Increase) in other assets (12,808,155 ) (6,945,626 ) (832,991 )
Increase in accounts payable and
accrued expenses 9,198,856 2,949,461 2,014,259
Increase in deferred income taxes 5,333,351 3,124,710 801,967
Increase in other liabilities 6,455,008 4,000,858 1,491,565
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (71,374,598 ) (26,909,587 ) (14,470,170 )
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from investing activities
Leases originated for portfolio $ -- $ (8,003,561 ) $ (5,967,812 )
Loan and lease payments received 19,003,398 4,554,535 4,549,979
Purchase of property and equipment (4,085,081 ) (1,737,695 ) (1,022,926 )
Decrease in securitization gain receivable 2,883,685 106,752 58,693
Principal receipts on investments 101,015 81,383 33,307
Initial overcollateralization of loans (5,378,000 ) (3,450,000 ) --
Purchase of investments (2,986,268 ) (5,000,000 ) --
Sale of investments 5,000,000 -- --
Purchase of subsidiary, net (9,585,603 ) -- --
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 4,953,146 (13,448,586 ) (2,348,759 )
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Financing costs incurred (2,040,979 ) (1,052,667 ) (662,950 )
Net proceeds of (principal payments on)
revolving lines of credit 19,750,032 (2,348,465 ) 2,348,465
Principal payments on capital leases (445,221 ) -- --
Dividends paid (210,778 ) (158,248 ) (70,595 )
Principal payments on note payable, other -- (18,457 ) (5,605 )
Proceeds from issuance of subordinated
debentures 73,883,893 33,991,099 19,687,962
Principal payments on subordinated
debentures (25,043,672 ) (11,125,350 ) (3,867,447 )
Proceeds from public offering, net of related
costs -- 20,738,928 --
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 65,893,275 40,026,840 17,429,830
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (528,177 ) (331,333 ) 610,901
Cash and cash equivalents, beginning of year 5,013,936 5,345,269 4,734,368
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,485,759 $ 5,013,936 $ 5,345,269
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 10,646,980 $ 2,875,620 $ 1,183,745
- --------------------------------------------------------------------------------------------------------------------
Income taxes $ 50,000 $ -- $ 78,475
- --------------------------------------------------------------------------------------------------------------------
Reclassification of other assets, leased
equipment to property and equipment $ -- $ 186,077 $ 60,784
- --------------------------------------------------------------------------------------------------------------------
Reclassification of prepaid expenses to
other assets $ -- $ 1,425,565 $ --
- --------------------------------------------------------------------------------------------------------------------
Supplemental schedules of noncash investing and financing activities
During the fiscal year ended June 30, 1996, stock options for 225,012
shares of common stock were exercised. Shares with a total price of
$600,032 were issued in exchange for a note receivable of the same amount.
Noncash transactions recorded in connection with acquisition of subsidiary
(Decrease) in acquisition debt (3,418,413 ) -- --
Decrease in loan and lease receivables 3,418,413 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
American Business Financial
Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
1. Summary of Business
Significant
Accounting American Business Financial Services, Inc. ("ABFS"), together with its
Policies subsidiaries (the "Company"), is a financial service organization engaged in
the business of originating (including
purchasing), selling, and servicing consumer
and business mortgage loans, and business
equipment leases. The majority of the
Company's loans are made to owners of
single-family residences who use the loan
proceeds for such purposes as debt
consolidation and financing home improvements.
Leases are originated for business equipment
primarily to owners of small businesses or
professionals. The Company sells loans and
leases to investors or securitizes them in
trusts. A significant portion of the loans and
leases are securitized, with the Company
retaining the right to service them. The
Company's business may be affected by many
factors, including real estate and other asset
values, the level and fluctuation of interest
rates, changes in the securitization market
and competition.
Basis of Financial Statement Presentation
The consolidated financial statements include
the accounts of ABFS and its subsidiaries, all
of which are wholly owned. The consolidated
financial statements are prepared in
accordance with generally accepted accounting
principles. All significant intercompany
accounts and transactions have been
eliminated. In preparing the consolidated
financial statements, management is required
to make estimates and assumptions which affect
the reported amounts of assets and liabilities
as of the date of the consolidated financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from those
estimates. These estimates include, among
other things, estimated prepayment and
discount rates on loans and leases sold with
servicing retained, estimated servicing
revenues and costs, valuation of collateral
owned and determination of the allowance for
credit losses.
</TABLE>
F-10
<PAGE>
Acquisition
Effective October 1, 1997, the Company
acquired all of the issued and outstanding
stock of New Jersey Mortgage and Investment
Corp. ("NJMIC"), a mortgage and leasing
company based in Roseland, New Jersey. The
purchase price for the stock consisted of
$11,000,000 in cash, $5,000,000 in notes
payable to the selling stockholders, and the
issuance of 20,240 shares of ABFS common
stock, and includes contingent payments of up
to $4,000,000 if NJMIC achieves certain
performance targets over a three year period.
The acquisition was accounted for as a
purchase transaction and resulted in the
recognition of approximately $16,900,000 of
goodwill, which is being amortized using the
straight-line method over 15 years and is
included in other assets. Any contingent
payments will result in an increase in the
amount of recorded goodwill.
Cash and Cash Equivalents
Cash equivalents consist of short-term debt
instruments purchased with an initial maturity
of three months or less.
Loan and Lease Receivables
Loans and leases held for sale are loans and
leases the Company plans to sell or securitize
and are carried at the lower of aggregate cost
(principal balance, including unamortized
origination costs/fees) or market value.
Market value is determined by quality of
credit risk, types of loans originated,
current interest rates, economic conditions,
etc.
Allowance for Credit Losses
The allowance for credit losses is based upon
the Company's estimate of expected
collectibility of loans and leases serviced.
The allowance is increased by periodic charges
to operations in amounts sufficient to
maintain the allowance at a level considered
adequate to cover anticipated losses resulting
from liquidation of outstanding loans and
leases, and is based upon periodic analysis of
the portfolio, economic conditions and trends,
historical credit loss experience, borrowers'
ability to repay and collateral value.
Residual Interests
The Company securitizes a majority of loans
held for sale in a trust. A trust is a
multiclass security which derives its cash
flows from a pool of mortgages. The regular
interests of a securitization trust are sold,
and the residual interests are retained by the
Company. The securitization documents require
the Company to establish initial
overcollateralization and/or build
overcollateralization levels through retention
of distributions by the trust otherwise
payable to the Company as holder of the
residual interest. This overcollateralization
causes the aggregate principal amount of the
loans in the related pool to exceed the
aggregate principal balance of the outstanding
regular interests. The excess amounts serve as
credit enhancement for the regular interests
of the trust.
F-11
<PAGE>
The Company classifies residual interests as
trading securities, which are carried at fair
value. Valuations at origination and at each
reporting period are based on a discounted
cash flow analysis. The cash flows are
estimated as the excess of the coupon on each
mortgage loan in the pool of underlying
mortgages over the sum of the pass-through
interest rates on the regular interests of the
related securitization trust, servicing fees,
trustee fees and insurance fees. The cash
flows are calculated using a discount rate
commensurate with the risk involved and
include assumptions about prepayments.
Servicing Rights
Upon the securitization of servicing retained
loans, the Company capitalizes the costs
associated with the right to service such
loans based on their relative fair value. The
fair value is determined based on the present
value of estimated net future cash flows
related to servicing income. Assumptions used
to value servicing rights are consistent with
those used to value residual interests. The
cost allocated to the servicing rights is
amortized in proportion to, and over the
period of, estimated future servicing fee
income.
The Company capitalized $12,041,089 and
$7,216,167 of servicing rights during the
years ended June 30, 1998 and 1997,
respectively. During the same periods,
amortization of servicing rights was
$1,651,522 and $520,670, respectively. The
Company periodically reviews servicing rights
for valuation impairment. This review is
performed on a disaggregated basis for the
predominant risk characteristics of the
underlying loans, which consist of loan type,
loan-to-value ratio and credit quality. The
Company generally makes loans to
credit-impaired borrowers whose borrowing
needs may not be met by traditional financial
institutions due to credit exceptions. The
Company has found that credit-impaired
borrowers are payment sensitive rather than
interest rate sensitive. As such, the Company
does not consider interest rates a predominant
risk characteristic for purposes of valuation
impairments. Impairments are recognized in a
valuation allowance for each disaggregated
stratum in the period of impairment. At June
30, 1998 and 1997, the servicing rights
approximated fair value.
Property and Equipment
Property and equipment are stated at cost.
Depreciation and amortization are provided
using the straight-line and declining balance
methods over the estimated useful lives of the
assets (ranging from 5 to 10 years).
Expenditures for additions, renewals and
betterments are capitalized; expenditures for
maintenance and repairs are charged to expense
as incurred.
Financing Costs and Amortization
Costs incurred in obtaining revolving lines of
credit are amortized using the straight-line
method over the terms of the agreements.
F-12
<PAGE>
Financing costs incurred in connection with
public offerings of debt are amortized using
the interest method over the term of the
related debt.
Investments Held to Maturity
Investments classified as held to maturity
consist of asset-backed securities that the
Company has the positive intent and ability to
hold to maturity. These investments are stated
at amortized cost, which approximates market.
Property Held for Sale
Property held for sale consists of property
acquired by foreclosure or in settlement of
loan and lease receivables, and is carried at
the lower of carrying value or fair value less
estimated costs to sell.
Revenue Recognition
The Company derives its revenue principally
from gains on sales of loans, interest and
fees on loans and leases, and servicing
income.
Gains on servicing retained sales of loans
through securitization represent the
difference between the net proceeds to the
Company in the securitization and the
allocated cost of loans securitized. The
allocated cost of loans securitized is
determined by allocating their net carrying
value between the loans, the residual interest
and the servicing rights retained by the
Company based upon their relative fair values.
An allowance for credit losses equal to 1% of
loans securitized is established at the time
of securitization and evaluated periodically
for adequacy.
F-13
<PAGE>
The following chart presents certain
weighted-average estimates used in the initial
recording of the interest-only strips
receivable:
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Year ended June 30, 1998 1997
-------------------------------------------------------------------------------
Discount rates
Home equity loans 11.0% 11.0%
Business purpose loans 11.0% 11.0%
Prepayment rates
Home equity loans (1) and (2) 2.0% - 24.0% 2.0% - 24.0%
Business purpose loans (1) and (3) 3.0% - 13.0% 3.0% - 9.5%
-------------------------------------------------------------------------------
(1) Represents an annual prepayment rate (HEP/CPR).
(2) Ramped over twelve months.
(3) Ramped over twenty-four months.
The net carrying value of loans is equal to
their principal balance and unamortized
origination costs/fees.
Interest income from loan and lease
receivables is recognized using the interest
method. Accrual of interest income is
suspended when the receivable is contractually
delinquent for 90 days or more. The accrual is
resumed when the receivable becomes
contractually current, and past-due interest
income is recognized at that time. In
addition, a detailed review of receivables
will cause earlier suspension if collection is
doubtful.
Servicing income is recorded as earned.
Income Taxes
The Company files a consolidated federal
income tax return.
The Company uses the liability method in
accounting for income taxes.
</TABLE>
F-14
<PAGE>
Principal differences between the Company's
financial and income tax reporting include
amortization of loan and lease origination
costs/fees, the allowance for credit losses,
depreciation and amortization of property and
equipment, securitization gains, servicing
rights and net operating losses.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of
Financing Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which is effective
for annual and interim periods ending after
December 15, 1997 and requires retroactive
application to all periods presented. It
supersedes the presentation of basic earnings
per share ("EPS"), which does not consider the
effect of common stock equivalents. The
computation of diluted EPS gives effect to all
dilutive potential common shares that were
outstanding during the period. The adoption of
this standard did not have a material effect
on the Company's net income per share for the
years ended June 30, 1998 and 1997.
In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which is
effective for annual and interim periods
beginning after December 15, 1997. This
statement requires that all items that are
required to be recognized under accounting
standards as comprehensive income be reported
in a financial statement that is displayed
with the same prominence as other financial
statements. Currently, the Company does not
have any items which would be required to be
reported under SFAS No. 130.
F-15
<PAGE>
In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information," which is effective
for financial statements issued for years
beginning after December 15, 1997. This
statement establishes standards for the method
that public entities report information about
operating segments in annual financial
statements and requires that those enterprises
report selected information about operating
results in interim financial reports issued to
stockholders. It also establishes standards
for related disclosures about products and
services, geographical areas and major
customers. The adoption of this standard is
not expected to have a material effect on the
Company's financial reporting.
In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." This statement
establishes accounting and reporting standards
for derivative instruments, including certain
derivative instruments embedded in other
contracts (collectively referred to as
derivatives), and for hedging activities. It
requires that an entity recognize all
derivatives as either assets or liabilities in
the balance sheet and measure those
instruments at fair value. If certain
conditions are met, a derivative may be
specifically designated as: (a) a hedge of the
exposure to changes in the fair value of a
recognized asset or liability or an
unrecognized firm commitment; (b) a hedge of
the exposure to variable cash flows of a
forecasted transaction; or (c) a hedge of the
foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or
a foreign currency denominated forecasted
transaction.
F-16
<PAGE>
SFAS No. 133 amends SFAS No. 52, "Foreign
Currency Translation," to permit special
accounting for a hedge of a foreign currency
forecasted transaction with a derivative. It
supersedes SFAS No. 80, "Accounting for
Futures Contracts," SFAS No. 105, "Disclosure
of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit
Risk," and SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair
Value of Financial Instruments." It amends
SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," to include the
disclosure provisions about concentrations of
credit risk from SFAS No. 105. SFAS No. 133
also nullifies or modifies the consensus
reached in a number of issues addressed by the
Emerging Issues Task Force.
SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June
15, 1999. Initial application of this
statement should be as of the beginning of an
entity's fiscal quarter. On that date, hedging
relationships must be designated anew and
documented pursuant to the provisions of this
statement. Earlier application of all of the
provisions of this statement is encouraged,
but it is permitted only as of the beginning
of any fiscal quarter that begins after
issuance of this statement. This statement
should not be applied retroactively to
financial statements or prior periods.
Reclassifications
Certain amounts in the 1997 and 1996
consolidated financial statements have been
reclassified to conform to the 1998
presentation.
F-17
<PAGE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C> <C>
2. Loan and Lease June 30,
Receivables
--------------------------------------------------------------------------------
Real estate secured loans $ 47,971,399 $ 24,581,475
Leases (net of unearned income
of $1,845,076 and $1,986,487)
11,401,104 8,970,238
Other loans -- 32,075
Unamortized origination
costs/fees 4,087,636 2,466,342
-------------------------------------------------------------------------------
63,460,139 36,050,130
Less allowance for credit losses
on loans and leases not sold 1,078,166 338,309
-------------------------------------------------------------------------------
$ 62,381,973 $ 35,711,821
-------------------------------------------------------------------------------
</TABLE>
Real estate secured loans have contractual
maturities of up to 30 years. Real property of
the borrower is usually pledged as collateral.
The Company sells real estate secured loans in
securitizations with servicing retained. Under
terms of the sales, the purchasers have
limited recourse ($5,638,653 at June 30, 1998)
should certain amounts of the loans prove to
be uncollectible. At June 30, 1998, the
principal balance of receivables securitized
was approximately $473,000,000.
At June 30, 1998, the accrual of interest
income was suspended on real estate secured
loans of $718,917. Based on its evaluation of
the collateral related to these loans, the
Company expects to collect all contractual
interest and principal.
F-18
<PAGE>
Substantially all of the leases are direct
finance-type leases whereby the lessee has the
right to purchase the leased equipment at the
lease expiration for a nominal amount.
Other receivables consist primarily of accrued
interest, repurchased loans and advances.
The serviced loan and lease portfolio, which
includes loans and leases sold to investors
and those retained by the Company, is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
June 30, 1998 1997
-------------------------------------------------------------------------------
(In Thousands)
Home equity loans $ 349,685 $ 98,179
Business purpose loans 101,250 68,979
Equipment leases 108,463 9,461
Other -- 32
-------------------------------------------------------------------------------
$ 559,398 $ 176,651
-------------------------------------------------------------------------------
3. Allowance for
Credit Losses Portfolio Securitizations Total
--------------------------------------------------------------------------------
Balance, July 1, 1995 $ 62,258 $ 93,000 $ 155,258
Provision for credit
losses 396,811 284,417 681,228
Accounts written off (129,062 ) -- (129,062 )
-------------------------------------------------------------------------------
Balance, June 30, 1996 330,007 377,417 707,424
Provision for credit
losses 105,941 1,048,725 1,154,666
Accounts written off (97,639 ) -- (97,639 )
-------------------------------------------------------------------------------
Balance, June 30, 1997 338,309 1,426,142 1,764,451
Acquired through
acquisition 916,029 1,000,000 1,916,029
Provision for credit
losses 491,168 2,089,674 2,580,842
Accounts written off (667,339 ) -- (667,339 )
-------------------------------------------------------------------------------
Balance, June 30, 1998 $ 1,078,167 $ 4,515,816 $ 5,593,983
-------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4. Interest Only Strips and June 30, 1998 1997
Other
receivables --------------------------------------------------------------------------------
Sales of loans $ 2,552,478 $ 960,136
Loan fees 1,199,566 246,294
Interest-only strips (net of
Allowance for credit losses of
$4,515,816 and $1,426,142) 95,912,759 37,507,191
Other 1,071,761 930,540
-------------------------------------------------------------------------------
$ 100,736,564 $ 39,644,161
-------------------------------------------------------------------------------
</TABLE>
Interest-only strips include
overcollateralized balances which represent
undivided interests in the securitizations
purchased to provide credit enhancements to
the investors. At June 30, 1998 and 1997,
overcollateralized principal balances were
$25,315,523 and $9,059,249, respectively.
The activity in the interest-only strip
receivables is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended June 30, 1998 1997
-------------------------------------------------------------------------------
Balance, beginning of year $ 38,933,333 $ 13,447,674
Initial recognition of
interest-only strips 64,378,927 25,749,704
Net amortization (2,883,685 ) (264,045 )
-------------------------------------------------------------------------------
Balance, end of year $ 100,428,575 $ 38,933,333
-------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5. Property and June 30, 1998 1997
Equipment
--------------------------------------------------------------------------------
Computer equipment and software $ 5,382,963 $ 2,247,786
Office furniture and equipment 5,527,080 1,641,572
Leasehold improvements 1,101,872 293,098
Transportation equipment 216,508 32,745
-------------------------------------------------------------------------------
12,228,423 4,215,201
Less accumulated depreciation
and amortization 4,443,760 1,351,856
-------------------------------------------------------------------------------
$ 7,784,663 $ 2,863,345
-------------------------------------------------------------------------------
6. Other Assets June 30, 1998 1997
--------------------------------------------------------------------------------
Deposits $ 146,455 $ 263,165
Financing costs, debt offerings, net
of accumulated amortization of
$2,891,349 and $1,721,764 2,524,865 1,653,471
Investments held to maturity
(mature in June 2002 through April
2011) 5,638,653 2,753,400
Investments held for sale (U.S.
Treasury note due June 30, 1999) -- 5,000,000
Foreclosed property held for sale 715,763 605,177
Servicing rights 18,472,576 8,083,008
Goodwill, net of accumulated
amortization of $779,880 16,151,053 --
Other 844,000 71,828
-------------------------------------------------------------------------------
$ 44,493,365 $ 18,430,049
-------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
7. Subordinated Debt
and Notes Payable June 30, 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Subordinated debt, due July 1998 through
October 1998; interest at rates ranging from
8% to 12%, payable quarterly; subordinated to
all of the Company's senior indebtedness. $ 127,000 $ 1,077,721
Subordinated debt, due July 1998 through June
2008, interest at rates ranging from 7.0% to
10.5%; subordinated to all of the Company's
senior indebtedness. 105,524,694 55,408,508
Note payable, $100,000,000 revolving line of
credit expiring September 1998; interest at
LIBOR plus 1.25%, payable monthly;
collateralized by loan and lease receivables.
530,735 --
Senior subordinated debt, due July 1998
through July 2002; interest at 12%, payable
monthly; subordinated to subsidiary's senior
debt.
3,000,000 --
Note payable, $110,000,000 revolving line of
credit expiring July 1999; interest at rates
ranging from LIBOR plus 1.375% to LIBOR plus
2%; collateralized by loan and lease
receivables. 25,957,616 --
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
June 30, 1998 1997
-------------------------------------------------------------------------------
Subordinated debt, due August 1998 through
May 2003; interest rates ranging from 9% to
11.26%; subordinated to all of the Company's
senior indebtedness. $ 6,529,854 $ --
Note payable, acquisition, due October 1998
through October 2000; interest at 8%, payable
monthly.
2,914,920 --
-------------------------------------------------------------------------------
$ 144,584,819 $56,486,229
-------------------------------------------------------------------------------
Principal payments on debt for the next five years are as follows: year ending
June 30, 1999 - $90,695,018; 2000 - $17,154,414; 2001 - $10,793,804; 2002 -
$8,824,417 and 2003 - $9,208,389.
The loan agreements provide for certain
covenants regarding net worth and financial
matters. At June 30, 1998, the Company is in
compliance with terms of the loan covenants.
8. Common and In May 1996, the stockholders approved an amended and restated
Certificate of Preferred Stock Incorporation which increased the
authorized common shares from 5,000,000 to
9,000,000 and established a class of preferred
shares with 1,000,000 shares authorized.
In February 1997, the Company sold 1,150,000
shares of common stock through a public
offering, resulting in net proceeds of
$20,738,928.
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
9. Stock Options In May 1996, the stockholders approved a nonemployee director stock option plan
(the "1995 Plan") which authorizes the grant to nonemployee directors of
options to purchase 135,000 shares of common stock at a price equal to the
market price of the stock at the date of grant. Options are fully vested when
granted and expire 10 years after grant. At June 30, 1998, 25,000 options were
available for future grants under the 1995 Plan. Transactions under the 1995
Plan were as follows:
Number of Weighted-Average
Shares Exercise Price
-------------------------------------------------------------------------------
Options granted and outstanding,
June 30, 1996 90,000 $ 5.00
Options granted 20,000 17.75
Options exercised -- --
-------------------------------------------------------------------------------
Options outstanding,
June 30, 1998 and 1997 110,000 $ 7.32
-------------------------------------------------------------------------------
In December 1997, the stockholders approved a
nonemployee director stock option plan (the
"1997 Plan") which authorizes the grant to
nonemployee directors of options to purchase
120,000 shares of common stock at a price
equal to the market price of the stock at date
of grant. Each nonemployee director shall be
automatically granted (subject to Board of
Directors' approval) an option to purchase
5,000 shares of common stock on October 1 of
each year commencing October 1, 1997 for a
period of three years. Options are fully
vested when granted and expire three years
after grant. At June 30, 1998, 100,000 options
were available for future grants under the
1997 Plan. Transactions under the 1997 Plan
were as follows:
Number of Weighted-Average
Shares Exercise Price
-------------------------------------------------------------------------------
Options granted and outstanding,
June 30, 1998 20,000 $ 23.25
-------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
The Company has an employee stock option plan
which authorizes the grant to employees of
options to purchase 560,000 shares of common
stock at a price equal to the market price of
the stock at the date of grant. Options are
either fully vested when granted or vested
over a five-year period and expire 5 to 10
years after grant. At June 30, 1998, 14,988
shares were available for future grants under
this plan. Transactions under the plan were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number of Weighted-Average
Shares Exercise Price
-------------------------------------------------------------------------------
Options outstanding, July 1, 1995 268,512 $ 2.67
Options granted 22,500 5.00
Options exercised (225,012 ) 2,67
-------------------------------------------------------------------------------
Options outstanding, June 30, 1996 66,000 3.46
Options granted 161,500 19.93
-------------------------------------------------------------------------------
Options outstanding, June 30, 1997 227,500 15.15
Options granted 101,500 24.10
Options canceled 9,000 20.49
-------------------------------------------------------------------------------
Options outstanding,
June 30, 1998 320,000 $ 19.00
-------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
The following tables summarize information
about stock options outstanding at June
30,1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding
-------------------------------------------------------------------------------
Weighted
Remaining
Range of Number Contractual Weighted-Average
Exercise Prices of Shares Life in Years Exercise Price
of Options
-------------------------------------------------------------------------------
$ 2.67 - $ 5.00 66,000 2.0 $ 3.46
$17.75 - $20.00 155,000 8.1 19.93
$20.50 - $27.00 99,000 8.9 24.10
-------------------------------------------------------------------------------
320,000 7.1 $ 19.00
-------------------------------------------------------------------------------
Options Exercisable
-------------------------------------------------------------------------------
Weighted
Remaining
Range of Number Contractual Weighted-Average
Exercise Prices of Shares Life in Years Exercise Price
of Options
-------------------------------------------------------------------------------
$ 2.67 - $ 5.00 66,000 2.0 $ 3.46
$17.75 5,000 3.3 17.75
$18.50 500 4.8 18.50
$20.00 29,500 4.6 20.00
$24.25 5,000 2.3 24.25
-------------------------------------------------------------------------------
106,000 2.8 $ 9.79
-------------------------------------------------------------------------------
</TABLE>
In September 1995, options for 225,012 shares
were exercised at $2.67 per share by an
officer of the Company. The purchase price of
$600,032 was advanced to the officer by the
Company. The loan is due in September 2005
(earlier if the stock is disposed of) with
interest only at 6.46%, payable annually. The
loan was secured by 450,012 shares of the
Company's stock (at the date of exercise,
market value of collateral was approximately
$1,200,000), subsequently reduced to 225,012
shares, and is shown as a reduction of
stockholders' equity on the accompanying
balance sheet.
F-26
<PAGE>
On July 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based
Compensation," which requires either the fair
value of employee stock-based compensation
plans be recorded as a component of
compensation expense in the statement of
income as of the date of grant of awards
related to such plans, or the impact of such
fair value on net income and EPS be disclosed
on a pro forma basis in a footnote to
financial statements for awards granted after
December 15, 1994, if the accounting for such
awards continues to be in accordance with APB
Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company will continue such
accounting under the provisions of APB Opinion
No. 25.
Had compensation cost for the plan been
determined based on fair value at the grant
dates for awards under the plan consistent
with the method prescribed by SFAS No. 123,
the Company's net income and EPS would have
been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
June 30, 1998 1997 1996
-------------------------------------------------------------------------------
Net income
As reported $ 11,454,416 $ 5,939,833 $ 2,318,696
Pro forma 10,956,709 5,360,818 2,293,278
EPS - basic
As reported $ 3.26 $ 2.13 $ 1.01
Pro forma 3.12 1.93 1.00
EPS - diluted
As reported $ 3.13 $ 2.05 $ 1.01
Pro forma 2.99 1.85 1.00
</TABLE>
F-27
<PAGE>
The fair value of each option grant is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
June 30, 1998 1997 1996
-------------------------------------------------------------------------------
Expected volatility 30% 30% 25%
Expected life 5-10 yrs. 5-10 yrs. 5 yrs.
Risk-free interest rate 5.39%-6.17% 6.31%-6.90% 5.77%-6.01%
10. Income Taxes The provision for income taxes consists of the following:
Year ended June 30, 1998 1997 1996
-------------------------------------------------------------------------------
Current
Federal $ 1,087,446 $ -- $ --
-------------------------------------------------------------------------------
Deferred
Federal 5,347,851 3,061,854 858,617
State -- -- (56,650 )
-------------------------------------------------------------------------------
5,347,851 3,061,854 801,967
-------------------------------------------------------------------------------
$ 6,435,297 $ 3,061,854 $ 801,967
-------------------------------------------------------------------------------
</TABLE>
The current provision for federal income taxes
for the years ended June 30, 1998, 1997 and
1996 is net of the tax benefit of
approximately -0-, $533,000 and $249,000,
respectively, from the utilization of net
operating loss carryforwards.
F-28
<PAGE>
The cumulative temporary differences resulted
in net deferred income tax assets or
liabilities consisting primarily of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998 1997
-------------------------------------------------------------------------------
Deferred income tax assets
Allowance for credit losses $ 1,211,657 $ 599,914
Net operating loss carryforwards 5,776,717 1,888,688
Loan and lease receivables 659,607 291,379
-------------------------------------------------------------------------------
7,647,981 2,779,981
Less valuation allowance 5,776,717 1,888,688
-------------------------------------------------------------------------------
1,871,264 891,293
-------------------------------------------------------------------------------
Deferred income tax liabilities
Loan and lease origination
costs/fees, net 1,252,436 784,156
Book over tax basis of property
and equipment 741,255 372,688
Other receivables 8,396,440 1,706,642
Servicing rights 2,344,671 2,658,788
-------------------------------------------------------------------------------
12,734,802 5,522,274
-------------------------------------------------------------------------------
Net deferred income taxes $ 10,863,538 $ 4,630,981
-------------------------------------------------------------------------------
</TABLE>
The valuation allowance represents the income
tax effect of state net operating loss
carryforwards of the Company which are not
presently expected to be utilized.
F-29
<PAGE>
A reconciliation of income taxes at federal
statutory rates to the Company's tax provision
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998 1997 1996
-------------------------------------------------------------------------------
Federal income tax at
statutory rates $ 6,082,502 $ 3,061,854 $ 1,061,005
Nondeductible items 348,613 -- 13,545
Other, net 4,182 -- (272,583 )
-------------------------------------------------------------------------------
$ 6,435,297 $ 3,061,854 $ 801,967
-------------------------------------------------------------------------------
</TABLE>
For income tax reporting, the Company has net
operating loss carryforwards aggregating
approximately $45,000,000 available to reduce
future state income taxes for various states
as of June 30, 1998. If not used,
substantially all of the carryforwards will
expire at various dates from June 30, 1999 to
June 30, 2001.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
11. Commitment Lease Commitment
and
Contingencies As of June 30, 1998, the Company leases
property under noncancelable operating leases
requiring minimum annual rentals as follows:
Year ending June 30, Amount
-------------------------------------------------------------------------------
1999 $ 2,944,541
2000 2,914,744
2001 2,883,623
2002 2,702,012
2003 1,857,163
Thereafter 48,058
-------------------------------------------------------------------------------
$ 13,350,141
-------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
Employment Agreements
The Company entered into employment
agreements, as amended, with three executives
under which they are entitled to annual base
compensation of $800,000, collectively,
adjusted for increases in the Consumer Price
Index and merit increases for one executive.
The agreements terminate upon: (a) the earlier
of the executive's death, permanent
disability, termination of employment for
cause, voluntary resignation (except that no
voluntary resignation may occur prior to
February 2000) or 70th birthday; or (b) the
later of the fifth anniversary of the
agreement or from three to five years from the
date of notice to the executive of the
Company's intention to terminate the
agreement.
In addition, the executives are entitled to a
cash payment equal to 299% of the last five
years average annual compensation in the event
of a "change in control," as defined in the
agreement, and two of the executives are
entitled to all of the compensation discussed
above.
The Company has entered into employment
agreements with two other executives under
which they are entitled to minimum annual base
compensation of $350,000, collectively. These
agreements terminate upon the earlier of the
executive's death, permanent disability,
termination for cause, voluntary resignation
or three years.
12. Fair Value of No market exists for certain of the Company's assets and
liabilities. Financial Therefore, fair value estimates are based on
judgments regarding credit risk, Instruments investor expectation of
future economic conditions, and normal cost of
administration and other risk characteristics,
including interest rates and prepayment risk.
These estimates are subjective in nature and
involve uncertainties and matters of judgment
and, therefore, cannot be determined with
precision. Changes in assumptions could
significantly affect the estimates.
F-31
<PAGE>
In addition, the fair value estimates
presented do not include the value of assets
and liabilities that are not considered
financial instruments.
The information about fair value of the
financial instruments recorded on the
Company's financial statements at June 30,
1998 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
June 30, 1998
-------------------------------------------------------------------------------
Carrying Value Fair
Value
-------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 4,485,759 $ 4,485,759
Loan and leases held for sale 63,460,139 63,685,186
Interest-only strips 100,428,575 100,428,575
Servicing rights 18,472,576 18,472,576
Liabilities
Subordinated debt and notes payable $144,584,819 $144,584,819
-------------------------------------------------------------------------------
</TABLE>
The methodology and assumptions utilized to
estimate the fair value of the Company's
financial instruments are as follows:
Cash and Cash Equivalents - For these
short-term instruments, the carrying
amount approximates fair value.
Loans and Leases Held for Sale - The
Company has estimated the fair values
reported based upon recent sales and
securitizations.
Interest-Only Strips - Fair value is
determined using estimated discounted
future cash flows taking into
consideration anticipated prepayment
rates.
F-32
<PAGE>
Servicing Rights - Fair value is
determined using estimated discounted
future cash flows taking into
consideration anticipated prepayment
rates.
Subordinated Debt and Notes Payable -
The fair value of fixed-maturity
subordinated debt is estimated using
the rates currently offered for
debentures of similar maturities.
13. Hedging The Company regularly securitizes and sells fixed-rate mortgage
loans. To Transactions offset the effects of interest rate fluctuations
on the value of its fixed-rate
loans held for sale, the Company may hedge its
interest rate risk related to the loans held
for sale by selling forward contracts for U.S.
Treasury securities. The Company classifies
these sales as hedges of specific loans held
for sale and does not record the derivative
securities on its financial statements. The
gain or loss derived from these sales is
deferred and recognized as an adjustment to
gain on sale of loans when the loans are
securitized. At June 30, 1998, such hedging
transactions were not material.
14. Employee The Company has a 401(k) defined contribution plan, which was
established in Benefit Plan 1995, available to all employees who have
been with the Company for six months
and have reached the age of 21. Employees may
generally contribute up to 15% of their salary
each year and the Company, effective October
1, 1997, at its discretion, may match up to
25% of the first 5% of salary contributed by
the employee. The Company's contribution
expense was $107,921 for the year ended June
30, 1998.
F-33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
15. Reconciliation of
Basic and Diluted
Earnings Per
Common Share
Year ended June 30, 1998
-------------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------------------
Basic EPS
Net income $ 11,454,416 3,516,659 $ 3.26
Effect of dilutive securities
Stock options -- 147,558 --
-------------------------------------------------------------------------------
Diluted EPS
Net income $ 11,454,416 3,664,217 $ 3.13
-------------------------------------------------------------------------------
Year ended June 30, 1997
-------------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------------------
Basic EPS
Net income $ 5,939,833 2,782,291 $ 2.13
Effect of dilutive securities
Stock options -- 121,463 --
-------------------------------------------------------------------------------
Diluted EPS
Net income $ 5,939,833 2,903,754 $ 2.05
-------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended June 30, 1996
-------------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------------------
Basic EPS
Net income $ 2,318,696 2,296,913 $ 1.01
Effect of dilutive securities
Stock options -- -- --
-------------------------------------------------------------------------------
Diluted EPS
Net income $ 2,318,696 2,296,913 $ 1.01
-------------------------------------------------------------------------------
</TABLE>
F-35
<PAGE>
You should rely only on the information contained or incorporated by
reference in this Prospectus. We have authorized no one to provide
you with different information. You should not assume that the
information in this Prospectus, including information incorporated by
reference, is accurate as of any date other than the date on the front
of the Prospectus. We are not making an offer of these Debt
Securities in any location where the offer is not permitted.
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
[LOGO]
$250,000,000
of
Subordinated Investment Notes
and Adjustable Rate Subordinated
Money Marketn Notes
------------------
PROSPECTUS
------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Debt Securities, other than underwriting
discounts and commissions, which ABFS does not anticipate paying:
SEC Registration Fee*....................................... $ 73,750
NASD Filing Fee............................................. 0
Printing, Engraving and Mailing ............................ 60,000
Legal Fees and Expenses..................................... 100,000
Accounting Fees and Expenses................................ 50,000
Blue Sky Fees and Expenses.................................. 10,000
Miscellaneous............................................... 5,906,250
-----------
TOTAL............................................ $6,200,000
===========
- ------------
* Exact; all other fees and expenses are estimates
Item 15. Indemnification of Directors and Officers.
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Bylaws (the "Bylaws") of ABFS provide for
indemnification of its directors and officers to the full extent permitted by
Delaware law. In the event that the Delaware General Corporation Law (the
"Corporation Law") is amended to authorize corporate action further
eliminating or limiting the personal liability of directors and officers, the
Certificate of Incorporation and Bylaws provide the personal liability of the
directors and officers of ABFS shall be so eliminated or limited.
Section 145 of the Corporation Law provides, in substance, that Delaware
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions,
suits or proceedings brought against them by a third party or in the right of
the corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding.
Section 145 of the Corporation Law provides that a company may pay the
expenses incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon an undertaking by or
on behalf of such director or officer to repay such amount if it is ultimately
determined that he or she is not entitled to be indemnified by the
corporation. The Certificate of Incorporation and Bylaws of ABFS provide that
ABFS shall pay such expenses.
II-1
<PAGE>
The Company maintains insurance to cover the Company's directors and
executive officers for liabilities which may be incurred by the Company's
directors and executive officers in the performance of their duties.
Item 16. Exhibits
Exhibit Number Description
- -------------- -----------
4.1 Form of unsecured Investment Note (Incorporated by reference from
Exhibit 4.1 of Amendment No. 1 to the Registration Statement on
Form SB-2 filed April 29, 1994, Registration Number 33-76390)).
4.2 Form of unsecured Investment Note issued pursuant to Indenture
with First Trust, National Association, a national banking
association. (Incorporated by reference from Exhibit 4.5 of
Amendment No. One to the Registration Statement on Form SB-2 filed
on December 14, 1995, Registration Number 33-98636 (the "1995 Form
SB-2")).
4.3 Form of Indenture by and between ABFS and First Trust, National
Association, a national banking association (Incorporated by
reference from Exhibit 4.6 of the Registration Statement on Form
SB-2 filed on October 26, 1995, Registration Number 33-98636).
4.4 Form of Indenture by and between ABFS and First Trust, National
Association, a national banking association (Incorporated by
reference from Exhibit 4.4 of the Registration Statement on Form
SB-2 filed March 28, 1997, Registration Number 333-24115 (the
"1997 Form SB-2")).
4.5 Form of unsecured Investment Note (Incorporated by reference from
Exhibit 4.5 of the 1997 Form SB-2).
4.6 Form of Indenture by and between ABFS and First Trust, National
Association, a national banking association (Incorporated by
reference from Exhibit 4.4 of the Registration Statement on Form
SB-2 filed May 23, 1997, Registration Number 333-24115).
4.7 Form of Unsecured Investment Note (Incorporated by reference from
Exhibit 4.5 of the Registration Statement on Form SB-2 filed May
23, 1997, Registration Number 333-24115).
4.8 Form of Indenture by and between ABFS and U.S. Bank Trust,
National Association, a national banking association.
4.9 Form of Unsecured Investment Note.
5 Opinion of Blank Rome Comisky & McCauley LLP.
II-2
<PAGE>
Exhibit Number Description
- -------------- -----------
10.1 Loan and Security Agreement between Upland Mortgage and
BankAmerica Business Credit, Inc. dated May 23, 1996 (Incorporated
by reference from the 1996 Form 10-KSB).
10.2 Amended and Restated Stock Option Plan (Incorporated by reference
from Exhibit 10.2 of ABFS' Quarterly Report on Form 10-QSB from
the quarter ended September 30, 1997, File No. 0-22474).
10.3 Stock Option Award Agreement (Incorporated by reference from
Exhibit 10.1 of the Registration Statement on Form S-11 filed on
February 26, 1993, Registration No. 33-59042 (the "Form S-11")).
10.4 Line of Credit Agreement by and between American Business Credit,
Inc. and Eagle National Bank (Incorporated by reference from
Exhibit 10.4 of Amendment No. 1 to the Registration Statement on
Form SB-2 filed on April 29, 1993, Registration No. 33-59042 (the
"1993 Form SB-2")).
10.5 Agreement dated April 12, 1993 between American Business Credit,
Inc. and Eagle National Bank (Incorporated by reference from
Exhibit 10.5 of the 1993 Form SB-2).
10.6 1995 Stock Option Plan for Non-Employee Directors (Incorporated by
reference from Exhibit 10.6 of the Amendment No. 1 to the 1996
Form SB-2 filed on February 4, 1996 Registration No. 333-18919
(the "Amendment No. 1 to the 1997 Form SB-2")).
10.7 Form of Option Award Agreement for Non-Employee Directors Plan for
Formula Awards (Incorporated by reference from Exhibit 10.13 of
the 1996 Form 10-KSB).
10.8 1997 Non-Employee Director Stock Option Plan (including form of
Option Agreement) (Incorporated by reference from Exhibit 10.1 of
the September 30, 1997 Form 10-QSB).
10.9 Interim Warehouse and Security Agreement between Upland Mortgage
and Prudential Securities Realty Funding Corporation dated April
25, 1996 (Incorporated by reference from Exhibit 10.14 of the 1996
Form 10-KSB).
10.10 Lease dated January 7, 1994 by and between TCW Realty Fund IV
Pennsylvania Trust and ABFS (Incorporated by reference from
Exhibit 10.9 of the Registration Statement on Form SB-2 filed
March 15, 1994, File No. 33-76390).
10.11 First Amendment to Agreement of Lease by and between TCW Realty
Fund IV Pennsylvania Trust and ABFS dated October 24, 1994.
(Incorporated by reference from Exhibit 10.9 of ABFS' Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1995 (the
"1995 Form 10-KSB")).
II-3
<PAGE>
Exhibit Number Description
- -------------- -----------
10.12 Second Amendment to Agreement of Lease by and between TCW Realty
Fund IV Pennsylvania Trust and ABFS dated December 23, 1994
(Incorporated by reference from Exhibit 10.10 of the 1995 Form
10-KSB).
10.13 Third Amendment to Lease between TCW Realty Fund IV Pennsylvania
Trust and ABFS dated July 25, 1995 (Incorporated by reference from
Exhibit 10.11 of the 1995 Form 10-KSB).
10.14 Promissory Note of Anthony J. Santilli, Jr. and Stock Pledge
Agreement dated September 29, 1995 (Incorporated by reference from
Exhibit 10.14 of the 1995 Form SB-2).
10.15 Form of Employment Agreement with Anthony J. Santilli, Jr.,
Beverly Santilli and Jeffrey M. Ruben (Incorporated by reference
from Exhibit 10.15 of the Amendment No. 1 to the 1996 Form SB-2).
10.16 Amendment One to Anthony J. Santilli, Jr.'s Employment Agreement
(Incorporated by reference from Exhibit 10.3 of the September 30,
1997 Form 10-QSB).
10.17 Amendment One to Beverly Santilli's Employment Agreement
(Incorporated by reference from Exhibit 10.4 of the September 30,
1997 Form 10-QSB).
10.18 Management Incentive Plan (Incorporated by reference from Exhibit
10.16 of the 1996 Form SB-2).
10.19 Loan and Security Agreement dated December 12, 1996 between
American Business Credit, Inc. and Finova Capital Corporation
(Incorporated by reference from Exhibit 10.17 of the 1996 Form
SB-2).
10.20 Form of Option Award Agreement for Non-Employee Directors Plan for
Non- Formula Awards (Incorporated by reference from Exhibit 10.18
of the Amendment No. 1 to the 1996 Form SB-2).
10.21 Form of Pooling and Servicing Agreement related to the Company's
loan securitizations dated March 31, 1995, October 1, 1995, May 1,
1996, August 31, 1996, February 28, 1997, September 1, 1997,
February 1, 1998, and June 1, 1998 (Incorporated by reference from
Exhibit 4.1 of ABFS' Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1995 (the "March 31, 1995 Form 10-QSB")).
10.22 Form of Sales and Contribution Agreement related to the Company's
loan securitizations dated March 31, 1995, October 1, 1995, May 1,
1996 and September 27, 1996 (Incorporated by reference from
Exhibit 4.1 of the March 31, 1995 Form 10-QSB).
II-4
<PAGE>
Exhibit Number Description
- -------------- -----------
10.23 Amendments to the Interim Warehouse and Security Agreement between
Upland Mortgage and Prudential Securities Realty Funding
Corporation. (Incorporated by reference from Exhibit 10.21 of the
Amendment No. 1 to the 1997 Form SB-2 filed on May 23, 1997
Registration No. 333-24115(the "Amendment No. 1 to the 1997
SB-2")).
10.24 Fourth Amendment to Lease between TCW Realty Fund IV Pennsylvania
Trust and ABFS dated April 9, 1996. (Incorporated by reference
from Exhibit 10.22 to the Amendment No. 1 to the 1997 SB-2).
10.25 Fifth Amendment to Lease between TCW Realty Fund IV Pennsylvania
Trust and ABFS dated October 8, 1996. (Incorporated by reference
from Exhibit 10.23 to the Amendment No. 1 to the 1997 SB-2).
10.26 Sixth Amendment to Lease between TCW Realty Fund IV Pennsylvania
Trust and ABFS dated March 31, 1997. (Incorporated by reference
from Exhibit 10.24 to the Amendment No. 1 to the 1997 SB-2).
10.27 Agreement for Purchase and Sale of Stock between Stanley L. Furst,
Joel E. Furst and ABFS dated October 27, 1997 (Incorporated by
reference from ABFS' Current Report on Form 8-K dated October 27,
1997, File No. 0- 22747).
10.28 Credit Agreement between American Business Credit, Inc.,
HomeAmerican Credit, Inc., and American Business Leasing, Inc., as
co-borrowers, American Business Financial Services, Inc., as
parent, Chase Bank of Texas, NA, as administrative agent and
certain lenders (Incorporated by reference from Exhibit 10.24 of
ABFS' Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997 filed on September 29, 1997, File No. 0-22474).
10.29 Standard Form of Office Lease and Rider to Lease dated April 2,
1993 by and between 5 Becker Associates and NJMIC. (Incorporated
by reference from Exhibit 10.29 of Post-Effective Amendment No. 1
to the Registration Statement on Form SB-2 filed on January 22,
1998, Registration No. 333- 2445).
10.30 First Amendment of Lease by and between 5 Becker Associates and
NJMIC dated July 27, 1994. (Incorporated by reference from Exhibit
10.30 of Post- Effective Amendment No. 1 to the Registration
Statement on Form SB-2 filed on January 22, 1998, Registration No.
333-2445).
10.31 Form of Debenture Note related to NJMIC's subordinated debt.
(Incorporated by reference from Exhibit 10.31 of Post-Effective
Amendment No. 1 to the Registration Statement on Form SB-2 filed
on January 22, 1998, Registration No. 333-2445).
II-5
<PAGE>
Exhibit Number Description
- -------------- -----------
10.32 Note Agreement and Promissory Note dated July 15, 1997 issued by
NJMIC to N.M. Rothschild & Sons. (Incorporated by reference from
Exhibit 10.32 of Post-Effective Amendment No. 1 to the
Registration Statement on Form SB-2 filed on January 22, 1998,
Registration No. 333-2445).
10.33 Form of Standard Terms and Conditions of Servicing Agreement
related to NJMIC's lease securitizations dated May 1, 1995 and
March 1, 1996. (Incorporated by reference from Exhibit 10.33 of
Post-Effective Amendment No. 1 to the Registration Statement on
Form SB-2 filed on January 22, 1998, Registration No. 333-2445).
10.34 Form of Standard Terms and Conditions of Lease Acquisition
Agreement related to NJMIC's lease securitizations dated May 1,
1995 and March 1, 1996. (Incorporated by reference from Exhibit
10.34 of Post-Effective Amendment No. 1 to the Registration
Statement on Form SB-2 filed on January 22, 1998, Registration No.
333-2445).
10.35 Amended and Restated Specific Terms and Conditions of Servicing
Agreement related to NJMIC's lease securitization dated May 1,
1995. (Incorporated by reference from Exhibit 10.35 of
Post-Effective Amendment No. 1 to the Registration Statement on
Form SB-2 filed on January 22, 1998, Registration No. 333-2445).
10.36 Amended and Restated Specific Terms and Conditions of Lease
Acquisition Agreement related to NJMIC's lease securitization
dated May 1, 1995. (Incorporated by reference from Exhibit 10.36
of Post-Effective Amendment No. 1 to the Registration Statement on
Form SB-2 filed on January 22, 1998, Registration No. 333-2445).
10.37 Specific Terms and Conditions of Servicing Agreement related to
NJMIC's lease securitization dated March 1, 1996. (Incorporated by
reference from Exhibit 10.37 of Post-Effective Amendment No. 1 to
the Registration Statement on Form SB-2 filed on January 22, 1998,
Registration No. 333- 2445).
10.38 Specific Terms and Conditions of Lease Acquisition Agreement
related to NJMIC's lease securitization dated March 1, 1996.
(Incorporated by reference from Exhibit 10.38 of Post-Effective
Amendment No. 1 to the Registration Statement on Form SB-2 filed
on January 22, 1998, Registration No. 333- 2445).
10.39 Indenture by and among ABFS Equipment Contract Trust 1998-A,
American Business Leasing, Inc. and The Chase Manhattan Bank dated
June 1, 1998.
II-6
<PAGE>
Exhibit Number Description
- -------------- -----------
10.40 Form of Unaffiliated Seller's Agreement related to the Company's
loan securitizations dated March 27, 1997, September 29, 1997,
February 1, 1998, and June 1, 1998.
10.41 First Amended and Restated Interim Warehouse and Security
Agreement among Prudential Securities Credit Corporation,as
lender, and HomeAmerican Credit Inc. and American Business Credit,
Inc., as borrowers.
10.42 Amendments to the First Amended and Restated Interim Warehouse and
Security Agreement among Prudential Securities Credit
Corporation,as lender, and HomeAmerican Credit Inc. and American
Business Credit, Inc., as borrowers.
10.43 Amendments to the Credit Agreement between American Business
Credit, Inc., HomeAmerican Credit, Inc., American Business
Leasing, Inc., New Jersey Mortgage & Investment Corp., and Federal
Leasing Corp. as co- borrowers, American Business Financial
Services, Inc., as parent, Chase Bank of Texas, NA, as
administrative agent for lenders.
11 Statement of Computation of Per Share Earnings (Included in Note
15 of the Notes to Consolidated Financial Statements).
12 Statement of Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Blank Rome Comisky & McCauley LLP (See Exhibit 5).
23.2 Consent of BDO Seidman LLP.
24 Power of Attorney (included on signature page).
25 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form T-1.
27 Financial Data Schedule.
99.1 Form of Prospectus Supplement.*
99.2 Advertising Materials and Order Forms.*
- --------------------------------------
* To be filed by amendment
II-7
<PAGE>
Exhibit numbers correspond to the exhibits required by Item 601 of
Regulation S-K for a Registration Statement on Form S-2.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sells
securities, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be the initial bona fide
offering thereof;
(3) To remove form registration by means of a post-effective
amendment any of the securities that remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
II-8
<PAGE>
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant under Rule 424(b)(1), or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, in the
City of Philadelphia, Commonwealth of Pennsylvania on September 18, 1998.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Date: September 18, 1998 By:/S/ ANTHONY J. SANTILLI, JR.
----------------------------
Anthony J. Santilli, Jr., Chairman,
President, Chief Executive Officer,
Chief Operating Officer and Director
(Duly Authorized Officer)
---------------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Anthony J. Santilli, his true and lawful
attorney-in-fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documentation in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents 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 he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their 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 was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- -------------------------------------- ----------------------------------------------- -----------------------
<S> <C> <C>
/S/ ANTHONY J. SANTILLI, JR. Chairman, President, Chief Executive Officer, September 18, 1998
- ---------------------------- Chief Operating Officer and Director
Anthony J. Santilli, Jr. (Principal Executive and Operating Officer)
/S/ DAVID M. LEVIN Senior Vice President -- Finanance and September 18, 1998
- ------------------ Chief Financial Officer (Principal Financial
David M. Levin and Accounting Officer)
/S/ LEONARD BECKER Director September 18, 1998
- ------------------
Leonard Becker
/S/ RICHARD KAUFMAN Director September 18, 1998
- -------------------------------
Richard Kaufman
/s/ MICHAEL DELUCA Director September 18, 1998
- ----------------------------------
Michael DeLuca
/S/ HAROLD SUSSMAN Director September 18, 1998
- ---------------------------------
Harold Sussman
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Numbers Description
- --------------- -----------
<S> <C>
4.8 Form of Indenture by and between ABFS and U.S. Bank
Trust, National Association, a national banking
association.
4.9 Form of Investment Note.
5 Opinion of Blank Rome Comisky & McCauley LLP.
10.39 Indenture by and among ABFS Equipment Contract Trust 1998-A, American
Business Leasing, Inc. and Chase Bank of Texas, NA.
10.40 Form of Unaffiliated Seller's Agreement related to the Company's loan
securitizations dated March 27, 1997, September 29, 1997, February 1,
1998, and June 1, 1998.
10.41 First Amended and Restated Interim Warehouse and Security Agreement
among Prudential Securities Credit Corporation,as lender, and
HomeAmerican Credit Inc. and American Business Credit, Inc., as
borrowers.
10.42 Amendments to the First Amended and Restated Interim Warehouse and
Security Agreement among Prudential Securities Credit Corporation,as
lender, and HomeAmerican Credit Inc. and American Business Credit, Inc.,
as borrowers.
10.43 Amendments to the Credit Agreement between American Business Credit,
Inc., HomeAmerican Credit, Inc., American Business Leasing, Inc., New
Jersey Mortgage & Investment Corp., and Federal Leasing Corp. as co-
borrowers, American Business Financial Services, Inc., as parent,
Chase Bank of Texas, NA, as administrative agent for lenders.
11 Statement of Computation of Per Share Earnings. (Included in Note 15 of the
Notes to Consolidated Financial Statements).
12 Statement of Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Blank Rome Comisky & McCauley LLP (See Exhibit 5).
23.2 Consent of BDO Seidman LLP.
24 Power of Attorney (included on signature page).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
25 Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 on Form T-1.
27 Financial Data Schedule.
99.1 Form of Prospectus Supplement.*
99.2 Advertising Materials and Order Forms.*
</TABLE>
- --------------------------------------
* To be filed by amendment
<PAGE>
Exhibit 4.8
EXECUTION COPY
INDENTURE
AMERICAN BUSINESS FINANCIAL SERVICES, INC., as Obligor
$250,000,000.00
Unsecured, Subordinated Investment Notes
and
Unsecured, Adjustable Rate Subordinated Money Market Notes
--------------------
--------------------
U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association
as Trustee
Dated as of __________ , 1998
------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE............................................................1
Section 1.1 Definitions............................................................................1
Section 1.2 Other Definitions......................................................................4
Section 1.3 Incorporation by Reference of Trust Indenture Act......................................5
Section 1.4 Rules of Construction..................................................................5
ARTICLE II. THE SECURITIES.......................................................................................6
Section 2.1 Form and Dating........................................................................6
Section 2.2 Execution and Authentication...........................................................8
Section 2.3 Registrar and Paying Agent.............................................................8
Section 2.4 Paying Agent to Hold Money in Trust....................................................9
Section 2.5 Securityholder Lists...................................................................9
Section 2.6 Transfer and Exchange..................................................................9
Section 2.7 Payment of Principal and Interest; Principal and Interest Rights
Preserved...........................................................................11
Section 2.8 Replacement Securities................................................................12
Section 2.9 Outstanding Securities................................................................13
Section 2.10 Treasury Securities...................................................................13
Section 2.11 Temporary Securities.................................................................13
Section 2.12 Cancellation..........................................................................14
Section 2.13 Defaulted Interest....................................................................14
Section 2.14 Book Entry Registration...............................................................14
Section 2.15 Initial and Monthly Statements........................................................15
ARTICLE III. REDEMPTION.........................................................................................15
Section 3.1 Redemption of Investment Notes........................................................15
Section 3.2 Redemption of Money Market Notes......................................................16
ARTICLE IV. COVENANTS...........................................................................................16
Section 4.1 Payment of Securities.................................................................16
Section 4.2 Maintenance of Office or Agency.......................................................17
Section 4.3 SEC Reports and Other Reports.........................................................17
Section 4.4 Compliance Certificate................................................................18
Section 4.5 Stay, Extension and Usury Laws........................................................19
Section 4.6 Liquidation...........................................................................19
ARTICLE V. SUCCESSORS...........................................................................................19
Section 5.1 When the Company May Merge, etc.......................................................19
Section 5.2 Successor Corporation Substituted.....................................................20
i
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI. DEFAULTS AND REMEDIES...............................................................................20
Section 6.1 Events of Default.....................................................................20
Section 6.2 Acceleration..........................................................................21
Section 6.3 Other Remedies........................................................................21
Section 6.4 Waiver of Past Defaults...............................................................22
Section 6.5 Control by Majority...................................................................22
Section 6.6 Limitation on Suits...................................................................22
Section 6.7 Rights of Holders to Receive Payment..................................................22
Section 6.8 Collection Suit by Trustee............................................................23
Section 6.9 Trustee May File Proofs of Claim......................................................23
Section 6.10 Priorities............................................................................24
Section 6.11 Undertaking for Costs.................................................................24
ARTICLE VII. TRUSTEE............................................................................................24
Section 7.1 Duties of Trustee.....................................................................24
Section 7.2 Rights of Trustee.....................................................................25
Section 7.3 Individual Rights of Trustee..........................................................26
Section 7.4 Trustee's Disclaimer..................................................................26
Section 7.5 Notice of Defaults....................................................................26
Section 7.6 Reports by Trustee to Holders.........................................................27
Section 7.7 Compensation and Indemnity............................................................27
Section 7.8 Replacement of Trustee................................................................28
Section 7.9 Successor Trustee by Merger, etc......................................................29
Section 7.10 Eligibility; Disqualification.........................................................29
Section 7.11 Preferential Collection of Claims Against Company.....................................29
ARTICLE VIII. DISCHARGE OF INDENTURE............................................................................29
Section 8.1 Termination of Company's Obligations..................................................29
Section 8.2 Application of Trust Money............................................................30
Section 8.3 Repayment to Company..................................................................30
Section 8.4 Reinstatement.........................................................................31
ARTICLE IX. AMENDMENTS..........................................................................................31
Section 9.1 Without Consent of Holders............................................................31
Section 9.2 With Consent of Holders...............................................................32
Section 9.3 Compliance with Trust Indenture Act...................................................34
Section 9.4 Revocation and Effect of Consents.....................................................34
Section 9.5 Notation on or Exchange of Investment Notes...........................................34
Section 9.6 Trustee to Sign Amendments, etc.......................................................34
ARTICLE X. SUBORDINATION........................................................................................35
Section 10.1 Agreement to Subordinate..............................................................35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 10.2 Liquidation: Dissolution: Bankruptcy..................................................35
Section 10.3 Default of Designed Senior Debt.......................................................36
Section 10.4 When Distribution Must Be Paid Over...................................................36
Section 10.5 Notice by Company.....................................................................37
Section 10.6 Subrogation...........................................................................37
Section 10.7 Relative Rights.......................................................................37
Section 10.8 Subordination May Not Be Impaired by the Company or Holders
of Senior Debt......................................................................38
Section 10.9 Distribution or Notice to Representative..............................................39
Section 10.10 Rights of Trustee and Paying Agent....................................................39
Section 10.11 Authorization to Effect Subordination.................................................40
Section 10.12 Article Applicable to Paying Agent....................................................40
Section 10.13 Miscellaneous.........................................................................40
ARTICLE XI. MISCELLANEOUS.......................................................................................40
Section 11.1 Trust Indenture Act Controls..........................................................40
Section 11.2 Notices...............................................................................40
Section 11.3 Communication by Holders with Other Holders...........................................42
Section 11.4 Certificate and Opinion as to Conditions Precedent....................................42
Section 11.5 Statements Required in Certificate or Opinion.........................................42
Section 11.6 Rules by Trustee and Agents...........................................................43
Section 11.7 Legal Holidays........................................................................43
Section 11.8 No Recourse Against Others............................................................43
Section 11.9 Duplicate Originals...................................................................43
Section 11.10 Governing Law.........................................................................43
Section 11.11 No Adverse Interpretation of Other Agreements.........................................43
Section 11.12 Successors............................................................................43
Section 11.13 Severability..........................................................................44
Section 11.14 Counterpart Originals.................................................................44
Section 11.15 Table of Contents, Headings, etc......................................................44
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- ----------- -----------------
310(a)(1).................................................................7.10
(a)(2)....................................................................7.10
(a)(3)....................................................................N.A.
(a)(4)....................................................................N.A.
(a)(5)....................................................................N.A.
(b)..................................................................7.8; 7.10
(c).......................................................................N.A.
311(a)....................................................................7.11
(b).......................................................................7.11
(c).......................................................................N.A.
312(a).....................................................................2.5
(b).......................................................................11.3
(c).......................................................................11.3
313(a).....................................................................7.6
(b)(1)....................................................................N.A.
(b)(2).....................................................................7.6
(c)..................................................................7.6; 11.2
(d)........................................................................7.6
314(a)..........................................................4.3; 4.4; 11.2
(b).......................................................................N.A.
(c)(1)....................................................................11.4
(c)(2)....................................................................11.4
(c)(3)....................................................................N.A.
(d).......................................................................N.A.
(e).......................................................................11.5
(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)(last sentence).....................................................2.10
(a)(1)(A)..................................................................6.5
(a)(1)(B)..................................................................6.4
(a)(2)....................................................................N.A.
(b)........................................................................6.7
(c).......................................................................N.A.
317(a)(1)..................................................................6.8
(a)(2).....................................................................6.9
(b)........................................................................2.4
318(a)....................................................................11.1
N.A. means not applicable
* This Cross Reference Table is not part of the Indenture
iv
<PAGE>
INDENTURE dated as of __________ [ ] 1998, by American Business
Financial Services, Inc., a Delaware corporation (the "Company"), and U.S. Bank
Trust National Association, a national banking association, a member of U.S.
Bancorp, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the unsecured,
subordinated Investment Notes and the unsecured adjustable rate subordinated
Money Market Notes of the Company issued pursuant to the Company's registration
statement on Form S-2 declared effective by the Securities and Exchange
Commission on or about __________ [ ] 1998 (collectively, the "Securities"):
ARTICLE I.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions.
"Account" means the record of beneficial ownership of a Money Market
Note maintained by the Company.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar of the
Securities.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Company" means American Business Financial Services, Inc., unless and
until replaced by a successor in accordance with Article V hereof and thereafter
means such successor.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date as of which this
Indenture is originally dated, located at 180 East 5th Street, Saint Paul,
Minnesota 55101, Attention: Mr. Richard Prokosch, Corporate Finance.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means, as of any date, generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Holder" or "Securityholder" means a Person in whose name a Security
is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
capital Lease obligations) or representing any hedging obligations, except any
such balance that constitutes an accrued expense or a trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
hedging obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, and also includes, to the extent not
otherwise included, (a) the Guarantee of items that would be included within
this definition, and (b) liability for items that would arise by operation of a
Person's status as a general partner of a partnership.
"Indenture" means, this Indenture as amended or supplemented from
time to time.
"Interest Accrual Date" means with respect to any Security, the date
the Company accepts funds for the purchase of the Security if such funds are
received by 3:00 p.m. (EDT) on a Business Day, or if such funds are not so
received, on the next Business Day.
"Interest Accrual Period" means, as to each Security, the period from
the later of the Issue Accrual Date of such Security or the day after the last
Payment Date upon which an interest payment was made until the following Payment
Date during which interest accrues on each Security with respect to any Payment
Date.
"Investment Notes" or "Investment Note" means the Company's Unsecured
Subordinated Investment Note(s) issued under this Indenture.
"Issue Date" means, with respect to an Investment Note, the date on
which such Investment Note is first executed, authenticated and delivered and,
with respect to a Money Market Note, the date on which such Money Market Note is
initially registered on the books and records of the Registrar.
2
<PAGE>
"Maturity Date" means, with respect to any Security, the date on which
the principal of such Security becomes due and payable as therein provided.
"Maturity Record Date" means, with respect to any Security, as of 11:59
p.m. of the date fifteen days prior to the Maturity Date or Redemption Date
applicable to such Security.
"Money Market Notes" or "Money Market Note" means the Company's
Unsecured Adjustable Rate, Subordinated Money Market Notes issued pursuant to
this Indenture.
"Obligations" means any principal, interest (including Post-Petition
Interest), penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means the Chairman of the Board or principal executive
officer of the Company, the President or operating officer of the Company, the
Chief Financial Officer or principal financial officer of the Company, the
Treasurer, any Assistant Treasurer, Controller or principal officer of the
Company, Secretary or any Vice-President of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one
of whom must be the principal executive officer, principal operating officer,
principal financial officer or principal accounting officer of the Company.
"Opinion of Counsel" means an 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.
"Payment Date" means the last day of each calendar month or such other
date as determined by the Holder and the Company as set forth in the Investment
Note or if such day is not a Business Day, the Business Day immediately
following such day and, with respect to a specific Security, the Maturity Date
or Redemption Date of such Security.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Post-Petition Interest" means interest accruing after the commencement
of any bankruptcy or insolvency case or proceeding with respect to the Company
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, at the rate applicable to such Indebtedness,
whether or not such interest is an allowable claim in any such proceeding.
"Redemption Date" has the meaning given in Article III hereof.
"Redemption Price" means, with respect to any Security to be redeemed,
the principal amount of such Security plus the interest accrued but unpaid
during the Interest Accrual Period up to the Redemption Date for such security.
3
<PAGE>
"Regular Record Date" means, with respect to a particular Payment
Date, as of 11:59 p.m. of the date fifteen days prior to such Payment Date.
"Responsible Officer" when used with respect to the Trustee, means any
officer in its Corporate Trust Office, or any other assistant officer of the
Trustee in its Corporate Trust Office customarily performing functions similar
to those performed by the Persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"SEC" means the Securities and Exchange Commission.
"Security" or "Securities" means, the Company's unsecured, subordinated
Investment Notes and the unsecured, adjustable rate, subordinated Money Market
Notes issued under this Indenture.
"Senior Debt" means any Indebtedness (whether outstanding on the date
hereof or thereafter created) incurred by the Company in connection with
borrowings by the Company (including its subsidiaries) from a bank, trust
company, insurance company, any other institutional lender or other entity which
lends funds in connection with its primary business activities whether such
Indebtedness is or is not specifically designated by the Company as being
"Senior Debt" in its defining instruments.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Total Permanent Disability" means a determination by a physician
chosen by the Company that the Holder of a Security, who was gainfully employed
on a full time basis at the Issue
Date of such security is unable to work on a full time basis during the
succeeding twenty-four months. For purposes of this definition, "working on a
full time basis" shall mean working at least forty hours per week.
"Trustee" means U.S. Bank Trust National Association, a national
banking association, until a successor replaces it in accordance with the
applicable provisions of this Indenture and thereafter means the successor
serving hereunder.
"U.S. Government Obligations" means direct obligations of the United
States of America, or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is pledged.
4
<PAGE>
Section 1.2 Other Definitions.
Defined in
Term Section
- ---- -----------
"Bankruptcy Law"................................................6.1
"Custodian".....................................................6.1
"Event of Default"..............................................6.1
"Legal Holiday"................................................11.7
"Paying Agent"..................................................2.3
"Payment Blockage Period"......................................10.3
"Payment Notice"...............................................10.3
"Registrar".....................................................2.3
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company or any successor
obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.4 Rules of Construction.
Unless the context otherwise requires:
1. a term has the meaning assigned to it;
2. an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
5
<PAGE>
3. references to GAAP, as of any date, shall mean GAAP in
effect in the United States as of such date;
4. "or" is not exclusive,
5. words in the singular include the plural, and in the
plural include the singular; and
6. provisions apply to successive events and
transactions.
ARTICLE II.
THE SECURITIES
Section 2.1 Form and Dating.
The Investment Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The outstanding aggregate
principal amount of Securities outstanding at any time is limited to $250.0
million, provided, however, that the Company and the Trustee may, without the
consent of any Holder, increase such aggregate principal amount of Securities
which may be outstanding at any time. The Securities may have notations, legends
or endorsements required by law, stock exchange rule, agreements to which the
Company is subject or usage. Each Investment Note shall be dated the date of its
authentication. Each Investment Note shall be in such denomination as may be
designated from time to time by the Company but in no event in a denomination
less than $1,000. Each Investment Note shall have a term of not less than three
months and not greater than 120 months as shall be designated by the Company
from time to time.
Except as provided in Section 2.14 hereof, each Money Market Note shall
not be evidenced by a promissory note. The record of beneficial ownership of the
Money Market Notes shall be maintained and updated by the Company through the
establishment and maintenance of Accounts. Each Money Market Note shall be in
such denominations as may be designated from time to time by the Company but in
no event in an original denomination less than $1,000. Each Money Market Note
shall have no stated term to maturity and shall be redeemable in increments of
$500 (except in the case of the redemption of the entire account) at the option
of the Holder upon written notice to the Company as provided in Article III of
this Indenture. The payment due upon redemption shall be made within 10 Business
Days of the Company's receipt of such notice from the Holder. Each Money Market
Note shall also be redeemable by the Company upon 30 days written notice to the
Holder thereof.
Each Security shall bear interest from and commencing on its Interest
Accrual Date at such rate of interest as the Company shall determine from time
to time; provided, however, that the interest rate will be fixed for the term
of the Investment Notes upon issuance, subject to change upon extension and
the interest rate on the Money Market Notes shall be adjusted by the Company
from time to time in its sole discretion provided that such rate shall not be
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less than 4.0% per year. The Company shall provide written notice to all
Holders of the Money Market Notes at least 14 days prior to any decrease in
the interest rate to be paid thereon, which notice shall set forth the new
interest rate to be paid and the effective date of such change. The Company
shall have the right to increase the interest rate paid on the Money Market
Notes at any time without prior notice to the Holders of the Money Market
Notes.
Interest on an Investment Note with a term of six (6) months or less
will compound daily and be payable at maturity. Interest on an Investment Note
of longer duration will compound daily and the Holder thereof may elect to have
interest paid monthly, on the fifteenth day of each calendar month, quarterly,
on January 15, April 15, July 15 and October 15, semi-annually, on January 15
and July 15, annually, on January 15, or upon maturity. A Holder may change this
election once during the term of the Investment Note.
Interest on a Money Market Note shall compound daily and will be
payable in the form of additional notes. Interest shall be payable on a monthly
basis at the end of each calendar month on any Account with a balance of $1,000
or more. No interest will be paid on any Account for any day during which the
principal balance of such account is less than $1,000.
The Company will give each Holder of an Investment Note (existing as of
the applicable Maturity Record Date) a written notice at least seven days prior
to the Maturity Date of the Investment Note held by such Holder reminding such
Holder of the pending maturity of the Investment Note and noticing the Holder of
the Company's intention to repay, or if the Company does not intend to repay the
Investment Note, reminding the Holder that the automatic extension provision
described in the next paragraph will take effect unless the Holder requests
payment. Such notice shall also state that payment of principal of an Investment
Note be made upon presentation and surrender of such Investment Note and shall
specify the place where such Investment Note may be presented and surrendered
for the making of such payment. If the Company gives notice to a Holder of the
Company's intention to repay an Investment Note at maturity, no interest will
accrue after the Maturity Date for such Investment Note. Otherwise, if a Holder
requests repayment within seven days after the Maturity Date, the Company will
pay interest on the Investment Note during the period after the Investment
Note's Maturity Date and prior to redemption at the lower of (i) the lowest
interest rate then being paid on Investment Notes being offered by the Company
to the general public or (ii) the rate being paid on such Investment Note
immediately prior to its maturity.
If, within seven days after the Maturity Date of an Investment Note, a
Holder of such Investment Note has not demanded repayment of the Investment
Note, and the Company has not noticed its intention to repay such Security at
least seven days prior to maturity, such Investment Note shall be extended
automatically for the same term, and shall be deemed to have been renewed by the
Holder thereof as of the Maturity Date. An Investment Note will continue to
renew as described herein absent some permitted action be either the Holder or
the Company. Interest shall continue to accrue from the first day of such
renewed term. Such Investment Note, as renewed, will continue in all its
provisions, including provisions relating to payment, except that the interest
rate payable during any renewed term shall be the interest rate which is being
offered by the Company on similar Investment Notes as of the renewal date. If
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similar Investment Notes are not then being issued, the interest rate upon
renewal will be the rate specified by the Company on or before the Maturity
Date of such Investment Note, or the Investment Note's current rate if no such
rate is specified.
Investment Notes with a duration of greater than six (6) months are
subject to early repayment at the election (a) of the Holder only upon the
occurrence cf a Total Permanent Disability of such Holder (or if such Investment
Note is held jointly by a husband and wife, upon the Total Permanent Disability
of one of such spouses), (b) of a Holder's estate after a Holder's death or (c)
if such Investment Note is held jointly by a husband and wife, of a Holder upon
the death of such Holder's spouse. Otherwise, Holders will have no right to
demand early repayment.
The terms and provisions contained in the Investment Notes shall
constitute, and are hereby expressly made, a part of this Indenture and to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, and the Holders by accepting the Investment Notes, expressly
agree to such terms and provisions and to be bound thereby. In case of a
conflict, the provisions of this Indenture shall control.
Section 2.2 Execution and Authentication.
Two Officers of the Company shall sign the Investment Notes for the
Company by manual or facsimile signature. The Company's seal shall be reproduced
on the Investment Notes.
If an Officer whose signature is on an Investment Note no longer holds
that office at the time the Security is authenticated by the Trustee, the
Investment Note shall nevertheless be valid.
An Investment Note shall not be valid until authenticated by the
authorized manual signature of the Trustee. The signature of the Trustee shall
be conclusive evidence that the Investment Note has been authenticated under
this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Investment Notes for original issue. The
aggregate principal amount of Investment Notes outstanding at any time may not
exceed the amount set forth in Section 2.1 hereof. Such order shall specify the
amount of the Investment Notes to be authenticated and the date(s) upon which
the original issue thereof is to be authenticated.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Investment Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate an Investment Note
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company.
A Money Market Note shall not be validly issued until a transaction
statement executed by a duly authorized officer of the Company is sent to the
purchaser or transferee thereof and an Account is established by the Company in
the name of such purchaser or transferee.
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Section 2.3 Registrar and Paying Agent.
The Company shall maintain (i) an office or agency where Securities may
be presented for registration of transfer or for exchange ("Registrar") and (ii)
an office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and one
or more additional paying agents. The term "Registrar" includes any
co-registrar, and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without prior notice to any
Securityholder; provided that the Company shall promptly notify the
Securityholders of the name and address of any Agent not a party to this
Indenture. The Company may act as Paying Agent and/or Registrar. In the event
the Company utilizes any Agent other than the Company or the Trustee, the
Company shall enter into an appropriate agency agreement with such Agent, which
agreement shall incorporate the provisions of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such, and shall be entitled to
appropriate compensation in accordance with Section 7.7 hereof.
The Company shall be the initial Registrar and Paying Agent. The
Company initially appoints Trustee as agent for service of notices and demands
in connection with the Securities. The Company shall act as Registrar and Paying
Agent until such time as the Company gives the Trustee written notice to the
contrary.
Section 2.4 Paying Agent to Hold Money in Trust.
Prior to each due date of the principal or interest on any Security,
the Company shall deposit with the Paying Agent sufficient funds to pay
principal, premium, if any, and interest then so becoming due and payable in
cash. The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
promptly in writing of any default by the Company in making any such payment.
While any such default continues, the Trustee shall require a Paying Agent (if
other than the Company) to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company) shall have no further liability for the money delivered to the Trustee.
If the Company acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Securityholders all money held by it as Paying
Agent. The Company shall notify the Trustee in writing at least 5 days before
the Payment Date of the name and address of the Paying Agent if a person other
than the Company is named Paying Agent at any time or from time to time.
Section 2.5 Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
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Securityholders and shall otherwise comply with TIA ss.312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee each quarter
during the term of this Indenture 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, and the
aggregate principal amount outstanding and the Company shall otherwise comply
with TIA Section 312(a).
Section 2.6 Transfer and Exchange.
1. Transfer and Exchange of Investment Notes. The Investment Notes are
not negotiable instruments and cannot be transferred by mere endorsement and
delivery. No rights of record ownership to a Security may be transferred without
the prior written consent of the Company (which consent shall not be
unreasonably withheld). When Investment Notes are presented to the Registrar
with the request:
(x) to register the transfer of the Investment Notes, or
(y) to exchange the Investment Notes for an equal principal
amount of Securities of other authorized denominations,
the Registrar shall register the transfer or make the
exchange as requested if its requirements for such
transactions are met; provided, however, that the
Investment Notes presented or surrendered for register of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instruction of transfer in form
satisfactory to the Registrar duly executed by
the Holder thereof or by his attorney, duly
authorized in writing;
(ii) shall be accompanied by the written consent of
the Company to such transfer or exchange; and
(iii) if requested by the Company, an opinion of
Holder's counsel (which counsel shall be
reasonably acceptable to the Company) that the
transfer does not violate any applicable
securities laws and\or signature guarantee.
2. Transfer and Exchange of Money Market Notes. The Money Market Notes
are not negotiable instruments and cannot be transferred without the prior
written consent of the Company (which consent shall not be unreasonably
withheld). Requests to Registrar for the transfer of the Accounts maintained for
the benefit of the Holders of the Money Market Notes shall be:
(i) made to the Registrar in writing on a form supplied
by the Company;
(ii) duly executed by the current holder of the Account,
as reflected on the Company's records as of the date
of receipt of such transfer request, or his attorney
duly authorized in writing;
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(iii) accompanied by the written consent of the Company to
the transfer; and
(iv) if requested by the Company, an opinion of Holder's
counsel (which counsel shall be reasonably acceptable
to the Company) that the transfer does not violate
any applicable securities laws and/or a signature
guarantee.
Upon transfer of a Money Market Note, the Company will provide the new
registered owner of the Money Market Note with an initial transaction statement
which will evidence the transfer of the account on the Company's records. Such
initial transaction statement shall meet the applicable requirements of Section
8-408 of the Delaware Uniform Commercial Code or any successor provision.
(b) Obligations with respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Investment Notes at the Registrar's
written request.
(ii) The Company may assess service charges to a Holder
for any registration or transfer or exchange, and
the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental
charge payable in connection therewith (other than
any such transfer taxes or similar governmental
charge payable upon exchange pursuant to Section
9.5 hereof).
(iii) All Investment Notes issued upon any registration
of transfer or exchange of Investment Notes shall
be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits
under the Indenture, as the Investment Notes
surrendered upon such registration of transfer or
exchange.
(iv) Prior to due presentment for registration of
transfer of any Investment Note, the Trustee, any
Agent and the Company may deem and treat the person
in whose name any Investment Note is registered as
the absolute owner of such Investment Note for the
purpose of receiving payment of principal of and
interest on such Investment Note and for all other
purposes whatsoever, whether such Investment Note
is overdue, and neither the Trustee, any Agent nor
the Company shall be affected by notice to the
contrary.
(v) The Company shall treat the individual or entity
listed on each Account maintained by the Company as
the absolute owner of the Money Market Note
represented thereby for purposes of receiving
payments thereon and for all other purposes
whatsoever.
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Section 2.7 Payment of Principal and Interest; Principal and Interest
Rights Preserved.
(a) Each Security shall accrue interest at the rate specified for such
Security and such interest shall be payable on each Payment Date following the
Issue Date for such Security, until the principal thereof becomes due and
payable. Any installment of interest payable on a Security that is caused to be
punctually paid or duly provided for by the Company on the applicable Payment
Date shall be paid to the Holder in whose name such Security is registered in
the Security Register on the applicable Regular Record Date: (i) with respect to
the Investment Notes outstanding, by check mailed to such Holder's address as it
appears in the Security Register on such Regular Record Date, and (ii) with
respect to the Money Market Notes outstanding, by crediting the Account of each
Holder of a Money Market Note as of the last day of each calendar date month
following the Issue Date with additional Money Market Notes in an amount equal
to the interest due on the balance maintained in the Account during the
preceding calendar month provided that no interest shall accrue for any day in
which the balance in an Account is less than $1,000. The payment of any interest
payable in connection with the payment of any principal payable with respect to
such Security on a Maturity Date or Redemption Date shall be payable as provided
below. Any funds with respect to which such checks were issued which remain
uncollected shall be held in accordance with Section 8.3 hereof. Any installment
of interest not punctually paid or duly provided for shall be payable in the
manner and to the Holders specified in Section 2.13 hereof.
(b) Each of the Investment Notes shall have stated maturities of
principal as shall be indicated in each such Security. The principal of each
Investment Note shall be paid in full no later than the Maturity Date thereof
unless the term of such Security is extended pursuant to Section 2.1 hereof or
such Investment Note becomes due and payable at an earlier date by acceleration,
redemption or otherwise. The interest rate paid on the Money Market Notes shall
be adjusted by the Company from time to time in its sole discretion provided
that such rate shall not be less than 4.0% per year. The Company shall provide
written notice to all Holders of the Money Market Notes at least 14 days prior
to any decrease in the interest rate to be paid thereon, which notice shall set
forth the new interest rate to be paid and the effective date of such change.
The Company shall have the right to increase the interest rate paid on the Money
Market Notes at any time without prior notice to the Holders of the Money Market
Notes.
Interest on each Security shall be due and payable on each Payment Date
at the interest rate applicable to such Security for the Interest Accrual Period
related to such Security and such Payment Date.
Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Securities, if the Securities have
become or been declared due and payable following an Event of Default, then
payments of principal of and interest on the Securities shall be made in
accordance with Article 6 hereof.
The principal payment made on any Investment Note on any Maturity Date
(or the Redemption Price of any Security required to be redeemed), and any
accrued interest thereon, shall be payable only upon presentation and surrender
of such Investment Note on or after the Maturity Date or Redemption Date
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<PAGE>
therefor at the office or agency of the Company maintained by it for such
purpose pursuant to Section 2.3 hereof or at the office of any Paying Agent for
such Investment Note.
The principal payment made on any Money Market Note on any Redemption
Date and any accrued interest thereon, shall be payable within 10 Business Days
of the Company's receipt of written notice executed by the Holder or his duly
authorized representative on a form acceptable to the Company at the office or
agency of the Company maintained by it for such purpose pursuant to Section 2.3
hereof or at the office of any Paying Agent for such Money Market Notes. All
such payments made upon redemption of the Money Market Notes shall be made in
U.S. dollars.
(c) All computations of interest due with respect to any Security shall
be made, unless otherwise specified in the Security, based upon the actual
number of days (e.g., 365 or 366) in the applicable year.
Section 2.8 Replacement Securities.
If any mutilated Investment Note is surrendered to the Company, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Investment Note, the Company shall issue and
the Trustee, upon the written order of the Company signed by two Officers of the
Company if required by the Trustee, shall authenticate a replacement Security if
the Trustee's requirements for replacements of Investment Notes are met. If
required by the Trustee or the Company, an unsecured indemnity agreement must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if an Investment Note is
replaced. The Company and the Trustee may charge for their expenses in replacing
an Investment Note.
Every replacement security is an additional obligation of the Company
and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Investment Notes duly issued hereunder.
Section 2.9 Outstanding Securities.
The Securities outstanding at any time are (i) all the Investment Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, and those described in this Section as not outstanding,
and (ii) the outstanding balances of all of the Accounts representing the Money
Market Notes maintained by the Company or such other entity as the Company
designates as Registrar, and those described in this Section as not outstanding.
If an Investment Note is replaced pursuant to Section 2.8 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Investment Note is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
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Subject to Section 2.10 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
Section 2.10 Treasury Securities.
In determining whether the holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only
Securities that a Responsible Officer of the Trustee actually knows to be so
owned shall be so disregarded.
Section 2.11 Temporary Securities.
Until the Investment Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Investment Notes. Temporary
Investment Notes shall be substantially in the form of Investment Notes but may
have variations that the Company and the Trustee consider appropriate for
temporary Investment Notes. Without unreasonable delay, the Company shall
prepare and the Trustee, upon receipt of the written order of the Company signed
by two Officers of the Company, shall authenticate the Investment Notes in
exchange for temporary Investment Notes. Until such exchange, temporary
Investment Notes shall be entitled to the same rights, benefits and privileges
as Investment Notes.
Section 2.12 Cancellation.
The Company at any time may deliver Investment Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Investment Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Investment Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Investment Notes (subject to the record retention
requirement of the Exchange Act) unless the Company directs them to be returned
to it. All cancelled Investment Notes held by the Trustee shall be destroyed and
certification of their destruction delivered to the Company unless by a written
order, signed by one Officer of the Company, the Company shall direct that
cancelled Investment Notes be returned to it.
Section 2.13 Defaulted Interest.
If the Company defaults in a payment of interest on any Security, it
shall pay the defaulted interest plus, to the extent lawful, any interest
payable on the defaulted interest, to the Holder of such Security on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least 5 Business Days prior to the payment date, in
each case at the rate provided in the Security. The Company shall, with written
notification to the Trustee, fix or cause to be fixed each such special record
date and payment date. At least 15 days before any such special record date, the
Company (or the Trustee, in the name of and at the expense of the Company) shall
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<PAGE>
mail to Securityholder(s) a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
Section 2.14 Book Entry Registration.
The Registrar shall maintain a book entry registration and transfer
system through the establishment of Accounts for the benefit of Holders of Money
Market Notes as the sole method of recording the ownership and transfer of
ownership interests in such Money Market Notes. The registered owners of the
Accounts established by the Company in connection with the purchase or transfer
of the Money Market Notes shall be deemed to be the Holders of the Money Market
Notes outstanding for all purposes under this Indenture. The Company shall
promptly notify the Registrar of the acceptance of a subscriber's order to
purchase a Money Market Note and the Registrar shall credit its book-entry
registration and transfer system to the Account of each Money Market Note
purchaser, the principal amount of such Money Market Note owned of record by the
purchaser. The total amount of any principal and/or interest (which shall be
paid in the form of additional notes) due and payable to book entry owners of
the Accounts maintained by the Company as provided in this Indenture shall be
credited to such Accounts by the Company within the time frames provided in this
Indenture.
The Company shall notify the Trustee no less frequently than bi-weekly
of the establishment of new accounts and the transfer of existing accounts.
Book-entry accounts representing interests in the Money Market Notes
shall not be exchangeable for Money Market Notes in denominations of $1,000 and
any amount in excess thereof and fully registered in the names as the Company
directs unless (a) the Company at its option advises the Trustee in writing of
its election to terminate the book-entry system, or (b) after the occurrence of
any Event of Default, Holders of a majority of the Money Market Notes then
outstanding (as determined based upon the latest quarterly statement provided to
the Trustee pursuant to Section 4.3(d) hereof) advise the Trustee in writing
that the continuation of the book-entry system is no longer in the best
interests of such holders and the Trustee notifies all Holders of the Money
Market Notes of such event and the availability of definitive notes to the
Holders of Money Market Notes requesting such notes in definitive form.
Section 2.15 Initial and Monthly Statements.
(1) The Company shall provide initial transaction statements which meet
the applicable requirements of Section 8-408 of Article 8 of the Delaware
Uniform Commercial Code or any successor section to initial purchasers,
registered owners, registered pledgees, former registered owners and former
pledgees, as required by Section 8-408, within two business days of the
occurrence of the events specified in such section.
(2) The Company shall send each Holder of a Money Market Note (and each
registered pledgee) via U.S. mail not later than ten business days after each
month end in which such Holder had an outstanding balance in such holder's
Account, a statement which indicates as of the calendar month end preceding the
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mailing: (a) the balance of such Account; (b) interest credited; (c)
withdrawals made, if any; and (d) the interest rate paid on such Account
during the preceding calendar month. Such monthly statements shall also
include, among other things, the information required by the applicable
provisions of Section 8-408 of Article 8 of the Delaware Uniform Commercial
Code or any successor section. The Company shall provide additional statements
as the holders or registered pledgees of the Money Market Notes may reasonably
request from time to time. The Company may charge such holders or pledgees
requesting such statements a fee to cover the charges incurred by the Company
in providing such additional statements.
ARTICLE III.
REDEMPTION
Section 3.1 Redemption of Investment Notes.
The Company may not redeem, in whole or in part, any Investment Note
prior to the scheduled Maturity Date of the Security. In addition, except as
provided in this Article III, the Company shall have no mandatory redemption or
sinking fund obligations with respect to any of the Investment Notes.
Upon the death or Total Permanent Disability of a Holder of an
Investment Note, the estate of such Holder (in the event of death) or such
Holder (in the event of Total Permanent Disability) may require the Company to
redeem, in whole and not in part, the Investment Note held by such Holder by
delivering to the Company an irrevocable election (a "Redemption Election")
requiring the Company to make such redemption. In the event an Investment Note
is held jointly by two or more Persons, the Company shall not be required to
redeem such Investment Note until each joint holder of such Investment Note has
either died or suffered a Total Permanent Disability. Notwithstanding the
foregoing sentence, if an Investment Note is held jointly by a husband and wife,
such Investment Note shall be subject to the elective redemption provisions of
this Article III upon the death or Total Permanent Disability of either spouse.
Upon receipt of a Redemption Election, the Company shall designate the
Redemption Date for such Investment Note, which Redemption Date shall be no more
than fifteen days after the Company's receipt of the Redemption Election, and
shall pay the Redemption Price to the estate of the Holder or the Holder, as the
case may be, in accordance with the provisions set forth in Section 2.7 hereof.
No interest shall accrue on an Investment Note to be redeemed under this Article
III for any period of time after the Redemption Date for such Investment Note
and after the Company has tendered the Redemption Price to the Estate of the
Holder or to the Holder, as the case may be.
Section 3.2 Redemption of Money Market Notes.
The Company may not redeem, in whole or in part, any Money Market Note
except upon 30 days prior written notice to the Holder thereof listed on the
records maintained by the Company. In addition, except as provided in this
Article III, the Company shall have no mandatory redemption or sinking fund
obligations with respect to any of the Money Market Notes.
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Any Holder of a Money Market Note may require the Company to redeem, in
whole and or in part, in increments of $500 (except in the case of redemption of
an entire account), the Money Market Note held by such Holder by delivering to
the Company an irrevocable election (a "Redemption Election") requiring the
Company to make such redemption. Upon receipt of a Redemption Election, the
Company shall designate the Redemption Date for such Money Market Note, which
Redemption Date shall be within 10 Business Days after the Company's receipt of
the Redemption Election, and shall pay the Redemption Price to the Holder or his
duly authorized attorney in fact, as the case may be, in accordance with the
provisions set forth in Section 2.7 hereof. No interest shall accrue on a Money
Market Note to be redeemed under this Section 3.2 of Article III for any period
of time after the Redemption Date for such Money Market Note and after the
Company has tendered the Redemption Price to the Holder of the Money Market Note
or his duly authorized attorney in fact.
ARTICLE IV.
COVENANTS
Section 4.1 Payment of Securities.
The Company shall duly pay the principal of and interest on each
Security on the dates and in the manner provided in the note evidencing the
Investment Notes, or in the case of the Money Market Notes, as described in the
Prospectus related to such securities. Principal and interest (to the extent
such interest is paid in cash) shall be considered paid on the date due if the
Paying Agent, if other than the Company, holds at least one Business Day before
that date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal and interest then due;
provided, however, that principal and interest shall not be considered paid
within the meaning of this Section 4.1 if money is held by the Paying Agent for
the benefit of holders of Senior Debt pursuant to the provisions of Article 10
hereof. The payment of interest on the Money Market Notes shall be paid in the
form of additional notes as provided for in Section 2.1 hereof. Such Paying
Agent shall return to the Company, no later than 5 days following the date of
payment, any money (including accrued interest) that exceeds such amount of
principal and interest paid on the Securities in accordance with this Section 4.
1.
To the extent lawful, the Company shall pay interest (including
Post-Petition Interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate borne by the Securities, compounded semi-annually; it
shall pay interest (including Post-Petition Interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate, compounded semi-annually.
Section 4.2 Maintenance of Office or Agency.
The Company will maintain an office or agency (which may be an office
of the Trustee, Registrar or coregistrar) where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
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any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates its office at Balapointe Office Centre,
111 Presidential Boulevard, Bala Cynwyd, Pennsylvania as one such office or
agency of the Company in accordance with Section 2.3.
Section 4.3 SEC Reports and Other Reports.
(a) The Company shall file with the Trustee, within 15 days after
filing with the SEC, copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the
Company is not subject to the requirements of such Section 13 or 15(d) of the
Exchange Act, the Company shall continue to file with the SEC and the Trustee on
the same timely basis such reports, information and other documents as it would
file if it were subject to the requirements of Section 13 or 15(d) of the
Exchange Act. The Company shall also comply with the provisions of TIA
Section 314(a). Notwithstanding anything contrary herein the Trustee shall have
no duty to review such documents for purposes of determining compliance with any
provisions of the Indenture.
(b) So long as any of the Securities remain outstanding, the Company
shall cause an annual report to stockholders and each quarterly or other
financial report furnished by it generally to stockholders to be filed with the
Trustee at the time of such mailing or furnishing to stockholders. If the
Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, the Company shall cause its financial
statements, including any notes thereto (and, with respect to annual reports, an
auditors' report by the Company's certified independent accountants) and a
"Management's Discussion and Analysis of Financial Condition or Plan of
Operations," comparable to that which would have been required to appear in
annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act
to be so filed with the Trustee within 120 days after the end of each of the
Company's fiscal years and within 60 days after the end of each of the first
three quarters of each such fiscal year.
(c) Whether or not required by the rules and regulations of the SEC,
the Company shall file a copy of all such information with the SEC for public
availability and make such information available to investors who request it in
writing.
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(d) The Company, or such other entity as the Company shall designate as
Registrar for the Money Market Notes as provided in Section 7.3 hereof, shall
provide the Trustee with quarterly management reports which provide the Trustee
with such information regarding the Accounts maintained by the Company for the
benefit of the Holders of the Money Market Notes as the Trustee may reasonably
request which information shall include at least the following: (1) the
outstanding balance of each Account; (2) interest credited or withdrawals made
for the period; (3) the amount of interest paid in the form of additional notes
at each month end and (3) the interest rate paid on each Account maintained by
the Company during the preceding quarterly period.
Section 4.4 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year (October 28 if the Company has a June 30 year end), an
Officers' Certificate stating that a review of the activities of the Company
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether each has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his knowledge each has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he may have knowledge and what action each is taking
or proposes to take with respect thereto) and that to the best of his knowledge
no event has occurred and remains in existence by reason of which payments on
account of the principal of or interest, if any, on the Securities are
prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.3 above shall be accompanied by a
written statement of the Company's independent public accountants that in making
the examination necessary for certification of such financial statements nothing
has come to their attention which would lead them to believe that the Company
has violated the provisions of Section 4. 1 of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.5 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
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enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all beneficial advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
has been enacted.
Section 4.6 Liquidation.
The Board of Directors or the stockholders of the Company may not adopt
a plan of liquidation that provides for, contemplates or the effectuation of
which is preceded by (a) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company otherwise than substantially
as an entirety (Section 5.1 of this Indenture being the Section hereof which
governs any such sale, lease, conveyance or other disposition substantially as
an entirety) and (b) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and of the
remaining assets of the Company to the holders of capital stock of the Company,
unless the Company, prior to making any liquidating distribution pursuant to
such plan, makes provision for the satisfaction of the Company's Obligations
hereunder and under the Securities as to the payment of principal and interest.
ARTICLE V.
SUCCESSORS
Section 5.1 When the Company May Merge, etc.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to another corporation, Person or
entity unless (a) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (b) the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the obligations of the Company pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Securities
and this Indenture; and (c) immediately after such transaction no Default or
Event of Default exists.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture. The Trustee shall be entitled to
conclusively rely upon such Officers' Certificate and Opinion of Counsel.
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Section 5.2 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1, the successor corporation formed by such
consolidation or into or with which the Company, is merged or to which such
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company herein; provided, however, that the Company shall not be released
or discharged from the obligation to pay the principal of or interest on the
Securities.
ARTICLE VI.
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 a Security when the same becomes due and payable and the
Default continues for a period of 30 days, whether or not such
payment is prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the
principal of any Security when the same becomes due and
payable at maturity, upon a required redemption or otherwise,
and the Default continues for a period of 30 days, whether or
not prohibited by the provisions of Article 10 hereof;
(3) the Company fails to observe or perform any
covenant, condition or agreement on the part of the Company to
be observed or performed pursuant to Section 4.6 or 5.1
hereof;
(4) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Securities
or this Indenture and the Default continues for the period and
after the notice specified below;
(5) 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
Custodian of it or for all or substantially all of its
property; (d) makes a general assignment for the benefit of
its creditors; or (e) admits in writing its inability to pay
debts as the same become due; or
(6) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that (a) is for relief
against the Company in an involuntary case; (b) appoints a
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Custodian of the Company or for all or substantially all of
its property; (c) orders the liquidation of the Company, and
the order or decree remains unstayed and in effect for 120
consecutive days; and
The term "Bankruptcy Law" means title II, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (3) or (4) of Section 6.1 is not an Event of
Default until the Trustee or the Holders of at least a majority in principal
amount of the then outstanding Securities notify the Company of the Default and
the Company does not cure the Default or such Default is not waived within 60
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default."
Section 6.2 Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (5) or (6) of Section 6.1) occurs and is continuing, the Trustee by
notice to the Company or the Holders of at least a majority in principal amount
of the then outstanding Securities by written notice to the Company and the
Trustee may declare the unpaid principal of and any accrued interest on all the
Securities to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately; provided, however, that if any
Indebtedness or Obligation is outstanding pursuant to the Senior Debt, upon a
declaration of acceleration by the Holders, all principal and interest under
this Indenture shall be due and payable upon the earlier of (x) the day which is
5 Business Days after the receipt by each of the Company and the holders of
Senior Debt of such written notice of acceleration or (y) the date of
acceleration of any Indebtedness under any Senior Debt. If an Event of Default
specified in clause (5) or (6) of Section 6.1 occurs, such an amount shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Securities by written notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal or interest that has become due solely because
of the acceleration) have been cured or waived.
Section 6.3 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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Section 6.4 Waiver of Past Defaults.
Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on any Security held by a
non-consenting Holder. Upon actual receipt of any such notice of waiver by a
Responsible Officer of the Trustee, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.5 Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it, provided, that indemnification for the Trustee's fees and
expenses, in a form reasonably satisfactory to the Trustee, shall have been
provided. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of other Securityholders, or that may involve the
Trustee in personal liability.
Section 6.6 Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least a majority in principal amount of
the then outstanding Securities make a written request to the Trustee
to pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) during such 60 day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
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Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, but subject to
Article 10 hereof, 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
expressed in the Security, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
Section 6.8 Collection Suit by Trustee.
If an Event of Default specified in Section 6.1 (1) or (2) occurs and
is continuing, the Trustee is authorized to 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 on the Securities and interest on
overdue principal and, to the extent lawful, interest and such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim.
The Trustee is authorized to 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 (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Securityholder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Securityholders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Securities may be entitled to receive in such proceeding whether
in liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, 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 Securityholder in any such proceeding.
If the Trustee does not file a proper claim or proof of debt in the
form required in any such proceeding prior to 30 days before the expiration of
the time to file such claims or proofs, then any holder of Senior Debt shall
have the right to demand, sue for, collect and receive the payments and
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distributions in respect of the Securities which are required to be paid or
delivered to the holders of Senior Debt as provided in Article 10 hereof and to
file and prove all claims therefor and to take all such other action in the name
of the Holders or otherwise, as such holder of Senior Debt may determine to be
necessary or appropriate for the enforcement of the provisions of Article 10.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall,
subject to the provisions of Article 10 hereof, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7, including payment of all compensation, expenses and liabilities
incurred, and all advances made, if any, by the Trustee and the costs and
expenses of collection;
Second: to holders of Senior Debt to the extent required by Article
10 hereof;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
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 then outstanding Securities.
ARTICLE VII.
TRUSTEE
Section 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of an Event of Default:
(1) The duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon resolutions,
statements, reports, documents, orders, certificates, opinions or other
instruments furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any of the above that are
specifically required to be furnished to the Trustee pursuant to this
Indenture, the Trustee shall examine them to determine whether they
substantially conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (2)
of this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.2 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented to it by the proper Person.
The Trustee need not investigate any fact or matter stated in the document. The
Trustee shall have no duty to inquire as to the performance of the Issuers'
covenants in Article 4. In addition, the Trustee shall not be deemed to have
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knowledge of any Default or any Event of Default except any Default or Event
of Default of which the Trustee shall have received written notification or
obtained actual knowledge.
(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 officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through agents, attorneys, custodians or
nominees and shall not be responsible for the misconduct or negligence or the
supervision of any agents, attorneys, custodians or nominees appointed by it
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall not be deemed to have notice of an Event of
Default for any purpose under this Indenture unless notified of such Event of
Default by the Company, the Paying Agent (if other than the Company) or a Holder
of the Securities.
Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company's direction under any provision
hereof, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee and it shall not be
responsible for any statement or recital herein or any statement in the
Securities or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
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Section 7.5 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to
Securityholders a notice of the Default or Event of Default within 90 days after
it occurs. At least 5 Business Days prior to the mailing of any notice to
Securityholders under this Section 7.5, the Company shall provide the Company
with notice of its intent to mail such notice. Except in the case of a Default
or Event of Default in payment on any Security, the Trustee may withhold the
notice if and so long as the Responsible Officers of the Trustee in good faith
determines that withholding the notice would have no material adverse effect on
the Securityholders.
Section 7.6 Reports by Trustee to Holders.
Within 60 days after the end of each fiscal year beginning with the
June 30, 1999 fiscal year, the Trustee shall mail to Securityholders a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the 12
months preceding the reporting date, no report need be prepared or transmitted).
The Trustee also shall comply with TIA Section 313(b). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report mailed to Securityholders under this Section 7.6 (at the
time of its mailing to Securityholders) shall be filed with the SEC and each
stock exchange, if any, on which the Securities are listed. The Company shall
promptly notify the Trustee when the Securities are listed on any stock
exchange.
Section 7.7 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and its performance of the
duties and services required hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except as set
forth in the second next paragraph. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder, except to the extent the Company is prejudiced thereby. The Company
shall defend the claim and the Trustee shall reasonably cooperate in such
defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such one counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld.
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The obligations of the Company under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on the Securities. Such lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Securities may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if.
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee
or its property;
(4) the Trustee becomes incapable of acting as Trustee under
this Indenture, or
(5) the Company so elects, provided such replacement Trustee
is qualified and reasonably acceptable.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a different successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 30 days after notice
that the Trustee has resigned or has been removed, the Company or the Trustee or
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the Holders of at least a majority in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any Securityholder who has been
a Securityholder for at least 6 months fails to comply with Section 7.10, such
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to all Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the lien provided
for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 hereof shall continue
for the benefit of the retiring Trustee.
Section 7.9 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state or territory thereof or of the District of Columbia
authorized under such laws to exercise corporate trustee power, shall be subject
to supervision or examination by Federal, state, territorial or District of
Columbia authority and shall have a combined capital and surplus of at least
$500,000 as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee is subject to TIA Section
310(b).
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE VIII.
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.7 and 8.4, and the Company's, Trustee's
and Paying Agent's obligations under Section 8.3 shall survive) when all
outstanding Investment Notes theretofore authenticated and issued have been
delivered (other than destroyed, lost or stolen Investment Notes which have been
replaced or paid) to the Trustee for cancellation and all outstanding Money
Market Notes redeemed and the Company has paid all sums payable by the Company
hereunder. In addition, the Company may terminate all of their obligations under
this Indenture if:
(1) the Company irrevocably deposits in trust with the Trustee
or at the option of the Trustee, with a trustee reasonably satisfactory
to the Trustee and the Company under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee, money or
U.S. Government Obligations sufficient (as certified by an independent
public accountant designated by the Company) to pay principal and
interest on the Securities to maturity or redemption, as the case may
be, and to pay all other sums payable by it hereunder, provided that
(i) the trustee of the irrevocable trust shall have been irrevocably
instructed to pay such money or the proceeds of such U.S. Government
Obligations to the Trustee and (ii) the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest
with respect to the Securities;
(2) the Company delivers to the Trustee an Officers'
Certificate stating that all conditions precedent to satisfaction and
discharge of this Indenture have been complied with; and
(3) no Event of Default or event (including such deposit)
which, with notice or lapse of time, or both, would become an Event of
Default with respect to the Securities shall have occurred and be
continuing on the date of such deposit.
Then, this Indenture shall cease to be of further effect (except as provided in
this paragraph), and the Trustee, on demand of the Company, shall execute proper
instruments acknowledging confirmation of and discharge under this Indenture.
The Company may make the deposit only if Article X hereof does not prohibit such
payment. However, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7,
2.8, 4.1, 4.2, 4.3, 7.7, 7.8, 8.3 and 8.4 and the Trustee's and Paying Agent's
obligations in Section 8.3 shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations in Section 7.7 and 8.4
and the Company's, Trustee's and Paying Agent's obligations in Section 8.3 shall
survive.
After such irrevocable deposit made pursuant to this Section 8.1 and
satisfaction of the other conditions set forth herein, the Trustee upon written
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
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In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest at least one Business Day before such payment date in
such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
Section 8.2 Application of Trust Money.
The Trustee or a trustee satisfactory to the Trustee and the Company
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 8. 1. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal and interest on the Securities.
Section 8.3 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, however, that the Company shall have either caused
notice of such payment to be mailed to each Securityholder entitled thereto no
less than 30 days prior to such repayment or within such period shall have
published such notice in a newspaper of widespread circulation published in the
City of Philadelphia. After payment to the Company, Securityholders entitled to
the money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
Section 8.4 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.2 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with Section 8.2; provided, however,
that if the Company has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment, as long as no money is owed to the Trustee by the Company, from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE IX.
AMENDMENTS
Section 9.1 Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.1;
(3) to provide for additional uncertificated Securities or
certificated Securities;
(4) to make any change that does not adversely affect the
legal rights hereunder of any Securityholder, including but not limited
to an increase in the aggregate dollar amount of Securities which may
be outstanding under this Indenture;
(5) make any change in the second paragraph of Article 3;
provided, however, that no such change shall adversely affect the
rights of any outstanding Security; or
(6) to comply with any requirements of the SEC in connection
with the qualification of this Indenture under the TIA.
Section 9.2 With Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
with the written consent of the Holders of at least a majority in principal
amount of the then outstanding Securities. The Holders of a majority in
principal of the then outstanding Securities may also waive any existing default
or compliance with any provision of this Indenture or the Securities. However,
without the consent of the Holder of each Investment Note affected, an amendment
or waiver under this Section may not (with respect to any Investment Note held
by a nonconsenting Holder):
(1) reduce the principal amount of Investment Notes whose
Holders must consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of
interest, including default interest, on any Investment Note;
(3) reduce the principal of or change the fixed maturity of
any Investment Note or alter the redemption provisions or the price at
which the Company shall offer to purchase such Investment Note pursuant
to Section 3.1 of Article III hereof;
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(4) make any Investment Note payable in money other than that
stated in the Investment Note;
(5) Modify or eliminate the right of the estate of a Holder or
a Holder to cause the Company to redeem an Investment Note upon the
death or Total Permanent Disability of a Holder pursuant to Article
III; provided, however, that the Company may not modify or eliminate
such right, as it may be in effect on the Issue Date, of any Investment
Note which was issued with such right. After an amendment under this
subsection 9.1(5) becomes effective, the Company shall mail to the
Holders of each Investment Note then outstanding a notice briefly
describing the amendment.
(6) make any change in Section 6.4 or 6.7 hereof or in this
sentence of this Section 9.2;
(7) make any change in Article X that adversely affects the
rights of any Securityholders; or
(8) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on, or redemption payment
with respect to, any Security (except a rescission of acceleration of
the Investment Notes by the Holders of at least a majority in aggregate
principal amount of the Investment Notes and a waiver of the payment
default that resulted from such acceleration).
Without the consent of each Holder of Money Market Notes affected, an amendment
or waiver under this Section may not (with respect to any Money Market Note held
by a nonconsenting Holder):
(1) reduce the principal amount (other than as a result of
withdrawals made by the Holder) of a Money Market Note whose Holder
must consent to an amendment, supplement or waiver;
(2) reduce the rate of interest paid on the Money Market
Notes, other than interest rate adjustments as provided for in Article
II hereof, or change the time for payment of interest, including
default interest, on any Security;
(3) reduce the principal of (other than as a result of
withdrawals made by the Holder) or alter the redemption provisions or
the price at which the Company shall offer to purchase such Money
Market Note pursuant to Section 3.2 of Article III hereof;
(4) make any Money Market Note payable in money other than
that stated in this Indenture;
(5) make any change in Section 6.4 or 6.7 hereof or in this
sentence of this Section 9.2;
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(6) make any change in Article 10 that adversely affects the
rights of any Securityholders; or
(7) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on, or redemption payment
with respect to, any Money Market Note (except a rescission of
acceleration of the Money Market Notes by the Holders of at least a
majority in aggregate principal amount of the Money Market Notes and a
waiver of the payment default that resulted from such acceleration).
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to the Holders of each Security affected thereby a notice
briefly describing the amendment or waiver. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture or waiver. Subject to
Sections 6.4 and 6.7 hereof, the Holders of a majority in principal amount of
the Securities then outstanding may waive compliance in a particular instance by
the Company with any provision of this Indenture or the Securities.
Section 9.3 Compliance with Trust Indenture Act.
If at the time this Indenture shall be qualified under the TIA, every
amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. An amendment or waiver becomes effective in accordance with its
terms and thereafter binds every Securityholder.
The Company may fix a record date for determining which Holders must
consent to such amendment or waivers. If the Company fixes a record date, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.5, or
(iii) such other date as the Company shall designate.
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Section 9.5 Notation on or Exchange of Investment Notes.
The Trustee may place an appropriate notation about an amendment or
waiver on any Investment Note thereafter authenticated. The Company in exchange
for all Investment Notes may issue and the Trustee shall authenticate new
Investment Notes that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Investment Note
shall not affect the validity and effect of such amendment or waiver.
Section 9.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if, in the Trustee's reasonable
discretion, the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but need
not, sign it. In signing or refusing to sign such amendment or supplemental
indenture, the Trustee shall be entitled to receive, if requested, an indemnity
reasonably satisfactory to it and to receive and, subject to Section 7.1, shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel (or written advice of counsel) as conclusive evidence that such
amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company in accordance with its terms. The Company may not sign
an amendment or supplemental indenture until its Board of Directors approves it.
ARTICLE X.
SUBORDINATION
Section 10.1 Agreement to Subordinate.
The Company agrees, and each Securityholder by accepting a Security
consents and agrees, that the Indebtedness evidenced by the Securities and the
payment of the principal of and interest on the Securities is subordinated in
right of payment, to the extent and in the manner provided in this Article, to
the prior payment in full, in cash, cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, of all Obligations due in respect of
Senior Debt of the Company whether outstanding on the date hereof or hereafter
incurred, and that the subordination is for the benefit of the holders of Senior
Debt.
For purposes of the Article 10, a payment or distribution on account of
the Securities may consist of cash, property or securities, by set-off or
otherwise, and a payment or distribution on account of any of the Securities
shall include, without limitation, any redemption, purchase or other acquisition
of the Securities.
Section 10.2 Liquidation: Dissolution: Bankruptcy.
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
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(i) any dissolution or winding-up or total or partial liquidation or
reorganization of the Company whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy or (ii) any bankruptcy or insolvency
case or proceeding or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
to its assets, (iii) any assignment for the benefit of creditors or any other
marshaling of assets of the Company, all obligations due, or to become due, in
respect of Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) shall first
interfeasibly be paid in full, or provision shall have been made for such
payment, in cash, cash equivalents or otherwise in a manner satisfactory to
the holders of Senior Debt, before any payment is made on account of the
principal of, premium, if any, or interest on the Securities, except that
Securityholders may receive securities that are subordinated to at least the
same extent as the Securities are to (x) Senior Debt and (y) any securities
issued in exchange for Senior Debt. Upon any such dissolution winding-up,
liquidation or reorganization, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Securities or the Trustee under this Indenture would
be entitled, except for the provisions hereof, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the Holders of the
Securities or by the Trustee under this Indenture if received by them,
directly to the holders of Senior Debt (pro rata to such holders on the basis
of the amounts of Senior Debt held by such holders) or their Representative or
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their interests may
appear, for application to the payment of Senior Debt remaining unpaid until
all such Senior Debt has been indefeasibly paid in full, or provisions shall
have been made for such payment, in cash, cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Debt, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders
of Senior Debt.
(b) For purposes of this Article X, the words "cash, property or
securities" shall not be deemed to include securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment which
are subordinated, to at least the same extent as the Securities, to the payment
of all Senior Debt then outstanding or to the payment of all securities issued
in exchange therefor to the holders of Senior Debt at the time outstanding. The
consolidation of the Company with, or the merger of the Company with or into,
another corporation or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Article 5 shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other corporation shall,
as part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Article V.
Section 10.3 Default of Designed Senior Debt.
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior Debt, or
any amount owing from time to time under or in respect of Senior Debt or in the
event that any nonpayment event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it would
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otherwise have become due and payable, or (b) in the event that any other
nonpayment event of default with respect to any Senior Debt shall have
occurred and be continuing permitting the holders of such Senior Debt (or a
trustee on behalf of the holders thereof) to declare such Senior Debt due and
payable prior to the date on which it would otherwise have become due and
payable, then the Company shall make no payment, direct or indirect (including
any payment which may be payable by reason of the payment of any other
Indebtedness of the Company being subordinated to the payment of the
Securities) (other than securities that are subordinated to at least the same
extent as the Securities are to (x) Senior Debt and (y) any securities issued
in exchange for Senior Debt) unless and until (i) such event of default shall
have been cured or waived or shall have ceased to exist or such acceleration
shall have been rescinded or annulled, or (ii) in case of any nonpayment event
of default specified in (b), during the period (a "Payment Blockage Period")
commencing on the date the Company and the Trustee receive written notice (a
"Payment Notice") of such event of default (which notice shall be binding on
the Trustee and the Securityholders as to the occurrence of such an event of
default) from a holder of the Senior Debt to which such default relates and
ending on the earliest of (A) 179 days after such date, (B) the date, if any,
on which such Senior Debt to which such default relates is discharged or such
default is waived by the holders of such Senior Debt or otherwise cured and
(C) the date on which the Trustee receives written notice from the holder of
such Senior Debt to which such default relates terminating the Payment
Blockage Period. No new Payment Blockage Period may be commenced within 360
days after the receipt by the Trustee of any prior Payment Blockage Notice.
For all purposes of this Section 10.3, no Event of Default which existed or
was commencing with respect to the Senior Debt to which a Payment Blockage
Period relates on the date such Payment Blockage Period commenced shall be or
be made the basis for the commencement or any subsequent Payment Blockage
Period unless such event of default is cured or waived for a period of not
less than 180 consecutive days.
Section 10.4 When Distribution Must Be Paid Over.
If the Trustee or any Securityholder receives any payment with respect
to the Securities, whether in cash property or securities (other than securities
that are subordinated to at least the same extent of the Securities are to (x)
Senior Debt and (y) any securities issued in exchange for Senior Debt at a time
when such payment is prohibited by Article X hereof), such payment shall be held
by the Trustee or such Securityholder, in trust for the benefit of, and shall be
paid forthwith over and delivered to, the holders of Senior Debt (pro rata to
such holders on the basis of the amount of Senior Debt held by such holders) for
application to the payment of all Obligations with respect to Senior Debt
remaining unpaid to the extent necessary to pay such Obligations in full, in
cash, cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Debt, in accordance with the terms of such Senior Debt, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
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Trustee shall pay over or distribute to or on behalf of Securityholders or the
Company or any other Person money or assets to which any holders of Senior
Debt shall be entitled by virtue of this Article X, except if such payment is
made as a result of the willful misconduct or gross negligence of the Trustee.
Section 10.5 Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company that would cause a payment of any
Obligations with respect to the Company to violate this Article, but failure to
give such notice shall not affect the subordination of the Securities to the
Senior Debt provided in this Article.
Section 10.6 Subrogation.
After all Senior Debt is paid in full, in cash, cash equivalents or
otherwise in a manner satisfactory to the holders of such Senior Debt, and until
the Securities are paid in full, Securityholders shall be subrogated (equally
and ratably with all other Indebtedness pari passu with the Securities) to the
rights of holders of Senior Debt to receive distributions applicable to Senior
Debt to the extent that distributions otherwise payable to the Securityholders
have been applied to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt which otherwise would have been made to
Securityholders is not, as between the Company and Securityholders, a payment by
the Company on the Senior Debt.
Section 10.7 Relative Rights.
This Article defines the relative rights of Securityholders and holders
of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligations of the Company, which are absolute and unconditional, to
pay principal of and interest on the Securities in accordance with
their terms;
(2) affect the relative rights of Securityholders and
creditors of the Company other than their rights in relation to holders
of Senior Debt; or
(3) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default or Event of Default, subject to
the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Securityholders.
If the Company fails because of this Article to pay principal of or
interest on a Security on the due date, the failure is still a Default or Event
of Default.
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Section 10.8 Subordination May Not Be Impaired by the Company or Holders
of Senior Debt.
No right of any present or future holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Securities and the
Obligations related thereto shall be prejudiced or impaired by any act or
failure to act by any such holder or by the Company, the Trustee or any Agent or
by the failure of the Company to comply with this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without limiting the effect of the preceding paragraph, any holder of
Senior Debt may at any time and from time to time without the consent of or
notice to any other holder or to the Trustee, without impairing or releasing any
of the rights of any holder of Senior Debt under this Indenture, upon or without
any terms or conditions and in whole or in part:
(a) change the manner, place or term of payment, or change or extend
the time of payment of, renew or alter any Senior Debt or any other liability of
the Company to such holder, any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the provisions of this Article X
shall apply to the Securities as so changed, extended, renewed or altered;
(b) notwithstanding the provisions of Section 5.1 hereof, sell,
exchange, release, surrender, realize upon or otherwise deal with in any manner
and in any order any property by whomsoever at any time pledged or mortgaged to
secure, or howsoever securing, any Senior Debt or any other liability of the
Company to such holder or any other liabilities incurred directly or indirectly
in respect thereof or hereof or any offset thereagainst;
(c) exercise or refrain from exercising any rights or remedies against
the Company or others or otherwise act or refrain from acting or, for any
reason, fail to file, record or otherwise perfect any security interest in or
lien on any property of the Company or any other Person; and
(d) settle or compromise any Senior Debt or any other liability of the
Company to such holder, or any security therefor, or any liability incurred
directly or indirectly in respect thereof.
All rights and interests under this Indenture of any holder of Senior
Debt and all agreements and obligations of the Trustee, the Holders, and the
Company under Article 6 and under this Article 10 shall remain in full force and
effect irrespective of (i) any lack of validity or enforceability of any
agreement or instrument relating to any Senior Debt or (ii) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Trustee, any Holder, or the Company.
Any holder of Senior Debt hereby authorized to demand specific
performance of the provisions of this Article 10, whether or not the Company
shall have complied with any of the provisions of this Article 10 applicable to
it, at any time when the Trustee or any Holder shall have failed to comply with
any of these provisions. The Trustee and the Holders irrevocably waive any
defense based on the adequacy of a remedy at law that might be asserted as a bar
to such remedy of specific performance.
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Section 10.9 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
representative.
Upon any payment or distribution of assets of the Company referred to
in this Article X, the Trustee and the Securityholders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending or upon any certificate of any representative of any holder of
Senior Debt or of the liquidating trustee or agent or other Person making any
distribution, delivered to the Trustee or to the Securityholders, for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article X.
Section 10.10 Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article X or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment or
distribution by the Trustee, or the taking of any action by the Trustee, and the
Trustee or Paying Agent may continue to make payments on the Securities unless
it shall have received at its Corporate Trust Division at least 5 Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Securities to violate this
Article, which notice, unless specified by a holder of Senior Debt as such,
shall not be deemed to be a Payment Notice. The Trustee may conclusively rely on
such notice. Only the Company or a holder of Senior Debt may give the notice.
Nothing in this Article X shall apply to amounts due to, or impair the claims
of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
Section 10.11 Authorization to Effect Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Senior Debt and the
Securityholders, the subordination as provided in this Article X, and appoints
the Trustee his attorney-in-fact for any and all such purposes.
Section 10.12 Article Applicable to Paying Agent.
In case at any time any Paying Agent (other than the Trustee or the
Company) shall have been appointed by the Company and be then acting hereunder,
the term "Trustee" as used in this Article X shall in such case (unless the
context otherwise requires) be construed as extending to and including such
41
<PAGE>
Paying Agent within its meaning as fully for all intents and purposes as if
such Paying Agent were named in this Article X in addition to or in place of the
Trustee.
Section 10.13 Miscellaneous.
(a) The agreements contained in this Article 10 shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by any holder
of Senior Debt upon the insolvency, bankruptcy or reorganization of the Company
or otherwise, all as though such payment had not been made.
(b) The Trustee shall notify all holders of Senior Debt (of whose
identity the Trustee has received reasonable advance written notice) of the
existence of any Default or Event of Default under Section 6.1 promptly after a
Responsible Officer of the Trustee actually becomes aware thereof; provided,
however, that at least 5 Business Days prior to the notification of any holder
of Senior Debt under this Section 7.5, the Company shall provide the Company
with notice of its intent to provide such notification.
ARTICLE XI.
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 11.2 Notices.
Any notice, instruction, direction, request or other communication by
the Company, the Trustee or any other holder of Senior Debt to the others is
duly given if in writing and delivered in person or mailed by first-class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Balapointe Office Centre
111 Presidential Boulevard
Bala Cynwyd, PA 19004
Attention: Anthony J. Santilli, Jr.
Chairman, President and Chief Executive Officer
Telecopier: (215) 668-1468
42
<PAGE>
With a copy to:
BLANK ROME COMISKY & McCAULEY LLP
One Logan Square
Philadelphia, Pennsylvania 19103-2599
Attention: Jane K. Storero, Esquire
Telecopier: (215) 569-5555
If to the Trustee:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 East 5th Street
Saint Paul, Minnesota 55101
Attention: Mr. Richard Prokosch, Corporate Finance
Telecopier: (651) 244-0711
If to a holder of Senior Debt, such address as such holder of Senior
Debt shall have provided in writing to the Company and the Trustee.
The Company, the Trustee or a holder of Senior Debt by notice to the
Company and the Trustee may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; 5 Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Securityholder shall be mailed by
first-class mail, certified or registered, return receipt requested, to his
address shown on the register kept by the Registrar. 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
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
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 Trustee is subject to Section 312(b). The Company, the Trustee,
the Registrar and anyone else shall have the protection of TIA Section 312(c).
43
<PAGE>
Section 11.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of such counsel,
all such conditions precedent and covenants have been complied with.
Section 11.5 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(1) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion whether such covenant or condition has been
complied with; and
(4) a statement whether, in the opinion of such Person, such
condition or covenant has been complied with.
Section 11.6 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.7 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the City of Wilmington or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
44
<PAGE>
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 11.8 No Recourse Against Others.
No director, officer, employee, agent, manager or stockholder of the
Company as such, shall have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Securityholder by
accepting a Security waives and releases all such liability.
Section 11.9 Duplicate Originals.
The parties may sign any number of copies of this Indenture. One signed
copy is enough to prove this Indenture.
Section 11.10 Governing Law.
THE INTERNAL LAW OF THE STATE OF DELAWARE SHALL GOVERN THIS
INDENTURE AND THE SECURITIES, WITHOUT REGARD TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
Section 11.11 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
Section 11.12 Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successor.
Section 11.13 Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.14 Counterpart 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.
45
<PAGE>
Section 11.15 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions thereof.
46
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed and attested, as of the day and year first written above.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Attest:
U.S. BANK TRUST NATIONAL ASSOCIATION,
a national banking association, as Trustee
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Attest:
47
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
[COMPANY LOGO]
SUBORDINATED INVESTMENT NOTE
NUMBER _______________________ DATE ISSUED ___________________
PRINCIPAL AMOUNT $____________ TERM __________________________
INTEREST RATE PER ANNUM _____% MATURITY DATE _________________
INTEREST COMPOUNDED DAILY
PAYABLE ________________
AMERICAN BUSINESS FINANCIAL SERVICES, INC., a Delaware corporation herein
called the Company, for value received, hereby promises to pay to:
- ------------------------------------------------------------------------------
(the "Holder" or "Noteholder")
Interest payments shall be made by check delivered by mail to the
address of the Holder appearing on the Note register maintained by the
Registrar (which address may be changed from time to time by notice given by
Holder in writing to the Registrar) on the Regular Record Date preceding the
subject Payment Date; principal and interest payment at the end of the term
hereof shall be made in person to Holder at the offices or agency of the
Paying Agent in exchange for this Note. Holder shall be notified prior to such
payment of the address at which such payment shall occur. The Company is
currently acting as Paying Agent and Registrar. The Company may change the
Registrar or Paying Agent without notice to the Noteholder.
All payments hereunder shall be made 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 interest on the Notes will be compounded daily and computed on
the basis of a calendar year.
This Note is being issued pursuant to an Indenture dated as of _____,
1998 ("Indenture") between the Company and First Trust National Association, a
national banking association, as Trustee and in connection with an offering by
the Company of an aggregate of
<PAGE>
$250,000,000 U.S. principal amount of Unsecured, Subordinated Investment Notes
("Notes") and Unsecured, Adjustable Rate, Subordinated Money Market Notes as
described in the Company's Prospectus dated ______, 1998, as amended and
supplemented from time to time, and a current interest rate supplement
thereto. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss.77aaa-77bbbb) ("TIA"). The Notes are
subject to all such terms, and Holder is referred to the Indenture and such
Act for a statement of such terms. All capitalized terms not otherwise defined
herein shall have the meaning given to such terms in the Indenture.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, American Business Financial Services, Inc. has
caused this Note to be signed on the date first above written.
ISSUER:
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(SEAL) BY:
-----------------------------------
Anthony J. Santilli, Jr., Chairman,
President and Chief Executive Officer
Attest:
-----------------------------------
Officer of Company
COUNTERSIGNED AND REGISTERED BY
FIRST TRUST NATIONAL ASSOCIATION, a
national banking association
BY:
-----------------------------------
Authorized Signature
-2-
<PAGE>
[REVERSE SIDE OF NOTE]
1. Subordination. The indebtedness evidenced by the Note shall be
postponed and subordinated and is subject in right of payment, to the extent
and in the manner set forth in the Indenture, to the prior payment in full of
all "Senior Debt" of the Company. "Senior Debt" means any indebtedness
(whether outstanding on the date of issuance of this Note or thereafter
created) incurred by the Company in connection with borrowings by the Company
(including its subsidiaries) from a bank, trust company, insurance company,
other institutional lender or other entity which lends funds in connection
with its primary business activities whether such indebtedness is or is not
specifically designated by the Company as being "Senior Debt" in its defining
instruments. The Company agrees, and Holder by accepting this Note consents
and agrees, to the subordination provided for in the Indenture and authorizes
the Trustee to give it effect.
2. Subrogation. As more fully set forth in the Indenture, subject to
the payment in full of all Senior Debt of the Company, Holder shall be
subrogated to the rights of the holders of Senior Debt of the Company to
receive payments or distributions of assets of the Company made on the Senior
Debt of the Company until the principal of and interest on this Note shall be
paid in full, and for purposes of such subrogation, no such payment or
distributions to the holders of Senior Debt of the Company of cash, property
or securities, which otherwise would be payable or distributable to Holder,
shall be between the Company, its creditors other than the holders of Senior
Debt of the Company, and Holder, be deemed to be a payment by the Company to
or on account of this Note, it being understood that the provisions of this
paragraph are intended solely for the purpose of defining the relative rights
of Holder, on the one hand, and the holders of Senior Debt of the Company, on
the other hand.
3. Nonimpairment. Nothing contained in this Note is intended to or
shall impair, as between the Company, the Company's creditors other than the
holders of Senior Debt of the Company, and Holder, the obligation of the
Company, which is absolute and unconditional, to pay to Holder the principal
of and interest on this Note, as and when the same shall become due and
payable in accordance with its terms, and which, subject to the rights under
Article X of the Indenture of the holders of Senior Debt of the Company, is
intended to rank equally with all other general obligations of the Company. In
addition, nothing contained in this Note is intended to or shall affect the
relative rights of Holder and creditors of the Company other than the holders
of Senior Debt of the Company, nor shall anything herein or therein prevent
the Holder of this Note from exercising all remedies otherwise permitted by
the Indenture and applicable law upon the occurrence of an Event of Default,
subject to the rights, if any, under Article X of the Indenture of the holders
of Senior Debt of the Company in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
4. Mandatory Redemption. Except as provided in Article III of the
Indenture with respect to the Company's obligation to redeem Notes at the
request of certain Holders (in the event of such Holder's Total Permanent
Disability), the estate of a Holder (in the event of Holder's death) or a
jointholder (in the event this Note is held jointly by a husband and wife and
one spouse suffers a Total Permanent Disability or dies), the Company has no
mandatory redemption or sinking fund obligations with respect to this Note.
-3-
<PAGE>
5. Events of Default. An event of Default is:
(a) Default in the payment of any interest upon this Note when it
becomes due and payable and continuance of such default for a period of 30
days; or
(b) Default in the payment of principal of this Note when it becomes
due and payable at maturity, upon redemption or otherwise and continuance of
such default for 30 days; or
(c) Failure by the Company to comply with any of its agreements upon
a liquidation, consolidation, merger or transfer of substantially all of the
Company's assets; or
(d) Failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or this Note; or
(e) Certain events of bankruptcy or insolvency.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least a majority in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Notes become due and payable immediately
without further action or notice. Holders of Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or powers. The Trustee may withhold from Noteholders notice of any
continuing default (except a default in payment of principal or interest) if
it determines that withholding notice would have no material adverse effect on
the Noteholders. The Company must furnish an annual compliance certificate to
the Trustee.
6. Transfer and Exchange. The transfer of Notes may be registered and
Notes may be exchanged as provided in the Indenture. This Note may not be
assigned, transferred or otherwise alienated without the prior written consent
of the Company (which consent shall not be unreasonably withheld) and shall be
subject to the Company's right to demand and receive an opinion of Holder's
legal counsel (which counsel shall be reasonably acceptable to the Company)
that the transfer does not violate any applicable securities laws. The Company
may also require a signature guarantee.
7. Automatic Extension. At least seven (7) days prior to a Note's
stated maturity date, the Company will notify the registered Noteholder of
such maturity date. If at such time, the Company does not notify the
Noteholder of its intention to repay, subject to the Noteholder's demand for
repayment, the term of such Note will be automatically extended. If, within
seven (7) days after
-4-
<PAGE>
a Note's maturity date, the Noteholder thereof has not demanded repayment of
such Note, and the Company has not notified the Noteholder of its intention to
repay such Note, such Note shall be extended for the same term identical to
the term of the original Note. The Note will continue to renew as described
herein absent some action permitted under the Indenture and the Notes by
either the Noteholder or the Company. Interest shall continue to accrue from
the first day of such renewed term. Such Note, as renewed, will continue in
all its provisions, including provisions relating to payment, except that the
interest rate payable during any renewed term shall be the interest rate which
is then being offered by the Company on similar Notes being offered as of the
renewed date. If similar Notes are not then being offered, the interest rate
upon renewal will be the rate specified by the Company on or before the
maturity date, or the Note's current rate if no such rate is specified. If the
Company gives notice to a Noteholder of the Company's intention to repay a
Note at maturity no interest will accrue after the date of maturity.
Otherwise, if a Noteholder requests repayment within seven (7) days after its
maturity date, the Company will pay interest during the period after its
maturity date and prior to repayment at the lower of (i) the lowest interest
rate then being paid on debt securities being offered by the Company to the
general public or (ii) the rate being paid on such Note immediately prior to
its maturity.
8. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
9. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented and any existing Default
under, or compliance with any provision of, the Indenture may be waived with
the written consent of the Holders of at least a majority in principal amount
of the Notes then outstanding. Without the consent of any Holder, the Company
and the Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency; to provide for uncertificated Securities
in addition to or in place of certificated Securities; to comply with Section
5.1 of the Indenture; to change the elective redemption provisions applicable
upon the death or Total Permanent Disability of a Holder (but only to the
extent such change does not alter such rights with respect to any outstanding
Note); to make any change that does not adversely affect the legal rights of
any Noteholder; or to comply with requirements of the SEC in order to effect
or maintain the qualification of the Indenture under the TIA.
10. Trustee Dealings with Company. So long as done in accordance with
the TIA, the Trustee, in its individual or any other capacity, may make loans
to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if
it were not Trustee.
11. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
-5-
<PAGE>
12. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
-6-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
BALAPOINTE OFFICE CENTRE
111 PRESIDENTIAL BLVD.
BALA CYNWYD, PA 19004
--------------------------------------
The following abbreviations, when used in the inscription on the face
of the within Note, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - __________ Custodian __________
(Cust) (Minor)
under Uniform Gifts/Transfers to Minors
Act ____________________________
(State)
Additional abbreviations may also be used though not in the above list.
--------------------------------------
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE:
- ------------------------------------
- -------------------------------------------------------------------
(NAME AND ADDRESS OF ASSIGNEE, INCLUDING ZIP CODE,
MUST BE TYPEWRITTEN)
- -------------------------------------------------------------------
the within Note, and all rights thereunder, hereby irrevocably
- -------------------------------------------------------------------
constitute and appoint
__________________________________________________________ Attorney
to transfer said Note on the books of the Company, with full power of
substitution in the premises.
-7-
<PAGE>
Dated:
-------------------------------------
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Note in every particular, without
alteration or enlargement, or any change whatever.
-8-
<PAGE>
[ON BLANK ROME COMISKY & McCAULEY LLP]
September 18, 1998
American Business Financial Services, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, DE 19810
Re: American Business Financial Services, Inc.
Debt Securities
Registration Statement on Form S-2
Gentlemen:
We have acted as counsel to American Business Financial Services,
Inc. (the "Company") in connection with the Registration Statement on Form S-2
(the "Registration Statement") filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the offer and sale by the Company of up to $250,000,000 in principal amount of
unsecured, subordinated investment notes and unsecured, adjustable rate,
subordinate money market notes (the "Debt Securities"). The Debt Securities
will be issued pursuant to an Indenture to be entered into between the Company
and U.S. Bank Trust National Association, a national banking association, as
trustee (the "Indenture"). This opinion is being furnished pursuant to the
requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the documents listed
on Exhibit "A" attached hereto. We have not performed any independent
investigation other than the document examination described. Our opinion is
therefore qualified in all respects by the scope of that document examination.
We have assumed and relied, as to questions of fact and mixed questions of law
and fact, on the truth, completeness, authenticity and due authorization of
all certificates, documents and records examined and the genuineness of all
signatures. We have also assumed that the Indenture will be in the form filed
as an exhibit to the Registration Statement and will have been duly executed
and delivered by the Company and U.S. Bank Trust National Association, a
national banking association, as trustee.
This opinion is limited to the laws of the State of Delaware and no
opinion is expressed as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
the Debt Securities that are being offered and sold by the Company pursuant to
the Registration Statement, when issued by the Company as
<PAGE>
American Business Financial Services, Inc.
September 18, 1998
Page 2
contemplated by the Registration Statement and in accordance with the
Indenture, will be binding obligations of the Company.
The opinions expressed herein are qualified in all respects by the
following: (a) no opinion is rendered as to the availability of equitable
remedies including, but not limited to, specific performance and injunctive
relief; (b) the effect of bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and other similar laws or equitable principles
affecting creditors' rights or remedies; and (c) the effect of applicable law
and court decisions which may now or hereafter limit or render unenforceable
certain rights and remedies.
This opinion is given as of the date hereof. We assume no obligation
to update or supplement this opinion to reflect any facts or circumstances
which may hereafter come to our attention or any changes in laws which may
hereafter occur.
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus, which is part of the Registration
Statement.
Sincerely,
/s/ BLANK ROME COMISKY & McCAULEY LLP
--------------------------------------
BLANK ROME COMISKY & McCAULEY LLP
<PAGE>
EXHIBIT "A"
1. The Company's Amended and Restated Certificate of Incorporation.
2. The Company's Amended and Restated Bylaws.
3. Action by Unanimus with consent of the Board of Directors dated
September 16, 1998.
4. Form of Indenture filed as an exhibit to the Registration Statement.
5. The Registration Statement.
6. Good Standing Certificate from the Secretary of State of the State
of Delaware.
<PAGE>
INDENTURE
by and among
ABFS EQUIPMENT CONTRACT TRUST 1998-A,
as Issuer,
AMERICAN BUSINESS LEASING, INC.,
as Servicer,
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee and as Back-up Servicer
Dated as of June 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS......................................................................... 1
SECTION 1.01............................................................................Definitions 1
SECTION 1.02..................................Incorporation by Reference of the Trust Indenture Act 1
SECTION 1.03........................................................General Interpretive Principles 1
SECTION 1.04......................................................................Conflict with TIA 2
ARTICLE II PLEDGE OF INITIAL PLEDGED PROPERTY; ORIGINAL ISSUANCE OF NOTES;
CONVEYANCE OF SUBSEQUENT CONTRACTS.................................................. 2
SECTION 2.01.............................................................Pledge of Pledged Property 2
SECTION 2.02..................................................Indenture Trustee to Act as Custodian 3
SECTION 2.03..................................................................Conditions to Closing 3
SECTION 2.04........................................................Acceptance by Indenture Trustee 5
SECTION 2.05......................................Conveyance and Acceptance of Subsequent Contracts 5
SECTION 2.06............Liabilities of the Trust and Parties to this Indenture; Limitations Thereon 6
SECTION 2.07..........................................................Intended Tax Characterization 7
SECTION 2.08...............................................Originators or Affiliates as Noteholders 8
ARTICLE III ACCOUNTS; ALLOCATION AND APPLICATION OF THE TRUST PROPERTY......................... 8
SECTION 3.01..................Collection Account; Pre-Funding Account; Capitalized Interest Account 8
SECTION 3.02.................................Investment of Monies Held in the Accounts; Subaccounts 11
SECTION 3.03..............................................................The Note Insurance Policy 11
SECTION 3.04..................................................Disbursements From Collection Account 13
SECTION 3.05..............................................................Statements to Noteholders 16
SECTION 3.06...............................................Compliance With Withholding Requirements 19
ARTICLE IV REMOVAL OF NON-CONFORMING PLEDGED PROPERTY; SUBSTITUTION OF CONTRACTS............... 19
SECTION 4.01.............................................Removal of Non-Conforming Pledged Property 19
SECTION 4.02..............................................................Substitution of Contracts 19
SECTION 4.03..............................................................Release of Trust Property 20
ARTICLE V THE NOTES........................................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.01..............................................................................The Notes 21
SECTION 5.02..............................................................Initial Issuance of Notes 23
SECTION 5.03.........................................Registration of Transfer and Exchange of Notes 23
SECTION 5.04.............................................Mutilated, Destroyed, Lost or Stolen Notes 24
SECTION 5.05..................................................................Persons Deemed Owners 25
SECTION 5.06.....................................Access to List of Noteholders' Names and Addresses 25
SECTION 5.07....................................................................Acts of Noteholders 25
SECTION 5.08.........................................................................No Proceedings 25
ARTICLE VI THE TRUST......................................................................... 26
SECTION 6.01.................................................................Liability of the Trust 26
SECTION 6.02...................................................Limitation on Liability of the Trust 26
SECTION 6.03.........................................................Indemnity for Liability Claims 26
SECTION 6.04............................................................................Liabilities 26
SECTION 6.05............................................................................[Reserved]. 27
SECTION 6.06......................................................Annual Statement as to Compliance 27
SECTION 6.07......................................................Payment of Principal and Interest 27
SECTION 6.08........................................................Maintenance of Office or Agency 27
SECTION 6.09.................................................Money for Payments to be Held in Trust 27
SECTION 6.10..............................................................................Existence 29
SECTION 6.11...........................................................Protection of Trust Property 29
SECTION 6.12...................................Performance of Obligations; Servicing of Receivables 30
SECTION 6.13.....................................................................Negative Covenants 30
SECTION 6.14......................................Trust May Consolidate, Etc. Only on Certain Terms 31
SECTION 6.15................................................................Successor or Transferee 33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 6.16......................................................................No Other Business 33
SECTION 6.17...........................................................................No Borrowing 33
SECTION 6.18......................................Guarantees, Loans, Advances and Other Liabilities 33
SECTION 6.19...................................................................Capital Expenditures 33
SECTION 6.20...................................................................Compliance with Laws 33
SECTION 6.21...........................................................Further Instruments and Acts 34
ARTICLE VII THE INDENTURE TRUSTEE............................................................... 34
SECTION 7.01............................................................Duties of Indenture Trustee 34
SECTION 7.02...................................................................Eligible Investments 36
SECTION 7.03............................................Indenture Trustee's Assignment of Contracts 36
SECTION 7.04........................................Certain Matters Affecting the Indenture Trustee 36
SECTION 7.05....................................Indenture Trustee Not Liable for Notes or Contracts 37
SECTION 7.06........................................................Indenture Trustee May Own Notes 38
SECTION 7.07..................................................Indenture Trustee's Fees and Expenses 38
SECTION 7.08.........................................Eligibility Requirements for Indenture Trustee 39
SECTION 7.09.......................................Preferential Collection of Claims Against Issuer 39
SECTION 7.10............................................Resignation or Removal of Indenture Trustee 40
SECTION 7.11............................................................Successor Indenture Trustee 41
SECTION 7.12...........................................Merger or Consolidation of Indenture Trustee 41
SECTION 7.13......................Appointment of Co-Indenture Trustee or Separate Indenture Trustee 41
SECTION 7.14........................Indenture Trustee May Enforce Claims Without Possession of Note 43
SECTION 7.15..................................................................Suits for Enforcement 43
SECTION 7.16..................................................................Undertaking for Costs 43
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.17....................................Representations and Warranties of Indenture Trustee 44
SECTION 7.18............................................................................Tax Returns 44
ARTICLE VIII EVENTS OF DEFAULT; REMEDIES......................................................... 45
SECTION 8.01......................................................................Events of Default 45
SECTION 8.02.....................................Acceleration of Maturity, Rescission and Annulment 45
SECTION 8.03...............................................................................Remedies 47
SECTION 8.04.............................................................Notice of Event of Default 47
SECTION 8.05.................................................Exercise of Power by Indenture Trustee 48
SECTION 8.06.............................................Indenture Trustee May File Proofs of Claim 48
SECTION 8.07..........................................................Allocation of Money Collected 48
SECTION 8.08............................................................Waiver of Events of Default 49
SECTION 8.09....................................................................Limitation On Suits 50
SECTION 8.10...................Unconditional Right of Noteholders to Receive Principal and Interest 50
SECTION 8.11.....................................................Restoration of Rights and Remedies 50
SECTION 8.12.........................................................Rights and Remedies Cumulative 51
SECTION 8.13...........................................................Delay or Omission Not Waiver 51
SECTION 8.14.........................................................Control by Controlling Parties 51
SECTION 8.15...............................................................Sale of Pledged Property 51
SECTION 8.16........................................................................Action on Notes 52
ARTICLE IX TERMINATION......................................................................... 52
SECTION 9.01........................................Termination of Obligations and Responsibilities 52
SECTION 9.02...............................Optional Redemption of Notes; Final Disposition of Funds 53
ARTICLE X NOTEHOLDERS' LISTS AND REPORTS...................................................... 54
SECTION 10.01..............Trust To Furnish To Indenture Trustee Names and Addresses of Noteholders 54
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 10.02............................Preservation of Information; Communications to Noteholders 54
SECTION 10.03......................................................................Reports by Trust 54
SECTION 10.04..........................................................Reports by Indenture Trustee 55
SECTION 10.05.............................................Compliance Certificates and Opinions, etc 55
ARTICLE XI MISCELLANEOUS PROVISIONS............................................................ 56
SECTION 11.01.............................................................................Amendment 56
SECTION 11.02...................................................Conformity With Trust Indenture Act 56
SECTION 11.03...................................................Limitation on Rights of Noteholders 56
SECTION 11.04..........................................................................Counterparts 57
SECTION 11.05.........................................................................GOVERNING LAW 57
SECTION 11.06...............................................................................Notices 57
SECTION 11.07............................................................Severability of Provisions 58
SECTION 11.08.....................................................Conflict with Trust Indenture Act 58
SECTION 11.09...............................................................Third Party Beneficiary 58
SECTION 11.10............................................................................Assignment 58
SECTION 11.11........................................................................Binding Effect 58
SECTION 11.12.................................................................Survival of Agreement 58
SECTION 11.13..............................................................................Captions 59
SECTION 11.14..............................................................................Exhibits 59
SECTION 11.15..........................................................................Calculations 59
SECTION 11.16........................................................................No Proceedings 59
</TABLE>
Annex A - Defined Terms
v
<PAGE>
EXHIBITS
Exhibit A - Form of Indenture Trustee's Acknowledgement of Receipt
Exhibit B - Form of Wiring Instructions
Exhibit C - Form of Class A Notes
Exhibit D - Form of Class B Notes
Exhibit E - Form of Transferee Certification (Non-144A)
Exhibit F - Form of Transferee Certification (144A QIB)
Exhibit G - Form of Transferee Certification (Investment Company)
Exhibit H - Form of Instrument of Transfer
Exhibit I - Form of Assignment
Exhibit J - Form of Note Insurer Consent for Subsequent Contracts
vi
<PAGE>
ABFS EQUIPMENT CONTRACT TRUST 1998-A
Reconciliation and Tie between the Indenture,
dated as of June 1, 1998, and the
Trust Indenture Act of 1939, as amended
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
Section 310(a)(1) Section 7.08
(a)(2) 7.08
(a)(3) 7.13
(a)(4) Not Applicable
(b) 7.08; 7.10
(c) Not Applicable
311(a) 7.09
(b) 7.09
312(a) 10.02
(b) 10.02
(c) 10.02
313(a) 10.04
(b)(1) 10.02; 10.04; 4.01; 4.02; 4.03
(b)(2) 10.04
(c) 10.04
(d) 10.04
314(a) 10.03; 3.05; 6.06
(b) Not Applicable
(c)(1) 10.05
(c)(2) 10.05
(c)(3) Not Applicable
(d) Not Applicable
(e) 10.05
(f) Not Applicable
315(a) 7.01; 7.05
(b) 8.04
(c) 8.05
(d) 7.01
(e) 7.01
316(a) (last sentence) 2.07
(a)(1)(A) 7.17
(a)(1)(B) 8.06
317(a)(1) 8.03
(a)(2) 8.04
(b) 6.09
318(a) 11.09
(c) 11.09
vii
<PAGE>
This INDENTURE, dated as of June 1, 1998 (this "Indenture"), is made
by and among ABFS EQUIPMENT CONTRACT TRUST 1998-A, a Delaware business trust,
as issuer (the "Issuer" or the "Trust"), AMERICAN BUSINESS LEASING, INC., a
Pennsylvania corporation, as servicer (the "Servicer"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, not in its individual capacity
but solely as the indenture trustee (the "Indenture Trustee") and as back-up
servicer (the "Back-up Servicer").
WITNESSETH:
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.
- ------ ------------
Capitalized terms used and not defined herein shall have the meanings
specified in Annex A hereto.
SECTION 1.02 Incorporation by Reference of the Trust Indenture Act.
- ------ ------------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"Indenture Trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer.
All other TIA terms used in this Indenture that are defined by the
TIA, or defined by Commission rule have the meaning assigned to them by such
definitions.
SECTION 1.03 General Interpretive Principles.
- ------ --------------------------------
For purposes of this Indenture except as otherwise expressly provided or
unless the context otherwise requires:
<PAGE>
(a)__ the terms defined in this Indenture have the meanings assigned
to them in this Indenture and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include
the other gender;
(b)__ accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP as in effect on the date
hereof;
(c)__ references herein to "Articles", "Sections", "Subsections",
"Paragraphs" and other subdivisions without reference to a document are
to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Indenture;
(d)__ a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same
Section in which the reference appears, and this rule shall also apply
to Paragraphs and other subdivisions;
(e)__ the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular provision; and
(f)__ the term "include" or "including" shall mean without limitation
by reason of enumeration.
SECTION 1.04 Conflict with TIA.
- ------ ------------------
If any provision hereof limits, qualifies or conflicts with a provision of
the TIA that is required under the TIA to be part of and govern this Indenture,
the latter provision shall control and all provisions required by the TIA are
hereby incorporated by reference. If any provision of this Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
latter provisions shall be deemed to apply to this Indenture as so modified or
to be excluded, as the case may be.
ARTICLE II
PLEDGE OF INITIAL PLEDGED PROPERTY;
ORIGINAL ISSUANCE OF NOTES;
CONVEYANCE OF SUBSEQUENT CONTRACTS
SECTION 2.01 Pledge of Pledged Property.
- ------ ---------------------------
The Trust, simultaneously with the execution and delivery of this
Indenture, does hereby pledge, deposit, transfer, assign, and otherwise grant
to the Indenture Trustee, to be held in trust for the benefit of the
Noteholders and the Note Insurer, as their interests may appear as provided in
this Indenture, all the right, title, and interest of the Trust in and to (1)
the Pledged Notes, (2) the Note Insurance Policy,
2
<PAGE>
(3) all Eligible Investments and all other amounts on deposit in the
Pre-Funding Account and the Capitalized Interest Account, and (4) an
assignment of the Trust's security interest in all of the following items that
have been pledged as collateral security for the Pledged Notes: (a) the
security interest or any ownership interest of the Transferors in the
Equipment, (b) the Contracts, including, without limitation, all Actual
Payments and any other payments due or made with respect to the Contracts
after the Cut-Off Date relating to such Contracts, (c) any guarantees of an
Obligor's obligations under a Contract, (d) all other documents in the
Contract Files relating to the Contracts, including, without limitation, any
UCC financing statements related to the Contracts or the Equipment, (e) any
Insurance Policies and Insurance Proceeds with respect to the Contracts, (f)
the Receivables Pledge Agreement, the Receivables Sale Agreement and the
Servicing Agreement, each as executed and delivered in accordance therewith,
(g) a Eligible Investments and all other amounts on deposit in the Collection
Account held by the Indenture Trustee, (i) all Source Agreements and Source
Agreement Rights to the extent they relate to any Contract and any Equipment
covered by the Contracts, and (j) any and all income and proceeds of any of
the foregoing (the property and interests in (1) through (4) above,
collectively, constituting the "Pledged Property"); provided, however, that
the pledge, transfer and assignment effected by this Section 2.0 shall not
include the Initial Unpaid Amounts relating thereto.
This Indenture is a security agreement within the meaning of Article
8 and Article 9 of the Uniform Commercial Code as in effect in the State of
New York and the Commonwealth of Pennsylvania. The pledge provided for in this
Section 2.01 is intended by the Trust to be a grant by the Trust to the
Indenture Trustee, on behalf of the Noteholders and the Note Insurer, of a
valid first priority perfected security interest in all of the Trust's right,
title and interest in and to the Pledged Property.
SECTION 2.02 Indenture Trustee to Act as Custodian.
- ------ --------------------------------------
The executed original counterpart of each Contract, together with the other
documents or instruments, if any, which constitute a part of a Contract File,
shall be held by the Indenture Trustee, as bailee for the benefit of the
Noteholders and the Note Insurer.
SECTION 2.03 Conditions to Closing.
- ------ ----------------------
As conditions to the execution, authentication and delivery of the Notes by
the Indenture Trustee and the sale of the Notes by the Indenture Trustee (by
issuance thereof by the Indenture Trustee upon the Trust's instructions) on
the Closing Date, (a) the Issuer shall have received by wire transfer the net
proceeds of sale of the Class A Notes and the Class B Notes in authorized
denominations equal in the aggregate to the Initial Class A Note Principal
Balance and the Initial Class B Note Principal Balance, and (b) each of the
Indenture Trustee and the Note Insurer shall have received the following on or
before the Closing Date:
(i) The List of Initial Contracts, certified by the President, any
Senior Vice President, any Vice President or any Assistant Vice
President of the Servicer;
<PAGE>
(ii) Copies of a written consent of the members for each of the
Transferors approving the execution, delivery and performance of the
Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby, certified by a Secretary or an
Assistant Secretary of the Managing Member of such Transferor;
(iii) A copy of an officially certified document, dated not more than
thirty (30) days prior to the Closing Date, evidencing the due
organization and good standing of each Transferor in the State of
Delaware;
(iv) Delivery of the executed Financing Statements with respect to
the Contracts, in accordance with the Filing Requirements, prepared for
filing;
(v) A certificate listing the Servicing Officers as of the Closing
Date;
(vi) Executed copies of the Transaction Documents in form and
substance acceptable to the Note Insurer;
(vii) Copies of resolutions of the Board of Directors of each of the
Originators approving the execution, delivery and performance of the
Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby, certified by a Secretary or an
Assistant Secretary of the related Originator;
(viii) Copies of officially certified documents, dated not more than
thirty (30) days prior to the Closing Date, evidencing the due
organization and good standing of (x) ABL in the Commonwealth of
Pennsylvania and (y) Federal Leasing in the State of New Jersey;
(ix) An executed Note Insurance Policy;
(x) A custody receipt, substantially in the form of Exhibit A hereto,
pursuant to which the Indenture Trustee certifies that it has received
(a) a Contract File with respect to each Contract on the List of
Contracts and (b) the Pledged Notes;
(xi) All Necessary Consents;
(xii) A letter from Moody's that it has assigned a rating of "Aaa" to
the Class A Notes;
(xiii) A letter from S&P that it has assigned a rating of "AAA" to
the Class A Notes;
(xiv) A letter from DCR that it has assigned a rating of at least
"BBB" to the Class B Notes; and
(xv) Opinions of counsel to the Originators, the Transferors and the
Servicer, in form and substance acceptable to the Indenture Trustee and
the Note Insurer, covering such matters as the Indenture Trustee or the
Note Insurer may reasonably request including, without limitation,
opinions concerning nonconsolidation, true sale, security interest,
Federal tax and general corporate matters;
and (c) the Note Insurer shall have received in writing on or before the Closing
Date the following:
4
<PAGE>
(i) Acknowledgement by the Back-up Servicer that it and the Servicer
have agreed to a format pursuant to which data will be received;
(ii) An opinion of counsel to the Back-up Servicer, dated as of the
Closing Date, as to the due authorization, execution and delivery of
the Servicing Agreement by the Back-up Servicer; and
(iii) An officer's certificate from a responsible officer of the
Back-up Servicer, dated as of the Closing Date, to the effect that (i)
the representations and warranties contained in Section 2.03 of the
Servicing Agreement are true and correct in all material respects as of
the Closing Date and (ii) no Event of Back-up Servicing Termination
exists.
SECTION 2.04 Acceptance by Indenture Trustee.
- ------ --------------------------------
The Indenture Trustee acknowledges its acceptance, simultaneously with the
execution and delivery of this Indenture, of all right, title and interest in
and to the Pledged Property on behalf of the Noteholders and the Note Insurer,
and declares that the Indenture Trustee holds and will hold such right, title
and interest for the benefit of all present and future Noteholders and the
Note Insurer, for the use and purpose and subject to th terms and provisions
of this Indenture. The Trust hereby (x) appoints the Indenture Trustee as the
Trust's attorney-in-fact with all power independently to enforce all of the
Trust's rights against the Originators, the Transferors, the Source(s) and the
Servicer hereunder, under the Transfer Agreements, the Source Agreements and
under the Servicing Agreement, as applicable, and (y) directs the Indenture
Trustee to enforce such rights. The Indenture Trustee hereby accepts such
appointment and agrees to enforce such rights.
SECTION 2.05 Conveyance and Acceptance of Subsequent Contracts
- ------ -------------------------------------------------
(a)__
(a) From time to time the Transferors will, not less than five (5)
Business Days prior to each Subsequent Funding Date, deliver to the Note
Insurer and the Indenture Trustee a List of Subsequent Contracts that are
scheduled to be acquired by the Transferors, pledged by the Transferors to the
Indenture Trustee, on behalf of the Issuer, and such security interest to be
assigned by the Issuer to the Indenture Trustee, for the benefit of the
Noteholders and the Note Insurer, which Subsequent Contracts shall satisfy the
requirements set forth in Section 2.05(c). If any of the Subsequent Contracts
included on such List of Subsequent Contracts are not approved by the Note
Insurer, the Transferors may, not less than two (2) Business Days prior to the
related Subsequent Funding Date on or prior to the Funding Termination Date,
deliver another Contract which has been approved by the Note Insurer.
5
<PAGE>
(b)__ Subject to the conditions set forth in Section 2.05(c), in
consideration of the Indenture Trustee's delivery to, or at the order of, the
Transferors on the related Subsequent Funding Date, upon the order of the
Servicer, with the prior written consent of the Note Insurer in the form of
Exhibit J hereto, all or a portion of the Pre-Funded Amount in an amount equal
to 95% of the aggregate Discounted Contract Principal Balance of each
Subsequent Contract to be acquired on such Subsequent Funding Date, (a) the
Transferors shall, on each Subsequent Funding Date, pledge to the Indenture
Trustee, on behalf of the Issuer, all right, title and interest of such
Transferor in and to, and (b) the Issuer shall, on each Subsequent Funding
Date, assign to the Indenture Trustee, for the benefit of the Noteholders and
the Note Insurer, all rights, and interests of the Issuer in and to, in each
case, (x) each Subsequent Contract listed on the List of Subsequent Contracts
delivered to the Note Insurer and the Indenture Trustee (including all
Scheduled Payments due thereunder), (y) the security interest or ownership
interest in the related Equipment and (z) the items listed in clauses (c),
(d), (e), (i) and (j) of Section 2.01, with respect to the Subsequent
Contracts.
(c)__ The Issuer agrees that any pledge of Subsequent Contracts shall
satisfy the following conditions:
(i) On or prior to the related Subsequent Funding Date, the Issuer
shall have delivered to the Indenture Trustee an Assignment (and the
Indenture Trustee shall have accepted such Assignment on behalf of the
Note Insurer and the Noteholders) in substantially the form of Exhibit
I attached hereto;
(ii) The Note Insurer shall have approved in writing the pledge to
the Trust of such Subsequent Contracts, such approval to be evidenced
conclusively by the receipt by the Indenture Trustee on the related
Subsequent Funding Date of a written consent of the Note Insurer,
substantially in the form of Exhibit J attached hereto;
(iii) The Indenture Trustee shall have received a written direction
of the Servicer authorizing the Indenture Trustee to release from the
Pre-Funding Account and pay to, or at the direction of, the
Transferors, an amount equal to 95% of the aggregate Discounted
Contract Principal Balances of all Subsequent Contracts (calculated as
of the related Subsequent Funding Date) to be pledged to the Trust, and
pledged to the Indenture Trustee, for the benefit of the Noteholders
and th Note Insurer, on such Subsequent Funding Date;
(iv) The Indenture Trustee and the Note Insurer shall have received
the List of Subsequent Contracts with respect to the related Subsequent
Contracts together with the item listed in Section 2.03(b)(x) hereof
with respect to the Subsequent Contracts;
(v) The Issuer shall have caused to be delivered to the Indenture
Trustee and the Note Insurer, Opinions of Counsel with respect to the
pledge to the Indenture Trustee, on behalf of the Issuer, of the
Subsequent Contracts on such Subsequent Funding Date, substantially in
the form of the respective Opinions of Counsel delivered on the Closing
Date pursuant to Section 2.03(b)(xv);
6
<PAGE>
(vi) Each Subsequent Contract shall be a Contract, with respect to
which all of the representations and warranties set forth in Section
2.02 of the Servicing Agreement were true as of the related Subsequent
Cut-Off Date;
(vii) As of the related Subsequent Cut-Off Date, none of the
Subsequent Contracts then being pledged shall have a final scheduled
payment date later than twelve months before the Class A Maturity Date;
(viii) No selection process believed by the Transferors and the
Issuer to be materially adverse to the interests of the Noteholders or
the Note Insurer was used in selecting the Subsequent Contracts; and
(ix) Such pledge shall not occur after the Funding Termination Date.
(d)__ Upon the release of the funds from the Pre-Funding Account as
described in Section 2.05(c)(iii) above, the Indenture Trustee shall pay over
such funds to the Transferors or their respective assigns, in consideration
for the related Subsequent Receivables, which the Transferors shall have
simultaneously acquired from the Originators pursuant to the Subsequent
Receivables Sale Agreement, and pledged to the Trust pursuant to the
Subsequent Receivables Pledge Agreement.
SECTION 2.06 Liabilities of the Trust and Parties to this
- ------ --------------------------------------------
Indenture; Limitations Thereon
- ------------------------------
(a)__
(a) The obligations evidenced by the Notes provide recourse only to the
Trust Property and provide no recourse against the Originators, the
Transferors, the Servicer, the Indenture Trustee, the Owner Trustee or any
other Person, other than the Note Insurer pursuant to the Note Insurance
Policy.
(b)__ None of the Originators, the Transferors, the Servicer, the
Back-up Servicer or any other Person shall be liable to the Indenture Trustee
or the Noteholders except as provided in Article VI hereof and Sections 5.01,
5.03, 5.05 and 5.07 of the Servicing Agreement and Section 6.03 of the
Receivables Sale Agreement and the Receivables Pledge Agreement. Without
limiting the generality of the foregoing, if any Obligor fails to pay any
Scheduled Payment, Final Scheduled Payment, or other amounts due under a
Contract, then none of the Indenture Trustee, the Noteholders or the Note
Insurer will have any recourse against the Originators, the Transferors, or
the Servicer for such Scheduled Payment, Final Scheduled Payment, other
amounts due under the Contract or any losses, damages, claims, liabilities or
expenses incurred by the Indenture Trustee, any Noteholder or the Note Insurer
as a direct or indirect result thereof, except as may be provided for in
Article VI hereof and Sections 5.01, 5.03, 5.05 and 5.07 of the Servicing
Agreement and Section 6.03 of the Receivables Sale Agreement and the
Receivables Pledge Agreement.
7
<PAGE>
(c)__ The Indenture Trustee agrees that in the event of a default by an
Obligor under the terms of a Contract, which default is not cured within any
applicable cure period set forth in such Contract, the Indenture Trustee, the
Noteholders and the Note Insurer shall be expressly limited to the sources of
payment specified herein. In addition, the Indenture Trustee shall have the
right to exercise the rights of the related Originator under the Contract, the
Insurance Policies and any document in the Contract File in the name of the
Indenture Trustee, the Noteholders and the Note Insurer, either directly or
through the Servicer as agent, and the Indenture Trustee is hereby directed by
the Trust to exercise such rights; provided, however, that the Indenture
Trustee shall not be required to take any action pursuant to this Section
2.06(c) except upon written instructions from the Servicer or the Note
Insurer. A carbon, photographic or other reproduction of this Indenture or any
financin statement is sufficient as a financing statement in any State.
(d)__ The pledge of the Pledged Property by the Issuer pursuant to this
Indenture does not constitute and is not intended to result in an assumption
by the Indenture Trustee, the Trust, the Note Insurer, or any Noteholder of
any obligation (except for the obligation not to disturb an Obligor's right of
quiet enjoyment) of the Originators or the Servicer to any Obligor or other
Person in connection with the Equipment, the Contracts, the Insurance Policies
or any document in the Contrac Files.
SECTION 2.07 Intended Tax Characterization.
- ------ ------------------------------
The parties hereto agree that it is their mutual intent that, for all
applicable tax purposes, the Class A Notes and the Class B Notes shall
constitute indebtedness and that for all applicable tax purposes, accordingly,
the Trust shall be treated as sole and exclusive owner of the Pledged
Property. Further, each party hereto, and each Noteholder (by receiving and
holding a Note), hereby covenants to every other party hereto and the
Noteholders to treat the Class A Notes and the Class B Notes as indebtedness
for all applicable tax purposes in all tax filings, reports and returns and
otherwise, and further covenants that neither it nor any of its Affiliates
will take or participate in the taking of, or permit to be taken, any action
that is inconsistent with the treatment of the Class A Notes or of the Class B
Notes as indebtedness for tax purposes. All successors and assigns of the
parties hereto shall be bound by the provisions hereof.
SECTION 2.08 Originators or Affiliates as Noteholders.
- ------ -----------------------------------------
In determining whether the Noteholders of the required outstanding
Percentage Interests have concurred in any direction, waiver or consent, Notes
owned by the Originators, any other obligor upon the Notes or an Affiliate of
the Originators shall be considered as though not outstanding, except that for
the purposes of determining whether the Indenture Trustee shall be protected
in relying on any such direction, waiver or consent only Notes which a
Responsible Officer of the Indenture Trustee actually knows are so owned shall
be so disregarded.
8
<PAGE>
ARTICLE III
ACCOUNTS; ALLOCATION AND APPLICATION OF
THE TRUST PROPERTY
SECTION 3.01 Collection Account; Pre-Funding Account; Capitalized
- ------ ----------------------------------------------------
Interest Account.
- -----------------
(a)__ The Collection Account.
----- -----------------------
(i) The Indenture Trustee shall establish and maintain the Collection
Account for the benefit of the Trust, as an Eligible Bank Account, in the name
of "ABFS Equipment Contract Trust 1998-A Collection Account, in trust for the
benefit of the ABFS Equipment Contract Trust 1998-A." At the Servicer's written
direction, the Indenture Trustee shall make withdrawals from the Collection
Account only as provided in the Receivables Pledge Agreement in respect of
payments on the Pledged Notes, and the Indenture Trustee shall apply the
proceeds of such payments to make the disbursements set forth in Section
3.04(b) of this Indenture. The Indenture Trustee shall possess all right, title
and interest in all funds on deposit from time to time in the Collection
Account and all proceeds thereof. The Collection Account shall be under the
sole dominion and control of the Indenture Trustee, for the benefit of the
Trust.
(ii) At the times indicated in this Section 3.01(a)(ii) or in Section
3.01(a)(iii) below, the following amounts (net of Excluded Amounts) shall be
deposited in the Collection Account in immediately available funds:
(A) The Servicer shall deposit or cause to be deposited the
aggregate amounts of Actual Payments;
(B) The Servicer shall deposit the aggregate Servicer Advances
payable pursuant to Section 4.03 of the Servicing Agreement;
(C) The Servicer shall deposit any Reacquisition Amounts payable
by it under the Servicing Agreement, or by the Originators pursuant to
Section 4.01 hereof;
(D) The Indenture Trustee shall deposit Investment Earnings
(including, without limitation, Pre-Funding Earnings), as described in
Section 3.02(a) hereof;
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(E) The Indenture Trustee shall transfer from the Capitalized
Interest Account, the Capitalized Interest Requirement, if any, with
respect to each Payment Date occurring during the Pre-Funding Period;
and
(F) The Indenture Trustee shall deposit the amount, if any,
received by the Indenture Trustee as a result of a drawing on the Note
Insurance Policy pursuant to Section 3.03(a) hereof.
(iii) The Servicer shall so transfer the aggregate amount of Actual
Payments to the Collection Account no later than two (2) Business Days after
the Servicer's receipt of such amount and determination that such amounts
relate to the Contracts, but in no event later than five Business Days
following receipt thereof. The Servicer shall so deposit the aggregate amount
of Servicer Advances no later than the related Determination Date. The Servicer
shall instruct the Indenture Trustee in writing to deposit the portion of any
Advance Payment due and owing for a Collection Period no later than the related
Determination Date. Except as otherwise expressly set forth, any other deposits
and transfers of funds to be made pursuant to this Section 3.01(a) shall be
made no later than the third Business Day immediately preceding the related
Payment Date.
(iv) Notwithstanding the foregoing, the Servicer may deduct from
amounts otherwise payable to the Collection Account amounts previously
deposited by the Servicer into the Collection Account but (i) subsequently
uncollectable as a result of dishonor of the instrument of payment for or on
behalf of the Obligor or (ii) later determined to have resulted from mistaken
deposits.
(b)__ The Pre-Funding Account.
----- ------------------------
(i) The Indenture Trustee shall establish and maintain the Pre-Funding
Account for the benefit of the Note Insurer and the Noteholders, as an Eligible
Bank Account, in the name of "ABFS Equipment Contract Trust 1998-A Pre-Funding
Account, in trust for the benefit of the registered holders of Equipment
Contract-Backed Notes and the Note Insurer." At the Servicer's written
direction, the Indenture Trustee shall make withdrawals from the Pre-Funding
Account only as provided i Section 2.05 of this Indenture. The Indenture
Trustee shall possess all right, title and interest in all funds on deposit
from time to time in the Pre-Funding Account and all proceeds thereof. The
Pre-Funding Account shall be under the sole dominion and control of the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer.
(ii) On the Closing Date, the Indenture Trustee shall deposit, on
behalf of the Noteholders and the Note Insurer, in the Pre-Funding Account, the
Original Pre-Funded Amount; provided, that the Original Pre-Funded Amount shall
not exceed 30% of the Initial Aggregate Collateral Balance.
(iii) The Indenture Trustee shall withdraw and distribute or cause to
be distributed the following moneys held in the Pre-Funding Account at the
times specified, based on written instructions provided by the Servicer or
other party as indicated:
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(A) On any Subsequent Funding Date, the Servicer may instruct the
Indenture Trustee to withdraw from amounts on deposit in the
Pre-Funding Account an amount equal to 95% of the aggregate Discounted
Contract Principal Balances (as of the Subsequent Cut-Off Date) of all
Subsequent Contracts (which Subsequent Contracts have been approved in
writing by the Note Insurer) to be pledged to the Trust on such
Subsequent Funding Date and pay such amount to, or at the directio of,
the Transferors as an additional advance of funds on the Pledged
Notes;
(B) On each Payment Date through and including the Payment Date
immediately following the last Subsequent Funding Date (or, if the
last Subsequent Funding Date is also a Payment Date, then on the last
Subsequent Funding Date), the Indenture Trustee shall transfer from
the Pre-Funding Account to the Collection Account the Pre-Funding
Earnings, if any, applicable to each such Payment Date; and
(C) If all or any portion of the Pre-Funded Amount remains in the
Pre-Funding Account on the Payment Date which immediately follows the
Funding Termination Date (or, in the event that the Funding
Termination Date is a Payment Date, then on such Payment Date), the
Indenture Trustee shall withdraw from the Pre-Funding Account on such
Payment Date the remaining Pre-Funded Amount and shall distribute (a)
the Class A Accelerated Percentage of such amount to the Class A
Noteholders, as a prepayment of principal on the Class A Notes and (b)
the Class B Accelerated Percentage of such amount to the Class B
Noteholders, as a prepayment of principal on the Class B Notes.
(c)__ The Capitalized Interest Account.
----- ---------------------------------
(i) The Indenture Trustee shall establish and maintain the Capitalized
Interest Account for the benefit of the Note Insurer and the
Noteholders, as an Eligible Bank Account, in the name of "ABFS Equipment
Contract Trust 1998-A Capitalized Interest Account, in trust for the
benefit of the registered holders of Equipment Contract-Backed Notes and
the Note Insurer." At the Servicer's written direction, the Indenture
Trustee shall make withdrawals from the Capitalized Interest Account
only as provided in Section 3.01(c)(ii) of this Indenture. The Indenture
Trustee shall possess all right, title and interest in all funds on
deposit from time to time in the Capitalized Interest Account and all
proceeds thereof. The Capitalized Interest Account shall be under the
sole dominion and control of the Indenture Trustee, for the benefit of
the Noteholders and the Note Insurer.
(ii) On the Closing Date, the Indenture Trustee will deposit from the
proceeds of the sale of the Class A Notes and the Class B Notes, the
Capitalized Interest Account Deposit in the Capitalized Interest
Account. On each Payment Date occurring during the Pre-Funding Period
only, the Indenture Trustee shall transfer from the Capitalized Interest
Account to the Collection Account the Capitalized Interest Requirement,
if any, for such Payment Date; provided that such amounts will be used
only to pay (A) interest on the Notes and (B) the Premium Amount payable
on such Payment Date. Any amount remaining on deposit in the Capitalized
Interest Account on the Payment Date immediately following the end of
the Pre-Funding Period (after taking into account any transfer to be
made from the Capitalized Interest Account to the Collection Account on
such Payment Date) shall be released by the Indenture Trustee to the
Transferors (in proportion to the Percentage Interest of th Trust
Certificates held by each Transferor), and the Capitalized Interest
Account shall thereafter be closed.
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SECTION 3.02 Investment of Monies Held in the Accounts; Subaccounts
- ------ ------------------------------------------------------
(a)__
(a) The Servicer shall direct the Indenture Trustee in writing to invest the
amounts in any Account in Eligible Investments that mature not later than the
Business Day immediately preceding the next Payment Date following the
investment of such amounts. Eligible Investments shall not be sold or disposed
of prior to their maturities. Investment Earnings on amounts held in any
Account shall be deposited in the Collection Account as earned. The amount of
any Insured Payment shall be held uninvested.
(b)__ The Indenture Trustee and the Servicer may, from time to time and in
connection with the administration of any Account, establish and maintain with
the Indenture Trustee one or more sub-accounts of any of the Accounts, as the
Indenture Trustee, the Note Insurer and/or the Servicer may consider useful.
SECTION 3.03 The Note Insurance Policy
- ------ -------------------------
(a)__
(a) On each Determination Date, the Servicer shall determine with respect to
the immediately following Payment Date, the amounts to be on deposit in the
Collection Account on such Determination Date with respect to the immediately
preceding Collection Period and equal to the total of (x) Available Funds with
respect to such Collection Period, minus (y) the Trust Operating Expenses (the
"Available Distribution Amount"), and shall inform the Indenture Trustee in
writing no later than 10:00 a.m., New York City time, on such Determination
Date of the results of such determination.
(b)__ If the Class A Insured Distribution Amount for any Payment Date
exceeds the Available Distribution Amount for such Payment Date (such event
being an "Available Funds Shortfall"), the Indenture Trustee shall complete a
Notice in the form of Exhibit A to the Note Insurance Policy and submit such
notice to the Note Insurer via facsimile transmission no later than 12:00 noon
New York City time on the second Business Day preceding such Payment Date as a
claim for an Insured Payment i an amount equal to such Available Funds
Shortfall.
(c)__ Upon receipt of Insured Payments from the Note Insurer, the
Indenture Trustee shall immediately deposit such Insured Payments in the
Collection Account pursuant to Section 3.01(a)(ii)(F) and shall distribute
such Insured Payments, or the proceeds thereof, in accordance with Section
3.04 hereof to the Class A Noteholders exclusively. The parties hereto
recognize that the making of an Insured Payment does not relieve any of the
parties hereto of any obligation hereunder or under any of the Transaction
Documents.
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(d)__ The Indenture Trustee shall (x) receive Insured Payments as
attorney-in-fact of each of the Class A Noteholders and (y) disburse such
Insured Payment to the Class A Noteholders as set forth in Section 3.04 hereof.
The Note Insurer shall be entitled to receive the related Reimbursement Amount
pursuant to Sections 3.04(b)(xi) hereof with respect to each Insured Payment
made by the Note Insurer. The Trust hereby agrees for the benefit of the Note
Insurer (and each Noteholder, by acceptance of its Notes, will be deemed to
have agreed) that to the extent the Note Insurer makes Insured Payments, either
directly or indirectly (as by paying through the Indenture Trustee), to the
Class A Noteholders, the Note Insurer will be entitled to receive the related
Reimbursement Amount pursuant to Sections 3.04(b)(xi) hereof.
(e)__ The Class A Notes will be insured by the Note Insurance Policy
pursuant to the terms set forth therein, notwithstanding any provisions to the
contrary contained in this Indenture. All amounts received under the Note
Insurance Policy shall be used solely for the payment when due to the Class A
Noteholders of the Insured Payment.
(f)__ If a Responsible Officer of the Indenture Trustee at any time has
actual knowledge that there will not be sufficient moneys in the Collection
Account to make required payments of principal and interest on the Pledged
Notes in an amount necessary to subsequently make all required payments of
principal and interest to the Class A Noteholders on the applicable Payment
Date, the Indenture Trustee shall immediately notify the Note Insurer or its
designee by telephone, promptly confirmed in writing by overnight mail or
facsimile transmission, of the amount of such deficiency. In addition, if a
Responsible Officer of the Indenture Trustee has actual notice that any of the
Class A Noteholders have been required to disgorge payments of principal or
interest on the Class A Notes pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes a voidable preference to
such Holders within the meaning of any applicable bankruptcy laws, then the
Indenture Trustee shall notify the Note Insurer or its designee of such fact by
telephone, promptly confirmed in writing by overnight mail or facsimile
transmission. Such notice shall be in addition to the procedures set forth in
the Note Insurance Policy for making a claim under the Note Insurance Policy.
(g)__ Anything herein to the contrary notwithstanding, any payment with
respect to the principal of or interest on the Class A Notes which is made with
moneys received pursuant to the terms of the Note Insurance Policy shall not be
considered payment by the Issuer of the Class A Notes, shall not discharge the
Issuer in respect of its obligation to make such payment and shall not result
in the payment of or the provision for the payment of the principal of or
interest on the Class A Notes within the meaning of Section 9.01 hereof. The
Issuer and the Indenture Trustee acknowledge that, without the need for any
further action on the part of the Note Insurer, the Issuer, the Indenture
Trustee or the Note Registrar (i) to the extent the Note Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Class A Notes to the Holders of such Class A Notes, the Note Insurer will be
fully subrogated to the rights of such Holders to receive such principal and
interest from the Issuer, and (ii) the Note Insurer shall be paid such
principal and interest in its capacity as a Holder of the Class A Notes, but
only from the sources and in the manner provided herein for the payment of such
principal and interest in each case only after the Holders of the Class A Notes
have received payment of all scheduled payments of principal and interest due
thereon.
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(h)__ Without limiting the provisions of Article VIII hereof or the rights
or interests of the Holders as otherwise set forth herein, so long as no Note
Insurer Default exists, the Indenture Trustee shall cooperate in all respects
with any reasonable request by the Note Insurer for action to preserve or
enforce the Note Insurer's rights or interests under this Indenture, including,
without limitation, upon occurrence and continuance of an Event of Default, a
request to take any one or more of the following actions:
(i) institute proceedings for the collection of all amounts then
payable on the Class A Notes, or under this Indenture in respect of
the Class A Notes, enforce any judgment obtained and collect from the
Issuer moneys adjudged due;
(ii) institute proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(iii) 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 Note Insurer hereunder.
(i)__ The parties hereto grant to the Note Insurer, as long as no Note
Insurer Default is continuing, the right of prior approval of amendments
or supplements to the Transaction Documents and of the exercise of any
option, vote, right, power or the like available to the Class A
Noteholders hereunder.
SECTION 3.04 Disbursements From Collection Account
- ------ -------------------------------------
(a)__.
(a) On each Payment Date, the Indenture Trustee shall pay the Available
Funds then on deposit in the Collection Account with respect to the immediately
preceding Collection Period, as indicated on the Monthly Statement, as
applicable, to the Persons to which such money is then due, calculated on the
basis of and in accordance with the Monthly Statement for the related
Collection Period; provided, however, that in the event the Servicer fails to
deliver a Monthly Statement by a Payment Date the Indenture Trustee shall,
nevertheless, pay interest on the Notes from the sources of funding set forth
herein, in each case in an amount equal to the product of (i) one-twelfth, (ii)
the Note Rate and (iii) the related Note Principal Balance, as reflected on the
Monthly Statement most recently delivered by the Servicer (net of any principal
payments in respect thereof on the immediately preceding Payment Date).
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(b)__ On each Payment Date, the Indenture Trustee shall pay such money to
the following Persons, in the following order of priority, without duplication:
(i) To the related Originator by wire transfer of immediately
available funds, the aggregate amount of any Excluded Amounts or
Initial Unpaid Amounts inadvertently deposited in the Collection
Account;
(ii) From the amount then remaining in the Collection Account, to
any party entitled thereto, by check, any indemnity payments paid
pursuant to any Contract, to the extent that such amounts are
inadvertently deposited in the Collection Account;
(iii) From the Available Funds then remaining in the Collection
Account, to the Servicer by wire transfer to the account designated in
writing by the Servicer of immediately available funds, the aggregate
amount of the following, in the following priority:
An amount equal to the unreimbursed Servicer Advances (other
than Servicer Advances for the current Collection Period);
An amount equal to the Servicer Fee owing on such Payment
Date, plus any unpaid Servicer Fee owing from prior Collection
Periods; and
Any Servicing Charges inadvertently deposited in the
Collection Account;
(iv) From the Available Funds then remaining in the Collection
Account, to the Back-up Servicer by wire transfer to the account
designated in writing by the Back-up Servicer of immediately available
funds, an amount equal to the Back-up Servicer Fee owing on such
Payment Date, plus any unpaid Back-up Servicer Fees from prior
Collection Periods;
(v) From the Available Funds then remaining in the Collection
Account, to the Note Insurer by wire transfer to the account
designated in writing by the Note Insurer, an amount equal to the
Premium Amount owing on such Payment Date, plus any unpaid Premium
Amounts from prior Collection Periods;
(vi) From the Available Funds then remaining in the Collection
Account, to the Indenture Trustee by wire transfer to the account
designated in writing by the Indenture Trustee, an amount equal to the
Indenture Trustee Fees owing on such Payment Date, plus any unpaid
Indenture Trustee Fees from prior Collection Periods;
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<PAGE>
(vii) From the Available Funds then remaining in the Collection
Account, to the Indenture Trustee by wire transfer to the account
designated in writing by the Indenture Trustee, an amount equal to the
reimbursable expenses due and unpaid to the Indenture Trustee in
accordance with Section 7.07(a)(ii) hereof, up to the $30,000
limitation set forth in Section 7.07(a)(ii);
(viii) From (x) the Available Funds then remaining in the
Collection Account plus (y) the proceeds of any applicable Insured
Payment, to the Class A Noteholders, the Class A Note Interest for the
related Collection Period;
(ix) From the Available Funds then remaining in the Collection
Account, to the extent that such disbursement shall not result in an
Available Funds Shortfall or any unpaid Reimbursement Amount, from
Available Funds then remaining in the Collection Account to the Class
B Noteholders an amount equal to the Class B Note Priority Interest
for the related Collection Period;
(x) From (x) the Available Funds then remaining in the Collection
Account plus (y) the proceeds of any applicable Insured Payment, until
the Class A Note Principal Balance has been reduced to zero, to the
Class A Noteholders from the Available Funds then remaining in the
Collection Account, the sum of (a) the Class A Base Principal
Distribution Amount for such Payment Date and (b) any Class A Overdue
Principal;
(xi) From the Available Funds then remaining in the Collection
Account, to the Note Insurer by wire transfer to the account
designated in writing by the Note Insurer, the Reimbursement Amount,
if any, owing on such Payment Date;
(xii) From Available Funds then remaining in the Collection
Account, to the Class B Noteholders an amount equal to the Class B
Note Junior Interest for the related Collection Period;
(xiii) From the Available Funds then remaining in the Collection
Account, until the Class B Note Principal Balance has been reduced to
zero, to the Class B Noteholders, from the Available Funds then
remaining in the Collection Account, the sum of (a) the Class B Base
Principal Distribution Amount for such Payment Date and (b) any Class
B Overdue Principal, allocated, first, to the Class B Collateralized
Note Balance, and, second, to the Class B Uncollateralized Note
Balance; provided, however, that if a Restricting Event exists on such
Payment Date and the Class A Note Principal Balance on such Payment
Date (after giving effect to all prior payments of principal to the
Class A Noteholders made on such Payment Date) exceeds zero, the
amount otherwise required to be paid to the Class B Noteholders under
this clause (xiii), shall instead be paid to the Class A Noteholders
pursuant to this clause (xiii) during such time as a Restricting Event
is continuing as an additional reduction of the Class A Note Principal
Balance up to the amount necessary to reduce the Class A Note
Principal Balance to zero;
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(xiv) From the Available Funds then remaining in the Collection
Account, to the Indenture Trustee, the Indenture Trustee Expenses then
due, together with any Indenture Trustee Expenses from prior
Collection Periods, in excess of the $30,000 limitation set forth in
Section 7.07(a)(ii) hereof, and up to the aggregate $45,000 limitation
set forth in Section 7.07(a)(iii);
(xv) From the Available Funds then remaining in the Collection
Account, to the Servicer by wire transfer of immediately available
funds to the account designated in writing by the Servicer, any other
amounts due the Servicer as expressly provided in the Servicing
Agreement; and
(xvi) From the Available Funds then remaining in the Collection
Account, to the Residual Holders, as sponsors of the Trust, any
remaining Available Funds; provided, however, that
(I) if a Restricting Event does not exist on such
Payment Date, but if any payment of funds to the
Residual Holders on such Payment Date would result
in the Residual Balance being less than 3% of the
Initial Aggregate Collateral Balance such entire
remaining amount of Available Funds then remaining,
regardless of any allocation to principal or
interest in respect of the Residual Balance, shall
not be paid to the Residual Holders but shall
instead be paid (x) if the Class A Note Principal
Balance on such Payment Date (after giving effect
to all payments of principal to the Class A
Noteholders made on such Payment Date pursuant to
clauses (x) and (xiii)) exceeds zero, to the Class
A Noteholders pursuant to this clause (xvi) as an
additional reduction of the Class A Note Principal
Balance up to the amount necessary to reduce such
balance to zero; and (y) if the Class A Note
Principal Balance is zero, but the Class B Note
Principal Balance on such Payment Date (after
giving effect to all payments of principal to the
Class B Noteholders made on such Payment Date
pursuant to clause (xiii)) exceeds zero, the amount
otherwise required to be paid to the Residual
Holders under this clause (xvi) shall instead be
paid to the Class B Noteholders pursuant to this
clause (xvi) as an additional reduction of the
Class B Note Principal Balance up to the amount
necessary to reduce such balance to zero; and
(II) if a Restricting Event exists on such Payment Date,
the amount otherwise required to be paid to the
Residual Holders under this clause (xvi) shall
instead be paid (x) if the Class A Note Principal
Balance on such Payment Date (after giving effect
to all payments of principal to the Class A
Noteholders made on such Payment Date pursuant to
clauses (x) and (xiii)) exceeds zero, to the Class
A Noteholders pursuant to this clause (xvi) during
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such time as a Restricting Event is continuing as
an additional reduction of the Class A Note
Principal Balance up to the amount necessary to
reduce such balance to zero; (y) if the Class A
Note Principal Balance is zero, but the Class B
Note Principal Balance on such Payment Date (after
giving effect to all payments of principal to the
Class B Noteholders made on such Payment Date
pursuant to clause (xiii)) exceeds zero, the amount
otherwise required to be paid to the Residual
Holders under this clause (xvi) shal instead be
paid to the Class B Noteholders pursuant to this
clause (xvi) during such time as a Restricting
Event is continuing as an additional reduction of
the Class B Note Principal Balance up to the amount
necessary to reduce such balance to zero; and (z)
if the Class A Note Principal Balance and the Class
B Note Principal Balance are each zero, such amount
shall be paid to the Residual Holders pursuant to
this clause (xvi).
(c)__ All payments to Noteholders shall be made on each Payment Date to
each Noteholder of record on the related Record Date by check, or, if requested
by a Noteholder holding $5,000,000 or more of any Class of Notes, by wire
transfer to the account designated in writing in the form of Exhibit B hereto
(or such other account as such Noteholder may designate in writing) delivered
to the Indenture Trustee on or prior to the related Determination Date, in
immediately available funds, in amounts equal to such Noteholder's pro rata
share (based on the aggregate Class A Percentage Interest in the case of the
Class A Noteholders and the aggregate Class B Percentage Interest in the case
of the Class B Noteholders) of such payment.
SECTION 3.05 Statements to Noteholders
- ------ -------------------------
(a)__
(a) If the Servicer has delivered the Monthly Statement on the preceding
Determination Date, then on each Payment Date the Servicer will forward it to
the Note Insurer, and the Indenture Trustee will mail to the Rating Agencies
and each Noteholder, a statement (which statement will be prepared by the
Servicer and furnished to the Indenture Trustee in the Monthly Statement
delivered pursuant to Section 4.07 of the Servicing Agreement or otherwise
pursuant to this Indenture), setting forth the following information (per
$1,000 of Initial Class A Note Principal Amount or of Initial Class B Note
Principal Amount (as the case may be) as to (i) and (ii) below):
(i) With respect to a statement to a Class A Noteholder or a Class B
Noteholder, the amount of such payment allocable to such Noteholder's
Percentage Interest of the Class A or Class B Principal Distribution
Amount and Class A or Class B Overdue Principal, as applicable;
(ii) With respect to a statement to a Noteholder, the amount of such
payment allocable to such Noteholder's Percentage Interest of Class A or
Class B Note Current Interest and Class A or Class B Overdue Interest,
as applicable;
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(iii) The aggregate amount of fees and compensation received by the
Servicer pursuant to Section 3.04 hereof for the Collection Period;
(iv) The aggregate Class A Note Principal Balance, the aggregate Class
B Note Principal Balance, the Class A Percentage, the Class B
Percentage, the Class A Note Factor, the Class B Note Factor, the Pool
Factor and the Aggregate Discounted Contract Principal Balance, after
taking into account all distributions made on such Payment Date;
(v) The total unreimbursed Servicer Advances with respect to the
related Collection Period;
(vi) The amount of Defaulted Contract Recoveries for the related
Collection Period and the Aggregate Discounted Contract Principal
Balance for all Contracts that became Defaulted Contracts during the
related Collection Period calculated immediately prior to the time such
Contracts became Defaulted Contracts;
(vii) The total number of Contracts and the Aggregate Discounted
Contract Principal Balance thereof, together with the number and
Aggregate Discounted Contract Principal Balance of all Contracts as to
which the Obligors, have missed one, two, three or four Scheduled
Payments (including Final Scheduled Payments), and Delinquent Contracts
reconveyed; and
(viii) During the Pre-Funding Period only, the amount on deposit in
the Pre-Funding Account and the Capitalized Interest Account after
giving effect to withdrawals from such Accounts on such Payment Date.
(b)__ By January 31 of each calendar year, commencing January 31, 1999, or
as otherwise required by applicable law, the Indenture Trustee shall furnish to
each Person who at any time during the immediately preceding calendar year was
a Noteholder a statement prepared by the Servicer, and delivered to the
Indenture Trustee, containing the applicable aggregate amounts with respect to
such Noteholder hereof for such calendar year or, in the event such Person was
a Noteholder during a portion of such calendar year, for the applicable portion
of such year, for the purposes of such Noteholder's preparation of Federal
income tax returns. In addition to the foregoing the Servicer and the Indenture
Trustee (to the extent the Servicer has provided the necessary information to
the Indenture Trustee) shall make available to Noteholders, the Rating Agencies
or the Note Insurer any other information provided to the Servicer or the
Indenture Trustee or otherwise in the Indenture Trustee's possession reasonably
requested by Noteholders, the Rating Agencies or the Note Insurer in connection
with tax matters, in accordance with the written directions of the Servicer.
(c)__ The Servicer shall furnish to each Noteholder and the Note Insurer,
on request, during the term of this Indenture, such periodic, special or other
reports or information not specifically provided for herein, as shall be
necessary, reasonable or appropriate with respect to such Noteholder or the
Note Insurer all such reports or information to be provided by and in
accordance with such applicable instructions and directions as the Noteholder
or the Note Insurer may reasonably require and as the Servicer may reasonably
be able to produce; provided, however, that, as a condition of furnishing such
materials, the Servicer may require such Noteholder to execute a
confidentiality agreement in form and substance acceptable to the Servicer.
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<PAGE>
(d)__ The Indenture Trustee shall promptly send to the Note Insurer, each
Noteholder and to the Rating Agencies in writing:
(i) Notice of any breach by the Transferors, the Trust, the Originators
or the Servicer of any of their respective representations, warranties and
covenants made herein, in the Servicing Agreement or in any other
Transaction Document;
(ii) A copy of each Servicer compliance statement delivered to the
Indenture Trustee pursuant to Section 4.08 of the Servicing Agreement;
(iii) Notice of any breach by the Indenture Trustee of its
representations and warranties set forth in Section 7.17 hereof of which a
Responsible Officer has actual knowledge;
(iv) Notice of the occurrence of any Event of Default or Restricting
Event;
(v) Notice of any Event of Servicing Termination or default under the
Insurance Agreement, or any other default under any of the Transaction
Documents;
(vi) Notice of any Event of Back-up Servicing Termination; and
(vii) Notice of the resignation or removal of the Indenture Trustee;
provided, however, that in each case the Indenture Trustee shall only be
required to send such notices and other items to the Noteholders to the extent
that the Indenture Trustee has itself received the related information and the
Noteholders have not already received such notice or other items. Except as
may be specifically provided herein, the Indenture Trustee shall have no
obligation to seek to obtain any such information.
SECTION 3.06 Compliance With Withholding Requirements.
- ------ -----------------------------------------
Notwithstanding any other provisions of this Indenture, the Indenture
Trustee, as paying agent for and on behalf of, and at the direction of the
Servicer, shall comply with all Federal withholding requirements respecting
payments (or advances thereof) to Noteholders as may be applicable to
instruments constituting indebtedness for Federal income tax purposes. Any
amounts so withheld shall be treated as having been paid to the related
Noteholder for all purposes of this Indenture. In no event shall the consent of
Noteholders be required for any withholding.
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ARTICLE IV
REMOVAL OF NON-CONFORMING PLEDGED
PROPERTY; SUBSTITUTION OF CONTRACTS
SECTION 4.01 Removal of Non-Conforming Pledged Property.
- ------ -------------------------------------------
(a)__
(a) Upon discovery by the Trust, the Note Insurer, the Servicer (or any of
its successors or assigns) or in the case of the Indenture Trustee, upon actual
knowledge of a Responsible Officer of the Indenture Trustee, of a breach of any
of the representations or warranties set forth in Section 2.02 of the Servicing
Agreement that materially and adversely affects the interest of the Note
Insurer, any Noteholders, any Contract, the related Equipment or the related
Contract File, as the case may be, or if the Servicer fails to cause delivery
of evidence of filing or copies of any UCC financing statement in accordance
with the Servicing Agreement (any such event, a "Warranty Event"), the party
(including any such successor or assign) discovering such breach shall give
prompt written notice to the other parties. As of the later of (x) the last day
of the calendar month of such discovery or such receipt o notice of breach or
(y) two weeks from the date of such discovery or such receipt of notice of
breach (or, at the related Originator's election, any earlier date), the
related Originator shall deposit (or cause to be deposited) in the Collection
Account the Reacquisition Amount with respect to such Contract or replace such
Contract with a Substitute Contract pursuant to Section 4.02 hereof. Any such
nonconforming Contract so removed shall not be deemed to be a Defaulted
Contract for purposes of this Article IV.
(b)__ The obligation of an Originator to remove any Contract and to remit
the Reacquisition Amount, as appropriate, with respect to the related Contract
as to which a breach has occurred and is continuing shall constitute the sole
remedy against such Originator for such breach available to the Indenture
Trustee and the Noteholders, except to the extent that such breach is the
result of any fraud or willful misconduct on the part of such Originator.
SECTION 4.02 Substitution of Contracts.
- ------ --------------------------
(a)__
(a) Subject to the provisions of Sections 4.02(b) through (d) hereof, the
related Originator, with the written consent of the Note Insurer, upon notice
from the Servicer, may substitute one or more Contracts (each a "Substitute
Contract") and the related Equipment and replace a Contract and the related
Equipment that (i) becomes a Defaulted Contract or an Early Termination
Contract or (ii) is the subject of a Prepayment, a Casualty Loss or a Warranty
Event.
(b)__ Each Substitute Contract shall be a Contract, with respect to which
all of the representations and warranties set forth in Section 2.02 of the
Servicing Agreement were true as of the related Substitute Contract Cut-Off
Date.
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(c)__ Prior to any substitution pursuant to this Section 4.02, the
Indenture Trustee shall have received an executed transfer agreement between
the related Transferor and the related Originator providing for the
unconditional sale and transfer of the Substitute Contracts and related
Equipment by such Originator to such Transferor, the List of Substitute
Contracts reflecting the substitution, a release request, in form and substance
acceptable to the Transferors and the Indenture Trustee, with respect to the
Contract being replaced and the originally executed trust receipt relating
thereto.
(d)__ No such substitution under this Section 4.02 shall be permitted on
any Transfer Date if:
(i) on a cumulative basis from the Initial Cut-Off Date, the sum
of the Discounted Contract Principal Balances (as of the related
Substitute Cut-Off Date) of such Substitute Contracts would exceed
ten percent (10%) of the Initial Aggregate Collateral Balance;
(ii) as of the related Substitute Cut-Off Date, the Substitute
Contracts then being pledged have an Aggregate Discounted Contract
Principal Balance that is less than the Aggregate Discounted
Contract Principal Balance of the Contracts being replaced;
(iii) as of the related Substitute Cut-Off Date, any of the
Substitute Contracts then being pledged have a final scheduled
payment date later than twelve months before the Class A Maturity
Date;
(iv) the Servicer makes a good faith determination that the
credit quality of the Substitute Contract is not worse than that of
the Contract being replaced; and
(v) as a result thereof, (x) the sum of the Scheduled Payments on
all Contracts, after giving effect to such substitutions, due in any
Collection Period thereafter would be less than (y) the sum of the
Scheduled Payments which would otherwise be due in such Collection
Period, prior to giving effect to such substitution.
(e)__ Upon the replacement of a Contract and the related Equipment with a
Substitute Contract as described above, the security interest of the Indenture
Trustee in such replaced Contract, the related Equipment and all proceeds
thereon shall be terminated and such replaced Contract and the related
Equipment shall be transferred to the Transferor, pledged to the Trust as
collateral security for the Pledged Notes, and such security interest shall be
assigned to the Indenture Trustee, for the benefit of the Noteholders and the
Note Insurer.
SECTION 4.03 Release of Trust Property.
- ------ --------------------------
(a)__
(a) The Indenture Trustee when required by the provisions of this Indenture
and with the prior written consent of the Note Insurer shall execute
instruments provided to it in order to release property from the Lien of this
Indenture, in a manner and under circumstances that are not inconsistent with
the provisions of this Indenture, the Servicing Agreement and the Receivables
Pledge Agreement. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article IV shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
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(b)__ The Indenture Trustee shall, at such time as the parties'
obligations under this Indenture terminate pursuant to Section 9.01 hereof,
release any remaining portion of the Trust Property that secured the Notes from
the Lien of this Indenture and release to the Trust or any other Person
entitled thereto any funds then on deposit in the Collection Account and any
subaccounts thereof as may have been established pursuant to Section 3.02(b);
provided, that with the prior written consent of the Note Insurer, the Trust
Property may be released after the date on which there are no Notes outstanding
and all sums due the Indenture Trustee and the Note Insurer pursuant to this
Indenture, the Insurance Agreement and any other Transaction Document have each
been paid and prior to the expiration of the 123-day period reference in
Section 9.01. The Indenture Trustee shall release property from the Lien of
this Indenture pursuant to this Section 4.03(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel, the
prior written consent of the Note Insurer (so long as no Note Insurer Default
has occurred and is continuing) and (if required by the TIA) Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(1) meeting the
applicable requirements of Section 10.05 hereof.
ARTICLE V
THE NOTES
SECTION 5.01 The Notes.
- ------ ----------
(a)__
(a) The Class A Notes will be issued in denominations of $100,000 and $1,000
increments above $100,000 up to the Initial Class A Note Principal Balance and
the Class B Notes will be issued in denominations of $100,000 and $1,000
increments above $100,000 up to the Initial Class B Note Principal Balance.
Each Note shall represent a validly issued and binding obligation, but only if
such Note has been executed on behalf of the Trust by a Responsible Officer of
the Owner Trustee by manual signature, and authenticated on behalf of the
Indenture Trustee by a Responsible Officer of the Indenture Trustee by manual
signature. Each Note bearing the manual signatures of individuals who were, at
the time when such signatures were affixed, authorized to sign on behalf of the
Trust shall continue to be a valid and binding obligation, notwithstanding that
such individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Note or did not hold such offices at the
date of such Note. No Note shall be entitled to any benefit under this
Indenture, or be valid for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form set forth in the form
of the Notes of the related Class, each attached as Exhibits hereto, signed by
the Indenture Trustee by manual signature, and such signature upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. All Class A Notes shall be
substantially in the form set forth in Exhibit C and all Class B Notes shall be
substantially in the form set forth in Exhibit D hereto. Each Note shall be
dated the date of its authentication. Neither the Notes nor the Contracts are
insured by the Federal Deposit Insurance Corporation or any other governmental
agency.
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(b)__ It is intended that the Notes be registered so as to participate in
a global book-entry system with the Depository, as set forth herein. The Class
A Notes shall, except as otherwise provided in the next paragraph, be initially
issued in the form of a single fully registered Class A Note with a
denomination equal to the Initial Class A Note Principal Balance. The Class B
Notes shall, except as otherwise provided in the next paragraph, be initially
issued in the form of a single fully registered Class B Note, with a
denomination equal to the Initial Class B Note Principal Balance. Upon initial
issuance, the ownership of each such Class A Note and Class B Note shall be
registered in the Register in the name of Cede & Co., or any successor thereto,
as nominee for the Depository.
The Trust and the Indenture Trustee are hereby authorized to execute
and deliver the Representation Letter with the Depository.
With respect to Notes registered in the Register in the name of Cede &
Co., as nominee of the Depository, the Trust and the Indenture Trustee shall
have no responsibility or obligation to Direct Participants or Indirect
Participants or beneficial owners for which the Depository holds Notes from
time to time as a trustee. Without limiting the immediately preceding sentence,
the Trust, the Servicer and the Indenture Trustee shall have no responsibility
or obligation with respect to (i) th accuracy of the records of the Depository,
Cede & Co., or any Direct Participants or Indirect Participant with respect to
any ownership interest in any Note, (ii) the delivery to any Direct
Participants or Indirect Participant or any other Person, other than a
Noteholder, of any notice with respect to the Notes or (iii) the payment to any
Direct Participants or Indirect Participant or any other Person, other than a
Noteholder, of any amount with respect to any distribution of principal or
interest on the Notes. No Person other than a Noteholder shall receive a
certificate evidencing a Class A Note or Class B Note.
Upon delivery by the Depository to the Indenture Trustee of written
notice to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to the
Noteholders appearing as Noteholders at the close of business on a Record Date,
the name "Cede & Co." in this Indenture shall refer to such new nominee of the
Depository.
(c)__ In the event that (i) the Depository or the Servicer advises the
Indenture Trustee in writing that the Depository is no longer willing or able
to discharge properly its responsibilities as nominee and depository with
respect to the Notes and the Servicer or the Depository is unable to locate a
qualified successor or (ii) the Indenture Trustee at its sole option elects to
terminate the book-entry system through the Depository, the Notes shall no
longer be restricted to being registered in the Register in the name of Cede &
Co. (or a successor nominee) as nominee of the Depository. At that time, the
Servicer may determine that the Notes shall be registered in the name of and
deposited with a successor depository operating a global book-entry system, as
may be acceptable to the Servicer, or such depository's agent or designee but,
if the Servicer does not select such alternative global book-entry system, then
the Notes may be registered in whatever name or names Noteholders transferring
Notes shall designate, in accordance with the provisions hereof; provided,
however, that any such registration shall be at the expense of the Servicer.
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(d)__ Notwithstanding any other provision of this Indenture to the
contrary, so long as any Note is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Notes as the case may be and all notices with respect to such Notes as the case
may be shall be made and given, respectively, in the manner provided in the
Representation Letter.
In the event any Notes are issued in book-entry form with the
Depository: (i) the Indenture Trustee may deal with the Depository as the
authorized representative of the Noteholders; (ii) the rights of the
Noteholders shall be exercised only through the Depository and shall be limited
to those established by law and agreement between the Noteholders and the
Depository; (iii) the Depository will make book-entry transfers among the
direct participants of the Depository and will receive and transmit
distributions of principal and interest on the Notes to such direct
participants; and (iv) the direct participants of the Depository shall have no
rights under this Indenture under or with respect to any of the Notes held on
their behalf by the Depository, and the Depository may be treated by the
Indenture Trustee and its agents, employees, officers and directors as the
absolute owner of the Notes for all purposes whatsoever.
SECTION 5.02 Initial Issuance of Notes.
- ------ --------------------------
(a)__
(a) The Indenture Trustee shall, upon the written instruction of the Trust,
in exchange for the Pledged Property, authenticate and deliver Class A Notes
and Class B Notes executed by the Trust in authorized denominations equaling in
the aggregate the Initial Class A Note Principal Balance and the Initial Class
B Note Principal Balance, respectively.
(b)__ Notwithstanding anything herein to the contrary, in the case of the
initial sale of a Note, the acquirer of such Note shall be deemed to have
represented and warranted (i) that it is not acquiring its interest in the Note
with the assets of (A) an employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
which is subject to Title I of ERISA, (B) a plan or other arrangement described
in Section 4975 of the Cod or (C) any entity whose underlying assets include
plan assets by reason of an investment in such entity by a plan described in
(A) or (B) above (collectively, a "Benefit Plan Investor") or (ii) that it is
purchasing Class A Notes and its purchase and continued holding of the Class A
Notes will be covered by a U.S. Department of Labor Class Exemption.
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SECTION 5.03 Registration of Transfer and Exchange of Notes.
- ------ -----------------------------------------------
(a)__
(a) The Indenture Trustee, as initial Note Registrar, shall maintain, or
cause to be maintained, at the Corporate Trust Office, a register (the
"Register") in which the Indenture Trustee shall provide for the registration
of Notes and of transfers and exchanges of Notes as herein provided. All Notes
shall be so registered.
(b)__ Upon surrender for registration of transfer of any Note at the
Corporate Trust Office, the Trust shall execute, and the Indenture Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized denominations of the same
class, of a like aggregate Class A Percentage Interest or Class B Percentage
Interest, as the case may be, dated the date of such authentication; provided
that, none of the Notes may be transferred to the Transferors or any of their
respective Affiliates unless the Indenture Trustee, the Noteholders, the Note
Insurer and the Rating Agencies shall have been furnished with an Opinion of
Counsel experienced in Federal bankruptcy matters to the effect that such sale
or transfer would not adversely affect the character of the conveyance of the
Conveyed Assets to the Transferors as an absolute transfer.
(c)__ At the option of a Noteholder, Notes may be exchanged for other
Notes of the same Class (of authorized denominations in the case of Class A
Notes and Class B Notes) of a like aggregate Class A Percentage Interest or
Class B Percentage Interest, as the case may be, upon surrender of the Notes to
be exchanged at any such office or agency. Whenever any Notes are so
surrendered for exchange, the Trust shall execute, and the Indenture Trustee
shall authenticate and deliver the Notes that the Noteholder making the
exchange is entitled to receive. Every Note presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer substantially in the form of Exhibit H hereto, duly
executed by the Noteholder thereof or its attorney duly authorized in writing.
(d)__ No service charge shall be made for any registration of transfer of
any Note or for the exchange of any Note, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer of any Note or exchange of any Note.
(e)__ Once definitive Notes have been issued, no sale or other transfer
of any Note shall be made to any Person unless such Person delivers to the
Indenture Trustee a completed representation letter in substantially the form
attached as either Exhibit F or Exhibit G hereto.
(f)__ All Notes surrendered for registration of transfer and all Notes
surrendered for exchange shall be delivered to the Indenture Trustee and
cancelled and subsequently destroyed by the Indenture Trustee in accordance
with its customary practices in effect from time to time.
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(g)__ Notwithstanding the foregoing, in the case of any sale or other
transfer of record or beneficial ownership of a Note, the transferee of such
Note shall be deemed to have represented and warranted (i) that it is not a
Benefit Plan Investor or (ii) that it is purchasing the Class A Notes and its
purchase and continued holding of the Class A Notes will be covered by a U.S.
Department of Labor Class Exemption.
SECTION 5.04 Mutilated, Destroyed, Lost or Stolen Notes.
- ------ -------------------------------------------
If any mutilated Note is surrendered to the Indenture Trustee, or the
Indenture Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, and there is delivered to the Trust, the Servicer
and the Indenture Trustee such security or indemnity satisfactory to each of
them as may be required by them to save each of them harmless, then, in the
absence of notice to the Indenture Trustee that any such Note has been acquired
by a bona fide purchaser, the Trust shall execute and the Indenture Trustee
shall authenticate and deliver in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note a new Note of like Class and
Percentage Interest. In connection with the issuance of any new Note under this
Section 5.04, the Indenture Trustee may require the payment by the Noteholder
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto. Any duplicate Note issued pursuant to this Section
5.04 shall constitute a Note duly issued by the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Note shall be found at any time.
SECTION 5.05 Persons Deemed Owners.
- ------ ----------------------
The Note Insurer and the Indenture Trustee may treat the Person in whose name
any Note is registered as the owner of such Note for the purpose of receiving
distributions pursuant to Section 3.04 hereof and for all other purposes
whatsoever, and the Note Insurer and the Indenture Trustee shall not be
affected by any notice to the contrary.
SECTION 5.06 Access to List of Noteholders' Names and Addresses.
- ------ ---------------------------------------------------
The Indenture Trustee will furnish or cause to be furnished to the Servicer
within fifteen (15) days after receipt by the Indenture Trustee of a request
therefor from the Servicer in writing, a list, of the names and addresses of
the Noteholders as of the most recent Record Date. If one or more Noteholders
representing a Class A Percentage Interest or a Class B Percentage Interest of
not less than 25% (an "Applicant" shall apply in writing to the Indenture
Trustee, and such application shall state that the Applicant desires to
communicate with other Noteholders with respect to its rights under this
Indenture or under the Notes, then the Indenture Trustee shall, within five (5)
Business Days after the receipt of such application, send such notice to the
current list of Noteholders. Every Noteholder, by receiving and holding a Note,
agrees with the Trust, the Servicer and the Indenture Trustee that none of the
Trust, the Servicer or the Indenture Trustee shall be held accountable by
reason of the disclosure of any such information, regardless of the source from
which such information was derived.
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SECTION 5.07 Acts of Noteholders.
- ------ --------------------
(a)__
(a) Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given or taken by Noteholders may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Noteholders in person or by an agent duly
appointed in writing, and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Indenture Trustee and where required to the Trust, the Note Insurer or
the Servicer. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 7.01 hereof) conclusive in favor of the Indenture
Trustee, the Trust, the Originators and the Servicer, if made in the manner
provided in this Section 5.07.
(b)__ The fact and date of the execution by any Noteholder of any such
instrument or writing may be proven in any reasonable manner which the
Indenture Trustee deems sufficient.
(c)__ The ownership of Notes shall be proven by the Register.
(d)__ Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Noteholder shall bind every holder of every Note
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done or omitted to be done by the
Indenture Trustee, the Trust or the Servicer in reliance thereon, whether or
not notation of such action is made upon such Note.
SECTION 5.08 No Proceedings.
- ------ ---------------
By its acceptance of a Note, each Noteholder shall be deemed to have agreed
that it will not directly or indirectly institute, or cause to be instituted,
against the Residual Holders or the Trust any bankruptcy or insolvency
proceeding so long as there shall not have elapsed one year plus one day since
the maturity date of the latest maturing securities of the Trust.
ARTICLE VI
THE TRUST
SECTION 6.01 Liability of the Trust.
- ------ -----------------------
The Trust shall be liable for payments in respect of the Notes in accordance
herewith only to the extent of the obligations specifically undertaken by the
Trust herein.
SECTION 6.02 Limitation on Liability of the Trust.
- ------ -------------------------------------
Neither the Owner Trustee nor the directors, officers, employees or agents of
the Trust or the Owner Trustee shall be under any liability to the Indenture
Trustee, the Noteholders, the Originators, the Servicer, the Residual Holders
or any other Person hereunder or pursuant to any document delivered hereunder,
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it being expressly understood that all such liability is expressly waived and
released as a condition of, and as consideration for, the Trust's execution and
delivery of this Indenture and the issuance of the Notes. The Trust shall not
be under any liability to the Indenture Trustee, the Noteholders, the
Originators, the Servicer, the Residual Holders or any other Person for any
action taken or for refraining from the taking of any action in its capacity as
Trust pursuant to this Indenture whether arising from express or implied duties
under this Indenture; provided, however, that this provision shall not protect
the Trust against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith, misrepresentation or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. The Trust may rely in good faith on any document of any kind
prima facie properly executed and submitted by any other Person respecting any
matters arising hereunder.
SECTION 6.03 Indemnity for Liability Claims.
- ------ -------------------------------
The Residual Holders, on behalf of the Trust, shall be deemed to have agreed
to indemnify, defend and hold harmless the Indenture Trustee (which shall
include any of its directors, employees, officers and agents), the Owner
Trustee (which shall include any of its directors, employees, officers and
agents), the Noteholders and the Note Insurer against and from any and all
costs, expenses, losses, damages, claims and liabilities arising ou of or
resulting from the use, repossession or operation of the Equipment to the
extent not covered by the Servicer's indemnity provided by Section 5.01 of the
Servicing Agreement; provided, however, that such amounts shall be payable
solely from amounts payable to the Residual Holders pursuant to Section
3.04(b)(xvi) hereof.
SECTION 6.04 Liabilities.
- ------ ------------
Notwithstanding any provision of this Indenture, by entering into this
Indenture, the Trust and the Residual Holders agree to be liable, directly to
the injured party, for the entire amount of any losses, claims, damages or
liabilities (other than those losses incurred by a Class A Noteholder or a
Class B Noteholder in the capacity of an investor in the Class A Notes or the
Class B Notes) imposed on or asserted against the Trust or otherwise arising
out of or based on the arrangements created by this Indenture (to the extent of
the Trust Property remaining after the Class A Noteholders, the Class B
Noteholders and the Note Insurer have been paid in full are insufficient to pay
such losses, claims, damages or liabilities).
SECTION 6.05 [Reserved].
- ------
Annual Statement as to Compliance.
- ----------------------------------
The Servicer, on behalf of the Trust, will deliver to the Indenture Trustee
and the Note Insurer, within 90 days after the end of each fiscal year of the
Trust (commencing with the fiscal year ended December 31, 1998), and otherwise
in compliance with the requirements of TIA Section 314(a)(4) an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
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(i) a review of the activities of the Trust during such year and
of performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Trust has complied with all conditions and
covenants under this Indenture throughout such year, or, if there
has been a default in the compliance of any such condition or
covenant, specifying each such default known to such Authorized
Officer and the nature and status thereof.
SECTION 6.07 Payment of Principal and Interest.
- ------ ----------------------------------
The Trust will duly and punctually pay the principal of and interest
on the Notes in accordance with the terms of the Notes and this Indenture.
Amounts properly withheld under the Code by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been paid
by the Trust to such Noteholder for all purposes of this Indenture.
SECTION 6.08 Maintenance of Office or Agency.
- ------ --------------------------------
The Trust will maintain in New York, New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Trust in respect of the Notes and this
Indenture may be served. The Trust hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Trust will give
prompt written notice to the Indenture Trustee of the location, and of any
change in the location, of any such office or agency. If at any time the Trust
shall fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders, notices and
demands may be made or served at the Corporate Trust Office, and the Trust
hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
SECTION 6.09 Money for Payments to be Held in Trust.
- ------ ---------------------------------------
(a)_
(a) On or before each Payment Date, the Trust shall deposit or cause to be
deposited in the Collection Account, but only from the sources described
herein, an aggregate sum sufficient to pay the amounts then becoming due under
the Notes, such sum to be held in trust for the benefit of the Persons entitled
thereto and (unless the paying agent is the Indenture Trustee) shall promptly
notify the Indenture Trustee of its action or failure so to act.
(b)__ The Trust will cause each paying agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee and the Note Insurer an
instrument in which such paying agent shall agree with the Indenture Trustee
(and if the Indenture Trustee acts as paying agent, it hereby so agrees),
subject to the provisions of this Section, that such paying agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
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(ii) give the Indenture Trustee notice of any default by the
Trust (or any other obligor upon the Notes) of which it has actual
knowledge in the making of any payment required to be made with
respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to
the Indenture Trustee all sums so held in trust by such paying
agent;
(iv) immediately resign as a paying agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment
of Notes if at any time it ceases to meet the standards required to
be met by a paying agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
(c)__ The Trust may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, direct
any paying agent to pay to the Indenture Trustee all sums held in trust by such
paying agent, such sums to be held by the Indenture Trustee upon the same
trusts as those upon which the sums were held by such paying agent; and upon
such a payment by any paying agent to the Indenture Trustee, such paying agent
shall be released from all further liability with respect to such money.
(d)__ Subject to Section 9.02(d) hereof and to applicable laws with
respect to the escheat of funds, any money held by the Indenture Trustee or any
paying agent in trust for the payment of any amount due with respect to any
Note and remaining unclaimed for two years after such amount has become due and
payable shall be discharged from such trust and be paid to the Trust with the
written consent and direction of the Note Insurer and shall be deposited by the
Indenture Trustee in the Collection Account; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Trust for
payment thereof (but only to the extent of the amounts so paid to the Trust),
and all liability of the Indenture Trustee or such paying agent with respect to
such trust money shall thereupon cease; provided, however, that, if such money
or any portion thereof had been previously deposited by the Note Insurer with
the Indenture Trustee for the payment of principal or interest on th Notes, to
the extent any amounts are owing to the Note Insurer, such amounts shall be
paid promptly to the Note Insurer, upon receipt of a written request by the
Note Insurer to such effect; and provided, further, that the Indenture Trustee
or such paying agent, before being required to make any such repayment, shall
at the expense of the Trust cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
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and of general circulation in The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than thirty (30) days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Trust. The Indenture
Trustee shall also adopt and employ, at the expense of the Trust, any other
reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Holders whose Notes have been called
but have not been surrendered for redemption or whose right to or interest in
moneys due and payable but not claimed is determinable from the records of the
Indenture Trustee or of any paying agent, at the last address of record for
each such Holder).
SECTION 6.10 Existence.
- ------ ----------
Except as otherwise permitted by the provisions of Section 6.14, the Trust
will keep in full effect its existence, rights and franchises as a business
trust under the laws of the State of Delaware (unless, with the prior written
consent of the Note Insurer and the satisfaction of the Rating Agency
Condition, it becomes, or any successor Trust hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which cas the Trust will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and each other instrument or
agreement included in the Pledged Property.
SECTION 6.11 Protection of Trust Property.
- ------ -----------------------------
The Trust intends the security interest granted pursuant to this Indenture in
favor of the Indenture Trustee, for the benefit of the Noteholders and the Note
Insurer, to be prior to all other Liens in respect of the Trust Property, and
the Trust shall take all actions necessary to obtain and maintain, in favor of
the Indenture Trustee, for the benefit of the Noteholders and the Note Insurer,
a first Lien on, and a first priority, perfected security interest in, the
Trust Property. The Trust will from time to time prepare (or shall cause to be
prepared), 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 necessary or
advisable to:
(i) grant more effectively all or any portion of the Trust Property;
(ii) maintain or preserve the Lien and security interest (and the
priority thereof) in favor of the Indenture Trustee, for the
benefit of the Noteholders and the Note Insurer, created by this
Indenture or carry out more effectively the purposes hereof;
(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 Pledged Property;
(v) preserve and defend title to the Trust Property and the rights
of the Indenture Trustee in such Trust Property against the
claims of all persons and parties; and
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(vi) pay all taxes or assessments levied or assessed upon the Trust
Property when due.
The Trust hereby designates the Indenture Trustee as its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Indenture Trustee or the Note Insurer
pursuant to this Section 6.11.
SECTION 6.12 Performance of Obligations; Servicing of Receivables.
- ------ -----------------------------------------------------
(a)__
(a) The Trust will not take any action, and will use its best efforts not to
permit any action to be taken by others, that would release any Person from any
of such Person's covenants or obligations under any instrument or agreement
included in the Trust Property or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectivenes of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the other Transaction Documents or any other instrument or
agreement.
(b)__ The Trust may contract with other Persons acceptable to the Note
Insurer to assist it in performing its duties under this Indenture, and any
performance of such duties by a Person identified to the Indenture Trustee and
the Note Insurer in an Officer's Certificate of the Trust shall be deemed to be
action taken by the Trust. Initially, the Trust has contracted with the
Servicer to substantially perform the Trust's duties under this Indenture, and
in such regard, the Trust may rely upon information provided by the Servicer in
connection with any Officer's Certificate of the Trust to be provided pursuant
to this Indenture and any other action to be take by the Trust pursuant to this
Indenture.
(c)__ The Trust will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the other Transaction
Documents and in the instruments and agreements included in the Trust Property,
including, but not limited to, preparing (or causing to be prepared) and filing
(or causing to be filed) all UCC financing statements and continuation
statements required to be filed by the terms of this Indenture, the Servicing
Agreement and the other Transaction Documents in accordance with and within the
time periods provided for herein and therein.
(d)__ If a Responsible Officer of the Owner Trustee shall have actual
knowledge of the occurrence of (i) an Event of Servicing Termination under the
Servicing Agreement, (ii) a Restricting Event under this Indenture or (iii) an
Event of Default under this Indenture, the Trust shall promptly notify the
Indenture Trustee, the Note Insurer and the Rating Agencies thereof, and shall
specify in such notice the action, if any, the Trust is taking in respect of
such default. If a Servicer Termination Event shall arise from the failure of
the Servicer to perform any of its duties or obligations under the Servicing
Agreement with respect to the Contracts, the Trust shall take all reasonable
steps available to it to remedy such failure.
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SECTION 6.13 Negative Covenants.
- ------ -------------------
So long as any Notes are Outstanding, the Trust shall not:
(a) except as expressly permitted by this Indenture or the Transaction
Documents, sell, transfer, exchange or otherwise dispose of any of the
Trust Property, unless directed to do so by the Note Insurer;
(b) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against
any present or former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Property; or
(c) (i) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien in favor of the Indenture Trustee created by
this Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture except as may
be expressly permitted hereby, (ii) permit any lien, charge, excise,
claim, 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 Property or any part thereof or any interest
therein or the proceeds thereof (other than tax liens, mechanics' liens
and other liens that arise by operation of law, in each case on Equipment
and arising solely as a result of an action or omission of the related
Obligor), (iii) permit the Lien of this Indenture not to constitute a
valid first priority (other than with respect to any such tax, mechanics'
or other lien) security interest in the Trust Property or (iv) amend,
modify or fail to comply with the provisions of the Transaction Documents
without the prior written consent of the Note Insurer and the
satisfaction of the Rating Agency Condition.
SECTION 6.14 Trust May Consolidate, Etc. Only on Certain Terms.
- ------ --------------------------------------------------
(a)__
(a) The Trust shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Trust) formed by or surviving
such consolidation or merger shall be a Person organized and
existing under the laws of the United States or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form satisfactory to the
Indenture Trustee and the Note Insurer, the due and punctual payment
of the principal of and interest on all Notes and the performance or
observance of every agreement and covenant of this Indenture on the
part of the Trust to be performed or observed, all as provided
herein;
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(ii) immediately after giving effect to such transaction, no
Event of Default or Restricting Event shall have occurred and be
continuing;
(iii) the Trust shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee and the
Note Insurer) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, the Note Insurer or
any Noteholder;
(iv) any action as is necessary to maintain the Lien and security
interest created by this Indenture shall have been taken;
(v) the Trust shall have delivered to the Indenture Trustee and
the Note Insurer an Officer's Certificate and an Opinion of Counsel
each stating that such consolidation or merger and such supplemental
indenture comply with this Article VI and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act);
(vi) the Rating Agencies have confirmed that such transaction
will not result in the reduction or withdrawal of any rating on each
Class of Notes; and
(vii) the Note Insurer has given its prior written consent.
(b)__ The Trust shall not convey or transfer all or substantially
all of its properties or assets, including those included in the Trust
Property, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Trust the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States or
any State, (B) expressly assume, by an indenture supplemental
hereto, executed and delivered to the Indenture Trustee, in form
satisfactory to the Indenture Trustee and the Note Insurer, the due
and punctual payment of the principal of and interest on all Notes
and the performance or observance of every agreement and covenant of
this Indenture and each of the Transaction Documents on the part of
the Trust to be performed or observed, all as provided herein, (C)
expressly agree by means of such supplemental indenture that all
right, title and interest so conveyed or transferred shall be
subject and subordinate to the rights of Holders of the Notes, (D)
unless otherwise provided in such supplemental indenture, expressly
agree to indemnify, defend and hold harmless the Trust against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agree by means of such
supplemental indenture that such Person (or if a group of persons,
then one specified Person) shall prepare (or cause to be prepared)
and make all filings with the Commission (and any other appropriate
Person) required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Event of Default or Restricting Event shall have occurred and be
continuing;
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(iii) the Trust shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee and the
Note Insurer) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, the Note Insurer or
any Noteholder;
(iv) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(v) the Trust shall have delivered to the Indenture Trustee and
the Note Insurer an Officer's Certificate and an Opinion of Counsel
each stating that such conveyance or transfer and such supplemental
indenture comply with this Article VI and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act);
(vi) the Rating Agencies have confirmed that such transaction
will not result in the reduction or withdrawal of any rating on each
Class of Notes; and
(vii) the Note Insurer has given its prior written consent.
SECTION 6.15 Successor or Transferee.
- ------ ------------------------
(a)__
(a) Upon any consolidation or merger of the Trust in accordance with Section
6.14, the Person formed by or surviving such consolidation or merger (if other
than the Issuer) shall succeed to, and be substituted for, and may exercise
every right and power of, the Trust under this Indenture with the same effect
as if such Person had been named as the Trust herein.
(b)__ Upon a conveyance or transfer of all the assets and properties of
the Trust pursuant to Section 6.14(b), the Trust will be released from every
covenant and agreement of this Indenture to be observed or performed on the
part of the Trust with respect to the Notes immediately upon the delivery of
written notice to the Indenture Trustee and the Note Insurer stating that the
Trust is to be so released.
SECTION 6.16 No Other Business.
- ------ ------------------
The Trust shall not engage in any business other than financing, purchasing,
owning, selling and managing the Pledged Notes in the manner contemplated by
this Indenture and the other Transaction Documents and activities incidental
thereto.
SECTION 6.17 No Borrowing.
- ------ -------------
The Trust shall not issue, incur, assume, guarantee or otherwise become
liable, directly or indirectly, for any Indebtedness except for (i) the Notes
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and (ii) obligations owing from time to time to the Note Insurer . The proceeds
of the Notes shall be used exclusively to fund the Trust's purchase of the
Pledged Notes and the other assets constituting the Pledged Property and to pay
the Trust's organizational, transactional and start-up expenses.
SECTION 6.18 Guarantees, Loans, Advances and Other Liabilities.
- ------ --------------------------------------------------
Except as contemplated by the Servicing Agreement or this Indenture, the
Trust shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 6.19 Capital Expenditures.
- ------ ---------------------
The Trust shall not make any expenditure (by long-term or operating lease or
otherwise) for capital assets (either realty or personal).
SECTION 6.20 Compliance with Laws.
- ------ ---------------------
The Trust shall comply with the requirements of all applicable laws, the
non-compliance with which would, individually or in the aggregate, materially
and adversely affect the ability of the Trust to perform its obligations under
the Notes, this Indenture or any other Transaction Document.
SECTION 6.21 Further Instruments and Acts.
- ------ -----------------------------
Upon request of the Indenture Trustee or the Note Insurer, the Trust will
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of
this Indenture and the other Transaction Documents.
ARTICLE VII
THE INDENTURE TRUSTEE
SECTION 7.01 Duties of Indenture Trustee.
- ------ ----------------------------
(a)__
(a) The Indenture Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. If an Event of Default
of which a Responsible Officer of the Indenture Trustee shall have actual
knowledge has occurred and has not been cured or waived, the Indenture Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in their exercise as a prudent Person
would exercise or use under the circumstances in the conduct of such Person's
own affairs.
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(b)__ The Indenture Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Indenture Trustee that are specifically required
to be furnished pursuant to any provision of this Indenture, shall examine them
to determine whether they conform as to form to the requirements of this
Indenture. No acceptance of, or reliance on, any such item by the Indenture
Trustee shall constitute a representation by th Indenture Trustee of the
enforceability or sufficiency of such item.
(c)__ No provision of this Indenture shall be construed to relieve the
Indenture Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; provided, however,
that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default that may have occurred, the
duties and obligations of the Indenture Trustee shall be determined
solely by the express provisions of this Indenture; the Indenture
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Indenture; no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and in the absence of
bad faith on the part of the Indenture Trustee, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Indenture Trustee and, if
specifically required to be furnished pursuant to any provision of
this Indenture, conforming to the requirements of this Indenture;
(ii) The Indenture Trustee shall not be liable for an error of
judgment made in good faith by a Responsible Officer of the
Indenture Trustee unless it shall be proved that the Indenture
Trustee was negligent in ascertaining the pertinent facts;
(iii) The Indenture Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it
in good faith in accordance with this Indenture, pursuant to the
direction of the Holders of Notes evidencing the greatest Percentage
Interests in the related Class, but in no event less than 25%,
relating to the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee, or exercising,
suffering or omitting t take any trust or power conferred upon the
Indenture Trustee, under this Indenture;
(iv) The Indenture Trustee shall not be charged with knowledge of
any Event of Servicing Termination, any Event of Default or
Restricting Event unless a Responsible Officer of the Indenture
Trustee obtains actual knowledge of such failure or event or the
Indenture Trustee receives written notice of such failure or event
from the Servicer, the Trust, the Note Insurer or any Noteholder;
and
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(v) The Indenture Trustee shall have no duty to monitor the
performance of the Servicer (as custodian or otherwise), nor shall
it have any liability in connection with the malfeasance or
nonfeasance by the Servicer; provided, however, that the foregoing
shall not diminish or in any way modify any obligation of the
Back-up Servicer under the Servicing Agreement. The Indenture
Trustee shall have no liability in connection with compliance of the
Servicer or the Trust with statutor or regulatory requirements
related to the Contracts or the related Equipment. The Indenture
Trustee shall not make or be deemed to have made any representations
or warranties with respect to the Contracts or related Equipment or
the validity or sufficiency of any pledge of the Contracts to the
Trust or the Indenture Trustee. The Indenture Trustee shall have no
obligation or liability in respect of the maintenance of casualty or
liability insurance in connection with the Contracts or the related
Equipment.
(d)__ The Indenture Trustee shall not be required 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
there is reasonable ground for believing that the repayment of such funds or
indemnity satisfactory to it against such risk or liability is not assured to
it, and none of the provisions contained in this Indenture shall in any event
require the Indenture Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Indenture or
the Servicing Agreement except during such time, if any, as the Indenture
Trustee shall be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with the terms of this
Indenture.
(e)__ On each Determination Date, the Indenture Trustee shall give
notice, by facsimile, to a Servicing Officer of the Servicer and the Note
Insurer if the total amount then on deposit in the Collection Account is less
than the amount indicated in the Monthly Statement.
(f)__ The Indenture Trustee shall immediately notify the Note Insurer and
each Rating Agency of: (i) any proposed change herein or supplement hereto;
(ii) the occurrence of any Event of Default, Event of Servicing Termination,
Event of Back-up Servicing Termination or Restricting Event actually known to a
Responsible Officer of the Indenture Trustee; (iii) any proposed change of the
Indenture Trustee hereunder; (iv) any matter to be put to the Noteholders for
election hereunder; (v) any proposed exercise by the Noteholders of any option,
vote, right, power or the like hereunder; and (vi) any other matter, notice of
which is required hereunder to be given to any of the Noteholders or to the
Indenture Trustee.
SECTION 7.02 Eligible Investments.
- ------ ---------------------
The Servicer shall direct the Indenture Trustee to invest in Eligible
Investments, as further specified from time to time by written notice to the
Indenture Trustee executed by a Servicing Officer, any cash amounts deposited
in the Accounts pursuant to the terms of this Indenture or the Servicing
Agreement, immediately upon deposit of any such cash amounts; provided,
however, that each such Eligible Investment (i) shall mature no later than the
Business Day immediately preceding the Payment Date in respect of the
Collection Period during which such deposit was made and (ii) shall not be sold
or disposed of prior to its maturity. The Indenture Trustee shall not be liable
or responsible for the selection of or losses on any investments made by it
pursuant to and in compliance with such instructions of the Servicer pursuant
to this Section 7.02. The Indenture Trustee shall have no obligation to
initiate any investments in the absence of such written direction.
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SECTION 7.03 Indenture Trustee's Assignment of Contracts.
- ------ --------------------------------------------
If in any enforcement suit or legal proceeding it is held, or in connection
with the collection of a Defaulted Contract the Servicer or its assigns
reasonably anticipates that the Servicer or its assigns may not or will not be
able to enforce a Contract on the ground that neither the Servicer nor its
assigns are a real party-in-interest or a holder entitled to enforce the
Contract, then the Indenture Trustee shall, at the Servicer's or its assigns'
expense, take such steps as the Indenture Trustee deems necessary to enforce
the Contract, including (i) bringing suit in the Indenture Trustee's name or
the names of the Noteholders and the Note Insurer and (ii) executing and
delivering all such instruments or documents as shall be required to transfer
title to a Contract to the Servicer or its assigns or otherwise enforce such
Contract.
SECTION 7.04 Certain Matters Affecting the Indenture Trustee.
- ------ ------------------------------------------------
Except as otherwise provided in Section 7.01:
(a)__ The Indenture Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b)__ The Indenture Trustee may consult with counsel and any Opinion of
Counsel or advice shall constitute full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel or
advice;
(c)__ The Indenture Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at the
request, order or direction of the Note Insurer (or, in the case of a Note
Insurer Default, any of the Noteholders), pursuant to the provisions of this
Indenture unless the Note Insurer or such Noteholders shall have offered to the
Indenture Trustee such security or indemnity satisfactory to it against the
costs, expenses, and liabilities that may be incurred therein or thereby that
are reasonable in the opinion of the Indenture Trustee (the unsecured indemnity
agreement of the Note Insurer being satisfactory in all such instances);
provided, however, that nothing contained herein shall relieve the Indenture
Trustee of the obligations, upon the occurrence of an Event of Default (that
has not been cured), to exercise such of the rights and powers vested in it by
this Indenture and to use the same degree of skill and care in their exercise
as a prudent Person would exercise under the circumstances in the conduct of
such Person's own affairs;
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(d)__ The Indenture Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture;
(e)__ Prior to the occurrence of an Event of Default of which a
Responsible Officer of the Indenture Trustee shall have actual knowledge and
after the curing of all Events of Default that may have occurred, the Indenture
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, consent, order, approval, bond or other paper or document,
unless requested in writing to do so by the Note Insurer or by the Holders of
Notes of any Class evidencing Percentage Interests of not less than 25% of such
Class; provided, however, that if the payment within a reasonable time to the
Indenture Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Indenture
Trustee, not reasonably assured to the Indenture Trustee by the security
afforded to it by the terms of this Indenture, the Indenture Trustee may requir
indemnity satisfactory to it against such cost, expense or liability as a
condition to so proceeding (the unsecured indemnity agreement of the Note
Insurer being satisfactory in all such instances). The reasonable expense of
every such examination shall be paid by the requesting party. Nothing in this
clause (e) shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors;
and
(f)__ The Indenture Trustee may execute any of the trusts or powers or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian. The Indenture Trustee shall not be responsible for
the misconduct, negligence or for the supervision of any of the Indenture
Trustee's agents or attorneys appointed with due care by the Indenture Trustee
hereunder or that of the Originators, the Servicer or the Trust.
SECTION 7.05 Indenture Trustee Not Liable for Notes or Contracts.
- ------ ----------------------------------------------------
The Notes do not represent an obligation issued by the Indenture Trustee or
any Affiliate thereof. The promise to pay the Notes according to their terms
and the terms of this Indenture set forth in the Notes and in Section 2.05
hereof provides recourse to the Pledged Property and, with respect to the Class
A Notes, the Note Insurance Policy only. The Indenture Trustee does not assume
any responsibility for the accuracy of the statements herein or in the Notes
(other than as set forth in Section 7.17 and the certificate of authentication
on the Notes). The Indenture Trustee makes no representations as to the
validity or sufficiency of this Indenture or of the Notes (other than the
certificate of authentication on the Notes) or of any Contract or related
document. The Indenture Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity or enforceability of
any security interest in any Equipment or any Contract, to the perfection or
priority thereof, or to the efficacy of the Trust or any portion thereof to pay
any Note, the existence or validity of any Contract, the validity of the pledge
of any Contract to the Indenture Trustee, on behalf of the Trust, or of any
intervening assignment, the review of any Contract, any Contract File or the
Computer Tape (it being understood that neither the Indenture Trustee nor any
of its agents have reviewed or intend to revie such matters, the sole
responsibility for such review being vested in the Trust), the completeness of
any Contract File, the receipt by it or its custodian of any Contract, the
performance or enforcement of any Contract, subject to Section 4.01 of the
Servicing Agreement, the compliance by the Trust with any covenant or the
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<PAGE>
breach by the Originators or the Trust of any warranty or representation made
under the Servicing Agreement, under the Transfer Agreements or in any related
document or the accuracy of any such warranty or representation, any investment
of monies in the Collection Account (except to the extent that the Indenture
Trustee, in its individual capacity, is an obligor with respect to any such
investment) or any loss resulting therefrom, the acts or omissions of the
Servicer, or any Obligor, any action of the Servicer taken in the name of the
Indenture Trustee, any action by the Indenture Trustee taken at the instruction
of the Servicer or the preparation and filing of tax returns for the Trust. No
recourse shall be had for any claim based on any provision of this Indenture,
the Notes or any Contract or assignment thereof against The Chase Manhattan
Bank, in its individual capacity, and The Chase Manhattan Bank, in its
individual capacity shall not have any personal obligation, liability or duty
whatsoever to any Noteholder or any other Person with respect to any such
claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided herein, except for such
liability as is determined to have resulted from its own negligence or willful
misconduct. The Indenture Trustee shall not be accountable for the use or
application by the Originators or the Trust of any of the Notes or of the
proceeds of such Notes or for the use or application of any funds paid to the
Servicer in respect of the Contracts.
SECTION 7.06 Indenture Trustee May Own Notes.
- ------ --------------------------------
The Indenture Trustee in its individual or any other capacity may become the
owner or pledgee of Notes with the same rights as it would have if it were not
Indenture Trustee, subject to the definition of the term "Noteholder" in Annex
A hereto.
SECTION 7.07 Indenture Trustee's Fees and Expenses.
- ------ --------------------------------------
(a)__
(a) The Servicer, on behalf of the Residual Holders, agrees:
(i) to pay to the Indenture Trustee, pursuant to Section
3.04(b)(vi), as applicable, on each Payment Date reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard
to the compensation of an Indenture Trustee of an express trust);
and
(ii) except to the extent otherwise expressly provided herein, to
reimburse the Indenture Trustee, pursuant to Section 3.04(b)(vii),
as applicable, upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee
in accordance with any provision of this Indenture (including the
reasonable compensation and expenses and disbursements of any of its
agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or willful
misconduct; provided, that for purposes of this clause (ii), such
expenses, disbursements and advances shall be limited to an
aggregate amount of $30,000 over the life of the transaction; and
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(iii) to reimburse the Indenture Trustee, pursuant to Section
3.04(b)(xiv), as applicable, for all reasonable expenses,
disbursements and advances that would have been paid pursuant to
Section 7.07(a)(ii) but for the $30,000 limitation; provided, that
for purposes of this clause (iii), such expenses, disbursements and
advances shall be limited to an aggregate amount of $45,000 over the
life of the transaction (for an aggregate limitation pursuant to
clauses (ii) and (iii) of $75,000).
(b)__ The Servicer's obligations under this Section 7.07 shall survive
the termination of this Indenture or the earlier resignation or removal of the
Indenture Trustee. The Indenture Trustee shall not be entitled to any other or
additional compensation or reimbursement, except as expressly provided herein
or as otherwise agreed from time to time.
(c)__ Subject to Section 7.10 hereof, the failure by the Servicer to pay
to the Indenture Trustee any compensation or other expenses shall not relieve
the Indenture Trustee of its obligations hereunder.
(d)__ In the event the Indenture Trustee performs services or incurs
expenses in the context of a proceeding described in Sections 6.01(a)(iv),
6.01(a)(v) or 6.01(a)(vii) of the Servicing Agreement, the fees for such
services and such expenses shall be considered expenses of administration for
the purposes of any bankruptcy laws or laws relating to creditors rights
generally.
SECTION 7.08 Eligibility Requirements for Indenture Trustee.
- ------ -----------------------------------------------
The Indenture Trustee shall at all times satisfy the requirements of TIA
Section 310(a). The Indenture Trustee hereunder shall at all times be a
corporation acceptable to the Note Insurer having its principal office in a
State, organized and doing business under the laws of any State or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, have a
deposit rating of at least "investment grade" from the Rating Agencies, and
subject to supervision or examination by federal or State authority; provided,
however, that no entity shall qualify as Indenture Trustee hereunder to the
extent that such qualification would, in itself, affect any then current rating
of the Class A Notes or the Class B Notes by the Rating Agencies. If such
corporation publishes reports of condition at least annually, pursuant to law
or the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section 7.08, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. Any successor Indenture
Trustee's deposit ratings shall be at least "investment grade" by the Rating
Agencies. In case at any time the Indenture Trustee shall cease to be eligible
in accordance with the provisions of this Section 7.08, the Indenture Trustee
shall resign immediately in the manner and with the effect specified in Section
7.09 hereof. The Indenture Trustee shall comply with TIA Section 310(b),
including the optional provision permitted by the second sentence of TIA
Section 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities of the Trust are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
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SECTION 7.09 Preferential Collection of Claims Against Issuer.
- ------ -------------------------------------------------
The Indenture Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). An Indenture Trustee who
has resigned or been removed shall be subject to TIA Section 311(a) to the
extent indicated.
SECTION 7.10 Resignation or Removal of Indenture Trustee.
- ------ --------------------------------------------
(a)__
(a) The Indenture Trustee may at any time resign and be discharged from the
trusts hereby created by giving written notice thereof to the Servicer, the
Trust, the Note Insurer and each Noteholder which resignation will not become
effective until such time as a successor Indenture Trustee has been appointed
in accordance with the provisions of this Section 7.10. Upon receiving such
notice of resignation, the Servicer shall promptly appoint a successor
Indenture Trustee acceptable to the Note Insurer by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Indenture Trustee and one copy to the successor Indenture Trustee. If no
successor Indenture Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Indenture Trustee may petition any court of competent jurisdiction
for th appointment of a successor Indenture Trustee, which successor must be
reasonably acceptable to the Note Insurer and whose appointment satisfies the
Rating Agency Condition.
(b)__ If at any time the Indenture Trustee shall cease to be eligible in
accordance with the provisions of Section 7.08 hereof and shall fail to resign
after written request therefor by the Servicer, the Note Insurer, the Holders
of Notes of any Class evidencing Percentage Interests of more than 25% of such
Class, or, if at any time the Indenture Trustee shall be legally unable to act,
or shall be adjudged a bankrupt or insolvent, or a receiver of the Indenture
Trustee or of its property shall be appointed, or any public officer shall take
charge or control of the Indenture Trustee or of its property or affairs for
the purpose of rehabilitation, conservation, or liquidation, then the Servicer
may, with the consent of the Note Insurer, and shall, at the direction of (i)
the Note Insurer, or (ii) at the direction of either the Holders of Notes of
any Class evidencing Percentage Interests of more than 25% of the related Class
(with the consent of the Note Insurer), remove the Indenture Trustee.
Notwithstanding anything in this Indenture to the contrary, the Note Insurer
shall have the right to remove the Indenture Trustee for "cause." For purposes
of this section, "cause" shall mean (i) the negligence or willful misconduct of
the Indenture Trustee in the performance of its duties under this Indenture or
the Insurance Agreement or (ii) the failure or unwillingness of the Indenture
Trustee to perform its duties under this Indenture or the Insurance Agreement;
provided, however the Note Insurer may not remove the Indenture Trustee for
"cause" pursuant to clause (ii) of the immediately preceding sentence unless it
has (A) consulted with the Indenture Trustee in good faith and provided notice
to the Indenture Trustee regarding any actions or omissions of the Indenture
Trustee under this Indenture or the Insurance Agreement which the Note Insurer
believes constitutes a failure or unwillingness (if such failure or
unwillingness is capable of remedy) of the Indenture Trustee to perform its
duties under this Indenture or the Insurance Agreement and (B) provided the
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Indenture Trustee with the opportunity to remedy such failure or unwillingness
within ten (10) Business Days (or such longer period to which the Note Insurer
may reasonably consent) following the receipt by the Indenture Trustee of
written notice thereof. In the event that the Indenture Trustee is removed by
the Note Insurer pursuant to this Section, the removal and substitution
procedures set forth in this Section 7.10 and Section 7.11 hereof shall be
followed. If the Note Insurer, Servicer or Noteholders remove the Indenture
Trustee, the Servicer or such Noteholders shall promptly appoint a successor
Indenture Trustee (acceptable to the Note Insurer) by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Indenture
Trustee so removed and one copy to the successor Indenture Trustee.
(c)__ Any resignation or removal of the Indenture Trustee and appointment
of a successor Indenture Trustee pursuant to this Section 7.10 shall not become
effective until acceptance of appointment by the successor Indenture Trustee as
provided in Section 7.11 hereof. Notice of the resignation or removal of the
Indenture Trustee shall be given in writing to the Rating Agencies by the
Servicer. In the event no successor Indenture Trustee has been appointed within
thirty (30) days of th resignation or removal of the Indenture Trustee, the
Indenture Trustee may petition a court of competent jurisdiction to appoint a
successor Indenture Trustee.
SECTION 7.11 Successor Indenture Trustee.
- ------ ----------------------------
(a)__
(a) Any successor Indenture Trustee appointed as provided in Section 7.10
hereof shall execute, acknowledge and deliver to the Servicer, the Trust and
predecessor Indenture Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor
Indenture Trustee shall become effective and such successor Indenture Trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as Indenture Trustee. The predecessor
Indenture Trustee shall deliver to the successor Indenture Trustee all
documents and statements held by it hereunder. The Servicer, the Trust and the
predecessor Indenture Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Indenture Trustee all such rights, powers,
duties and obligations. The predecessor Indenture Trustee shall not be liable
for the acts or omissions of any successor Indenture Trustee hereunder.
(b)__ No successor Indenture Trustee shall accept appointment as provided
in this Section 7.11 unless at the time of such acceptance such successor
Indenture Trustee shall be acceptable to the Note Insurer and shall satisfy the
Rating Agency Condition and eligible as the Indenture Trustee under the
provisions of Section 7.08 hereof, and as a successor Servicer under the
provisions of Section 6.02 of the Servicing Agreement.
(c)__ Upon acceptance of appointment by a successor Indenture Trustee as
provided in this Section 7.11, the Servicer shall mail notice of the succession
of such Indenture Trustee hereunder to the Note Insurer and all Noteholders at
their addresses as shown in the Note Register. If the Servicer fails to mail
such notice within ten (10) days after acceptance of appointment by such
successor Indenture Trustee, then the successor Indenture Trustee shall cause
such notice to be mailed at the expense of the Servicer.
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SECTION 7.12 Merger or Consolidation of Indenture Trustee.
- ------ ---------------------------------------------
Any corporation into which the Indenture Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Indenture Trustee shall be a party,
or any corporation succeeding to the corporate trust business of the Indenture
Trustee, shall be the successor of the Indenture Trustee hereunder, provided
such corporation shall be eligible under the provisions of Section 7.08 hereof,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
SECTION 7.13 Appointment of Co-Indenture Trustee or Separate.
- ------ ------------------------------------------------
Indenture Trustee
- -----------------
(a)__
(a) Notwithstanding any other provisions of this Indenture, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust or any Equipment may at the time be located, the Indenture
Trustee shall, with the consent of the Note Insurer and the satisfaction of the
Rating Agency Condition, or the Note Insurer shall have the power from time to
time, and shall execute and deliver all instruments to appoint one or more
Persons approved by the Indenture Trustee to act as co-Indenture Trustee or
co-Indenture Trustees, jointly with the Indenture Trustee, or separate
Indenture Trustee or separate Indenture Trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders and the Note Insurer, as their interests appear
herein, such title to the Trust, or any part thereof, and, subject to the other
provisions of this Section 7.13, such powers, duties, obligations, rights and
trusts as the Servicer, the Trust and the Indenture Trustee may consider
necessary or desirable; provided, however, that if there is a conflict between
the Trust, the Indenture Trustee and the Note Insurer regarding the appointment
of a co-Indenture Trustee or separate Indenture Trustee, the Note Insurer shall
prevail. If the Servicer shall not have joined in such appointment within
fifteen (15) days after the receipt by it of a request so to do, or in the case
an Event of Servicing Termination shall have occurred and be continuing, the
Indenture Trustee and the Trust, acting jointly, shall have the power to make
such appointment; provided, however, that if the Trust shall not have joined in
such appointment within fifteen (15) days after the receipt by it of a request
so to do, the Indenture Trustee alone shall have the power to make such
appointment. No co-Indenture Trustee or separate Indenture Trustee hereunder
shall be required to meet the terms of eligibility as a successor Indenture
Trustee under Section 7.08 hereof, and no notice to Noteholders of the
appointment of any co-Indenture Trustee or separate Indenture Trustee shall be
required under Section 7.12 hereof.
(b)__ Every separate Indenture Trustee and co-Indenture Trustee shall, to
the extent permitted by law, be appointed and act subject to the following
provisions and conditions:
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(i) All rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate Indenture Trustee or co-Indenture Trustee jointly (it being
understood that such separate Indenture Trustee or co-Indenture
Trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any
law of any jurisdictio in which any particular act or acts are to be
performed (whether as Indenture Trustee hereunder or as successor to
the Servicer hereunder), the Indenture Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of
title to the Trust Property or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate Indenture Trustee or co-Indenture Trustee but solely at the
direction of the Indenture Trustee;
(ii) No separate Indenture Trustee or co-Indenture Trustee
hereunder shall be personally liable by reason of any act or
omission of any other separate Indenture Trustee or co-Indenture
Trustee hereunder; and
(iii) The Indenture Trustee may at any time accept the
resignation of or remove any separate Indenture Trustee or
co-Indenture Trustee.
(c)__ Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate Indenture
Trustees and co-Indenture Trustees, as effectively as if given to each of them.
Every instrument appointing any separate Indenture Trustee or co-Indenture
Trustee shall refer to this Indenture and the conditions of this Article VII.
Each separate Indenture Trustee and co-Indenture Trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Indenture Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of, or affording protection to, the
Indenture Trustee. Every such instrument shall be filed with the Indenture
Trustee and a copy thereof given to the Servicer and the Trust.
(d)__ Any separate Indenture Trustee or co-Indenture Trustee may at any
time constitute the Indenture Trustee, its agent or attorney-in-fact, with full
power and authority, to the extent not prohibited by law, to do any lawful act
under or in respect of this Indenture on its behalf and in its name. If any
separate Indenture Trustee or co-Indenture Trustee shall die, become incapable
of acting, resign or be removed, then all of its estates, properties, rights,
remedies and trusts shal vest in and be exercised by the Indenture Trustee, to
the extent permitted by law, without the appointment of a new or successor
separate Indenture Trustee or successor co-Indenture Trustee.
(e)__ The Servicer shall be responsible for the payment of any fees or
expenses of any separate Indenture Trustee or co-Indenture Trustee.
SECTION 7.14 Indenture Trustee May Enforce Claims Without
- ------ --------------------------------------------
Possession of Note.
- -------------------
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All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Indenture Trustee without the possession of any
of the Notes or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Indenture Trustee shall be brought in its
own name or in its capacity as Indenture Trustee. Any recovery of judgment
shall, after provisio for the payment of the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and counsel, be
for the ratable benefit of the Noteholders in respect of which such judgment
has been recovered.
SECTION 7.15 Suits for Enforcement.
- ------ ----------------------
In case an Event of Servicing Termination or other default by the Servicer
under the Servicing Agreement or under this Indenture shall occur and be
continuing, the Indenture Trustee, in its discretion, may, subject to the
provisions of 6.04 of the Servicing Agreement, proceed to protect and enforce
its rights and the rights of the Noteholders and the Note Insurer under this
Indenture by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Indenture or in aid of the execution of any power granted in this
Indenture or for the enforcement of any other legal, equitable or other remedy,
as the Indenture Trustee, being advised by counsel, shall deem most effectual
to protect and enforce any of the rights of the Indenture Trustee, the
Noteholders or the Note Insurer.
SECTION 7.16 Undertaking for Costs.
- ------ ----------------------
All parties to this Indenture agree (and each Holder of any Note by its
acceptance thereof shall be deemed to have agreed) that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Indenture Trustee for any
action taken, suffered or omitted by it as Indenture Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 7.16 shall not apply to any
suit instituted by the Indenture Trustee or the Note Insurer, to any suit
instituted by any Noteholder, or group of Noteholders, holding in the aggregate
more than 10% of the then outstanding Note Principal Balance, or to any suit
instituted by any Noteholder for the enforcement of the payment of the
principal of or interest on any Note on or after the maturities for such
payments, including the stated maturity as applicable.
SECTION 7.17 Representations and Warranties of Indenture Trustee.
- ------ ----------------------------------------------------
The Indenture Trustee represents and warrants for the benefit of the
Noteholders and the Note Insurer that:
(a) Organization and Good Standing. The Indenture Trustee is a banking
corporation duly organized, validly existing and in good standing under
the laws of the state of New York.
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(b) Authorization. The Indenture Trustee has the power, authority and
legal right to execute, deliver and perform this Indenture, and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(c) Binding Obligations. This Indenture, assuming due authorization,
execution and delivery by all other parties thereto, constitutes the
legal, valid and binding obligation of the Indenture Trustee, enforceable
against the Indenture Trustee in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory,
regulatory or decisional) now or hereafter in effect relating to
creditors' rights generally and the rights of trust companies in
particular and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to certain equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought, whether in a proceeding at law or in equity.
SECTION 7.18 Tax Returns.
- ------ ------------
In the event the Trust shall be required to file tax returns, the Indenture
Trustee shall prepare or shall cause to be prepared any tax returns required to
be filed by the Trust and shall remit such returns to the Owner Trustee for
signature at least five (5) Business Days before such returns are due to be
filed. The Servicer, upon request, will furnish the Indenture Trustee with all
such information known to the Servicer as may be reasonably required in
connection with the preparation of all tax returns of the Trust. In no event
shall the Indenture Trustee or the Owner Trustee in their respective individual
capacities be liable for any liabilities, costs or expenses of the Trust, the
Noteholders or the Servicer arising under any tax law or regulation, including,
without limitation, Federal, State or local income or excise taxes or any other
tax imposed on or measured by income (or any interest or penalty with respect
thereto or arising from any failure to comply therewith).
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.01 Events of Default.
- ------ ------------------
"Event of Default" wherever used herein means any one of the following events
(whatever the reason for such Event of Default and without regard to whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) failure to distribute or cause to be distributed to the Indenture
Trustee, for the benefit of the Noteholders, all or part of any payment
of interest required to be made on each Payment Date under the terms of
such Notes or this Indenture when due and payable; or
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(b) failure to distribute or cause to be distributed to the Indenture
Trustee, for the benefit of the Noteholders (x) on any Payment Date, an
amount equal to the principal due on the outstanding Notes as of such
Payment Date to the extent that sufficient Available Funds are on deposit
in the Collection Account or (y) on the Class A Maturity Date or the
Class B Maturity Date, as the case may be, any remaining principal owed
on the outstanding Class A Notes or Class B Notes, as the case may be; or
(c) default in the performance, or breach, of any other covenant of
the Issuer in this Indenture, and continuance of such default or breach
for a period of thirty (30) days after the earliest of (i) any officer of
the Issuer first acquiring the knowledge thereof, (ii) the Indenture
Trustee's giving written notice thereof to the Issuer, or (iii) the Note
Insurer or the Holders of a majority of the then Outstanding Note
Principal Balance of the Notes giving written notice thereof to the
Issuer and the Indenture Trustee; or
(d) any representation or warranty of the Issuer made in this
Indenture or any other writing provided to the Holders of the Notes
proves to be incorrect in any material respect as of the time when the
same has been made; provided, however, that the breach of any
representation or warranty made by the Issuer will be deemed to be
"material" only if it negatively affects the Note Insurer or the
Noteholders, the enforceability of this Indenture or the Notes; or
(e) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Issuer in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or (B) a decree or order
adjudging the Issuer a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Issuer under any applicable federal
or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator, or other similar official of the Issuer or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(f) the commencement by the Issuer of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding
to be adjudicated as bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of the Issuer in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator, or similar official of any such Person or of any
substantial part or its property, or the making by it of an assignment
for the benefit of creditors, or the failure of any such Person to pay
its debts generally as they become due, or the taking of corporate action
by any such Person in furtherance of any such action; or
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(g) the Issuer becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended; or
(h) an event of default shall have occurred and be continuing under
the Insurance Agreement; or
(i) a Transferor Event of Default shall occur and be continuing with
respect to either of the Pledged Notes.
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SECTION 8.02 Acceleration of Maturity, Rescission and Annulment.
- ------ ---------------------------------------------------
(a)__
(a) If an Event of Default occurs and is continuing, then and in every such
case the Indenture Trustee, at the written direction of the Controlling
Parties, shall declare the principal of all of the Notes to be immediately due
and payable, by a notice in writing to the Servicer, and upon any such
declaration such principal (together with all accrued and previously unpaid
interest) shall become immediately due and payable; provided, that, with
respect to Events of Default enumerated in Section 8.01(e) and (f), the
principal of all Notes shall become immediately due and payable without further
action of any Person. The Indenture Trustee shall give notice to each
Noteholder, the Note Insurer and the Rating Agencies of such declaration.
(b)__ At any time, after such a declaration of acceleration has been
made, but before any sale of the Pledged Property has been made or a judgment
or decree for payment of the money due has been obtained by the Indenture
Trustee as hereinafter in this Article VIII provided, the Controlling Parties,
by written notice to the Servicer and the Indenture Trustee, may rescind and
annul such declaration and its consequence if monies have been paid or
deposited with the Indenture Trustee in a sum sufficient to pay:
(i) all overdue installments of interest on all Class A Notes and
Class B Notes;
(ii) the principal of any of the Class A Notes or Class B Notes
which has become due otherwise than by such declaration of
acceleration and interest thereon at the applicable Note Rate;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest on the Class A Notes
and Class B Notes at the rate specified therefor in the related
Note; and
(iv) all sums paid or advanced, together with interest thereon,
by the Indenture Trustee or the Note Insurer hereunder or under the
Insurance Agreement or the Note Insurance Policy, as applicable, and
the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee, the Note Insurer and their respective agents
and counsel.
No such rescission shall affect any subsequent default or impair
any right consequent thereon.
Subsequent to any such declaration of acceleration and so long as
such declaration and its consequences have not been rescinded and annulled,
prior to the exercise by the Indenture Trustee of the remedies set forth in
Section 8.03(a) or (c) hereof, the Indenture Trustee shall give the Noteholders
and the Note Insurer ten days' notice of its intention to take such actions.
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SECTION 8.03 Remedies.
- ------ ---------
If an Event of Default shall have occurred and be continuing, the Indenture
Trustee, at the written direction of the Controlling Parties, shall do one or
more of the following as shall be directed by the Controlling Party:
(a)__ institute, in its own name and as Indenture Trustee, Proceedings
for the collection of the entire amount of principal and interest
remaining unpaid on the Notes, or under this Indenture in respect of the
Notes, whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Pledged Property securing the Notes the
monies adjudged due;
(b)__ sell the Pledged Property or any portion thereof or rights or
interest therein, at one or more sales called and conducted in any
commercially reasonable manner permitted by law;
(c)__ institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Pledged
Property securing the Notes; or
(d)__ exercise any remedies of a secured party under the UCC or other
applicable law and take any other appropriate action to protect and
enforce the rights and remedies of the Indenture Trustee, the Note
Insurer or the Noteholders hereunder.
SECTION 8.04 Notice of Event of Default.
- ------ ---------------------------
Within two (2) Business Days after a Responsible Officer obtaining actual
knowledge of the occurrence of any Event of Default, the Indenture Trustee
shall transmit, by certified mail return receipt requested, hand delivery or
overnight courier, to all Noteholders, as their names and addresses appear in
the Register, notice of such Event of Default, unless such Event of Default
shall have been cured or waived.
SECTION 8.05 Exercise of Power by Indenture Trustee.
- ------ ---------------------------------------
In case an Event of Default has occurred and is continuing to the actual
knowledge of a Responsible Officer of the Indenture Trustee, the Indenture
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 its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
SECTION 8.06 Indenture Trustee May File Proofs of Claim.
- ------ -------------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
reorganization, arrangement, adjustment, composition or other judicial
Proceeding, relating to the Trust or any other obligor upon the Notes or the
property of the Trust or of such other obligor or their creditors, the
Indenture Trustee (irrespective of whether the principal of any class of Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Indenture Trustee shall have made any
demand for the payment of overdue principal or interest) shall be entitled and
empowered, to intervene in such proceeding or otherwise:
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(a) to file and prove a claim for all amounts owing and unpaid in
respect of the Notes and to file such other papers or documents and
take such other action including participating as a member, voting
or otherwise, in any committee of creditors appointed in the matter,
as may be necessary or advisable in order to have the claims of the
Indenture Trustee, the Note Insurer (including, in each case, any
claim for the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee, the Note Insurer and their
respective agents and counsel) and the Noteholders allowed in such
judicial Proceeding;
(b) to petition for lifting of the automatic stay and thereupon
to foreclose upon the Pledged Property as elsewhere provided herein;
and
(c) to collect and receive any monies or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by each
Noteholder to make such payments to the Indenture Trustee, and in the event
that the Indenture Trustee shall consent to the making of such payments
directly to the Note Insurer or the Noteholders, to pay to the Indenture
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and counsel.
Nothing herein contained shall be deemed to authorize the Indenture Trustee to
authorize or to consent or accept or adopt on behalf of the Note Insurer or
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Note Insurer or the Notes or the rights of any
Holder thereof, or to authorize the Indenture Trustee to vote in respect of
the claim of the Note Insurer or any Noteholder in any such Proceeding.
SECTION 8.07 Allocation of Money Collected.
- ------ ------------------------------
If the Notes have been declared due and payable following an Event of Default
and such declaration and its consequences have not been rescinded and annulled,
any money collected by the Indenture Trustee with respect to the Notes pursuant
to this Article VIII (and any funds then held or thereafter received by the
Indenture Trustee) shall be applied in the following order, at the date or
dates fixed by the Indenture Trustee:
First : To the Indenture Trustee or the Note Insurer, as the case may
-----
be, the costs incurred by such parties in the collection of such moneys
collected;
Second : To the payment of all amounts due the Indenture Trustee under
------
Section 7.07 hereof and all Back-up Servicer Fees due to the Back-up Servicer
under the Servicing Agreement;
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Third : To the payment of all Premium Amounts due and payable to the
-----
Note Insurer;
Fourth : To the payment of Class A Note Interest to the Class A
------
Noteholders;
Fifth : To the payment of the outstanding Class A Note Principal
-----
Balance to the Class A Noteholders;
Sixth : To the payment of all unpaid Reimbursement Amounts, if any, to
-----
the Note Insurer;
Seventh : To the payment of Class B Note Interest to the Class B
-------
Noteholders
Eighth : To the payment of the outstanding Class B Note Principal
------
Balance to the Class B Noteholders;
Ninth : To the payment of all reasonable costs and expenses incurred
-----
by any Noteholder in connection with the enforcement of its rights hereunder or
under the Notes, ratably, without preference or priority of any kind; and
Tenth : To the payment of any surplus to or at the written direction
-----
of the Residual Holders.
SECTION 8.08 Waiver of Events of Default.
- ------ ----------------------------
(a)__
(a) The Controlling Party (with the prior written consent of the Note
Insurer) may, by one or more instruments in writing, waive any Event of Default
hereunder and its consequences, except a continuing Event of Default:
(i) in respect of the payment of the principal of or interest on
any Note (which may only be waived by the Holder of such Note), or
(ii) in respect of a covenant or provision hereof which under
Article XI cannot be modified or amended without the consent of the
Holder of each Note outstanding affected (which only may be waived
by the Holders of all affected Notes outstanding).
(b)__ A copy of each waiver pursuant to Section 8.08(a) shall be
furnished by the Servicer to the Indenture Trustee. Upon any such waiver, such
Event of Default shall cease to exist and shall be deemed to have been cured,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereon.
SECTION 8.09 Limitation On Suits.
- ------ --------------------
55
<PAGE>
. No Holder shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Controlling Parties shall have made written request to the
Indenture Trustee to institute Proceedings in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Indenture Trustee for thirty (30) days after its receipt of
such notice, request and offer of indemnity has failed to institute any
such Proceeding;
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such thirty (30) day period by the
Controlling Parties; and
(f) the Note Insurer has given its prior written consent;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders
or the Note Insurer or to enforce any right under this Indenture, except in
the manner herein provided.
SECTION 8.10 Unconditional Right of Noteholders to Receive
- ------ -------------------------------------------------
Principal and Interest.
- -----------------------
Notwithstanding any other provision in this Indenture, the Noteholders shall
have the right, which is absolute and unconditional, to receive payment of the
principal of and interest on such Note as such principal and interest becomes
due and payable in accordance with the terms of this Indenture (including,
without limitation, the limitation on such payments to the extent of Available
Funds on each Payment Date) and the Controlling Party shall have the right to
institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Controlling Party.
SECTION 8.11 Restoration of Rights and Remedies.
- ------ -----------------------------------
If the Indenture Trustee, the Note Insurer or any Noteholder has instituted
any Proceeding to enforce any right or remedy in accordance with the terms of
this Indenture and such Proceeding has been discontinued or abandoned for any
reason, or has been determined adverse to the Indenture Trustee, the Note
Insurer or to such Noteholder, then and in every such case, the Indenture
Trustee, the Note Insurer and the Noteholders shall, subject to any
determination in such Proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies
hereunder shall continue as though no such Proceeding has been instituted.
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SECTION 8.12 Rights and Remedies Cumulative.
- ------ -------------------------------
No right or remedy herein conferred upon or reserved to the Indenture
Trustee, the Note Insurer or the Noteholders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 8.13 Delay or Omission Not Waiver.
- ------ -----------------------------
No delay or omission of the Indenture Trustee, the Note Insurer or any
Noteholder to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Indenture Trustee, the Note Insurer or the
Noteholders, or any of them, may be exercised from time to time, as often as
may be deemed expedient, by the Indenture Trustee, the Note Insurer or the
Noteholders, subject in each case however to the right of the Note Insurer to
control any such right and remedy.
SECTION 8.14 Control by Controlling Parties.
- ------ -------------------------------
The Controlling Parties shall have the right to direct in writing the
decision whether to conduct, and the time, method and place of conducting, any
Proceeding for any remedy available to the Indenture Trustee with respect to
the Notes or exercising any trust or power conferred on the Indenture Trustee
with respect to the Notes; provided, that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(b) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee which is not inconsistent with such direction;
provided, however, that the Indenture Trustee need not take any action
which it determines might involve it in liability or be unjustly
prejudicial to the Holders not consenting.
SECTION 8.15 Sale of Pledged Property.
- ------ -------------------------
(a)__
(a) The power to effect any sale pursuant to Section 8.03 hereof shall not be
exhausted by any one or more sales as to any portion of the Pledged Property
remaining unsold, but shall continue unimpaired until the entire Pledged
Property securing the Notes shall have been sold or all amounts payable under
this Indenture with respect thereto shall have been paid. The Indenture Trustee
57
<PAGE>
may from time to time postpone any sale by public announcement made at the time
and place of such sale. To the extent permitted by applicable law, the
Indenture Trustee shall not sell the Pledged Property without the prior written
consent of the Note Insurer and the satisfaction of the Rating Agency
Condition.
(b)__ The Note Insurer and any Noteholder may bid for and acquire any
portion of the Pledged Property securing the Notes in connection with any sale
thereof.
(c)__ Each of the parties hereby covenants and agrees that a sale of the
entirety of the Contracts and the Equipment by a public sale held not less than
ten days after notice thereof is commercially reasonable.
(d)__ The Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance, provided to it by the Servicer, transferring its
interest in any portion of the Pledged Property in connection with a sale
thereof. In addition, the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Trust to transfer and convey its interest in
any portion of the Pledged Property in connection with a sale thereof, and to
take all action necessary to effect such sale. No purchaser or transferee at
such a sale shall be bound to ascertain the Indenture Trustee's authority,
inquire into the satisfaction of any conditions precedent or see to the
application of any monies.
SECTION 8.16 Action on Notes.
- ------ ----------------
The Indenture Trustee's right to seek and recover judgment on the Notes or
under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture.
Neither the Lien of this Indenture nor any rights or remedies of the Indenture
Trustee or the Noteholders shall be impaired by the recovery of any judgment by
the Indenture Trustee against the Trust or the Transferors or by the levy of
any execution under such judgment upon any portion of the Pledged Property or
upon any of the assets of the Trust or the Transferors.
ARTICLE IX
TERMINATION
SECTION 9.01 Termination of Obligations and Responsibilities.
- ------ ------------------------------------------------
The respective obligations and responsibilities of the Servicer, the
Indenture Trustee and the trust created hereby shall terminate at the option of
the Residual Holders, at any time which is 123 days after the payment to
Noteholders of all amounts required to be paid to them pursuant to this
Indenture, reducing the Class A Note Principal Balance and the Class B Note
Principal Balance to zero; provided that all amounts then owing to the Note
Insurer and the Indenture Trustee pursuant to the Transaction Documents have
been paid to such parties; and provided, however, that in no event shall the
58
<PAGE>
trust created hereby continue beyond the expiration of 21 years from the death
of the last survivor of the descendants living on the date of this Indenture of
Joseph P. Kennedy, late Ambassador to the Court of St. James. Notwithstanding
the foregoing, the representations and warranties and indemnification
obligations of the Originator and the Servicer hereunder and under the
Servicing Agreement shall survive the termination of the Trust and of this
Indenture. Upon termination of the Trust, the Indenture Trustee shall release
any remaining Trust Property to the Residual Holders; provided, that the Class
A Note Principal Balance and the Class B Note Principal Balance have been
reduced to zero and all amounts then owing to the Note Insurer or the Indenture
Trustee pursuant to the Transaction Documents have been paid to such parties.
SECTION 9.02 Optional Redemption of Notes; Final Disposition of
- ------ --------------------------------------------------
Funds.
- ------
(a)_
(a) On any Payment Date as of which the sum of (1) the Class A Note Principal
Balance and (2) the Class B Note Principal Balance is less than ten percent
(10.00%) of the sum of (x) the Initial Class A Note Principal Balance and (y)
the Initial Class B Note Principal Balance, the Residual Holders shall have the
option to cause the retirement of the Notes by depositing with the Indenture
Trustee the sum of (i) the outstanding Class A Note Principal Balance and the
outstanding Class B Note Principal Balance as of such Payment Date (after
giving effect to the payment of any principal on such Payment Date), (ii)
accrued interest on the related Note Principal Balances at the related Note
Rate and (iii) all amounts owed to the Indenture Trustee and the Note Insurer
pursuant to the Transaction Documents. Upon receipt of such amounts and all
amounts then owed to the Indenture Trustee the Indenture Trustee shall (x) make
the final payment in full to the Noteholders, (y) pay all amounts owed to the
Note Insurer and (z) release any remaining Trust Property to the Residual
Holders. In the event that the Residual Holders elects to redeem the Notes in
accordance with this Section 9.02, the Residual Holders shall be required to
notify the Indenture Trustee in writing by no later than two (2) Business Days
prior to a notice required to be sent by the Indenture Trustee pursuant to
Section 9.02(b).
(b)__ Notice of any termination pursuant to this Section 9.02 shall be
given promptly by the Indenture Trustee, by letter to Noteholders, the Rating
Agencies and the Note Insurer mailed not later than the 10th day of the month
immediately preceding the month of such final Payment Date specifying (i) the
Payment Date upon which final payment of the Notes will be made, (ii) the
scheduled amount of any such final payment, (iii) that interest shall cease to
accrue on the Class A Notes and Class B Notes on such final Payment Date and
(iv) the address for presentation of the Notes for final payment. On such final
Payment Date, the Indenture Trustee shall cause to be distributed (A) to
Noteholders an amount equal to (x) the amount otherwise distributable to the
Noteholders on such Payment Date but for such purchase pursuant to this Section
9.02 and (y) each Class A Noteholder's and Class B Noteholder's pro rata share
(based on the aggregate related Percentage Interest) of the Class A Note
Principal Balance and the Class B Note Principal Balance deposited by the
Residual Holders into the Collection Account pursuant to this Section 9.02 and
(B) to the Note Insurer, all amounts owed to the Note Insurer under the
Transaction Documents. After such Payment Date, interest on the Class A Notes
and Class B Notes shall cease to accrue.
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<PAGE>
(c)__ The final payment on any Note shall only be made upon the
presentation of such Note to the Indenture Trustee at the office specified in
the notice described in Section 9.02(b) above.
(d)__ In the event that any amount due to any Noteholder remains
unclaimed, the Servicer shall, at its expense, cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed. If, within two years after such publication, such amount remains
unclaimed, the Servicer shall be entitled to all unclaimed funds and other
assets which remain subject hereto, and the Indenture Trustee upon written
direction from the Servicer shall transfer such funds and shall be discharged
of any responsibility for such funds and, the Noteholders shall look to the
Servicer for payment.
ARTICLE X
NOTEHOLDERS' LISTS AND REPORTS
SECTION 10.01 Trust To Furnish To Indenture Trustee Names and
- ------ -----------------------------------------------
Addresses of Noteholders.
- -------------------------
The Trust will furnish or cause to be furnished to the Indenture Trustee (a)
not more than five (5) days after the earlier of (i) each Record Date and (ii)
three months after the last Record Date, a list, in such form as the Indenture
Trustee may reasonably require, of the names and addresses of the Holders as of
such Record Date, (b) at such other times as the Indenture Trustee may request
in writing, within thirty (30) days after receipt by the Issuer of any such
request, a list of similar form and content as of a date not more than ten (10)
days prior to the time such list is furnished; provided, however, that so long
as the Indenture Trustee is the Note Registrar, no such list shall be required
to be furnished. The Indenture Trustee or, if the Indenture Trustee is not the
Note Registrar, the Trust shall furnish to the Note Insurer or the Trust in
writing upon their written request and at such other times as the Note Insurer
or the Trust may request a copy of the list of Noteholders.
SECTION 10.02 Preservation of Information; Communications to
- ------ ----------------------------------------------
Noteholders.
- ------------
(a)__
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Noteholders contained in
the most recent list furnished to the Indenture Trustee and the names and
addresses of Noteholders received by the Indenture Trustee in its capacity as
Note Registrar.
(b)__ Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under
the Notes.
(c)__ The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
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SECTION 10.03 Reports by Trust.
- ------ -----------------
(a)__
(a) The Trust shall:
(i) file with the Indenture Trustee, within fifteen (15) days
after the Trust is required to file the same with the Commission,
copies of the annual reports and copies of the information documents
and other reports (or copies of such portions of any of the
foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Trust may be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA Section
313(c)) such summaries of any information, documents and reports
required to be filed by the Trust pursuant to clauses (i) and (ii)
of this Section 10.03(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b)__ Unless the Trust otherwise determines, the fiscal year of the Trust
shall end as of December 31 of each year for purposes of this section.
SECTION 10.04 Reports by Indenture Trustee.
- ------ -----------------------------
If required by TIA Section 313(a), within sixty (60) days after each August
31, beginning with August 31, 1998, the Indenture Trustee shall mail to each
Noteholder as required by TIA Section 313(c) a brief report dated as of such
date that complies with TIA Section 313(a). The Indenture Trustee also shall
comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Trust shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
SECTION 10.05 Compliance Certificates and Opinions, etc.
- ------ ------------------------------------------
(a)__
(a) Upon any application or request by the Trust to the Indenture Trustee to
take any action under any provision of this Indenture, the Trust shall furnish
to the Indenture Trustee and the Note Insurer (i) an Officer's Certificate
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stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA)
an Independent Certificate from a firm of certified public accountants meeting
the applicable requirements of this Section 10.05, except that, in the case of
any such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
(b)__ Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(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 each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory 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, in the opinion of each such
signatory such condition or covenant has been complied with.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01 Amendment.
- ------ ----------
(a)__
(a) This Indenture may be amended from time to time by the Trust, the
Servicer and the Indenture Trustee, without the consent of any of the
Noteholders but with the prior written consent of the Note Insurer, to cure any
ambiguity herein; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel acceptable to the Indenture Trustee adversely affect
in any respect the interests of any Noteholder.
(b)__ This Indenture may also be amended from time to time by the Trust,
the Servicer and the Indenture Trustee with the prior written consent of the
Controlling Party for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
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modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Contracts or
distributions that are required to be made on any Note without the consent of
the Holder of such Note or (ii) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the Holders of all Notes
then outstanding.
(c)__ Prior to the effectiveness of any amendment under Section 11.01(a)
or (b), the Rating Agencies shall have confirmed in writing their respective
ratings of the Notes.
(d)__ Promptly after the execution of any such amendment, the Indenture
Trustee shall furnish a written copy of the text of such amendment (and any
consent required with respect thereto) to each Noteholder, the Note Insurer and
the Rating Agencies.
(e)__ Approval of the particular form of any proposed amendment or
consent shall not be necessary for the consent of the Noteholders under Section
11.01(b), 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 the Noteholders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.
(f)__ The Indenture Trustee and the Note Insurer shall be entitled to
receive an officer's certificate and an Opinion of Counsel to the effect that
all conditions precedent to the amendment of this Indenture have been
satisfied. The Indenture Trustee may, but shall not be obligated to, execute
and deliver any such amendment which affects that Indenture Trustee's rights,
powers, immunities or indemnifications hereunder.
SECTION 11.02 Conformity With Trust Indenture Act.
- ------ ------------------------------------
Every amendment of this Indenture and every supplemental indenture executed
pursuant to this Article XI shall conform to the requirements of the Trust
Indenture Act as then in effect so long as this Indenture shall then be
qualified under the TIA.
SECTION 11.03 Limitation on Rights of Noteholders.
- ------ ------------------------------------
(a)__
(a) The death or incapacity of any Noteholder shall not operate to terminate
this Indenture or the Trust, nor entitle such Noteholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(b)__ It is understood and intended, and expressly covenanted by each
Noteholder with every other Noteholder and the Indenture Trustee, that no one
or more Holders of Notes shall have any right in any manner whatever by virtue
or by availing itself or themselves of any provisions of this Indenture to
affect, disturb or prejudice the rights of the Holders of any other of the
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Notes, to obtain or seek to obtain priority over or preference to any other
Holder of the same Class of Notes or to enforce any right under this Indenture,
except in the manner herein provided and for the equal, ratable and common
benefit of all Noteholders of the same Class. For the protection and
enforcement of the provisions of this Section 11.03, each and every Noteholder
and the Indenture Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION 11.04 Counterparts.
- ------ -------------
For the purpose of facilitating the execution of this Indenture and for other
purposes, this Indenture may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which counterparts shall constitute but one and the same instrument.
SECTION 11.05 GOVERNING LAW.
- ------ --------------
THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY STATE.
SECTION 11.06 Notices.
- ------ --------
All demands, notices, instructions, directions and communications (other than
periodic communications of a routine nature made in connection with the
dissemination of information regarding the Pledged Property, the Servicer and
the Trust required to be delivered hereunder, which shall be delivered or
mailed by first class mail or facsimile transmission) hereunder shall be in
writing, personally delivered or mailed by overnight courier, and shall be
deemed to have been duly given upon receipt (a) in the case of the Servicer, at
Balapointe Office Centre, 111 Presidential Boulevard, Suite 215, Bala Cynwyd,
Pennsylvania 19004, Attention: General Counsel, telephone (610) 668-2440,
telecopy (610) 668-1461, (b) in the case of the Trust, Delaware Trust Capital
Management Inc., at 900 Market Street, 2nd Floor, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration, telephone (302) 421-7307, telecopy
(302) 421-7742, (c) in the case of the Indenture Trustee, at 450 West 33rd
Street, New York, New York 10001, Attention: Global Trust Services, telephone
(212) 946-3216, telecopy (212) 946-8191, (d) in the case of S&P, at 26
Broadway, 15th Floor, New York, New York 10004, Attention: Asset Backed
Surveillance, telephone (212) 208-1278, telecopy (212) 208-8208, (e) in the
case of Moody's, at 99 Church Street, New York, New York 10007-2701, telephone
(212) 553-1402, telecopy (212) 533-3856, (f) in the case of the Note Insurer,
at 350 Park Avenue, New York New York, Attention: Surveillance Department (in
each case in which notice or other communication to the Note Insurer refers to
an Event of Default, a claim on the Note Insurance Policy or with respect to
which failure on the part of the Note Insurer to respond shall be deemed to
constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of each of the General
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Counsel and the Head -- Financial Guaranty Group and shall be marked to
indicate "URGENT MATERIAL ENCLOSED"), and (g) in the case of DCR, 55 East
Monroe Street, Suite 3800, Chicago, Illinois 60603, Attention: Asset Backed
Monitoring, telecopy (312) 368-2069. Any notice required or permitted to be
mailed to a Noteholder shall be given by first class mail, postage prepaid, at
the address of such Holder as shown in the Note Register. Any notice so mailed
within the time prescribed in this Indenture shall be conclusively presumed to
have been duly given on the fifth Business Day following mailing, whether or
not the Noteholder receives such notice.
SECTION 11.07 Severability of Provisions.
- ------ ---------------------------
If any one or more of the covenants, agreements, provisions, or terms of this
Indenture shall be for any reason whatsoever held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Indenture and shall in no
way affect the validity or enforceability of the other provisions of this
Indenture or of the Notes or the rights of the Holders thereof.
SECTION 11.08 Conflict with Trust Indenture Act.
- ------ ----------------------------------
If any provision hereof limits, qualifies or conflicts with another provision
hereof that is required to be included in this indenture by any of the
provisions of the Trust Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 11.09 Third Party Beneficiary.
- ------ ------------------------
The parties hereto acknowledge and agree that the Note Insurer is an express
third party beneficiary of this Indenture.
SECTION 11.10 Assignment.
- ------ -----------
Notwithstanding anything to the contrary contained herein, except as provided
in Section 5.02 of the Servicing Agreement, this Indenture may not be assigned
by the Servicer except with prior written consent of the Trust, the Note
Insurer and the Holders of the Applicable Securities. Notice of any such
assignment received by a Responsible Officer of the Indenture Trustee shall be
given to the Rating Agencies by the Indenture Trustee.
SECTION 11.11 Binding Effect.
- ------ ---------------
This Indenture shall inure to the benefit of, and shall be binding upon the
Servicer, the Trust, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns, subject, however, to the
limitations contained in this Indenture. This Indenture shall not inure to the
benefit of any Person other than the Trust, the Servicer, the Indenture
Trustee, the Note Insurer and the Noteholders.
65
<PAGE>
SECTION 11.12 Survival of Agreement.
- ------ ----------------------
All covenants, agreements, representations and warranties made herein and in
the other documents delivered pursuant hereto shall survive the pledge of the
Pledged Property and the issuance of the Notes and shall continue in full force
and effect until terminated pursuant to Section 9.01 hereof.
SECTION 11.13 Captions.
- ------ ---------
The captions or headings in this Indenture are for convenience only and in no
way define, limit or describe the scope or intent of any provisions or sections
of this Indenture.
SECTION 11.14 Exhibits.
- ------ ---------
The Exhibits to this Indenture are hereby incorporated herein and made a part
hereof and are an integral part of this Indenture.
SECTION 11.15 Calculations.
- ------ -------------
Except as otherwise provided in this Indenture, all interest rate
calculations under this Indenture, including those with respect to the
Contracts, will be made on the basis of a 360-day year and twelve 30-day months
(i.e., each Interest Accrual Period shall be deemed to be equal 30 day periods)
and will be carried out to at least seven decimal places.
SECTION 11.16 No Proceedings.
- ------ ---------------
The Servicer, the Trust and the Indenture Trustee each hereby agrees that it
will not directly or indirectly institute, or cause to be instituted, against
the Transferors, the Managers or the Trust any bankruptcy or insolvency
proceeding so long as there shall not have elapsed one year plus one day since
the maturity date of the latest maturing securities of the Trust.
[Remainder of Page Intentionally Left Blank]
66
<PAGE>
IN WITNESS WHEREOF, the Trust, the Servicer, the Indenture
Trustee and the Back-up Servicer have caused this Indenture to be duly
executed by their respective officers, all as of the day and year first above
written.
ABFS EQUIPMENT CONTRACT TRUST
1998-A, as Issuer
By: DELAWARE TRUST CAPITAL MANAGEMENT,
INC., not in its individual capacity
but solely as Owner Trustee
By /s/ Richard N. Smith
-----------------------------------
Name: Richard N. Smith
Title: Vice President
AMERICAN BUSINESS LEASING, INC.,
as Servicer
By /S/ Jeffrey Ruben
-----------------------------------
Name: Jeffrey Ruben
Title: Senior Vice President
THE CHASE MANHATTAN BANK, not in its
individual capacity but solely as
Indenture Trustee and as Back-up
Servicer
By /s/ Gary Trenamon
-----------------------------------
Name: Gary Trenamon
Title: Senior Vice President
<PAGE>
Exhibit 10.40
EXECUTION COPY
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION,
Depositor,
ABFS 1998-2, INC.,
Unaffiliated Seller
and
AMERICAN BUSINESS CREDIT, INC.
HOMEAMERICAN CREDIT, INC., D/B/A UPLAND MORTGAGE, and
NEW JERSEY MORTGAGE INVESTMENT CORP.
Originators
---------------------------
UNAFFILIATED SELLER'S AGREEMENT
Dated as of June 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE ONE DEFINITIONS...........................................................................3
Section 1.01. Definitions...........................................................................3
ARTICLE TWO PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS.......................................6
Section 2.01. Agreement to Purchase the Initial Mortgage Loans......................................6
Section 2.02. Agreement to Purchase the Subsequent Mortgage Loans...................................6
Section 2.03. Purchase Price........................................................................8
Section 2.04. Conveyance of Mortgage Loans; Possession of Mortgage Files............................8
Section 2.05. Delivery of Mortgage Loan Documents...................................................9
Section 2.06. Acceptance of Mortgage Loans.........................................................11
Section 2.07. Transfer of Mortgage Loans; Assignment of Agreement..................................12
Section 2.08. Examination of Mortgage Files........................................................12
Section 2.09. Books and Records....................................................................13
Section 2.10. Cost of Delivery and Recordation of Documents........................................13
ARTICLE THREE REPRESENTATIONS AND WARRANTIES.......................................................13
Section 3.01. Representations and Warranties as to the Originators.................................13
Section 3.02. Representations and Warranties as to the Unaffiliated Seller.........................15
Section 3.03. Representations and Warranties Relating to the Mortgage Loans........................17
Section 3.04. Representations and Warranties of the Depositor......................................25
Section 3.05. Repurchase Obligation for Defective Documentation and for Breach of a Representation
or Warranty..........................................................................26
ARTICLE FOUR THE UNAFFILIATED SELLER..............................................................28
Section 4.01. Covenants of the Originators and the Unaffiliated Seller.............................28
Section 4.02. Merger or Consolidation..............................................................29
Section 4.03. Costs................................................................................29
Section 4.04. Indemnification......................................................................29
ARTICLE FIVE CONDITIONS OF CLOSING................................................................31
Section 5.01. Conditions of Depositor's Obligations................................................31
Section 5.02. Conditions of Unaffiliated Seller's Obligations......................................33
Section 5.03. Termination of Depositor's Obligations...............................................34
ARTICLE SIX MISCELLANEOUS........................................................................34
Section 6.01. Notices..............................................................................34
Section 6.02. Severability of Provisions...........................................................34
Section 6.03. Agreement of Unaffiliated Seller.....................................................35
Section 6.04. Survival.............................................................................35
Section 6.05. Effect of Headings and Table of Contents.............................................35
Section 6.06. Successors and Assigns...............................................................35
Section 6.07. Confirmation of Intent; Grant of Security Interest...................................35
Section 6.08. Miscellaneous........................................................................36
Section 6.09. Amendments...........................................................................36
Section 6.10. Third-Party Beneficiaries............................................................36
Section 6.11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.........................37
Section 6.12. Execution in Counterparts............................................................37
Exhibit A - Mortgage Loan Schedule
</TABLE>
2
<PAGE>
THIS UNAFFILIATED SELLER'S AGREEMENT, dated as of June 1,
1998, by and among PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION, a
Delaware corporation, its successors and assigns (the "Depositor"), ABFS
1998-2, INC., a Delaware corporation and its successors (the "Unaffiliated
Seller"), AMERICAN BUSINESS CREDIT, INC., a Pennsylvania corporation ("ABC"),
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE, a Pennsylvania corporation
("Upland") and NEW JERSEY MORTGAGE INVESTMENT CORP., a New Jersey corporation
("NJMIC", and together with ABC and Upland, the "Originators").
WHEREAS, Exhibit A attached hereto and made a part hereof
lists certain fixed rate business and consumer purpose first and second lien
mortgage loans (the "Mortgage Loans") owned by the Originators that the
Originators desire to sell to the Unaffiliated Seller and the Unaffiliated
Seller desires to sell to the Depositor and that the Depositor desires to
purchase;
WHEREAS, it is the intention of the Originators, the
Unaffiliated Seller and the Depositor that simultaneously with the
Originators' conveyance of the Mortgage Loans to the Unaffiliated Seller and
the Unaffiliated Seller's conveyance of the Mortgage Loans to the Depositor on
the Closing Date, (a) the Depositor shall deposit the Mortgage Loans in a
trust pursuant to a Pooling and Servicing Agreement to be dated as of June 1,
1998 (the "Pooling and Servicing Agreement"), to be entered into by and among
the Depositor, as depositor, American Business Credit, Inc., as servicer (in
such capacity, the "Servicer") and The Chase Manhattan Bank, as trustee (the
"Trustee") and (b) the Trustee shall issue certificates evidencing beneficial
ownership interests in the property of the trust fund formed by the Pooling
and Servicing Agreement to the Depositor;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions. Whenever used herein, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article:
"Accepted Servicing Practices" means the Servicer's normal
servicing practices, which in general will conform to the mortgage servicing
practices of prudent mortgage lending institutions which service for their own
account mortgage loans of the same type as the Mortgage Loans in the
jurisdictions in which the related Mortgaged Properties are located.
"Agreement" means this Unaffiliated Seller's Agreement, as
amended or supplemented in accordance with the provisions hereof.
"Appraised Value" means the appraised value of the Mortgaged
Property based upon the appraisal made by or on behalf of the Originators.
"Certificate Insurer" means Financial Security Assurance
Inc., a stock insurance company organized and created under the laws of the
State of New York, and any successors thereto.
"Closing Date" shall have the meaning ascribed thereto in
Section 2.01(c).
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<PAGE>
"Commission" means the Securities and Exchange Commission.
"Cut-Off Date" means, with respect to the Initial Mortgage
Loans, the Initial Cut-Off Date, and with respect to the Subsequent Mortgage
Loans, the Subsequent Cut-Off Date.
"Cut-Off Date Aggregate Principal Balance" means the
aggregate unpaid principal balance of the Initial Mortgage Loans as of the
Cut-Off Date (or, with respect to Initial Mortgage Loans which were originated
after the Cut-Off Date, as of the date of origination). The Cut-Off Date
Aggregate Principal Balance is $99,404,106.67.
"Cut-Off Date Principal Balance" means as to each Mortgage
Loan, its unpaid principal balance as of the Cut-Off Date (or, with respect to
Initial Mortgage Loans which were originated after the Cut-Off Date, as of the
date of origination).
"Deleted Mortgage Loan" means a Mortgage Loan replaced by or
to be replaced by a Qualified Substitute Mortgage Loan pursuant to the terms
of the Pooling and Servicing Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Initial Cut-Off Date" means the close of business on May
31, 1998 or, with respect to Initial Mortgage Loans originated after May 31,
1998, the date of origination of such Initial Mortgage Loans.
"Initial Mortgage Loans" means the Mortgage Loans
transferred and assigned to the Depositor on the Closing Date.
"Monthly Payment" means, as to any Mortgage Loan (including
any REO Mortgage Loan) and any Due Date, the payment of principal and interest
due thereon in accordance with the amortization schedule at the time
applicable thereto (after adjustment for any Curtailments and Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
"Mortgage" means the mortgage or deed of trust creating a
first or second lien on an estate in fee simple in real property, and securing
a Mortgage Note, as amended or modified.
"Mortgage Interest Rate" means, as to any Mortgage Loan, the
fixed per annum rate at which interest accrues on the unpaid principal balance
thereof.
"Mortgage Loans" means such of the mortgage loans to be
sold, transferred and assigned to the Depositor on the Closing Date and each
Subsequent Transfer Date pursuant to Article Two hereof (including the related
Mortgage Notes and related Mortgages), all as identified in the Mortgage Loan
Schedule, and including any mortgage loan substituting or replacing a Mortgage
Loan pursuant to the terms of the Pooling and Servicing Agreement.
"Mortgage Loan Schedule" shall have the meaning ascribed
thereto in Section 2.01(b).
"Mortgage Note" means the note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan,
as amended or modified.
"Mortgaged Property" means the property subject to a Mortgage.
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<PAGE>
"Mortgagor" means the obligor on a Mortgage Note.
"Pooling and Servicing Agreement" shall have the meaning
ascribed thereto in the recitals hereof.
"Prospectus" means the Prospectus dated June 10, 1997
relating to the offering by the Depositor from time to time of its
Pass-Through Certificates (Issuable in Series) in the form in which it was or
will be filed with the Securities Exchange Commission pursuant to Rule 424(b)
under the Securities Act with respect to the offer and sale of the
Certificates.
"Prospectus Supplement" means the Prospectus Supplement
dated June 2, 1998, relating to the offering of the Certificates in the form
in which it was or will be filed with the Commission pursuant to Rule 424(b)
under the Securities Act with respect to the offer and sale of the
Certificates.
"Qualified Appraiser" means an appraiser, duly appointed by
the Unaffiliated Seller, who had no interest, direct or indirect, in the
Mortgaged Property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan, and such appraiser and the appraisal made by such appraiser both satisfy
the requirements of Title XI of the Federal Institutions Reform, Recovery and
Enforcement Act of 1989 and the regulations promulgated thereunder, all as in
effect on the date the Mortgage Loan was originated.
"Registration Statement" means that certain registration
statement on Form S-3, as amended (Registration No. 333-27355) relating to the
offering by the Depositor from time to time of its Pass-Through Certificates
(Issuable in Series) as heretofore declared effective by the Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsequent Cut-Off Date" means the date specified in the
Addition Notice relating to Subsequent Mortgage Loans.
"Subsequent Mortgage Loans" means the Mortgage Loans
hereafter transferred and assigned to the Depositor on a Subsequent Transfer
Date.
"Termination Event" means the existence of any one or more of
the following conditions:
(a) a stop order suspending the effectiveness of the
Registration Statement shall have been issued or a proceeding for that
purpose shall have been initiated or threatened by the Commission; or
(b) subsequent to the execution and delivery of this
Agreement, a downgrading, or public notification of a possible change,
without indication of direction, shall have occurred in the rating
afforded any of the debt securities or claims paying ability of any
person providing any form of credit enhancement for any of the
Certificates, by any "nationally recognized statistical rating
organization," as that term is defined by the Commission for purposes
of Rule 436(g)(2) under the Securities Act; or
(c) subsequent to the execution and delivery of this
Agreement, there shall have occurred an adverse change in the
condition, financial or otherwise, earnings, affairs,
5
<PAGE>
regulatory situation or business prospects of the Certificate Insurer or
the Unaffiliated Seller reasonably determined by the Depositor to be
material; or
(d) subsequent to the date of this Agreement there shall
have occurred any of the following: (i) a suspension or material
limitation in trading in securities substantially similar to the
Certificates; (ii) a general moratorium on commercial banking
activities in New York declared by either Federal or New York State
authorities; or (iii) the engagement by the United States in
hostilities, or the escalation of such hostilities, or any calamity or
crisis, if the effect of any such event specified in this clause (iii)
in the reasonable judgment of the Depositor makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Certificates on the terms and in the manner contemplated in the
Prospectus Supplement.
"Unaffiliated Seller" means ABFS 1998-2, Inc., in its
capacity as Unaffiliated Seller of the Mortgage Loans under this Agreement and
any successor to ABFS 1998-2, Inc., whether through merger, consolidation,
purchase and assumption of ABFS 1998-2, Inc. or all or substantially all of
its assets or otherwise.
Capitalized terms used herein that are not otherwise defined
shall have the respective meanings ascribed thereto in the Pooling and
Servicing Agreement.
ARTICLE TWO
PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS
Section 2.01. Agreement to Purchase the Initial Mortgage
Loans. (a) (a) Subject to the terms and conditions of this Agreement, the
Originators agree to sell, and the Unaffiliated Seller agrees to purchase on
the Closing Date and immediately subsequent thereto, the Unaffiliated Seller
agrees to sell, and the Depositor agrees to purchase, the Mortgage Loans
having the Cut-Off Date Aggregate Principal Balance or, in accordance with
Section 2.08 hereof, such other balance as is evidenced by the actual Cut-Off
Date Aggregate Principal Balance of the Mortgage Loans accepted by the
Depositor on the Closing Date and listed in the Mortgage Loan Schedule.
(b) Subject to Section 2.08 hereof, the Depositor and the
Unaffiliated Seller have agreed upon which of the Unaffiliated Seller's
Mortgage Loans are to be purchased by the Depositor on the Closing Date
pursuant to this Agreement, and the Unaffiliated Seller has prepared a
schedule describing the Mortgage Loans (the "Mortgage Loan Schedule") setting
forth all of the Mortgage Loans to be purchased under this Agreement, which
schedule is attached hereto as Exhibit A. The Mortgage Loan Schedule shall
conform to the requirements of the Depositor and to the definition of
"Mortgage Loan Schedule" under the Pooling and Servicing Agreement.
(c) The closing for the purchase and sale of the Mortgage
Loans shall take place at the offices of Dewey Ballantine, New York, New York,
at 10:00 a.m., New York time, on June 18, 1998 or such other place and time as
the parties shall agree (such time being herein referred to as the "Closing
Date").
Section 2.02. Agreement to Purchase the Subsequent Mortgage
Loans. (a) Subject to the terms and conditions of this Agreement, the
Originators agree to sell, and the Unaffiliated Seller agrees to purchase on
the each Subsequent Transfer Date and immediately subsequent thereto, the
Unaffiliated Seller agrees to sell, and the Depositor agrees to purchase,
6
<PAGE>
Subsequent Mortgage Loans, having an Aggregate Principal Balance of up to
$20,595,893.33 as listed in the Mortgage Loan Schedule attached to the related
Addition Notice.
(b) Subject to Section 2.08 herein, the Mortgage Loans that
are to be purchased by the Depositor on a Subsequent Transfer Date pursuant to
this Agreement will be set forth on a Mortgage Loan Schedule to be attached to
the related Addition Notice.
(c) Subject to the satisfaction of the conditions set forth
in paragraph (d) below, (i) in consideration of the Unaffiliated Seller's
delivery on the related Subsequent Transfer Dates to or upon the order of the
Originators of the purchase price, the Originators shall on any Subsequent
Transfer Date sell, transfer, assign, set over and convey to the Trustee
without recourse but subject to terms and provisions of this Agreement, all of
the right, title and interest of the Originators in and to the Subsequent
Mortgage Loans, including all principal outstanding as of, and all interest
due after, the Subsequent Cut-Off Date, and all other assets included or to be
included in the Trust Fund for the benefit of the Certificateholders and the
Certificate Insurer and (ii) in consideration of the Depositor's delivery on
the related Subsequent Transfer Dates to or upon the order of the Unaffiliated
Seller of the purchase price, the Unaffiliated Seller shall on any Subsequent
Transfer Date sell, transfer, assign, set over and convey to the Trustee
without recourse but subject to terms and provisions of this Agreement, all of
the right, title and interest of the Originators in and to the Subsequent
Mortgage Loans, including all principal outstanding as of, and all interest
due after, the Subsequent Cut-Off Date, and all other assets included or to be
included in the Trust Fund for the benefit of the Certificateholders.
(d) The Subsequent Mortgage Loans and the other property and
rights related thereto described in paragraph (c) above shall be transferred
by the Depositor to the Trust only upon the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Unaffiliated Seller shall have provided the
Trustee, the Rating Agencies and the Certificate Insurer with a timely
Addition Notice, which shall include a Mortgage Loan Schedule listing
the Subsequent Mortgage Loans and shall have provided any other
information reasonably requested by any of the foregoing with respect
to the Subsequent Mortgage Loans;
(ii) the Unaffiliated Seller shall have deposited in the
Collection Account all collections of (x) principal in respect of the
Subsequent Mortgage Loans received after the related Subsequent
Cut-Off Date and (y) interest due on the Subsequent Mortgage Loans
after the related Subsequent Cut-Off Date;
(iii) as of each Subsequent Transfer Date, the Depositor
was not insolvent nor will be made insolvent by such transfer nor is
the Depositor aware of any pending insolvency;
(iv) such addition will not result in a material adverse
tax consequence to the Trust or the Holders of the Certificates;
(v) the Pre-Funding Period shall not have terminated;
(vi) the Unaffiliated Seller shall have delivered to the
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (d) and that the
Subsequent Mortgage Loans comply with the provisions of Section
3.03(af) hereof and Section 2.03(c) of the Pooling and Servicing
Agreement;
7
<PAGE>
(vii) there shall have been delivered to the Certificate
Insurer, the Rating Agencies and the Trustee, independent Opinions of
Counsel with respect to the transfer of the Subsequent Mortgage Loans
substantially in the form of the Opinions of Counsel delivered to the
Certificate Insurer and the Trustee on the Startup Date (bankruptcy,
corporate and tax opinions); and
(viii) the Originators, the Seller and the Depositor
shall have delivered to the Trustee an executed subsequent transfer
agreement substantially in the form of Exhibit L to the Pooling and
Servicing Agreement.
(e) The obligation of the Depositor to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the requirements
set forth in Section 2.03(c) of the Pooling and Servicing Agreement.
Section 2.03. Purchase Price. (a) On the Closing Date, as
full consideration for the Unaffiliated Seller's sale of the Initial Mortgage
Loans to the Depositor, the Depositor will deliver to the Unaffiliated Seller
(i) an amount in cash equal to the sum of (A) 99.65%, 99.65%, 99.65%, 99.65%,
99.65% and 99.65% of the aggregate principal balance as of the Closing Date of
the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, and Class A-6
Certificates, respectively, and (B) accrued interest on such principal balance
at the rate of 6.285%, 6.340%, 6.490%, 6.850% and 6.455% per annum, on the
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates,
respectively, from (and including) June 1, 1998 to (but not including) June
18, 1998, payable by wire transfer of same day funds and (ii) the Class R
Certificates to be issued pursuant to the Pooling and Servicing Agreement.
On the Closing Date, as full consideration for the
Originators' sale of the Initial Mortgage Loans to the Unaffiliated Seller,
the Unaffiliated Seller will deliver to the Originators an amount in cash
equal to the sum of (A) 99.65%, 99.65%, 99.65%, 99.65%, 99.65% and 99.65% of
the aggregate principal balance as of the Closing Date of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, respectively,
and (B) accrued interest on such principal balance at the rate 6.285%, 6.340%,
6.490%, 6.850% and 6.455% per annum, on the Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Certificates, respectively, from (and including) June
1, 1998 to (but not including) June 18, 1998, payable by wire transfer of same
day funds.
(b) On each Subsequent Transfer Date, as full consideration
for the Originators' sale to the Unaffiliated Seller and the Unaffiliated
Seller's sale of the Subsequent Mortgage Loans to the Depositor, the Depositor
will deliver to the Unaffiliated Seller and the Unaffiliated Seller will
deliver to the Originators an amount in cash equal to the sum of 100% of the
aggregate Principal Balance of the Subsequent Mortgage Loans as of the related
Subsequent Cut-Off Date.
Section 2.04. Conveyance of Mortgage Loans; Possession of
Mortgage Files. (a) On the Closing Date and on each Subsequent Transfer Date,
the Originators shall sell, transfer, assign, set over and convey to the
Unaffiliated Seller, without recourse but subject to the terms of this
Agreement, all right, title and interest in and to the applicable Mortgage
Loans, including all principal outstanding as of, and all interest due after,
the Subsequent Cut-Off Date, the insurance policies relating to each such
Mortgage Loan and all right, title and interest in and to the proceeds of such
insurance policies from and after the Closing Date and the Unaffiliated Seller
shall sell, transfer, assign, set over and convey to the Depositor, without
recourse but subject to the terms of this Agreement, all right, title and
interest in and to the applicable Mortgage Loans, including all principal
outstanding as of, and all interest due after, the Subsequent Cut-Off Date,
the insurance policies relating to each such Mortgage Loan, all right,
8
<PAGE>
title and interest in and to the proceeds of such insurance policies and all
of its rights under this Agreement with respect to the Mortgage Loans from and
after the Closing Date. Upon payment of the purchase price for such Mortgage
Loans as provided in Section 2.03 of this Agreement, the Originators and the
Unaffiliated Seller shall have hereby, and shall be deemed to have, sold,
transferred, assigned, set over and conveyed such Mortgage Loans, the
insurance policies relating to each such Mortgage Loan, all right, title and
interest in and to the proceeds of such insurance policies and all of its
rights under this Agreement with respect to the Mortgage Loans from and after
the Closing Date.
(b) Upon the sale of such Mortgage Loans, the ownership of
each related Mortgage Note, each related Mortgage and the contents of the
related Mortgage File shall immediately vest in the Depositor and the
ownership of all related records and documents with respect to each Mortgage
Loan prepared by or which come into the possession of the Originators or the
Unaffiliated Seller shall immediately vest in the Depositor. The contents of
any Mortgage File in the possession of the Originators or the Unaffiliated
Seller at any time after such sale, and any principal collected and interest
due on the Mortgage Loans after the Cut-Off Date and received by the
Originators or the Unaffiliated Seller, shall be held in trust by the
Originators or the Unaffiliated Seller for the benefit of the Depositor as the
owner thereof, and shall be promptly delivered by the Originators or the
Unaffiliated Seller to or upon the order of the Depositor.
(c) Pursuant to the Pooling and Servicing Agreement, the
Depositor shall, on the Closing Date, assign all of its right, title and
interest in and to the applicable Mortgage Loans to the Trustee for the
benefit of the Certificateholders and the Certificate Insurer.
Section 2.05. Delivery of Mortgage Loan Documents. (a) On or
prior to the Closing Date or Subsequent Transfer Date, as applicable, the
related Originator shall deliver to the Unaffiliated Seller, and the
Unaffiliated Seller shall deliver to the Trustee (as assignee of the Depositor
pursuant to the Pooling and Servicing Agreement), each of the following
documents for each applicable Mortgage Loan:
(i) The original Mortgage Note, endorsed without
recourse in blank by the related Originator, including all intervening
endorsements showing a complete chain of endorsement;
(ii) The related original Mortgage with evidence of
recording indicated thereon or a copy thereof certified by the
applicable recording office;
(iii) The recorded mortgage assignment, or copy thereof
certified by the applicable recording office, if any, showing a
complete chain of assignment from the originator of the related
Mortgage Loan to the related Originator (which assignment may, at the
related Originator's option, be combined with the assignment referred
to in subpart (iv) hereof);
(iv) A mortgage assignment in recordable form (which, if
acceptable for recording in the relevant jurisdiction, may be included
in a blanket assignment or assignments) of each Mortgage from the
related Originator to the Trustee;
(v) Originals of all assumption, modification and
substitution agreements in those instances where the terms or
provisions of a Mortgage or Mortgage Note have been modified or such
Mortgage or Mortgage Note has been assumed; and
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<PAGE>
(vi) An original policy of title insurance (or (A) a
copy of the title insurance policy, or (B) a binder thereof or copy of
such binder, together with a certificate from the related Originator
that the original Mortgage has been delivered to the title insurance
company that issued such binder for recordation).
In instances where the original recorded Mortgage and a
completed assignment thereof in recordable form cannot be delivered by the
related Originator to the Unaffiliated Seller, and by the Unaffiliated Seller
to the Trustee prior to or concurrently with the execution and delivery of
this Agreement (or, with respect to Subsequent Mortgage Loans, prior to or on
the Subsequent Transfer Date), due to a delay in connection with recording,
the related Originator may:
(x) In lieu of delivering such original recorded
Mortgage, deliver to the Trustee a copy thereof provided that the
related Originator certifies that the original Mortgage has been
delivered to a title insurance company for recordation after receipt
of its policy of title insurance or binder therefor; and
(y) In lieu of delivering the completed assignment in
recordable form, deliver to the Trustee the assignment in recordable
form, otherwise complete except for recording information.
(b) Pursuant to the Pooling and Servicing Agreement, the
Unaffiliated Seller shall be required to promptly submit, or cause to be
submitted by the related Originator, for recording in the appropriate public
office for real property records, each assignment referred to in (a) above.
The Trustee shall be required to retain a copy of each assignment submitted
for recording. In the event that any such assignment is lost or returned
unrecorded because of a defect therein, the Unaffiliated Seller or such
Originator shall promptly prepare a substitute assignment or cure such defect,
as the case may be, and thereafter the Unaffiliated Seller or such Originator
shall be required to submit each such assignment for recording.
(c) The Unaffiliated Seller or the related Originator shall,
within five Business Days after the receipt thereof, deliver or cause to be
delivered to the Trustee (as assignee of the Depositor pursuant to the Pooling
and Servicing Agreement): (i) the original recorded Mortgage and related power
of attorney, if any, in those instances where a copy thereof certified by the
related Originator was delivered to the Trustee (as assignee of the Depositor
pursuant to the Pooling and Servicing Agreement); (ii) the original recorded
assignment of Mortgage from the related Originator to the Trustee (as assignee
of the Depositor pursuant to the Pooling and Servicing Agreement), which,
together with any intervening assignments of Mortgage, evidences a complete
chain of assignment from the originator of the Mortgage Loan to the Trustee in
those instances where copies of such assignments certified by the related
Originator were delivered to the Trustee (as assignee of the Depositor
pursuant to the Pooling and Servicing Agreement); and (iii) the title
insurance policy or title opinion required in clause (a)(vi) above.
Notwithstanding anything to the contrary contained in this Section 2.05, in
those instances where the public recording office retains the original
Mortgage, power of attorney, if any, assignment or assignment of Mortgage
after it has been recorded or such original has been lost, the Unaffiliated
Seller or the related Originator shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee (as assignee of the
Depositor pursuant to the Pooling and Servicing Agreement) of a copy of such
Mortgage, power of attorney, if any, assignment or assignment of Mortgage
certified by the public recording office to be a true copy of the recorded
original thereof. From time to time the Unaffiliated Seller or the related
Originator may forward or cause to be forwarded to the Trustee (as assignee of
the Depositor pursuant to the Pooling and Servicing Agreement) additional
original documents evidencing an assumption or modification of a Mortgage
Loan.
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(d) All original documents relating to the Mortgage Loans
that are not delivered to the Trustee (as assignee of the Depositor pursuant
to the Pooling and Servicing Agreement) as permitted by Section 2.05 (a) are
and shall be held by the Unaffiliated Seller or the related Originator in
trust for the benefit of the Trustee on behalf of the Certificateholders and
the Certificate Insurer. In the event that any such original document is
required pursuant to the terms of this Section 2.05 to be a part of a Mortgage
File, such document shall be delivered promptly to the Trustee (as assignee of
the Depositor pursuant to the Pooling and Servicing Agreement). From and after
the sale of the Mortgage Loans to the Depositor pursuant hereto, to the extent
that the Unaffiliated Seller or the related Originator retains legal title of
record to any Mortgage Loans prior to the vesting of legal title in the
Trustee (as assignee of the Depositor pursuant to the Pooling and Servicing
Agreement), such title shall be retained in trust for the Depositor as the
owner of the Mortgage Loans and the Trustee, as the Depositor's assignee.
Section 2.06. Acceptance of Mortgage Loans. (a) Pursuant to
the Pooling and Servicing Agreement, the Trustee has agreed to execute and
deliver on or prior to the Closing Date, or any Subsequent Transfer Date, an
acknowledgment of receipt of, for each Mortgage Loan, the original Mortgage
Note with respect to each Mortgage Loan (with any exceptions noted), in the
form attached as Exhibit E to the Pooling and Servicing Agreement and declares
that it will hold such documents and any amendments, replacements or
supplements thereto, as well as any other assets included in the definition of
Trust Fund in the Pooling and Servicing Agreement and delivered to the
Trustee, as Trustee in trust upon and subject to the conditions set forth in
the Pooling and Servicing Agreement for the benefit of the Certificateholders
and the Certificate Insurer. Pursuant to the Pooling and Servicing Agreement,
the Trustee has agreed, for the benefit of the Certificateholders and the
Certificate Insurer, to review (or cause to be reviewed) each Trustee's
Mortgage File within 30 days after the Closing Date or the Subsequent Transfer
Date, as applicable (or, with respect to any Qualified Substitute Mortgage
Loan, within 30 days after the receipt by the Trustee thereof), and to deliver
to the Unaffiliated Seller, the Servicer and the Certificate Insurer a
certification in the form attached to the Pooling and Servicing Agreement as
Exhibit F to the effect that, as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to it pursuant to
the Pooling and Servicing Agreement are in its possession, (ii) each such
document has been reviewed by it and has not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if initialed by the Mortgagor),
appears regular on its face and relates to such Mortgage Loan, and (iii) based
on its examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule accurately reflects the information set
forth in the Trustee's Mortgage File delivered on such date. Pursuant to the
Pooling and Servicing Agreement, the Trustee shall be under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine, enforceable,
or appropriate for the represented purpose or that they are other than what
they purport to be on their face. Pursuant to the Pooling and Servicing
Agreement, within 90 days of the Closing Date, with respect to the Initial
Mortgage Loans, and within 90 days of the Subsequent Transfer Date, with
respect to any related Subsequent Mortgage Loans, the Trustee shall be
required to deliver (or cause to be delivered) to the Servicer, the
Unaffiliated Seller, the initial Certificateholders and the Certificate
Insurer a final certification in the form attached to the Pooling and
Servicing Agreement as Exhibit G to the effect that, as to each Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or any Mortgage Loan specifically identified in such certification as not
covered by such
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certification), (i) all documents required to be delivered to it pursuant to
the Pooling and Servicing Agreement are in its possession, (ii) each such
document has been reviewed by it and has not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if initialed by the Mortgagor),
appears regular on its face and relates to such Mortgage Loan, and (iii) based
on its examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule accurately reflects the information set
forth in the Trustee's Mortgage File delivered on such date.
(b) The Pooling and Servicing Agreement provides that, if
the Trustee during the process of reviewing the Trustee's Mortgage Files finds
any document constituting a part of a Trustee's Mortgage File which is not
executed, has not been received, is unrelated to the Mortgage Loan identified
in the Mortgage Loan Schedule, or does not conform to the requirements of
Section 2.05 or the description thereof as set forth in the Mortgage Loan
Schedule, the Trustee shall promptly so notify the Servicer, the Unaffiliated
Seller, the related Originator and the Certificate Insurer. The Unaffiliated
Seller agrees that in performing any such review, the Trustee may conclusively
rely on the Unaffiliated Seller as to the purported genuineness of any such
document and any signature thereon. Each of the Originators and the
Unaffiliated Seller agrees to use reasonable efforts to remedy a material
defect in a document constituting part of a Mortgage File of which it is
notified. If, however, within 60 days after such notice neither the
Unaffiliated Seller nor any Originator has remedied the defect and the defect
materially and adversely affects the interest of the Certificateholders in the
related Mortgage Loan or the interests of the Certificate Insurer, then the
Unaffiliated Seller and the Originators shall be obligated to either
substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan
or purchase such Mortgage Loan in the manner and subject to the conditions set
forth in Section 3.05.
(c) The failure of the Trustee or the Certificate Insurer to
give any notice contemplated herein within the time periods specified above
shall not affect or relieve the Unaffiliated Seller's obligation to repurchase
for any Mortgage Loan pursuant to this Section 2.06 or Section 3.05 of this
Agreement.
Section 2.07. Transfer of Mortgage Loans; Assignment of
Agreement. The Originators and the Unaffiliated Seller each hereby
acknowledges and agrees that the Depositor may assign its interest under this
Agreement to the Trustee as may be required to effect the purposes of the
Pooling and Servicing Agreement, without further notice to, or consent of, the
Unaffiliated Seller or the Originators, and the Trustee shall succeed to such
of the rights and obligations of the Depositor hereunder as shall be so
assigned. The Depositor shall, pursuant to the Pooling and Servicing
Agreement, assign all of its right, title and interest in and to the Mortgage
Loans and its right to exercise the remedies created by Sections 2.06 and 3.05
hereof for breaches of the representations, warranties, agreements and
covenants of the Unaffiliated Seller or the Originators contained in Sections
2.05, 2.06, 3.02 and 3.03 hereof to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer. Each of the Originators and
the Unaffiliated Seller agrees that, upon such assignment to the Trustee, such
representations, warranties, agreements and covenants will run to and be for
the benefit of the Trustee and the Trustee may enforce, without joinder of the
Depositor, the repurchase obligations of the Unaffiliated Seller and the
Originators set forth herein with respect to breaches of such representations,
warranties, agreements and covenants.
Section 2.08. Examination of Mortgage Files . Prior to the
Closing Date and each Subsequent Transfer Date, as applicable, the
Unaffiliated Seller shall make the Mortgage Files available to the Depositor
or its designee for examination at the Unaffiliated Seller's offices or at
such other place as the Unaffiliated Seller shall reasonably specify. Such
examination may
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be made by the Depositor or its designee at any time on or before the Closing
Date or Subsequent Transfer Date, as the case may be. If the Depositor or its
designee makes such examination prior to the Closing Date or Subsequent
Transfer Date, as the case may be, and identifies any Mortgage Loans that do
not conform to the requirements of the Depositor as described in this
Agreement, such Mortgage Loans shall be deleted from the Mortgage Loan
Schedule and may be replaced, prior to the Closing Date or Subsequent Transfer
Date, as the case may be, by substitute Mortgage Loans acceptable to the
Depositor. The Depositor may, at its option and without notice to the
Unaffiliated Seller, purchase all or part of the Mortgage Loans without
conducting any partial or complete examination. The fact that the Depositor or
the Trustee has conducted or has failed to conduct any partial or complete
examination of the Mortgage Files shall not affect the rights of the Depositor
or the Trustee to demand repurchase or other relief as provided in this
Agreement.
Section 2.09. Books and Records. The sale of each Mortgage
Loan shall be reflected on each of the Originators' and the Unaffiliated
Seller's accounting and other records, balance sheet and other financial
statements as a sale of assets by the Originators to the Unaffiliated Seller
and by the Unaffiliated Seller to the Depositor. Each of the Originators and
the Unaffiliated Seller shall be responsible for maintaining, and shall
maintain, a complete set of books and records for each Mortgage Loan which
shall be clearly marked to reflect the ownership of each Mortgage Loan by the
Trustee for the benefit of the Certificateholders and the Certificate Insurer.
Section 2.10. Cost of Delivery and Recordation of Documents.
The costs relating to the delivery and recordation of the documents specified
in this Article Two in connection with the Mortgage Loans shall be borne by
the Unaffiliated Seller.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties as to the
Originators. Each of the Originators hereby represents and warrants to the
Unaffiliated Seller and the Depositor, as of the Closing Date, that:
(a) The Originator is a corporation duly organized, validly
existing and in good standing under the laws of (i) the State of Pennsylvania
(with respect to ABC and Upland) or (ii) the State of New Jersey (with respect
to NJMIC) and has all licenses necessary to carry on its business as now being
conducted and is licensed, qualified and in good standing in each state where
a Mortgaged Property is located if the laws of such state require licensing or
qualification in order to conduct business of the type conducted by the
Originator and to perform its obligations as the Originator hereunder, and in
any event the Originator is in compliance with the laws of any such state to
the extent necessary to ensure the enforceability of the related Mortgage
Loan; the Originator has the full power and authority, corporate and
otherwise, to execute and deliver this Agreement and to perform in accordance
herewith; the execution, delivery and performance of this Agreement (including
all instruments of transfer to be delivered pursuant to this Agreement) by the
Originator and the consummation of the transactions contemplated hereby have
been duly and validly authorized; this Agreement evidences the valid, binding
and enforceable obligation of the Originator; and all requisite corporate
action has been taken by the Originator to make this Agreement valid and
binding upon the Originator in accordance with its terms;
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(b) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution, delivery
and performance by the Originator of, or compliance by the Originator with,
this Agreement or the sale of the Mortgage Loans pursuant to the terms of this
Agreement or the consummation of the transactions contemplated by this
Agreement, or if required, such approval has been obtained prior to the
Closing Date;
(c) Neither the execution and delivery of this Agreement,
the acquisition or origination of the Mortgage Loans by the Originator or the
transactions contemplated hereby, nor the fulfillment of or compliance with
the terms and conditions of this Agreement, has or will conflict with or
result in a breach of any of the terms, conditions or provisions of the
Originator's charter or by-laws or any legal restriction or any agreement or
instrument to which the Originator is now a party or by which it is bound or
to which its property is subject, or constitute a default or result in an
acceleration under any of the foregoing, or result in the violation of any
law, rule, regulation, order, judgment or decree to which the Originator or
its property is subject, or impair the ability of the Trustee (or the Servicer
as the agent of the Trustee) to realize on the Mortgage Loans, or impair the
value of the Mortgage Loans;
(d) Neither this Agreement nor the information contained in
the Prospectus Supplement under the captions "The Mortgage Pool", "The
Originators, the Seller and the Servicer" and "Servicing of the Mortgage
Loans" nor any statement, report or other document prepared by the Originator
and furnished or to be furnished pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement or
alleged untrue statement of any material fact or omits to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which they were made, not misleading;
(e) There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Originator, threatened before a court,
administrative agency or government tribunal against the Originator which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Originator, or in any material impairment of the right or
ability of the Originator to carry on its business substantially as now
conducted, or in any material liability on the part of the Originator, or
which would draw into question the validity of this Agreement, the Mortgage
Loans, or of any action taken or to be taken in connection with the
obligations of the Originator contemplated herein, or which would impair
materially the ability of the Originator to perform under the terms of this
Agreement or that might prohibit its entering into this Agreement or the
consummation of any of the transactions contemplated hereby;
(f) The Originator is not in violation of or in default with
respect to, and the execution and delivery of this Agreement by the Originator
and its performance of and compliance with the terms hereof will not
constitute a violation or default with respect to, any order or decree of any
court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which violation or default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Originator or its properties or might have consequences that
would materially and adversely affect its performance hereunder or under any
Subservicing Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the
Depositor under this Agreement, the Depositor will have good title on behalf
of the Trust Fund to each related Mortgage Loan and such other items
comprising the corpus of the Trust Fund free and clear of any lien created by
the Originator (other than liens which will be simultaneously released);
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(h) The consummation of the transactions contemplated by
this Agreement are in the ordinary course of business of the Originator, and
the transfer, assignment and conveyance of the Mortgage Notes and the
Mortgages by the Originator pursuant to this Agreement are not subject to the
bulk transfer or any similar statutory provisions in effect in any applicable
jurisdiction;
(i) With respect to any Mortgage Loan purchased by the
Originator, the Originator acquired title to the Mortgage Loan in good faith,
without notice of any adverse claim;
(j) The Originator does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement. The Originator is solvent and the sale of the
Mortgage Loans by the Originator pursuant to the terms of this Agreement will
not cause the Originator to become insolvent. The sale of the Mortgage Loans
by the Originator pursuant to the terms of this Agreement was not undertaken
with the intent to hinder, delay or defraud any of the Originator's creditors;
(k) The Mortgage Loans are not intentionally selected in a
manner so as to affect adversely the interests of the Depositor or of any
transferee of the Depositor (including the Trustee);
(l) The Originator has determined that it will treat the
disposition of the Mortgage Loans pursuant to this Agreement as a sale for
accounting and tax purposes;
(m) The Originator has not dealt with any broker or agent or
anyone else that may be entitled to any commission or compensation in
connection with the sale of the Mortgage Loans to the Depositor other than to
the Depositor or an affiliate thereof; and
(n) The consideration received by the Originator upon the
sale of the Mortgage Loans under this Agreement constitutes fair consideration
and reasonably equivalent value for the Mortgage Loans.
Section 3.02. Representations and Warranties as to the
Unaffiliated Seller. The Unaffiliated Seller hereby represents and warrants to
the Depositor, as of the Closing Date, that:
(a) The Unaffiliated Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all licenses necessary to carry on its business as now being conducted
and is licensed, qualified and in good standing in each state where a
Mortgaged Property is located if the laws of such state require licensing or
qualification in order to conduct business of the type conducted by the
Unaffiliated Seller and to perform its obligations as the Unaffiliated Seller
hereunder, and in any event the Unaffiliated Seller is in compliance with the
laws of any such state to the extent necessary to ensure the enforceability of
the related Mortgage Loan; the Unaffiliated Seller has the full power and
authority, corporate and otherwise, to execute and deliver this Agreement and
to perform in accordance herewith; the execution, delivery and performance of
this Agreement (including all instruments of transfer to be delivered pursuant
to this Agreement) by the Unaffiliated Seller and the consummation of the
transactions contemplated hereby have been duly and validly authorized; this
Agreement evidences the valid, binding and enforceable obligation of the
Unaffiliated Seller; and all requisite corporate action has been taken by the
Unaffiliated Seller to make this Agreement valid and binding upon the
Unaffiliated Seller in accordance with its terms;
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(b) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution, delivery
and performance by the Unaffiliated Seller of or compliance by the
Unaffiliated Seller with this Agreement or the sale of the Mortgage Loans
pursuant to the terms of this Agreement or the consummation of the
transactions contemplated by this Agreement, or if required, such approval has
been obtained prior to the Closing Date;
(c) Neither the execution and delivery of this Agreement,
the acquisition or origination of the Mortgage Loans by the Unaffiliated
Seller or the transactions contemplated hereby, nor the fulfillment of or
compliance with the terms and conditions of this Agreement, has or will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Unaffiliated Seller's charter or by-laws or any legal
restriction or any agreement or instrument to which the Unaffiliated Seller is
now a party or by which it is bound or to which its property is subject, or
constitute a default or result in an acceleration under any of the foregoing,
or result in the violation of any law, rule, regulation, order, judgment or
decree to which the Unaffiliated Seller or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the Trustee) to
realize on the Mortgage Loans, or impair the value of the Mortgage Loans;
(d) Neither this Agreement nor the information contained in
the Prospectus Supplement under the captions "The Mortgage Pool", "The
Originators, the Seller and the Servicer" and "Servicing of the Mortgage
Loans" nor any statement, report or other document prepared by the
Unaffiliated Seller and furnished or to be furnished pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement or alleged untrue statement of any material fact or omits
to state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading;
(e) There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Unaffiliated Seller, threatened before a
court, administrative agency or government tribunal against the Unaffiliated
Seller which, either in any one instance or in the aggregate, may result in
any material adverse change in the business, operations, financial condition,
properties or assets of the Unaffiliated Seller, or in any material impairment
of the right or ability of the Unaffiliated Seller to carry on its business
substantially as now conducted, or in any material liability on the part of
the Unaffiliated Seller, or which would draw into question the validity of
this Agreement, the Mortgage Loans, or of any action taken or to be taken in
connection with the obligations of the Unaffiliated Seller contemplated
herein, or which would impair materially the ability of the Unaffiliated
Seller to perform under the terms of this Agreement or that might prohibit its
entering into this Agreement or the consummation of any of the transactions
contemplated hereby;
(f) The Unaffiliated Seller is not in violation of or in
default with respect to, and the execution and delivery of this Agreement by
the Unaffiliated Seller and its performance of and compliance with the terms
hereof will not constitute a violation or default with respect to, any order
or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which violation or default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Unaffiliated Seller or its
properties or might have consequences that would materially and adversely
affect its performance hereunder or under any Subservicing Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the
Depositor under this Agreement, the Depositor will have good title on behalf
of the Trust Fund to each related Mortgage Loan and such other items
comprising the corpus of the Trust Fund free and clear of any lien created by
the Unaffiliated Seller (other than liens which will be simultaneously
released);
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(h) The consummation of the transactions contemplated by
this Agreement are in the ordinary course of business of the Unaffiliated
Seller, and the transfer, assignment and conveyance of the Mortgage Notes and
the Mortgages by the Unaffiliated Seller pursuant to this Agreement are not
subject to the bulk transfer or any similar statutory provisions in effect in
any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the
Unaffiliated Seller, the Unaffiliated Seller acquired title to the Mortgage
Loan in good faith, without notice of any adverse claim;
(j) The Unaffiliated Seller does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement. The Unaffiliated Seller is solvent and
the sale of the Mortgage Loans by the Unaffiliated Seller pursuant to the
terms of this Agreement will not cause the Unaffiliated Seller to become
insolvent. The sale of the Mortgage Loans by the Unaffiliated Seller pursuant
to the terms of this Agreement was not undertaken with the intent to hinder,
delay or defraud any of the Unaffiliated Seller's creditors;
(k) The Mortgage Loans are not intentionally selected in a
manner so as to affect adversely the interests of the Depositor or of any
transferee of the Depositor (including the Trustee);
(l) The Unaffiliated Seller has determined that it will
treat the disposition of the Mortgage Loans pursuant to this Agreement as a
sale for accounting and tax purposes;
(m) The Unaffiliated Seller has not dealt with any broker or
agent or anyone else that may be entitled to any commission or compensation in
connection with the sale of the Mortgage Loans to the Depositor other than to
the Depositor or an affiliate thereof; and
(n) The consideration received by the Unaffiliated Seller
upon the sale of the Mortgage Loans under this Agreement constitutes fair
consideration and reasonably equivalent value for the Mortgage Loans.
Section 3.03. Representations and Warranties Relating to the
Mortgage Loans. The Originators represent and warrant to the Unaffiliated
Seller and the Unaffiliated Seller represents to the Depositor that, as of the
Closing Date, as to each Initial Mortgage Loan, and as of the Subsequent
Transfer Date, as to each Subsequent Mortgage Loan, immediately prior to the
sale and transfer of such Mortgage Loan by the Unaffiliated Seller to the
Depositor:
(a) The information set forth in each Mortgage Loan Schedule
is complete, true and correct;
(b) The information to be provided by the Unaffiliated
Seller or the Originators, directly or indirectly, to the Depositor in
connection with a Subsequent Mortgage Loan will be true and correct in all
material respects at the date or dates respecting which such information is
furnished;
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(c) Each Mortgage is a valid first or second lien on a fee
simple (or its equivalent under applicable state law) estate in the real
property securing the amount owed by the Mortgagor under the Mortgage Note
subject only to (i) the lien of current real property taxes and assessments
which are not delinquent, (ii) with respect to any Mortgage Loan identified on
the Mortgage Loan Schedule as secured by a second lien, the related first
mortgage loan, (iii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of
such Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the property
subject to the Mortgage is located or specifically reflected in the appraisal
obtained in connection with the origination of the related Mortgage Loan
obtained by the Unaffiliated Seller and (iv) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(d) Immediately prior to the transfer and assignment by the
related Originator to the Unaffiliated Seller and by the Unaffiliated Seller
to the Trustee, the Unaffiliated Seller and such Originator, as applicable,
had good title to, and was the sole owner of each Mortgage Loan, free of any
interest of any other Person, and the Unaffiliated Seller and such Originator
has transferred all right, title and interest in each Mortgage Loan to the
Trustee and the Unaffiliated Seller, as applicable;
(e) As of the Cut-Off Date, no payment of principal or
interest on or in respect of any Mortgage Loan remains unpaid for 30 or more
days past the date the same was due in accordance with the related Mortgage
Note without regard to applicable grace periods;
(f) No Mortgage Loan has Mortgage Interest Rate less than
7.99% per annum and the weighted average Mortgage Interest Rate of the
Mortgage Loans is 11.46%;
(g) At origination, no Mortgage Loan had an original term to
maturity of greater than 360 months;
(h) As of the Statistical Calculation Date, the weighted
average remaining term to maturity of the Mortgage Loans is 227 months;
(i) To the best knowledge of the Unaffiliated Seller and
each of the Originators, there is no mechanics' lien or claim for work, labor
or material (and no rights are outstanding that under law could give rise to
such lien) affecting the premises subject to any Mortgage which is or may be a
lien prior to, or equal or coordinate with, the lien of such Mortgage, except
those which are insured against by the title insurance policy referred to in
(ff) below;
(j) To the best knowledge of the Unaffiliated Seller and
each of the Originators, there is no delinquent tax or assessment lien against
any Mortgaged Property;
(k) Such Mortgage Loan, the Mortgage, and the Mortgage Note,
including, without limitation, the obligation of the Mortgagor to pay the
unpaid principal of and interest on the Mortgage Note, are each not subject to
any right of rescission (or any such rescission right has expired in
accordance with applicable law), set-off, counterclaim, or defense, including
the defense of usury, nor will the operation of any of the terms of the
Mortgage Note or the Mortgage, or the exercise of any right thereunder, render
either the Mortgage Note or the Mortgage unenforceable, in whole or in part,
or subject to any right of rescission, set-off, counterclaim, or defense,
including the defense of usury, and no such right of rescission, set-off,
counterclaim, or defense has been asserted with respect thereto;
(l) To the best knowledge of the Unaffiliated Seller and
each of the Originators, the Mortgaged Property is free of material damage and
is in good repair, and there is no pending or threatened proceeding for the
total or partial condemnation of the Mortgaged Property;
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(m) Neither the Originators nor the Unaffiliated Seller has
received a notice of default of any first mortgage loan secured by the
Mortgaged Property which has not been cured by a party other than the
Unaffiliated Seller;
(n) Each Mortgage Note and Mortgage are in substantially the
forms previously provided to the Trustee on behalf of the Unaffiliated Seller;
(o) No Mortgage Loan had, at the date of origination, a
Combined Loan-to-Value Ratio in excess of 100%, and the weighted average
Combined Loan-to-Value ratio of all Mortgage Loans as of the Statistical
Calculation Date is approximately 76.03%;
(p) The Mortgage Loan was not originated in a program in
which the amount of documentation in the underwriting process was limited in
comparison to the originator's normal documentation requirements;
(q) No more than the following percentages of the Mortgage
Loans by Principal Balance as of the Statistical Calculation Date are secured
by Mortgaged Properties located in the following states:
Percent of
State Principal Balance
-------------------------- --------------------------
Colorado 0.15%
Connecticut 1.22
Delaware 3.98
Florida 2.43
Georgia 7.60
Illinois 0.64
Indiana 0.29
Kentucky 0.48
Maryland 3.34
Massachusetts 0.03
Michigan 0.08
Mississippi 1.53
North Carolina 1.03
New Jersey 30.00
New York 14.58
Ohio 1.53
Pennsylvania 26.78
South Carolina 0.32
Tennessee 0.33
Virginia 3.66
-------------------------
100.00%
=========================
(r) The Mortgage Loans were not selected by the Unaffiliated
Seller or the Originators for sale hereunder or inclusion in the Trust Fund on
any basis adverse to the Trust Fund relative to the portfolio of similar
mortgage loans of the Unaffiliated Seller or the Originators;
(s) None of the Mortgage Loans constitutes a lien on
leasehold interests;
(t) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the related Mortgaged Property of the benefits of
the security including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. To the
best of the Unaffiliated Seller's and the Originators' knowledge, there is no
homestead or other exemption available to the related Mortgagor which would
materially interfere with the right to sell the related Mortgaged Property at
a trustee's sale or the right to foreclose the related
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Mortgage. The Mortgage contains customary and enforceable provisions for the
acceleration of the payment of the Principal Balance of such Mortgage Loan in
the event all or any part of the related Mortgaged Property is sold or
otherwise transferred without the prior written consent of the holder thereof;
(u) The proceeds of such Mortgage Loan have been fully
disbursed, including reserves set aside by the Unaffiliated Seller or the
Originators, there is no requirement for, and neither the Unaffiliated Seller
nor the Originators shall make any, future advances thereunder. Any future
advances made prior to the Cut-Off Date have been consolidated with the
principal balance secured by the Mortgage, and such principal balance, as
consolidated, bears a single interest rate and single repayment term reflected
on the applicable Mortgage Loan Schedule. The Principal Balance as of the
Cut-Off Date does not exceed the original principal amount of such Mortgage
Loan. Except with respect to no more than $150,000 of escrow funds, any and
all requirements as to completion of any on-site or off-site improvements and
as to disbursements of any escrow funds therefor have been complied with. All
costs, fees, and expenses incurred in making, or recording such Mortgage Loan
have been paid;
(v) All Mortgage Loans were originated in compliance with
the Originators' Underwriting Guidelines;
(w) The terms of the Mortgage and Mortgage Note have not
been impaired, waived, altered, or modified in any respect, except by a
written instrument which has been recorded, if necessary, to protect the
interest of the Trustee and which has been delivered to the Trustee. The
substance of any such alteration or modification is or as to Subsequent
Mortgage Loans will be reflected on the applicable Mortgage Loan Schedule and,
to the extent necessary, has been or will be approved by (i) the insurer under
the applicable mortgage title insurance policy, and (ii) the insurer under any
other insurance policy required hereunder for such Mortgage Loan where such
insurance policy requires approval and the failure to procure approval would
impair coverage under such policy;
(x) No instrument of release, waiver, alteration, or
modification has been executed in connection with such Mortgage Loan, and no
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement which has been approved by the insurer under any
insurance policy required hereunder for such Mortgage Loan where such policy
requires approval and the failure to procure approval would impair coverage
under such policy, and which is part of the Mortgage File and has been
delivered to the Trustee, and the terms of which are reflected in the
applicable Mortgage Loan Schedule;
(y) Other than delinquencies described in clause (e) above,
there is no default, breach, violation, or event of acceleration existing
under the Mortgage or the Mortgage Note and no event which, with the passage
of time or with notice and the expiration of any grace or cure period, would
constitute such a default, breach, violation or event of acceleration, and
neither the Originators nor the Unaffiliated Seller has waived any such
default, breach, violation or event of acceleration. All taxes, governmental
assessments (including assessments payable in future installments), insurance
premiums, water, sewer, and municipal charges, leaseholder payments, or ground
rents which previously became due and owing in respect of or affecting the
related Mortgaged Property have been paid. Neither the Originators nor the
Unaffiliated Seller has advanced funds, or induced, solicited, or knowingly
received any advance of funds by a party other than the Mortgagor, directly or
indirectly, for the payment of any amount required by the Mortgage or the
Mortgage Note;
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(z) All of the improvements which were included for the
purposes of determining the Appraised Value of the Mortgaged Property were
completed at the time that such Mortgage Loan was originated and lie wholly
within the boundaries and building restriction lines of such Mortgaged
Property. Except for de minimis encroachments, no improvements on adjoining
properties encroach upon the Mortgaged Property. To the best of the
Unaffiliated Seller's and the Originators' knowledge, no improvement located
on or being part of the Mortgaged Property is in violation of any applicable
zoning law or regulation. All inspections, licenses, and certificates required
to be made or issued with respect to all occupied portions of the Mortgaged
Property (including all such improvements which were included for the purpose
of determining such Appraised Value) and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriters certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied under
applicable law;
(aa) To the best of the Unaffiliated Seller's and the
Originators' knowledge, there do not exist any circumstances or conditions
with respect to the Mortgage, the Mortgaged Property, the Mortgagor, or the
Mortgagor's credit standing that can be reasonably expected to cause such
Mortgage Loan to become delinquent or adversely affect the value or
marketability of such Mortgage Loan, other than any such circumstances or
conditions permitted under the Originator's Underwriting Guidelines;
(bb) All parties which have had any interest in the
Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (i)
in compliance with any and all applicable licensing requirements of the laws
of the state wherein the Mortgaged Property is located and (ii) (A) organized
under the laws of such state, (B) qualified to do business in such state, (C)
federal savings and loan associations or national banks having principal
offices in such state, (D) not doing business in such state, or (E) not
required to qualify to do business in such state;
(cc) The Mortgage Note and the Mortgage are genuine, and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally and
except that the equitable remedy of specific performance and other equitable
remedies are subject to the discretion of the courts. All parties to the
Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note
and the Mortgage and convey the estate therein purported to be conveyed, and
the Mortgage Note and the Mortgage have been duly and properly executed by
such parties or pursuant to a valid power-of-attorney that has been recorded
with the Mortgage;
(dd) The transfer of the Mortgage Note and the Mortgage as
and in the manner contemplated by this Agreement is sufficient either (i)
fully to transfer to the Depositor all right, title, and interest of the
Unaffiliated Seller and the Originators thereto as note holder and mortgagee
or (ii) to grant to the Depositor the security interest referred to in Section
6.07 hereof. The Mortgage has been duly assigned and the Mortgage Note has
been duly endorsed. The assignment of Mortgage delivered to the Trustee
pursuant to Section 2.04(a)(iv) is in recordable form and is acceptable for
recording under the laws of the applicable jurisdiction. The endorsement of
the Mortgage Note, the delivery to the Trustee of the endorsed Mortgage Note,
and such assignment of Mortgage, and the delivery of such assignment of
Mortgage for recording to, and the due recording of such assignment of
Mortgage in, the appropriate public recording office in the jurisdiction in
which the Mortgaged Property is located are sufficient to permit the Trustee
to avail itself of all protection available under applicable law against the
claims of any present or future creditors of the Unaffiliated Seller and the
Originators, and are sufficient to prevent any other sale, transfer,
assignment, pledge, or hypothecation of the Mortgage Note and Mortgage by the
Unaffiliated Seller or the Originators from being enforceable;
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(ee) Any and all requirements of any federal, state, or
local law including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity,
or disclosure laws applicable to such Mortgage Loan have been complied with,
and the Servicer shall maintain in its possession, available for the Trustee's
inspection, and shall deliver to the Trustee or its designee upon demand,
evidence of compliance with all such requirements. The consummation of the
transactions contemplated by this Agreement will not cause the violation of
any such laws;
(ff) Such Mortgage Loan is covered by an ALTA mortgage title
insurance policy or such other generally used and acceptable form of policy,
issued by and the valid and binding obligation of a title insurer qualified to
do business in the jurisdiction where the Mortgaged Property is located,
insuring the Unaffiliated Seller, and its successors and assigns, as to the
first or second priority lien, as applicable, of the Mortgage in the original
principal amount of such Mortgage Loan. The assignment to the Trustee of the
Unaffiliated Seller's interest in such mortgage title insurance policy does
not require the consent of or notification to the insurer. Such mortgage title
insurance policy is in full force and effect and will be in full force and
effect and inure to the benefit of the Trustee upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under
such mortgage title insurance policy and neither the Unaffiliated Seller nor
any prior holder of the Mortgage has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy;
(gg) All improvements upon the Mortgaged Property are
insured against loss by fire, hazards of extended coverage, and such other
hazards as are customary in the area where the Mortgaged Property is located
pursuant to insurance policies conforming to the requirements of Section 3.05
hereof. If the Mortgaged Property at origination was located in an area
identified on a flood hazard boundary map or flood insurance rate map issued
by the Federal Emergency Management Agency as having special flood hazards
(and such flood insurance has been made available), such Mortgaged Property
was covered by flood insurance at origination. Each individual insurance
policy is the valid and binding obligation of the insurer, is in full force
and effect, and will be in full force and effect and inure to the benefit of
the Trustee upon the consummation of the transactions contemplated by this
Agreement, and contain a standard mortgage clause naming the originator of
such Mortgage Loan, and its successors and assigns, as mortgagee and loss
payee. All premiums thereon have been paid. The Mortgage obligates the
Mortgagor to maintain all such insurance at the Mortgagor's cost and expense,
and upon the Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at the Mortgagor's cost and
expense and to seek reimbursement therefor from the Mortgagor, and none of the
Unaffiliated Seller, the related Originator or any prior holder of the
Mortgage has acted or failed to act so as to impair the coverage of any such
insurance policy or the validity, binding effect, and enforceability thereof;
(hh) If the Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, as no fees
or expenses are or will become payable by the Trustee or the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor;
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(ii) The Mortgaged Property consists of one or more parcels
of real property separately assessed for tax purposes. To the extent there is
erected thereon a detached or an attached one-family residence or a detached
two-to six-family dwelling, or an individual condominium unit in a low-rise
condominium, or an individual unit in a planned unit development, or a
commercial property, or a mixed use or multiple purpose property, such
residence, dwelling or unit is not (i) a unit in a cooperative apartment, (ii)
a property constituting part of a syndication, (iii) a time share unit, (iv) a
property held in trust, (v) a mobile home, (vi) a manufactured dwelling, (vii)
a log-constructed home, or (viii) a recreational vehicle;
(jj) There exist no material deficiencies with respect to
escrow deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made or which the
Unaffiliated Seller or the related Originator expects not to be cured, and no
escrow deposits or payments of other charges or payments due the Unaffiliated
Seller have been capitalized under the Mortgage or the Mortgage Note;
(kk) Such Mortgage Loan was not originated at a below market
interest rate. Such Mortgage Loan does not have a shared appreciation feature,
or other contingent interest feature;
(ll) The origination and collection practices used by the
Unaffiliated Seller, the Originators or the Servicer with respect to such
Mortgage Loan have been in all respects legal, proper, prudent, and customary
in the mortgage origination and servicing business;
(mm) The Mortgagor has, to the extent required by applicable
law, executed a statement to the effect that the Mortgagor has received all
disclosure materials, if any, required by applicable law with respect to the
making of fixed-rate mortgage loans. The Servicer shall maintain or cause to
be maintained such statement in the Mortgage File;
(nn) All amounts received by the Unaffiliated Seller or the
Originators with respect to such Mortgage Loan after the Cut-Off Date and
required to be deposited in the Certificate Account have been so deposited in
the Certificate Account and are, as of the Closing Date, or will be as of the
Subsequent Transfer Date, as applicable, in the Certificate Account;
(oo) The appraisal report with respect to the Mortgaged
Property contained in the Mortgage File was signed prior to the approval of
the application for such Mortgage Loan by a qualified appraiser, duly
appointed by the originator of such Mortgage Loan, who had no interest, direct
or indirect, in the Mortgaged Property or in any loan made on the security
thereof and whose compensation is not affected by the approval or disapproval
of such application;
(pp) When measured by the Cut-Off Date Balances of all
Mortgage Loans as of the Statistical Calculation Date, the Mortgagors with
respect to at least 85% of the Mortgage Loans represented at the time of
origination that the Mortgagor would occupy the Mortgaged Property as the
Mortgagor's primary residence;
(qq) Each of the Originators and the Unaffiliated Seller has
no knowledge with respect to the Mortgaged Property of any governmental or
regulatory action or third party claim made, instituted or threatened in
writing relating to a violation of any applicable federal, state or local
environmental law, statute, ordinance, regulation, order, decree or standard;
(rr) Each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code;
(ss) With respect to second lien Mortgage Loans:
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(i) the Unaffiliated Seller has no knowledge that the
Mortgagor has received notice from the holder of the prior mortgage
that such prior mortgage is in default,
(ii) no consent from the holder of the prior mortgage is
needed for the creation of the second lien Mortgage or, if required,
has been obtained and is in the related Mortgage File,
(iii) if the prior mortgage has a negative amortization,
the Combined Loan-to-Value Ratio was determined using the maximum loan
amount of such prior mortgage,
(iv) the related first mortgage loan encumbering the
related Mortgaged Property does not have a mandatory future advance
provision, and
(v) the Mortgage Loans conform in all material respects
to the description thereof in the Prospectus Supplement.
(tt) Each of the Originators and the Unaffiliated Seller
further represents and warrants to the Trustee and the Certificateholders that
as of the Subsequent Cut-Off Date all representations and warranties set forth
in clauses (a) through (ss) above will be correct in all material respects as
to each Subsequent Mortgage Loan, and the representations so made in this
subsection (tt) as to the following matters will be deemed to be correct if:
(i) each Subsequent Mortgage Loan is not 30 or more days contractually
delinquent as of the related Subsequent Cut-Off Date; (ii) the original term
to maturity of each Subsequent Mortgage Loan does not exceed 360 months; (iii)
each Subsequent Mortgage Loan has a Mortgage Interest Rate of at least 7.90%;
(iv) the purchase of the Subsequent Mortgage Loans is consented to by the
Certificate Insurer and the Rating Agencies; (v) the principal balance of any
Subsequent Mortgage Loan does not exceed $375,000.00; (vi) no more than 15% of
the Subsequent Mortgage Loans are second liens; (vii) no Subsequent Mortgage
Loan has a CLTV of more than, (A) for consumer purpose loans, 95%, and (B) for
business purpose loans, 75%; (viii) no more than 40% of the Subsequent
Mortgage Loans are Balloon Loans; (ix) no more than 9% of the Subsequent
Mortgage Loans are secured by mixed-use properties, commercial properties, or
four or more unit multifamily properties; (x) no more than 3% of the
Subsequent Mortgage Loans are secured by commercial properties; and (xi)
following the purchase of the Subsequent Mortgage Loans by the Trust, the
Mortgage Loans (including the Subsequent Mortgage Loans) (A) will have a
weighted average Mortgage Rate, (I) for consumer purpose loans, of at least
11.25% and (II) for business purpose loans, of at least 15.80%; and (B) will
have a weighted average CLTV of not more than (I) for consumer purpose loans,
80%, and (II) for business purpose loans, 64%.
(uu) To the best of the Unaffiliated Seller's and the
Originators' knowledge, no error, omission, misrepresentation, negligence,
fraud or similar occurrence with respect to a Mortgage Loan has taken place on
the part of any person, including without limitation the Mortgagor, any
appraiser, any builder or developer, or any other party involved in the
origination of the Mortgage Loan or in the application of any insurance in
relation to such Mortgage Loan;
(vv) Each Mortgaged Property is in compliance with all
environmental laws, ordinances, rules, regulations and orders of federal,
state or governmental authorities relating thereto. No hazardous material has
been or is incorporated in, stored on or under, released from, treated on,
transported to or from, or disposed of on or from, any Mortgaged Property such
that, under applicable law (A) any such hazardous material would be required
to be eliminated before the Mortgaged Property could be altered, renovated,
demolished or transferred, or (B) the owner
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of the Mortgaged Property, or the holder of a security interest therein, could
be subjected to liability for the removal of such hazardous material or the
elimination of the hazard created thereby. Neither the Seller or any Mortgagor
has received notification from any federal, state or other governmental
authority relating to any hazardous materials on or affecting the Mortgaged
Property or to any potential or known liability under any environmental law
arising from the ownership or operation of the Mortgaged Property. For the
purposes of this subsection, the term "hazardous materials" shall include,
without limitation, gasoline, petroleum products, explosives, radioactive
materials, polychlorinated biphenyls or related or similar materials, asbestos
or any material containing asbestos, lead, lead-based paint and any other
substance or material as may be defined as a hazardous or toxic substance by
any federal, state or local environmental law, ordinance, rule, regulation or
order, including, without limitation, CERCLA, the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, the Toxic Substances
Control Act and any regulations promulgated pursuant thereto; and
(ww) With respect to any business purpose loan, the related
Mortgage Note contains an acceleration clause, accelerating the maturity date
under the Mortgage Note to the date the individual guarantying such loan
becomes subject to any bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights generally.
Section 3.04. Representations and Warranties of the
Depositor. The Depositor hereby represents, warrants and covenants to the
Unaffiliated Seller, as of the date of execution of this Agreement and the
Closing Date, that:
(a) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to
purchase each Mortgage Loan and to execute, deliver and perform, and to enter
into and consummate all the transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Depositor, and, assuming the due authorization,
execution and delivery hereof by the Unaffiliated Seller, constitutes the
legal, valid and binding agreement of the Depositor, enforceable against the
Depositor in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors generally, and by
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(d) No consent, approval, authorization or order of or
registration or filing with, or notice to, any governmental authority or court
is required for the execution, delivery and performance of or compliance by
the Depositor with this Agreement or the consummation by the Depositor of any
of the transactions contemplated hereby, except such as have been made on or
prior to the Closing Date;
(e) The Depositor has filed or will file the Prospectus and
Prospectus Supplement with the Commission in accordance with Rule 424(b) under
the Securities Act; and
(f) None of the execution and delivery of this Agreement,
the purchase of the Mortgage Loans from the Unaffiliated Seller, the
consummation of the other transactions contemplated hereby, or the fulfillment
of or compliance with the terms and conditions of this Agreement, (i)
conflicts or will conflict with the charter or bylaws of the Depositor or
conflicts or
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will conflict with or results or will result in a breach of, or constitutes or
will constitute a default or results or will result in an acceleration under,
any term, condition or provision of any indenture, deed of trust, contract or
other agreement or other instrument to which the Depositor is a party or by
which it is bound and which is material to the Depositor, or (ii) results or
will result in a violation of any law, rule, regulation, order, judgment or
decree of any court or governmental authority having jurisdiction over the
Depositor.
Section 3.05. Repurchase Obligation for Defective
Documentation and for Breach of a Representation or Warranty. (a) Each of the
representations and warranties contained in Sections 3.01, 3.02 and 3.03 shall
survive the purchase by the Depositor of the Mortgage Loans and the subsequent
transfer thereof by the Depositor to the Trustee and shall continue in full
force and effect, notwithstanding any restrictive or qualified endorsement on
the Mortgage Notes and notwithstanding subsequent termination of this
Agreement or the Pooling and Servicing Agreement.
(b) With respect to any representation or warranty contained
in Section 3.01 that is made to the best of the Originators' knowledge or
contained in Sections 3.02 or 3.03 hereof that is made to the best of the
Unaffiliated Seller's and the Originators' knowledge, if it is discovered by
the Servicer, any Subservicer, the Trustee, the Certificate Insurer or any
Certificateholder that the substance of such representation and warranty was
inaccurate as of the Closing Date and such inaccuracy materially and adversely
affects the value of the related Mortgage Loan, then notwithstanding the
Originators' or the Unaffiliated Seller's lack of knowledge with respect to
the inaccuracy at the time the representation or warranty was made, such
inaccuracy shall be deemed a breach of the applicable representation or
warranty. Upon discovery by the Originators, the Unaffiliated Seller, the
Servicer, any Subservicer, the Trustee, the Certificate Insurer or any
Certificateholder of a breach of any of such representations and warranties
which materially and adversely affects the value of Mortgage Loans or the
interest of the Certificateholders, or which materially and adversely affects
the interests of the Certificate Insurer or the Certificateholders in the
related Mortgage Loan in the case of a representation and warranty relating to
a particular Mortgage Loan (notwithstanding that such representation and
warranty was made to the Originators' or the Unaffiliated Seller's best
knowledge), the party discovering such breach shall give pursuant to Section
3.03 of the Pooling and Servicing Agreement prompt written notice to the
others. Subject to the next to last paragraph of this Section 3.05, within 60
days of the earlier of its discovery or its receipt of notice of any breach of
a representation or warranty, the Unaffiliated Seller and the Originators
shall (a) promptly cure such breach in all material respects, or (b) purchase
such Mortgage Loan at a purchase price equal to the Principal Balance of such
Mortgage Loan as of the date of purchase, plus the greater of (i) all accrued
and unpaid interest on such Principal Balance and (ii) 30 days' interest on
such Principal Balance, computed at the Mortgage Interest Rate, net of the
Servicing Fee if the Unaffiliated Seller is the Servicer, plus the amount of
any unreimbursed Servicing Advances made by the Servicer with respect to such
Mortgage Loan, or (c) remove such Mortgage Loan from the Trust Fund (in which
case it shall become a Deleted Mortgage Loan) and substitute one or more
Qualified Substitute Mortgage Loans; provided, that, such substitution is
effected not later than the date which is 2 years after the Startup Day or at
such later date, if the Trustee and the Certificate Insurer receive an Opinion
of Counsel to the effect set forth below in this Section. Any such
substitution shall be accompanied by payment by the Unaffiliated Seller of the
Substitution Adjustment, if any, to be deposited in the Certificate Account
pursuant to the Pooling and Servicing Agreement. The Originators shall
cooperate with the Unaffiliated Seller to cure any breach and shall reimburse
the Unaffiliated Seller for the costs and expenses related to any cure,
substitution (including any Substitution Adjustment) or repurchase incurred by
the Unaffiliated Seller pursuant to this Section 3.05.
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(c) As to any Deleted Mortgage Loan for which the
Unaffiliated Seller or an Originator substitutes a Qualified Substitute
Mortgage Loan or Loans, the Unaffiliated Seller or such Originator shall
effect such substitution by delivering to the Trustee a certification in the
form attached to the Pooling and Servicing Agreement as Exhibit H, executed by
a Servicing Officer and the documents described in Section 2.06(a) for such
Qualified Substitute Mortgage Loan or Loans. Pursuant to the Pooling and
Servicing Agreement, upon receipt by the Trustee of a certification of a
Servicing Officer of such substitution or purchase and, in the case of a
substitution, upon receipt of the related Trustee's Mortgage File, and the
deposit of certain amounts in the Certificate Account pursuant to Section
2.07(b) of the Pooling and Servicing Agreement (which certification shall be
in the form of Exhibit H to the Pooling and Servicing Agreement), the Trustee
shall be required to release to the Servicer for release to the Unaffiliated
Seller the related Trustee's Mortgage File and shall be required to execute,
without recourse, and deliver such instruments of transfer furnished by the
Unaffiliated Seller as may be necessary to transfer such Mortgage Loan to the
Unaffiliated Seller or such Originator.
(d) Pursuant to the Pooling and Servicing Agreement, the
Servicer shall deposit in the Certificate Account all payments received in
connection with such Qualified Substitute Mortgage Loan or Loans after the
date of such substitution. Monthly Payments received with respect to Qualified
Substitute Mortgage Loans on or before the date of substitution will be
retained by the Unaffiliated Seller. The Trust Fund will own all payments
received on the Deleted Mortgage Loan on or before the date of substitution,
and the Unaffiliated Seller shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. Pursuant to
the Pooling and Servicing Agreement, the Servicer shall be required to give
written notice to the Trustee and the Certificate Insurer that such
substitution has taken place and shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of the
Pooling and Servicing Agreement and the substitution of the Qualified
Substitute Mortgage Loan. The parties hereto agree to amend the Mortgage Loan
Schedule accordingly. Upon such substitution, such Qualified Substitute
Mortgage Loan or Loans shall be subject to the terms of the Pooling and
Servicing Agreement and this Agreement in all respects, and the Unaffiliated
Seller shall be deemed to have made with respect to such Qualified Substitute
Mortgage Loan or Loans, as of the date of substitution, the representations
and warranties set forth in Sections 3.02 and 3.03 herein. On the date of such
substitution, the Unaffiliated Seller will remit to the Servicer and pursuant
to the Pooling and Servicing Agreement the Servicer will deposit into the
Certificate Account an amount equal to the Substitution Adjustment, if any.
(e) It is understood and agreed that the obligations of the
Unaffiliated Seller and the Originator set forth in Section 2.06 and this
Section 3.05 to cure, purchase or substitute for a defective Mortgage Loan as
provided in Section 2.06 and this Section 3.05 constitute the sole remedies of
the Depositor, the Trustee, the Certificate Insurer and the Certificateholders
respecting a breach of the foregoing representations and warranties.
(f) Any cause of action against the Unaffiliated Seller or
an Originator relating to or arising out of the breach of any representations
and warranties or covenants made in Sections 2.06, 3.02 or 3.03 shall accrue
as to any Mortgage Loan upon (i) discovery of such breach by any party and
notice thereof to the Unaffiliated Seller or such Originator, (ii) failure by
the Unaffiliated Seller or such Originator to cure such breach or purchase or
substitute such Mortgage Loan as specified above, and (iii) demand upon the
Unaffiliated Seller or such Originator by the Trustee for all amounts payable
in respect of such Mortgage Loan.
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(g) Notwithstanding any contrary provision of this
Agreement, with respect to any Mortgage Loan which is not in default or as to
which no default is imminent, no purchase, or substitution pursuant to Section
2.06(b) or this Section 3.05 shall be made unless the Unaffiliated Seller
provides to the Trustee and the Certificate Insurer an Opinion of Counsel to
the effect that such purchase or substitution would not (i) result in the
imposition of taxes on "prohibited transactions" of the REMIC Trust, as
defined in Section 860F of the Code or a tax on contributions to the REMIC
Trust under the REMIC Provisions, or (ii) cause the REMIC Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding. Any
Mortgage Loan as to which purchase or substitution was delayed pursuant to
this paragraph shall be purchased or substituted (subject to compliance with
Section 2.06 and this Section 3.05) upon the earlier of (a) the occurrence of
a default or imminent default with respect to such loan and (b) receipt by the
Trustee and the Certificate Insurer of an Opinion of Counsel to the effect
that such purchase or substitution will not result in the events described in
clauses (i) and (ii) of the preceding sentence.
(h) Pursuant to the Pooling and Servicing Agreement, upon
discovery by the Unaffiliated Seller, the Servicer, the Trustee, the
Certificate Insurer or any Certificateholder that any Mortgage Loan does not
constitute a Qualified Mortgage, the party discovering such fact shall
promptly (and in any event within 5 days of the discovery) give written notice
thereof to the other parties. In connection therewith, the Unaffiliated Seller
or the related Originator shall repurchase or substitute a Qualified
Substitute Mortgage Loan for the affected Mortgage Loan within 90 days of the
earlier of such discovery by any of the foregoing parties, or the Trustee's or
the Unaffiliated Seller's receipt of notice, in the same manner as it would a
Mortgage Loan for a breach of representation or warranty contained in Sections
3.02 or 3.03. Pursuant to the Pooling and Servicing Agreement the Trustee
shall reconvey to the Unaffiliated Seller or the related Originator the
Mortgage Loan to be released pursuant hereto in the same manner, and on the
same terms and conditions, as it would a Mortgage Loan repurchased for breach
of a representation or warranty contained in Sections 3.02 or 3.03.
(i) Notwithstanding anything in this Agreement or the
Pooling and Servicing Agreement to the contrary, the Unaffiliated Seller's
repurchase obligations hereunder shall not include failure of the Trustee to
record assignments of the Mortgage Loans referenced in clause (a)(iii) in
Section 2.05. All parties hereto acknowledge and agree that the Trustee has
the responsibility to record all such assignments of the Mortgage Loans to the
Trustee.
(j) Each of the Originators and the Unaffiliated Seller
shall be jointly and severally responsible for any repurchase, cure or
substitution obligation of any of the Originators or the Unaffiliated Seller
under this Agreement and the Pooling and Servicing Agreement.
ARTICLE FOUR
THE UNAFFILIATED SELLER
Section 4.01. Covenants of the Originators and the
Unaffiliated Seller. Each of the Originators and the Unaffiliated Seller
covenants to the Depositor as follows:
(a) The Originators and the Unaffiliated Seller shall
cooperate with the Depositor and the firm of independent certified public
accountants retained with respect to the issuance of the Certificates in
making available all information and taking all steps reasonably necessary to
permit the accountants' letters required hereunder to be delivered within the
times set for delivery herein.
(b) The Unaffiliated Seller agrees to satisfy or cause to be
satisfied on or prior to the Closing Date, all of the conditions to the
Depositor's obligations set forth in Section 5.01 hereof that are within the
Unaffiliated Seller's (or its agents') control.
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(c) The Originators and the Unaffiliated Seller hereby agree
to do all acts, transactions, and things and to execute and deliver all
agreements, documents, instruments, and papers by and on behalf of the
Originators or the Unaffiliated Seller as the Depositor or its counsel may
reasonably request in order to consummate the transfer of the Mortgage Loans
to the Depositor and the subsequent transfer thereof to the Trustee, and the
rating, issuance and sale of the Certificates.
Section 4.02. Merger or Consolidation. Each of the
Originators and the Unaffiliated Seller will keep in full effect its
existence, rights and franchises as a corporation and will obtain and preserve
its qualification to do business as a foreign corporation, in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Mortgage Loans and to perform its duties under this
Agreement. Any Person into which any of the Originators or the Unaffiliated
Seller may be merged or consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Originators or the
Unaffiliated Seller shall be a party, or any Person succeeding to the business
of the Originators or the Unaffiliated Seller, shall be approved by the
Certificate Insurer which approval shall not be unreasonably withheld. If the
approval of the Certificate Insurer is not required, the successor shall be an
established mortgage loan servicing institution that is a Permitted Transferee
and in all events shall be the successor of the Originators or the
Unaffiliated Seller without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Originators and the Unaffiliated Seller shall
send notice of any such merger or consolidation to the Trustee and the
Certificate Insurer.
Section 4.03. Costs. In connection with the transactions
contemplated under this Agreement and the Pooling and Servicing Agreement, the
Unaffiliated Seller shall promptly pay (or shall promptly reimburse the
Depositor to the extent that the Depositor shall have paid or otherwise
incurred): (a) the fees and disbursements of the Depositor's, the Seller's and
the Originator's counsel; (b) the fees of S&P and Moody's; (c) any of the fees
of the Trustee and the fees and disbursements of the Trustee's counsel; (d)
expenses incurred in connection with printing the Prospectus, the Prospectus
Supplement, any amendment or supplement thereto, any preliminary prospectus
and the Certificates; (e) fees and expenses relating to the filing of
documents with the Securities and Exchange Commission (including without
limitation periodic reports under the Exchange Act); (f) the shelf
registration amortization fee of 0.04% of the Class A Certificate Principal
Balance on the Closing Date, paid in connection with the issuance of
Certificates; and (g) all of the initial expenses (not to exceed $75,000) of
the Certificate Insurer including, without limitation, legal fees and
expenses, accountant fees and expenses and expenses in connection with due
diligence conducted on the Mortgage Files. For the avoidance of doubt, the
parties hereto acknowledge that it is the intention of the parties that the
Depositor shall not pay any of the Trustee's fees and expenses in connection
with the transactions contemplated by the Pooling and Servicing Agreement. All
other costs and expenses in connection with the transactions contemplated
hereunder shall be borne by the party incurring such expenses.
Section 4.04. Indemnification. (a) (i) The Originators and
the Unaffiliated Seller, jointly and severally, agree to indemnify and hold
harmless the Depositor, each of its directors, each of its officers who have
signed the Registration Statement, and each of its directors and each person
or entity who controls the Depositor or any such person, within the meaning of
Section 15 of the Securities Act, against any and all losses, claims, damages
or liabilities, joint and several, to which the Depositor or any such person
or entity may become subject, under the Securities Act or otherwise, and will
reimburse the Depositor and each such controlling person for any legal or
other expenses incurred by the Depositor or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise
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out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Prospectus Supplement or any amendment or
supplement to the Prospectus Supplement or the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements in the Prospectus Supplement or any amendment
or supplement to the Prospectus Supplement approved in writing by the
Originators or the Unaffiliated Seller, in light of the circumstances under
which they were made, not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission relates
to the information contained in the Prospectus Supplement referred to in
Section 3.01(d). This indemnity agreement will be in addition to any liability
which the Originators and the Unaffiliated Seller may otherwise have.
(ii) The Originators and the Unaffiliated Seller,
jointly and severally, agree to indemnify and to hold the Depositor
harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Depositor may sustain in any way
related to the failure of any of the Originators or the Unaffiliated
Seller to perform its duties in compliance with the terms of this
Agreement. The Originators or the Unaffiliated Seller shall
immediately notify the Depositor if a claim is made by a third party
with respect to this Agreement, and the Originators or the
Unaffiliated Seller shall assume the defense of any such claim and
pay all expenses in connection therewith, including reasonable
counsel fees, and promptly pay, discharge and satisfy any judgment or
decree which may be entered against the Depositor in respect of such
claim. Pursuant to the Pooling and Servicing Agreement, the Trustee
shall reimburse the Unaffiliated Seller in accordance with the
Pooling and Servicing Agreement for all amounts advanced by the
Unaffiliated Seller pursuant to the preceding sentence except when
the claim relates directly to the failure of the Unaffiliated Seller
to perform its duties in compliance with the terms of this Agreement.
(b) The Depositor agrees to indemnify and hold harmless each
of the Originators and the Unaffiliated Seller, each of their respective
directors and each person or entity who controls the Originators or the
Unaffiliated Seller or any such person, within the meaning of Section 15 of
the Securities Act, against any and all losses, claims, damages or
liabilities, joint and several, to which the Originators or the Unaffiliated
Seller or any such person or entity may become subject, under the Securities
Act or otherwise, and will reimburse the Originators and the Unaffiliated
Seller and any such director or controlling person for any legal or other
expenses incurred by such party or any such director or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, the Prospectus Supplement, any
amendment or supplement to the Prospectus or the Prospectus Supplement or the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission is other than a statement or omission relating to the
information set forth in subsection (a)(i) of this Section 4.04; provided,
however, that in no event shall the Depositor be liable to the Unaffiliated
Seller under this paragraph (b) in an amount in excess of the Depositor's
resale profit or the underwriting fee on the sale of the Certificates. This
indemnity agreement will be in addition to any liability which the Depositor
may otherwise have.
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(c) Promptly after receipt by an indemnified party under
this Section 4.04 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section 4.04, notify the indemnifying party
in writing of the commencement thereof, but the omission to so notify the
indemnifying party will not relieve the indemnifying party from any liability
which the indemnifying party may have to any indemnified party hereunder
except to the extent such indemnifying party has been prejudiced thereby. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may elect
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party of its election
to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 4.04 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. The indemnifying party shall not
be liable for the expenses of more than one separate counsel.
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in the
preceding parts of this Section 4.04 is for any reason held to be unavailable
to or insufficient to hold harmless an indemnified party under subsection (a)
or subsection (b) of this Section 4.04 in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein,
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof); provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by the Originators and the
Unaffiliated Seller on the one hand, and the Depositor on the other, the
Originators', the Unaffiliated Seller's and the Depositor's relative knowledge
and access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Originators, the Unaffiliated Seller and the Depositor
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation. For purposes of this Section
4.04, each director of the Depositor, each officer of the Depositor who signed
the Registration Statement, and each person, if any who controls the Depositor
within the meaning of Section 15 of the Securities Act, shall have the same
rights to contribution as the Depositor, and each director of the Originators
or the Unaffiliated Seller, and each person, if any who controls the
Originators or the Unaffiliated Seller within the meaning of Section 15 of the
Securities Act, shall have the same rights to contribution as the Originators
and the Unaffiliated Seller.
ARTICLE FIVE
CONDITIONS OF CLOSING
Section 5.01. Conditions of Depositor's Obligations. The
obligations of the Depositor to purchase the Mortgage Loans will be subject to
the satisfaction on the Closing Date of the following conditions. Upon payment
of the purchase price for the Mortgage Loans, such conditions shall be deemed
satisfied or waived.
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(a) Each of the obligations of the Unaffiliated Seller
required to be performed by it on or prior to the Closing Date pursuant to the
terms of this Agreement shall have been duly performed and complied with and
all of the representations and warranties of the Unaffiliated Seller under
this Agreement shall be true and correct as of the Closing Date and no event
shall have occurred which, with notice or the passage of time, would
constitute a default under this Agreement, and the Depositor shall have
received a certificate to the effect of the foregoing signed by an authorized
officer of the Unaffiliated Seller.
(b) The Depositor shall have received a letter dated the
date of this Agreement, in form and substance acceptable to the Depositor and
its counsel, prepared by Deloitte & Touche LLP, independent certified public
accountants, regarding the numerical information contained in the Prospectus
Supplement under the captions "Prepayment and Yield Considerations" and "The
Mortgage Pool."
(c) The Mortgage Loans will be acceptable to the Depositor,
in its sole discretion.
(d) The Depositor shall have received the following
additional closing documents, in form and substance satisfactory to the
Depositor and its counsel:
(i) the Mortgage Loan Schedule;
(ii) the Pooling and Servicing Agreement dated as of
June 1, 1998 and the Underwriting Agreement dated as of June 2, 1998
between the Depositor and Prudential Securities Incorporated and all
documents required thereunder, duly executed and delivered by each of
the parties thereto other than the Depositor;
(iii) officer's certificates of an officer of each of
the Originators and the Unaffiliated Seller, dated as of the Closing
Date, and attached thereto resolutions of the board of directors and a
copy of the charter and by-laws;
(iv) copy of each of the Originators and the
Unaffiliated Seller's charter and all amendments, revisions, and
supplements thereof, certified by a secretary of each entity;
(v) an opinion of the counsel for the Originators and
the Unaffiliated Seller as to various corporate matters (it being
agreed that the opinion shall expressly provide that the Trustee shall
be entitled to rely on the opinion);
(vi) opinions of counsel for the Unaffiliated Seller, in
forms acceptable to the Depositor, its counsel, S&P and Moody's as to
such matters as shall be required for the assignment of a rating to
the Class A Certificates of AAA by S&P, and Aaa by Moody's (it being
agreed that such opinions shall expressly provide that the Trustee
shall be entitled to rely on such opinions);
(vii) a letter from Moody's that it has assigned a
rating of Aaa to the Class A Certificates;
(viii) a letter from S&P that it has assigned a rating
of AAA to the Class A Certificates;
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(ix) an opinion of counsel for the Trustee in form and
substance acceptable to the Depositor, its counsel, Moody's and S&P
(it being agreed that the opinion shall expressly provide that the
Unaffiliated Seller shall be entitled to rely on the opinion);
(x) an opinion or opinions of counsel for the Servicer,
in form and substance acceptable to the Depositor, its counsel,
Moody's and S&P (it being agreed that the opinion shall expressly
provide that the Unaffiliated Seller shall be entitled to rely on the
opinion); and
(xi) an opinion or opinions of counsel for the
Certificate Insurer, in each case in form and substance acceptable to
the Depositor, its counsel, Moody's and S&P (it being agreed that the
opinion shall expressly provide that the Unaffiliated Seller shall be
entitled to rely on the opinion).
(e) The Certificate Insurance Policy shall have been duly
executed, delivered and issued with respect to the Class A Certificates.
(f) All proceedings in connection with the transactions
contemplated by this Agreement and all documents incident hereto shall be
satisfactory in form and substance to the Depositor and its counsel.
(g) The Unaffiliated Seller shall have furnished the
Depositor with such other certificates of its officers or others and such
other documents or opinions as the Depositor or its counsel may reasonably
request.
Section 5.02. Conditions of Unaffiliated Seller's
Obligations. The obligations of the Unaffiliated Seller under this Agreement
shall be subject to the satisfaction, on the Closing Date, of the following
conditions:
(a) Each of the obligations of the Depositor required to be
performed by it at or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed and complied with and all of the
representations and warranties of the Depositor contained in this Agreement
shall be true and correct as of the Closing Date and the Unaffiliated Seller
shall have received a certificate to that effect signed by an authorized
officer of the Depositor.
(b) The Unaffiliated Seller shall have received the
following additional documents:
(i) the Pooling and Servicing Agreement, and all
documents required thereunder, in each case executed by the Depositor
as applicable; and
(ii) a copy of a letter from Moody's to the Depositor to
the effect that it has assigned a rating of Aaa to the Class A
Certificates and a copy of a letter from S&P to the Depositor to the
effect that it has assigned a rating of AAA to the Class A
Certificates.
(iii) an opinion of counsel for the Trustee in form and
substance acceptable to the Unaffiliated Seller and its counsel;
(iv) an opinion or opinions of counsel for the
Certificate Insurer, in each case in form and substance acceptable to
the Unaffiliated Seller and its counsel;
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(v) an opinion of the counsel for the Depositor as to
securities and tax matters; and
(vi) an opinion of the counsel for the Depositor as to
true sale matters.
(c) The Depositor shall have furnished the Unaffiliated
Seller with such other certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this
Agreement as the Unaffiliated Seller may reasonably request.
Section 5.03. Termination of Depositor's Obligations. The
Depositor may terminate its obligations hereunder by notice to the
Unaffiliated Seller at any time before delivery of and payment of the purchase
price for the Mortgage Loans if: (a) any of the conditions set forth in
Section 5.01 are not satisfied when and as provided therein; (b) there shall
have been the entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Unaffiliated Seller, or for the winding up or liquidation of the affairs
of the Unaffiliated Seller; (c) there shall have been the consent by the
Unaffiliated Seller to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Unaffiliated Seller
or of or relating to substantially all of the property of the Unaffiliated
Seller; (d) any purchase and assumption agreement with respect to the
Unaffiliated Seller or the assets and properties of the Unaffiliated Seller
shall have been entered into; or (e) a Termination Event shall have occurred.
The termination of the Depositor's obligations hereunder shall not terminate
the Depositor's rights hereunder or its right to exercise any remedy available
to it at law or in equity.
ARTICLE SIX
MISCELLANEOUS
Section 6.01. Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered to or mailed by registered mail, postage
prepaid, or transmitted by telex or telegraph and confirmed by a similar
mailed writing, if to the Depositor, addressed to the Depositor at Prudential
Securities Secured Financing Corporation, One New York Plaza, 14th Floor, New
York, New York 10292, Attention: Asset Finance Group, or to such other address
as the Depositor may designate in writing to the Unaffiliated Seller and if to
the Unaffiliated Seller, addressed to the Unaffiliated Seller at ABFS 1998-2,
Inc., Balapointe Office Centre, 111 Presidential Boulevard, Suite 215, Bala
Cynwyd, Pennsylvania 19004, Attention: Mr. Anthony Santilli, Jr., or to such
other address as the Unaffiliated Seller may designate in writing to the
Depositor.
Section 6.02. Severability of Provisions. Any part,
provision, representation, warranty or covenant of this Agreement which is
prohibited or which is held to be void or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. Any part, provision, representation, warranty or
covenant of this Agreement which is prohibited or unenforceable or is held to
be void or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction as to any Mortgage Loan shall not
invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the parties hereto waive any
provision of law which prohibits or renders void or unenforceable any
provision hereof.
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Section 6.03. Agreement of Unaffiliated Seller. The
Unaffiliated Seller agrees to execute and deliver such instruments and take
such actions as the Depositor may, from time to time, reasonably request in
order to effectuate the purpose and to carry out the terms of this Agreement.
Section 6.04. Survival. The parties to this Agreement agree
that the representations, warranties and agreements made by each of them
herein and in any certificate or other instrument delivered pursuant hereto
shall be deemed to be relied upon by the other party hereto, notwithstanding
any investigation heretofore or hereafter made by such other party or on such
other party's behalf, and that the representations, warranties and agreements
made by the parties hereto in this Agreement or in any such certificate or
other instrument shall survive the delivery of and payment for the Mortgage
Loans.
Section 6.05. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 6.06. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as expressly permitted by
the terms hereof, this Agreement may not be assigned, pledged or hypothecated
by any party hereto to a third party without the written consent of the other
party to this Agreement and the Certificate Insurer; provided, however, that
the Depositor may assign its rights hereunder without the consent of the
Unaffiliated Seller.
Section 6.07. Confirmation of Intent; Grant of Security
Interest. It is the express intent of the parties hereto that the conveyance
of the Mortgage Loans by the Originators to the Unaffiliated Seller and by the
Unaffiliated Seller to the Depositor as contemplated by this Unaffiliated
Seller's Agreement be, and be treated for all purposes as, a sale of the
Mortgage Loans. It is, further, not the intention of the parties that such
conveyance be deemed a pledge of the Mortgage Loans by the Originators to the
Unaffiliated Seller or by the Unaffiliated Seller to the Depositor to secure a
debt or other obligation of the Originators or the Unaffiliated Seller, as the
case may be. However, in the event that, notwithstanding the intent of the
parties, the Mortgage Loans are held to continue to be property of the
Originators or the Unaffiliated Seller then (a) this Unaffiliated Seller's
Agreement shall also be deemed to be a security agreement within the meaning
of Articles 8 and 9 of the Uniform Commercial Code; (b) the transfer of the
Mortgage Loans provided for herein shall be deemed to be a grant by the
Originators to the Unaffiliated Seller and by the Unaffiliated Seller to the
Depositor of a security interest in all of such parties' right, title and
interest in and to the Mortgage Loans and all amounts payable on the Mortgage
Loans in accordance with the terms thereof and all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash, instruments, securities
or other property; (c) the possession by the Depositor of Mortgage Notes and
such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party" for purposes of perfecting the security interest pursuant to Section
9-305 of the Uniform Commercial Code; and (d) notifications to persons holding
such property, and acknowledgments, receipts or confirmations from persons
holding such property, shall be deemed notifications to, or acknowledgments,
receipts or confirmations from, financial intermediaries, bailees or agents
(as applicable) of the Depositor for the purpose of perfecting such security
interest under applicable law. Any assignment of the interest of the Depositor
pursuant to any provision hereof shall also be deemed to be an assignment of
any security interest created hereby. The Originators, the Unaffiliated Seller
and the Depositor shall, to the extent consistent with this Unaffiliated
Seller's Agreement, take such actions as may be necessary to ensure that, if
this Unaffiliated Seller's Agreement were deemed to create a security interest
in the Mortgage Loans, such security interest would be deemed to be a
perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of this Agreement.
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Section 6.08. Miscellaneous. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
Section 6.09. Amendments. (a) This Agreement may be amended
from time to time by the Originators, the Unaffiliated Seller and the
Depositor by written agreement, upon the prior written consent of the
Certificate Insurer, without notice to or consent of the Certificateholders to
cure any ambiguity, to correct or supplement any provisions herein, to comply
with any changes in the Code, or to make any other provisions with respect to
matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel, at the expense
of the party requesting the change, delivered to the Trustee, adversely affect
in any material respect the interests of any Certificateholder; and provided,
further, that no such amendment shall reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, or change the rights or obligations of any other party hereto
without the consent of such party.
(b) This Agreement may be amended from time to time by the
Unaffiliated Seller and the Depositor with the consent of the Certificate
Insurer, the Majority Certificateholders and the Holders of the majority of
the Percentage Interest in the Class R Certificates for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders; provided, however, that no such amendment shall be made unless the
Trustee receives an Opinion of Counsel, at the expense of the party requesting
the change, that such change will not adversely affect the status of the REMIC
Trust as a REMIC or cause a tax to be imposed on the REMIC, and provided
further, that no such amendment shall reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate or reduce the percentage for each Class the Holders of which are
required to consent to any such amendment without the consent of the Holders
of 100% of each Class of Certificates affected thereby.
(c) It shall not be necessary for the 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.
Section 6.10. Third-Party Beneficiaries. The parties agree
that each of the Certificate Insurer and the Trustee is an intended
third-party beneficiary of this Agreement to the extent necessary to enforce
the rights and to obtain the benefit of the remedies of the Depositor under
this Agreement which are assigned to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer pursuant to the Pooling and
Servicing Agreement and to the extent necessary to obtain the benefit of the
enforcement of the obligations and covenants of the Unaffiliated Seller under
Section 4.01 and 4.04(a)(ii) of this Agreement. The parties further agree that
Prudential Securities Incorporated and each of its directors and each person
or entity who controls Prudential Securities Incorporated or any such person,
within the meaning of Section 15 of the Securities Act (each, an "Underwriter
Entity") is an intended third-party beneficiary of this Agreement to the
extent necessary to obtain the benefit of the enforcement of the obligations
and covenants of the Unaffiliated Seller with respect to each Underwriter
Entity under Section 4.04(a)(i) of this Agreement.
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Section 6.11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF JURY TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)
OF THE STATE OF NEW YORK.
(b) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN
IN NEW YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL
DIRECTED TO THE ADDRESS SET FORTH IN SECTION 6.01 OF THIS AGREEMENT AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL
HAVE BEEN DEPOSITED IN THE U.S. MAIL, POSTAGE PREPAID. THE DEPOSITOR AND THE
UNAFFILIATED SELLER EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF
THE DEPOSITOR AND THE UNAFFILIATED SELLER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION OR
PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY
WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE
RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 6.12. Execution in Counterparts. This Agreement may
be executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
37
<PAGE>
IN WITNESS WHEREOF, the parties, to this Unaffiliated
Seller's Agreement have caused their names to be signed by their respective
officers thereunto duly authorized as of the date first above written.
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By: /s/ Evan J. Mitnick
----------------------------------
Name: Evan J. Mitnick
Title: Vice President
ABFS 1998-2, INC.
By: /s/ Anthony J. Santilli
----------------------------------
Name: Anthony J. Santilli
Title: President
AMERICAN BUSINESS CREDIT, INC.
By: /s/ Beverly Santilli
-----------------------------------
Name: Beverly Santilli
Title: President
HOMEAMERICAN CREDIT, INC.,
D/B/A UPLAND MORTGAGE
By: /s/ Jeffrey M, Ruben
-----------------------------------
Name: Jeffrey M, Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE INVESTMENT
CORP.
By: /s/ Jeffrey M, Ruben
-----------------------------------
Name: Jeffrey M, Ruben
Title: Senior Vice President
<PAGE>
===============================================================================
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND
SECURITY AGREEMENT
among
PRUDENTIAL SECURITIES
CREDIT CORPORATION,
as Lender,
AMERICAN BUSINESS CREDIT, INC.,
as Borrower
and
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE,
as Borrower
Dated as of June 9, 1997
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-------
<S> <C> <C>
Section 1. The Loan.............................................................................1
Section 2. Additional Conditions Precedent to Advance...........................................5
Section 3. Mortgage Files and Custodian.........................................................6
Section 4. Representations, Warranties and Covenants............................................6
Section 5. Mandatory Prepayment of Loan........................................................11
Section 6. Release of Mortgage Files following Payment of Loan.................................12
Section 7. Servicing...........................................................................12
Section 8. No Oral Modifications; Successors and Assigns; Assignment of Collateral.............12
Section 9. Reports.............................................................................12
Section 10. Events of Default...................................................................13
Section 11. Remedies Upon Default...............................................................14
Section 12. Indemnification.....................................................................15
Section 13. Power of Attorney...................................................................16
Section 14. Agreement Constitutes Security Agreement............................................16
Section 15. Lender May Act Through Affiliates...................................................16
Section 16. Notices.............................................................................16
Section 17. Severability........................................................................18
Section 18. Counterparts........................................................................18
Section 19. Certain Definitions.................................................................18
</TABLE>
i
<PAGE>
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT
This FIRST AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY
AGREEMENT, dated as of June 9, 1997 (as amended or otherwise modified from time
to time, this "Agreement") among PRUDENTIAL SECURITIES CREDIT CORPORATION, a
Delaware corporation, having an office at 1220 N. Market Street, Wilmington,
Delaware 19801 (the "Lender"), AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation, having its principal office at 111 Presidential Boulevard, Bala
Cynwyd, Pennsylvania 19004 ("ABC"), and HOMEAMERICAN CREDIT, INC. doing business
as UPLAND MORTGAGE, a Pennsylvania corporation, having its principal office at
111 Presidential Boulevard, Bala Cynwyd, Pennsylvania 19004 ("Upland", and
together with ABC, the "Borrowers").
WHEREAS, the Lender intends to lend and the Borrowers intend
to borrow up to $50,000,000 (fifty million dollars) to fund the purchase or
origination by the Borrowers of fixed and floating-rate, first and second lien,
business and consumer purpose residential mortgage loans; and
WHEREAS, the Lender's affiliate, Prudential Securities
Incorporated ("PSI") will act as the sole or lead manager on a mortgage-backed
securities issuance (a "Securitization") to be sponsored by the Borrower (or by
an affiliate thereof) from time to time and collateralized by the Pledged
Mortgage Loans.
An index to the location of the definitions of the defined
terms used herein is set forth in Section 19 hereof.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto hereby agree as follows:
Section 1. The Loan.
A. Subject to the terms of this Agreement:
1. The Lender agrees to lend to the Borrowers up to
$50,000,000 (such borrowing, the "Loan") to be made in one or more
advances (each, an "Advance"); provided, however, that, at any time
when funds are on deposit in a Pre-Funding Account (as defined herein),
the amount of the Loan shall not exceed the amount on deposit in such
Pre-Funding Account. The Borrower agrees that the Loan shall be used to
warehouse fixed and adjustable rate, first or second lien, business and
consumer purpose residential mortgage loans that are to be included in
a Securitization (the "Mortgage Loans"), as such Mortgage Loans are
identified to the Lender in writing and in electronic form from time to
time. Such Mortgage Loans may be (a) included at the time of closing of
the Securitization or (b) purchased by the Securitization trust
subsequent to closing with funds on deposit in an account (a
"Pre-Funding Account") relating to the Securitization and designated
for such purpose. All Mortgage Loans financed hereunder shall be closed
loans; i.e., this facility shall not be used for "wet" or "table"
fundings. The Lender may refuse to lend against any Mortgage Loan(s)
which the Lender reasonably believes will not be eligible for inclusion
in a securitized pool either (x) due to the characteristics of such
Mortgage Loan or (y) due to the expected aggregate characteristics of
the Mortgage Loans.
<PAGE>
2. Each Advance shall be made on a date prior to the Maturity
Date referred to below (each such date, a "Funding Date"); provided
that:
(i) the conditions precedent to the making of
Advances set forth in Section 2 hereof shall have been satisfied, and
the representations and warranties of the Borrowers in Section 4 hereof
shall be true and correct on and as of such Funding Date as if made on
and as of such date;
(ii) no Event of Default shall have occurred and be
continuing or would exist after the making of the Advance on such
Funding Date;
(iii) the Lender shall have received (A) in
connection with each Advance, no later than 12:00 noon (Eastern
Standard Time) on the related Funding Date, a certificate from the
Custodian referred to below to the effect that it has in its possession
and has reviewed the mortgage files relating to the Mortgage Loans
being pledged in connection with the Advance being made on such Funding
Date and has found no material deficiencies in such mortgage files (the
"Custodian's Certification") and (B) prior to the initial Advance,
legal opinions from counsel (which may be in-house counsel) to ABC and
Upland in the form of Exhibit B-1 and Exhibit B-2, respectively,
attached hereto;
(iv) the Borrowers shall have delivered or caused to
be delivered to the Custodian all required documents with respect to
the Mortgage Loans being pledged on such Funding Date;
(v) the applicable Borrower shall deliver evidence of
the release of any prior security interest that may have been granted
with respect to the Pledged Mortgage Loans.
(vi) to the extent described in Section 5(C) hereof,
no notice described in said Section 5(C) shall have been received by
PSI; and
(vii) there shall be in full force and effect from
American Business Financial Services, Inc. (the "Guarantor") a Guaranty
(the "Guaranty") in the form attached hereto as Exhibit E.
3. The Loan shall accrue interest daily on its outstanding
principal amount, with interest calculated for the actual number of
days elapsed, based on a 360-day year. The interest rate shall be
(except as otherwise provided in Section 1(E)(2) or Section 10(D)
hereof) LIBOR plus 1.25%, and shall be reset on each business day.
Interest which accrues during each calendar month shall be payable on
the 3rd (third) business day of the following month, with any
outstanding interest due and payable in its entirety on the date of
termination of this warehouse facility (including the Maturity Date).
2
<PAGE>
"LIBOR" shall mean, the London interbank offered rate for
one-month U.S. dollar deposits, as set forth in the most
recently-published Eastern edition of The Wall Street Journal.
Any amounts pre-paid under this Agreement prior to the
Maturity Date may be re-borrowed, subject to the terms and conditions
of this Agreement, until the Maturity Date.
B. The amount of each Advance shall not be less than $1,000,000 or
greater than the lesser of:
1. 100% of the aggregate outstanding principal balance of the
Mortgage Loans (calculated as of the related Cut-Off Date or, if the
related Borrower is using the proceeds of the Advance to purchase or
originate the related Mortgage Loans at their aggregate outstanding
principal balance as of the settlement date for the purchase, then
their aggregate outstanding principal balance as of such settlement
date) proposed to be pledged to the Lender in connection with such
Advance, minus, in the event that a Collateral Deficiency Situation
exists as of the date of such Advance, the Restoration Amount as of the
date of such Advance; and
2. the product of (x) the Market Value of the Mortgage Loans
proposed to be pledged to the Lender in connection with such Advance
and (y) 0.92, minus, in the event that a Collateral Deficiency
Situation exists as of the date of such Advance, the Restoration Amount
as of the date of such Advance.
For purposes of this Agreement:
A Collateral Deficiency Situation shall be deemed to be
existing as of any day on which (x) the outstanding principal amount of
the Loan as of such day exceeds (y) the lesser of (i) the outstanding
principal balance of the Pledged Mortgage Loans and (ii) the product of
(I) the Market Value of the Pledged Mortgage Loans (disregarding the
Market Value of any Mortgage Loans proposed to be pledged to the Lender
on such day) and (II) 0.92.
Cut-Off Date means, as of any date, the close of business on
the date set forth in the related Mortgage Loan Schedule (as defined in
the Custodial Agreement). In no event shall the Cut-Off Date precede by
more than two weeks the date on which the related Mortgage Loan
Schedule is delivered.
Market Value means, as of any date and with respect to any
Mortgage Loans, the whole-loan servicing-retained fair market value of
such Mortgage Loans as of such date as determined by the Lender (or an
affiliate thereof) in its sole discretion.
Maturity Date means, the earliest of (i) September 30, 1997
and (ii) the date on which a Securitization occurs (other than the ABFS
Home Equity Asset Backed Certificates 1997-1 Securitization (the "97-1
Securitization")). The Maturity Date may be extended by Lender, in
Lender's sole and unreviewable discretion, on any date by the execution
and delivery of a Credit Increase Confirmation and Note Amendment in
the form of Exhibit C hereto.
3
<PAGE>
Pledged Mortgage Loans means, as of any date of determination,
any Mortgage Loans then held by the Custodian on behalf of the Lender
to secure the Loan.
Restoration Amount means, as of any date of determination, the
amount, if any, by which (x) the outstanding principal amount of the
Loan as of such date (including accrued interest) exceeds (y) the
lesser of (i) the product of (I) the Market Value of the Pledged
Mortgage Loans (disregarding the Market Value of any Mortgage Loans
proposed to be pledged to the Lender on such date) and (II) 0.92 and
(ii) the outstanding principal balance of the Pledged Mortgage Loans
(disregarding the outstanding principal balance of any Mortgage Loans
to be pledged to the Lender on such date).
C. The Loan evidenced hereby shall mature on the Maturity Date and all
amounts outstanding hereunder shall be due and payable on the Maturity Date.
D. The Loan is pre-payable at any time without premium or penalty, in
whole or in part; provided, that Pledged Mortgage Loans may not be removed from
this facility (including in connection with any prepayment of the Loan in part)
with the result that, in the Lender's sole reasonable determination, the
remaining Pledged Mortgage Loans, are, in the aggregate, materially inferior as
collateral as compared to the pool of Pledged Mortgage Loans immediately prior
to such removal. In addition, no Pledged Mortgage Loans may be removed from this
facility with the result that a Collateral Deficiency Situation would then
exist. Notwithstanding the foregoing, however, a Pledged Mortgage Loan, may in
any event be removed from this facility if such Pledged Mortgage Loan has been
paid in full by the mortgagor. If the Borrowers intend to prepay the Loan in
whole or in substantial part from a source other than the proceeds of the
Securitization, the Borrowers shall give two business days' written notice to
the Lender.
E. 1.If the Loan is not extended by means of a Credit Increase
Confirmation and Note Amendment, the Loan shall immediately and automatically
become due and payable without any further action by the Lender on the then
scheduled Maturity Date, and in the event of non-payment in full on such
Maturity Date the Lender may exercise all rights and remedies available to it as
the holder of a first perfected security interest under the Uniform Commercial
Code of the State of New York (the "New York UCC").
2. If the Borrowers award a Securitization or whole-loan trade
involving any Pledged Mortgage Loans to an investment banking house, agent,
broker or underwriter other than PSI or to a group of managers for which PSI is
not the lead manager, then the interest rate on the Loan shall increase to LIBOR
plus 500 basis points, which higher rate shall retroactively be applied as of
the related Funding Date for all prior Advances or Pledged Mortgage Loans so
involved; provided, however, that if the Borrowers had first offered such
Securitization or whole-loan trade to PSI and PSI refused such offer, then this
subsection 2 shall have no effect.
F. The Loan shall be evidenced by the secured promissory note of the
Borrowers in the form attached hereto as Exhibit A (the "Secured Note").
4
<PAGE>
G. In the event that the Loan is extended beyond its then scheduled
Maturity Date by means of a Credit Increase Confirmation and Note Amendment, the
factors set forth in the definitions of "Collateral Deficiency Situation" and
"Restoration Amount" may be revised downward by the Lender in its sole
discretion.
Section 2. Additional Conditions Precedent to Advance.
A. Not later than two business days prior to the proposed Funding Date
for an Advance the applicable Borrower shall deliver to the Lender (i) a written
notice in the form of Exhibit D hereto and (ii) an electronic disk or tape, in a
mutually satisfactory form to be agreed upon detailing certain specified
characteristics of the Mortgage Loans proposed to be pledged in connection with
such Advance (each such schedule, a "Mortgage Loan Schedule").
B. Prior to the initial Funding Date, Lender shall have received:
1. Duly executed originals of (i) this Agreement, (ii) the
Custodial Agreement, (iii) the Secured Note and (iv) the Guaranty.
2. A certificate of the Secretary of each Borrower certifying
(i) a copy of such Borrower's articles of incorporation; (ii) a copy of
such Borrower's by-laws; (iii) the names and signature of officers of
such Borrower authorized on its behalf to execute this Agreement and
any other documents to be delivered by it hereunder (on which Lender
may conclusively rely until such time as Lender shall receive from such
Borrower a revised certificate); and (iv) a copy of minutes of a
meeting of such Borrower's board of directors authorizing the
authorized signatories to enter into this Agreement.
3. Lender shall have received a certificate of the Secretary
of the Guarantor's certifying (i) a copy of the Guarantor's articles of
incorporation; (ii) a copy of Guarantor's by-laws; (iii) the names and
signatures of the officers authorized on its behalf to execute the
Guaranty, and any other documents to be delivered by it thereunder (on
which Lender may conclusively rely until such time as Lender shall
receive from the Guarantor a revised certificate); and (iv) a copy of
the resolutions of the executive committee of the board of directors of
the Guarantor authorizing the Guarantor to deliver the Guaranty.
4. Lender shall have received an opinion of the counsel ABC
and Upland which may be an attorney employed by one of its affiliates,
in substantially the form of Exhibit B-1 and Exhibit B-2, respectively,
attached hereto.
5. Lender shall have received an opinion of the counsel to the
Guarantor in substantially the form of Exhibit B-3 hereto.
6. Lender shall have received the most recent available
servicing reports, if any, with respect to the Mortgage Loans.
7. Lender and/or any independent contractor appointed by
Lender shall have completed such investigation as Lender may reasonably
require with respect to each Mortgage Loan which is the subject of any
funding and the results of such investigation (and all other legal and
documentary matters with respect to such Mortgage Loan) shall be
satisfactory to Lender.
8. The related Borrower shall have executed all documents,
including but not limited to financing statements under the Uniform
Commercial Code as in effect in any applicable jurisdictions, as Lender
may reasonably require to effectively perfect and evidence Lender's
first priority security interest in the Collateral.
Section 3. Mortgage Files and Custodian.
5
<PAGE>
The related Borrower shall deliver to The Chase Manhattan
Bank, as custodian (the "Custodian") on behalf of the Lender, the documents and
instruments listed in Section 2 of that certain First Amended and Restated
Custodial Agreement dated as of June 9, 1997 (the "Custodial Agreement") among
the Lender, the Borrowers, and the Custodian. Such documents and instruments
evidencing and relating to the Mortgage Loans, together with any proceeds
thereof are hereinafter referred to as the "Collateral". The related Borrower
hereby pledges all of its right, title and interest in and to the Collateral to
the Lender to secure the repayment of principal of and interest on the Loan and
all other amounts owing by the Borrowers to the Lender hereunder or under any
other agreement or arrangement (collectively, the "Secured Obligations").
Section 4. Representations, Warranties and Covenants.
A. Each of the Borrowers represents and warrants to the Lender
that:
1. It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
Pennsylvania.
2. It is duly licensed as a "Licensee" or is otherwise
qualified in each state in which it transacts business and is not in
default of such state's applicable laws, rules and regulations, except
where failure to so qualify or such default would not have a material
adverse effect on the ability of such Borrower to conduct its business
or to perform its obligations under this Agreement. It has the
requisite power and authority and legal right to own and grant a lien
on all of its right, title and interest in and to the Collateral, and
to execute and deliver, engage in the transactions contemplated by, and
perform and observe the terms and conditions of, this Agreement, the
Custodial Agreement and the Secured Note.
3. At all times after the Custodian has received a Mortgage
Loan from such Borrower and until payment in full of the Loan, such
Borrower will not knowingly and intentionally commit any act in
violation of applicable laws, or regulations promulgated with respect
thereto.
4. Such Borrower is solvent and is not in default under any
mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money, and the execution,
delivery and performance by such Borrower of this Agreement, the
Custodial Agreement, and the Secured Note do not conflict with any term
or provision of the certificate of incorporation or by-laws of such
Borrower or any law, rule, regulation, order, judgment, writ,
injunction or decree applicable to such Borrower of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over such Borrower and will not result in any violation of
any such mortgage, instrument or agreement.
5. All financial statements or certificates of such Borrower,
any Affiliate of such Borrower or any of its officers furnished to the
Lender are true and complete and do not omit to disclose any material
liabilities or other facts relevant to such Borrower's or such
Affiliate's condition. As used in this Agreement, "Affiliate" means (i)
American Business Financial Services, Inc., Processing Service Center,
Inc., American Business Leasing, Inc., ABC Holdings Corporation and
HomeAmerican Consumer Discount Company and (ii) any person directly or
indirectly controlling, controlled by, or under common control (within
the definition of "control" set forth in the Securities and Exchange
Act of 1934, as amended) with, such Borrower. All such financial
statements have been prepared in accordance with GAAP. No financial
statement or other financial information as of a date later than that
supplied to the Lender, has been furnished by such Borrower or any of
its Affiliates to another lender of such Borrower or any of its
Affiliates that has not been furnished to the Lender.
6. No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or
court is required under applicable law in connection with the
execution, delivery and performance by such Borrower of this Agreement,
the Custodial Agreement and the Secured Note.
6
<PAGE>
7. There is no action, proceeding or investigation pending
with respect to which such Borrower has received service of process or,
to the best of such Borrower's knowledge threatened against it before
any court, administrative agency or other tribunal (A) asserting the
invalidity of this Agreement, the Custodial Agreement or the Secured
Note, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, the Custodial Agreement or
the Secured Note, or (C) which might materially and adversely affect
the validity of the Mortgage Loans or the performance by it of its
obligations under, or the validity or enforceability of, this
Agreement, the Custodial Agreement or the Secured Note.
8. There has been no material adverse change in the business,
operations, financial condition, properties or prospects of such
Borrower or any Affiliate since the date set forth in the financial
statements supplied to the Lender.
9. This Agreement, the Custodial Agreement and the Secured
Note have been duly authorized, executed and delivered by such Borrower
all requisite corporate action having been taken, and each is valid,
binding and enforceable against such Borrower in accordance with its
terms except as such enforcement may be affected by bankruptcy, by
other insolvency laws, or by general principles of equity.
B. With respect to every Mortgage Loan delivered to the
Custodian, the related Borrower represents and warrants to the Lender that:
1. Such Mortgage Loan and all accompanying documents are
complete and authentic and all signatures thereon are genuine.
2. Such Mortgage Loan arose from a bona fide loan, complying
with all applicable State and Federal laws and regulations, to persons
having legal capacity to contract and is not subject to any defense,
set-off or counterclaim.
3. All amounts represented to be payable on such Mortgage Loan
are, in fact, payable in accordance with the provisions of such
Mortgage Loan.
4. No default has occurred in any provisions of such Mortgage
Loan (other than a payment delinquency not exceeding 30 days).
5. Any property subject to any security interest given in
connection with such Mortgage Loan is not subject to any encumbrance
other than (i) a stated first mortgage, (ii) liens for taxes not yet
due and payable or similar governmental charges not yet due and payable
or still subject to payment without interest or penalty or (iii) zoning
restrictions, utility easements, covenants or conditions and
restrictions of record which will neither defeat nor render invalid
such security interest or the priority thereof nor materially impair
the marketability or value of such property nor be violated by the
existing improvements or the intended use thereof.
6. Such Borrower holds good and indefeasible title to, and is
the sole owner of, such Mortgage Loan subject to no liens, charges,
mortgages, participations, encumbrances or rights of others or other
liens released simultaneously with such pledge.
7
<PAGE>
7. Each Mortgage Loan conforms to the description thereof as
set forth on the related Mortgage Loan Schedule delivered to the
Custodian and the Lender.
8. All disclosures required by the Real Estate Settlement
Procedures Act, by Regulation X promulgated thereunder and by
Regulation Z of the Board of Governors of the Federal Reserve System
promulgated pursuant to the statute commonly known as the
Truth-in-Lending Act and the Notice of the Right of Recision required
by said statute and regulation have been properly made and given.
9. The Mortgage Loans do not have characteristics which are
materially worse than those of other mortgage loans financed by such
Borrower during the twelve-month period preceding the initial Funding
Date.
10. The representations and warranties set forth in Section
2.04 (other than any representation and warranty referencing either (x)
the specific mortgage loan schedule referred to in said Section 2.04 or
(y) specific statistical characteristics of any mortgage loan pool) of
the Pooling and Servicing Agreement to be executed in connection with
the 97-1 Securitization (the "Designated Pooling and Servicing
Agreement"), between The Chase Manhattan Bank, as Trustee, American
Business Credit, Inc., as Servicer and Prudential Securities Secured
Financing Corporation, as depositor, are true with respect to the
Mortgage Loans, mutatis mutandis.
11. Each Mortgage Loan will be eligible for inclusion in a
pool to be securitized on substantially the same terms as the 97-1
Securitization or which is insured by a credit enhancer; the Lender may
refuse to lend against any Mortgage Loan(s) which the Lender reasonably
believes will not be eligible for inclusion in such a securitized,
insured pool either (x) due to the characteristics of such Mortgage
Loan or (y) due to the expected aggregate characteristics of the
Mortgage Loans.
12. Every person who has a fee interest in any property
subject to a mortgage given in connection with such Mortgage Loan has
signed the instrument creating such mortgage.
13. Every person, upon whose credit the Lender relied in
originating or purchasing a Mortgage Loan, has signed the related
Mortgage Note.
8
<PAGE>
C. Each of the Borrowers covenants with the Lender that,
during the term of this facility:
1. Such Borrower and any of its Affiliates shall not create or
suffer to exist any Lien, other than Permitted Liens, on any of such
Borrower's or any of its Affiliate's assets.
2. Such Borrower shall not pledge, assign or grant to any
other party any security interest in any Pledged Mortgage Loan.
For purposes of this Agreement:
Lien means, with respect to any asset of a Borrower or any of
its Affiliates, any mortgage, lien, pledge, charge, security interest
or other similar encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable
law (including, without limitation, any conditional sale or other title
retention agreement, and any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any
financing statement (other than notice filings not perfecting a
security interest) under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
Permitted Lien means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet delinquent
or (b) are being contested in good faith by appropriate proceedings and
as to which appropriate reserves or other provisions have been made in
accordance with GAAP; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business and with
respect to amounts that either (a) are not yet delinquent or (b) are
being contested in good faith by appropriate proceedings and as to
which appropriate reserves or other provisions have been made in
accordance with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended) incurred
or deposits due in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, progress payments, government contracts and other
obligations of like nature (exclusive of obligations for the payment of
borrowed money), in each case incurred in the ordinary course of
business; (v) attachment or judgment Liens not giving rise to an Event
of Default; (vi) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering with the ordinary
conduct of the business of a Borrower or any of its Affiliates; (vii)
leases or subleases granted to others not interfering with the ordinary
conduct of the business of a Borrower or any of its Affiliates; (viii)
the Lien granted to the Lender pursuant hereto; (ix) secured borrowing
facilities or other Liens which are secured by assets of a Borrower or
any of its Affiliates other than the Mortgage Loans; provided, that no
such secured borrowing facility or other Lien may be secured by a
blanket lien on the assets of a Borrower or any of its Affiliates; and
(x) any other Lien to which Lender has given its prior written consent.
9
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Section 5. Mandatory Prepayment of Loan.
A. Upon discovery by either Borrower or the Lender of any
breach of any of the representations and warranties listed in Section
4(B) preceding, the party discovering such breach shall promptly give
notice of such discovery to the others.
The Lender has the right to require, in its unreviewable
discretion, the related Borrower to repay the Loan in part in an amount
equal to the amount of the Advance relating to such Mortgage Loan with
respect to any Mortgage Loan which breaches one or more of the
representations and warranties listed in Section 4(B) preceding or
which is determined by the Lender to be unacceptable for inclusion in
such Securitization; provided, however, that upon the Lender's written
consent, then in lieu of any prepayment required by this Section 5(A),
such Borrower may pledge additional Mortgage Loans complying with the
terms of this Agreement with an aggregate outstanding principal balance
equal to or greater than the amount of such required prepayment.
B. If any Mortgage Loan, as indicated on any Supplemental
Mortgage Loan Schedule delivered pursuant to Section 9(A) hereof,
becomes 31 or more days delinquent on two or more occasions, the Lender
may require the related Borrower to prepay the Loan in part in an
amount equal to the amount of the Advance relating to such Mortgage
Loan with respect to such Mortgage Loan, or, with the Lender's consent,
deliver a qualifying substitute mortgage loan in its place.
C. If the Borrowers award a Securitization or any whole-loan
trade involving any Pledged Mortgage Loans to an investment banking
house, agent or underwriter other than PSI, or to a group of managers
for which PSI is not the lead manager, then (x) the Lender may demand
that the Borrowers prepay any portion of the Loan evidenced hereby
relating to the dollar amount of the Mortgage Loans to be included in
such Securitization or whole loan trade, in which PSI has not been
selected for participation, for payment within five business days of
the demand for prepayment, (y) the Lender may refuse to make further
Advances hereunder if such Advances would relate to Mortgage Loans to
be included in such Securitization or whole-loan trade in which PSI has
not been selected for participation and (z) the interest rate on the
Loan shall increase as set forth in Section 1(E)(2) hereof. The
Borrowers shall give immediate notice, by facsimile transmission, to
the attention of Norm Chaleff at the Lender and to the attention of Len
Blum at PSI (fax 212-778-7401) of any decision to award the lead
manager role or to name any group of managers for any Securitization or
whole-loan trade involving any Pledged Mortgage Loans.
D. If, on any date other than a Funding Date, the Lender
determines that a Collateral Deficiency Situation exists, the Lender
shall so notify the Borrowers, and the Borrowers, within one business
day, shall either (i) pay to the Lender the Restoration Amount or (ii)
deliver to the Custodian on behalf of the Lender additional Mortgage
Loans having an aggregate Market Value at least equal to the
Restoration Amount. The provisions of Section 1(B) shall govern with
regard to a Collateral Deficiency Situation as of a Funding Date.
10
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Section 6. Release of Mortgage Files following Payment of
Loan.
The Lender agrees to cause to be released from the lien hereof
the documents described in Section 2 of the Custodial Agreement at the request
of the Borrowers upon payment in full of the Loan, or, if a partial payment of
the Loan occurs, the documents relating to a pro rata portion of the Pledged
Mortgage Loans.
Section 7. Servicing.
The Borrowers shall service the Mortgage Loans with the degree
of skill and care consistent with that which the Borrower customarily exercises
with respect to similar contracts owned, managed, or serviced by it and all
applicable industry standards. The Borrowers shall comply with all applicable
Federal and State laws and regulations; shall maintain all State and Federal
licenses and franchises necessary for it to perform its servicing
responsibilities hereunder and shall not impair the rights of the Lender in any
Mortgage Loans or for payment thereunder.
Section 8. No Oral Modifications; Successors and Assigns;
Assignment of Collateral.
No provisions of this Agreement shall be waived or modified
except by a writing duly signed by the authorized agents of the Lender and each
of the Borrowers. This Agreement shall be binding upon the successors and
assigns of the parties hereto. The Borrowers acknowledge and agrees that the
Lender may re-pledge, enter into repurchase transactions, and otherwise
re-hypothecate (including the granting of participation interests therein) the
Collateral for the Loan; provided that no such act shall in any way affect the
Borrowers' rights to the Collateral.
Section 9. Reports.
A. The related Borrower shall provide the Lender with an
electronic disk or tape or hard copy (each, a "Supplemental Mortgage Loan
Schedule") (i) on the date any additional Mortgage Loans are delivered pursuant
to Section 5(D) and at the earliest of (A) two business days before each Funding
Date or (B) two weeks following the date that the last such schedule was
provided and (ii) within two business days following any request by the Lender
or any affiliate thereof for such a schedule. Such Supplemental Mortgage Loan
Schedule will contain information concerning (x) the Mortgage Loans then held in
the warehouse facility and (y) any Mortgage Loans proposed to be delivered to
the facility on the next Funding Date or in connection with Collateral
maintenance pursuant to Section 5(D) hereof, and shall be in the format as may
be agreed upon by the Borrowers and the Lender from time to time.
B. Each Borrower shall furnish to Lender (x) promptly, copies
of any material and adverse notices (including, without limitation, notices of
defaults, breaches, potential defaults or potential breaches) given to or
received from its other lenders, (y) immediately, notice of the occurrence of
any "Event of Default" hereunder or of any situation which such Borrower, with
the passage of time, reasonably expects to develop into an "Event of Default"
hereunder and (z) the following:
(i) audited financial statements of such Borrower and its
Affiliates, within 90 days of such Borrower's fiscal year end;
(ii) unaudited financial statements of such Borrower and its
Affiliates for each of such Borrower's first three quarters of each
fiscal year, within 45 days after quarter end;
(iii) unaudited financial statements of such Borrower within
45 days after quarter end; and
(iv) copies of all SEC filings by such Borrower and its
Affiliates, within five business days of their filing with the SEC.
All required financial statements, information and reports
shall be prepared in accordance with U.S. GAAP, or, if applicable to SEC
filings, SEC accounting regulations.
C. On the fifth business day of each calendar month, the
Borrowers shall provide the Lender with a report both in hardcopy and on a
computer diskette or via electronic transmission, which report shall contain
information concerning the portfolio performance data with respect to the
Pledged Mortgage Loans, including, without limitation, information regarding any
outstanding delinquencies, prepayments in whole or in part and any repurchases
by the Borrowers, in a format as may be agreed upon by the Borrowers and the
Lender from time to time.
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D. In conjunction with the delivery of each of the financial
statements to be delivered by the Borrowers pursuant to Section 9(B), each
Borrower shall deliver to the Lender an officer's certificate of such Borrower
certifying that, as of the date of delivery of such financial statements, such
Borrower is in compliance with all the terms of this Agreement including,
without limitation, each of the covenants set forth in Section 4(C).
Section 10. Events of Default.
Each of the following shall constitute an "Event of Default"
hereunder:
A. Failure of either Borrower to (i) make any payment of
interest or principal or any other sum which has become due, whether by
acceleration or otherwise, under the terms of the Secured Note, this Agreement,
any warehouse and security agreement or any other document evidencing or
securing indebtedness of either Borrower to the Lender or to any affiliate of
the Lender, or (ii) pay or deliver any Restoration Amount.
B. Any "event of default" or any occurrence which with the
passage of time would become an "event of default" by either Borrower or the
Guarantor under any agreement relating to any indebtedness of either Borrower or
the Guarantor to any other lender.
C. Any default of any term, condition or agreement or any
breach of any representation or warranty of the Guarantor under the Guaranty.
D. Assignment or attempted assignment by the Borrowers of this
Agreement or any rights hereunder, without first obtaining the specific written
consent of the Lender, or the granting by the Borrowers of any security
interest, lien or other encumbrance on any Collateral to other than the Lender.
E. The filing by either Borrower or the Guarantor of a
petition for liquidation, reorganization, arrangement or adjudication as a
bankrupt or similar relief under the bankruptcy, insolvency or similar laws of
the United States or any state or territory thereof or of any foreign
jurisdiction; the failure of either Borrower or the Guarantor to secure
dismissal of any such petition filed against it within thirty (30) days of such
filing; the making of any general assignment by either Borrower or the Guarantor
for the benefit of creditors; the appointment of a receiver or trustee for
either Borrower or the Guarantor, or for any part of either Borrower's or the
Guarantor's assets; the institution by either Borrower or the Guarantor of any
other type of insolvency proceeding (under the Bankruptcy Code or otherwise) or
of any formal or informal proceeding, for the dissolution or liquidation of,
settlement of claims against, or winding up of the affairs of, either Borrower
or the Guarantor; the institution of any such proceeding against either Borrower
or the Guarantor if such party shall fail to secure dismissal thereof within
thirty (30) days thereafter; the consent by either Borrower or the Guarantor to
any type of insolvency proceeding against either Borrower or the Guarantor
(under the Bankruptcy Code or otherwise); the occurrence of any event or
existence of any condition which could be the ground, basis or cause for any
proceeding or petition described in this Section 10.
F. Any materially adverse change in the financial condition of
either Borrower or any of its Affiliates or the existence of any other condition
which, in the Lender's sole determination, constitutes an impairment of either
Borrower's ability to perform its obligations under this Agreement or the
Secured Note.
12
<PAGE>
G. Failure by either Borrower to service the Mortgage Loans in
substantial compliance with the servicing requirements set forth in Section 7
hereof.
H. A breach by either Borrower of any representation, warranty
or covenant set forth in Section 4(A), 4(C) or Section 9 hereof or a use by
either Borrower of the proceeds of the Loan for a purpose other than as set
forth in Section 1(A) hereof.
Section 11. Remedies Upon Default.
A. Upon the happening of one or more Events of Default, the
Lender may (x) refuse to make further Advances hereunder and (y) immediately
declare the principal of the Secured Note then outstanding to be immediately due
and payable, together with all interest thereon and fees and expenses accruing
under this Agreement; provided that, upon the occurrence of the Event of Default
referred to in Section 10(D), such amounts shall immediately and automatically
become due and payable without any further action by any person or entity. Upon
such declaration or such automatic acceleration, the balance then outstanding on
the Secured Note shall become immediately due and payable without presentation,
demand or further notice of any kind to the Borrowers.
B. Upon the happening of one or more Events of Default, the
Lender shall have the right to obtain physical possession, and to commence an
action to obtain physical possession, of all files of the Borrowers relating to
the Collateral and all documents relating to the Collateral which are then or
may thereafter come in to the possession of the Borrowers or any third party
acting for the Borrowers. The Lender shall be entitled to specific performance
of all agreements of the Borrowers contained in this Agreement. The Borrowers
and the Lender hereby acknowledge that the Lender's right to obtain physical
possession of the Collateral is deemed for all purposes to be equivalent to the
rights of "seizure of property or maintenance or continuation of perfection of
an interest in property" as specified under Bankruptcy Code Sections 362(b) and
546(b)(2).
C. Upon the happening of one or more Events of Default, the
Lender shall have the right to direct all servicers then servicing any Pledged
Mortgage Loans to remit all collections on the Pledged Mortgage Loans to the
Lender, and if any such payments are received by either Borrower, such Borrower
shall not commingle the amounts received with other funds of such Borrower and
shall promptly pay them over to the Lender. In addition, the Lender shall have
the right to dispose of the Collateral as provided herein, or as provided in the
other documents executed in connection herewith, or in any commercially
reasonable manner, or as provided by law. Such disposition may be on either a
servicing-released or a servicing-retained basis. The Lender shall be entitled
to place the Mortgage Loans which it recovers after any default in a pool for
issuance of mortgage-backed securities at the then-prevailing price for such
securities and to sell such securities for such prevailing price in the open
market as a commercially reasonable disposition of Collateral, subject to the
applicable requirements of the New York UCC. The Lender shall also be entitled
to sell any or all of such Mortgage Loans individually for the prevailing price
as a commercially reasonable disposition of Collateral subject to the applicable
requirements of the New York UCC. The specification in this Section of manners
of disposition of collateral as being commercially reasonable shall not preclude
the use of other commercially reasonable methods (as contemplated by the New
York UCC) at the option of the Lender.
D. Following the occurrence and during the continuance of an
Event of Default, interest shall accrue on the Loan at a default interest rate
of LIBOR plus 5.00%.
13
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Section 12. Indemnification.
Each of the Borrowers agrees to hold the Lender harmless from
and indemnifies the Lender against all liabilities, losses, damages, judgments,
costs and expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender relating to or arising out of this Agreement, the Custodial
Agreement, the Secured Note, the Guaranty or any transaction contemplated hereby
or thereby resulting from anything other than the Lender's gross negligence or
willful misconduct. Each of the Borrowers also agrees to reimburse the Lender
for all reasonable expenses in connection with the enforcement of this
Agreement, the Custodial Agreement, the Secured Note and the Guaranty, including
without limitation the reasonable fees and disbursements of counsel. Each of the
Borrowers's agreements in this Section shall survive the payment in full of the
Secured Note and the expiration or termination of this Agreement. Each of the
Borrowers hereby acknowledges that, notwithstanding the fact that the Secured
Note is secured by the Collateral, the obligations of such Borrower under the
Secured Note are recourse obligations of such Borrower.
Section 13. Power of Attorney.
The related Borrower hereby authorizes the Lender, at such
Borrower's expense, to file such financing statement or statements relating to
the Collateral without such Borrower's signature thereon as the Lender at its
option may deem appropriate, and appoints the Lender as such Borrower's
attorney-in-fact to execute any such financing statement or statements in such
Borrower's name and to perform all other acts which the Lender deems appropriate
to perfect and continue the security interest granted hereby and to protect,
preserve and realize upon the Collateral, including, but not limited to, the
right to endorse notes, complete blanks in documents, transfer servicing, and
sign assignments on behalf of such Borrower as its attorney-in-fact. This Power
of Attorney is coupled with an interest and is irrevocable without the Lender's
consent. Notwithstanding the foregoing, the power of attorney hereby granted may
be exercised only during the occurrence and continuance of any Event of Default
hereunder.
Section 14. Agreement Constitutes Security Agreement.
This Agreement is intended by the parties hereto to be
governed by New York Law, and to constitute a security agreement within the
meaning of the New York UCC.
Section 15. Lender May Act Through Affiliates.
The Lender may, from time to time, designate one or more
affiliates for the purpose of performing any action hereunder.
Section 16. Notices.
All demands, notices and communications relating to this
Agreement shall be in writing and shall be deemed to have been duly given if
mailed, by registered or certified mail, return receipt requested, or by
overnight courier, or, if by other means, when received by the other party or
parties at the address shown below, or such other address as may hereafter be
furnished to the other party or parties by like notice. Any such demand, notice
or communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
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If to ABC:
Anthony J. Santilli
Chairman
American Business Credit, Inc.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
Phone Number: (610) 668-2440
Fax Number: (610) 668-1468
with a copy to:
Lawrence F. Flick, II, Esq.
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, Pennsylvania 19103-2599
Phone Number: 215-569-5500
Fax Number: 215-569-5555
If to Upland:
Anthony J. Santilli
Chairman
HomeAmerican Credit, Inc.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
Phone Number: (610) 668-2440
Fax Number: (610) 668-1468
with a copy to:
Lawrence F. Flick, II, Esq.
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, Pennsylvania 19103-2599
Phone Number: 215-569-5500
Fax Number: 215-569-5555
If to the Lender:
Prudential Securities Credit Corporation
One Seaport Plaza, 27th Floor
Treasury Department
New York, New York 10292
Attention: Elizabeth Castagna
Phone Number: 212-214-7772
Fax Number:212-214-7572
With copies to:
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Attention: Mr. Len Blum
Phone Number: 212-778-1397
Fax Number: 212-778-7401
15
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Section 17. Severability.
Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization, without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
Section 18. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
together constitute one and the same instrument.
Section 19. Certain Definitions.
The following capitalized terms are defined in the
corresponding sections specified below:
"Advance" - Section 1(A)(1).
"Affiliate" - Section 4(5).
"Agreement" - Introductory Clause.
"Borrowers" - Introductory Clause.
"Collateral" - Section 3.
"Collateral Deficiency Situation" - Section 1(B)(2).
"Custodian" - Section 3.
"Custodial Agreement" - Section 3.
"Custodian's Certification" - Section 1(A)(2)(iii).
"Cut-Off Date" - Section 1(B)(2).
"Event of Default" - Section 9.
"Funding Date" - Section 1(A)(2).
"Guarantor" - Section 1(A)(2)(vii).
"Guaranty" - Section 1(A)(2)(vii)
"Lien" - Section 4.
"Lender" - Introductory Clause.
"LIBOR" - Section 1(A)(3).
"Loan" - Section 1(A)(1).
"Market Value" - Section 1(B)(2).
"Maturity Date" - Section 1(B)(2).
"Mortgage Loans" - Section 1(A)(1).
"Mortgage Loan Schedule" - Section 2(A).
"NY UCC" - Section 1(E)(1).
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"97-1 Securitization" - Section 1(B) (within the definition
of "Maturity Date" set forth following subsection (2) thereof).
"Permitted Lien" - Section 4.
"Pledged Mortgage Loans" - Section 1(B)(2).
"PSI" - Recitals.
"Purchase Agreements" - Section 2(B)(i).
"Restoration Amount" - Section 1(B)(2).
"Secured Note" - Section 1(F).
"Secured Obligations" - Section 3.
"Securitization" - Recitals.
"Supplemental Mortgage Loan Schedule" - Section 9(A).
17
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IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
HOMEAMERICAN CREDIT, INC.
d/b/a UPLAND MORTGAGE
By: /s/ Anthony J. Santilli, Jr.
--------------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
AMERICAN BUSINESS CREDIT, INC.
By: /s/ Beverly Santilli
--------------------------------------
Name: Beverly Santilli
Title: President
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By: /s/ Jeffrey French
--------------------------------------
Name: Jeffrey French
Title: Vice President
18
<PAGE>
Exhibit A
SECURED NOTE
Dated as of June 9, 1997
FOR VALUE RECEIVED, the undersigned, HOMEAMERICAN CREDIT, INC.
doing business as UPLAND MORTGAGE, a corporation organized under the laws of the
State of Pennsylvania, whose address is 111 Presidential Boulevard, Bala Cynwyd,
Pennsylvania 19004 ("Upland") and AMERICAN BUSINESS CREDIT, INC., a corporation
organized under the laws of the State of Pennsylvania, whose address is 111
Presidential Boulevard, Bala Cynwyd, Pennsylvania 19004 ("ABC", and together
with Upland, the "Borrowers"), jointly and severally promise to pay to the order
of PRUDENTIAL SECURITIES CREDIT CORPORATION, a Delaware corporation, whose
address is One New York Plaza, New York, New York 10292 (the "Lender") on or
before the Maturity Date the amount then outstanding (including accrued
interest) under that certain First Amended and Restated Interim Warehouse and
Security Agreement dated as of June 9, 1997 (the "Agreement"). Initially, the
maximum principal amount which may be outstanding is $50,000,000 (as such amount
may be amended from time to time by a Credit Increase Confirmation and Note
Amendment). Capitalized terms used herein and not defined herein shall have
their respective meanings as set forth in the Agreement.
The holder of this Note is authorized to record the date and
amount of each Advance and the date and amount of each repayment of principal
thereof on the schedule to be maintained by the Lender (which schedule may be
obtained upon the Borrowers' request), and any such recordation shall constitute
prima facie evidence of the accuracy of the amount so recorded; provided that
the failure of the holder hereof to make such recordation (or any error in such
recordation) shall not affect the obligations of the Borrowers hereunder or
under the Agreement.
MAXIMUM RATE OF INTEREST: It is intended that the rate of
interest herein shall never exceed the maximum rate, if any, which may be
legally charged on the Loan evidenced by this Note ("Maximum Rate"), and if the
provisions for interest contained in this Note would result in a rate higher
than the Maximum Rate, interest shall nevertheless be limited to the Maximum
Rate and any amounts which may be paid toward interest in excess of the Maximum
Rate shall be applied to the reduction of principal, or, at the option of the
Lender, returned to the Borrowers.
DUE DATE: The Loan evidenced hereby not paid before the
Maturity Date shall be due and payable on the Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all
notices to the Lender required or authorized hereby shall be given, at the
office of the Lender at the address designated in the heading of this Note, or
to such other place as the Lender may from time to time direct by written notice
to the Borrowers.
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable
hereunder are payable by wire transfer in immediately available funds to the
account number specified by the Lender, in lawful money of the United States.
Payments remitted by the Borrowers via wire transfer initiated after 1:00 p.m.
New York City time shall be deemed to be received on the next business day. The
Borrowers agree to pay all costs of collection when incurred, including, without
limiting the generality of the foregoing, reasonable attorneys' fees through
appellate proceedings, and to perform and comply with each of the covenants,
conditions, provisions and agreements contained in every instrument now
evidencing or securing said indebtedness.
SECURITY: This Note is issued pursuant to the Agreement and is
secured by a pledge of the collateral described therein. Notwithstanding the
pledge of the collateral, each of the Borrowers hereby acknowledges, admits and
agrees that the Borrower's obligations under this Note are recourse obligations
of such Borrower to which such Borrower pledges its full faith and credit.
DEFAULTS: Upon the happening of an Event of Default (as
defined in the Agreement), the Lender shall have all rights and remedies set
forth in the Agreement.
The failure to exercise any of the rights and remedies set
forth in the Agreement shall not constitute a waiver of the right to exercise
the same or any other option at any subsequent time in respect of the same event
or any other event. The acceptance by the Lender of any payment hereunder which
is less than payment in full of all amounts due and payable at the time of such
payment shall not constitute a waiver of the right to exercise any of the
foregoing rights and remedies at that time or at any subsequent time or nullify
any prior exercise of any such rights and remedies without the express consent
of Lender, except as and to the extent otherwise provided by law.
A-1
<PAGE>
WAIVERS: Each of the Borrowers waives diligence, presentment,
protest and demand and also notice of protest, demand, dishonor and nonpayments
of this Note, and expressly agrees that this Note, or any payment hereunder, may
be extended from time to time, and consents to the acceptance of further
collateral, the release of any collateral for this Note, the release of any
party primarily or secondarily liable hereon, and that it will not be necessary
for the Lender, in order to enforce payment of this Note, to first institute or
exhaust Lender's remedies against such Borrower or any other party liable hereon
or against any collateral for this Note. None of the foregoing shall affect the
liability of such Borrower. No extension of time for the payment of this Note,
or an installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrowers, even if the Borrowers are not a party to such
agreement; provided, however, that the Lender and the Borrowers, by written
agreement between them, may affect the liability of the Borrowers.
TERMINOLOGY: If more than one party joins in the execution of
this Note, the covenants and agreements herein contained shall be the joint and
several obligation of each and all of them and of their respective heirs,
executors, administrators, successors and assigns, and relative words herein
shall be read as if written in the plural when appropriate. Any reference herein
to the Lender shall be deemed to include and apply to every subsequent holder of
this Note. Words of masculine or neuter import shall be read as if written in
the neuter or masculine or feminine when appropriate.
AGREEMENT: Reference is made to the Agreement for provisions
as to Advances, rates of interest, mandatory principal repayments, collateral
and acceleration. If there is any conflict between the terms of this Note and
the terms of the Agreement, the terms of the Agreement shall control.
APPLICABLE LAW: This Note shall be governed by and construed
under the laws of the State of New York, the laws of which the Borrowers hereby
expressly elect to apply to this Note. The Borrowers agree that any action or
proceeding brought to enforce or arising out of this Note may be commenced in
the Supreme Court of the State of New York, or in the District Court of the
United States for the Southern District of New York.
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE
By:__________________________________________
Name:
Title:
AMERICAN BUSINESS CREDIT, INC.
By:___________________________________________
Name:
Title:
A-2
<PAGE>
Exhibit E
FORM OF GUARANTY
THIS GUARANTY is given as of the 9th day of June, 1997 by
AMERICAN BUSINESS FINANCIAL SERVICES, INC. (the "Guarantor"), a corporation
organized and existing under the laws of the State of Pennsylvania and having
its principal office at 111 Presidential Boulevard, Bala Cynwyd, Pennsylvania
19004.
WHEREAS, Prudential Securities Credit Corporation (the
"Lender") has entered into an First Amended and Restated Interim Warehouse and
Security Agreement dated as of June 9, 1997 (the "Warehouse Agreement") with
HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland") and American Business
Credit, Inc. ("ABC", and together with Upland, the "Borrowers") (capitalized
terms not defined herein shall have the meanings set forth in the Warehouse
Agreement, unless otherwise noted) providing for a loan by Lender to the
Borrowers secured by certain Mortgage Loans; and
WHEREAS, the Lender and the Borrowers have entered into a
First Amended and Restated Custodial Agreement with The Chase Manhattan Bank
(the "Custodian") dated as of June 9, 1997 (the "Custodial Agreement") whereby
the Custodian agrees to act as Custodian on behalf of the Borrowers with respect
to the Mortgage Loans; and
WHEREAS, the Guarantor represents that it indirectly owns all
of the stock of the Borrowers and is financially interested in its affairs and
expects to derive advantage from the transactions contemplated by each of the
Warehouse Agreement and the Custodial Agreement;
NOW, THEREFORE, to induce the Lender to enter into the
transactions with the Borrowers contemplated by the Warehouse Agreement and the
Custodial Agreement and for other good and valuable consideration receipt of
which is hereby acknowledged, the Guarantor hereby agrees as follows:
1. The Guarantor hereby unconditionally and irrevocably
guaranties to the Lender the full and complete payment when due and performance
of each of the Borrowers' obligations under the Warehouse Agreement, every
Advance evidenced by the Secured Note issued pursuant to the Warehouse
Agreement, and the Custodial Agreement. In addition, the Guarantor agrees that
in the event that either of the Borrowers defaults in the performance of or
payment when due of any or all obligations or sums hereby guaranteed, the
Guarantor shall forthwith pay such sums or perform such obligations. All amounts
payable by the Guarantor to the Lender hereunder shall be paid in immediately
available funds in U.S. Dollars and at the place and otherwise in the manner and
on the terms required by the Warehouse Agreement or, if so specified and
applicable, the Custodial Agreement. This is a Guaranty of payment and not of
collection. This Guaranty shall be a continuing Guaranty and shall remain in
full force and effect until all the obligations of the Borrower hereby
guarantied are paid or performed in full. The Guarantor's obligations under this
Guaranty shall be reinstated and be continued in full force and effect if at any
time any payment received by the Lender under the Warehouse Agreement or the
Custodial Agreement is invalidated, declared to be fraudulent or preferentially
set aside and/or required to be repaid by the Lender.
E-1
<PAGE>
2. The Guarantor hereby expressly waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Guaranty, notices of sale, surrender or other handling or
disposition of assets subject to the Warehouse Agreement or the Custodial
Agreement, any requirement that the Lender exhaust any right, power or remedy or
take any action against the Borrowers or against any assets subject to the
Warehouse Agreement or the Custodial Agreement, and other formalities of any
kind. The obligation of the Guarantor hereunder is absolute and unconditional
irrespective of the genuineness, legality, validity, regularity or
enforceability of the Warehouse Agreement, the Custodial Agreement, or any other
agreement, instrument or document contemplated therein or thereby and
irrespective of the obligation of any other party or person, and shall not in
any manner be affected by reason of any action taken or not taken by the Lender,
which action or inaction is herein consented and agreed to, or of any lack of
prior enforcement or retention of any rights against the Borrowers, the
Guarantor or any other person or property. The Guarantor hereby waives, to the
fullest extent permitted by applicable law, all defenses of a surety to which it
may be entitled by statute or otherwise. The Lender may neglect or forbear to
enforce payment or performance hereunder, under the Warehouse Agreement, the
Custodial Agreement, or under any other agreement, instrument or document
contemplated therein or thereby, or waive, amend or otherwise alter the terms of
the Warehouse Agreement or the Custodial Agreement in any manner, or release or
cause the release of any assets subject to the Warehouse Agreement, in each case
without in any way affecting or impairing the liability of the Guarantor
hereunder.
3. The Guarantor hereby waives all rights of subrogation,
exoneration, reimbursement or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code) or otherwise by reason of any payment by it
hereunder and further agrees with the Borrowers for the benefit of its creditors
that any such payment by it shall constitute a contribution of capital by the
Guarantor to the related Borrower.
4. Any indebtedness of the Borrowers now or hereafter held by
Guarantor is hereby subordinated to any obligations of the Borrowers to the
Lender under the Warehouse Agreement and the Custodial Agreement.
5. If an Event of Termination under the Warehouse Agreement or
an Event of Default under the Custodial Agreement shall have occurred and be
continuing, the Guarantor agrees that, as between the Guarantor and the Lender,
the obligations of the Borrowers guaranteed hereunder may be declared to be due
for purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any such declaration as against
the Borrowers and that, in the event of any such declaration (or attempted
declaration), such obligations shall forthwith become due by the Guarantor for
purposes of this Guaranty.
6. All of the Lender's rights and remedies shall be cumulative
and any failure of the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right any
time and from time to time thereafter.
7. All notices, demands and other communications hereunder
shall be given in writing and delivered or telefaxed (i) to the Guarantor, at
111 Presidential Boulevard, Bala Cynwyd, Pennsylvania 19004, Attention: Anthony
J. Santilli, Facsimile: (610) 668-1468, and (ii) to the Lender at Prudential
Securities Credit Corporation, One Seaport Plaza, 27th Floor, Treasury
Department, New York, New York, 10292, Attention: Elizabeth Castagna, Facsimile:
(212) 214-7572, and shall be effective upon actual receipt.
8. This Guaranty shall inure to the benefit of the Lender, its
successors, assigns and any person to whom the Lender may grant any interest in
any of the Secured Note or the Mortgage Loans, and shall be binding upon the
Guarantor, its successors, heirs, executors, administrators, legal
representatives and assigns.
E-2
<PAGE>
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's stated net worth less intangible
assets shall not be less than $22,000,000; (ii) the Guarantor shall maintain a
minimum of $15,000,000 of outstanding subordinated debentures maturing in more
than one year; (iii) the Guarantor's minimum adjusted capital shall not be less
than $37,000,000, such amount being the sum of (x) the Guarantor's stated net
worth less intangible assets and (y) the Guarantor's outstanding subordinated
debentures maturing in more than one year; (iv) the Guarantor's leverage ratio
shall not exceed (a) 3.5:1 for the period from April 1, 1997 through June 30,
1997 and (b) 3.75:1 for the period from July 1, 1997 through September 30, 1997,
such ratio being the ratio of (x) the excess of (A) the Guarantor's total
liabilities over (B) outstanding subordinated debentures maturing in more than
one year, to (y) the sum of (A) the Guarantor's stated net worth less intangible
assets and (B) outstanding subordinated debentures maturing in more than one
year; and (v) the subordinated debentures shall be subordinate to the
Guarantor's obligations hereunder.
10. As long as this Guaranty is in effect, Guarantor shall (i)
promptly upon preparation, but in no event later than 45 days following the end
of its first three fiscal quarters, deliver to Lender its unaudited
company-prepared financial statements as of the end of such fiscal quarter,
prepared in accordance with GAAP, and (ii) promptly upon preparation, but in no
event later than 90 days following the end of its fourth fiscal quarter, deliver
to Lender its audited and certified financial statements, prepared in accordance
with GAAP, as of the end of and for the most recently ended fiscal year, which
audits and certification shall be prepared by a nationally recognized
independent accounting firm or by a regionally recognized independent accounting
firm with the prior written consent of Lender, which consent shall not be
unreasonably withheld. In all cases, financial statements shall include, without
limitation, a balance sheet, a profit and loss statement and a statement of cash
flows. In conjunction with the delivery of each of the financial statements to
be delivered by the Guarantor pursuant to this Paragraph 10, the Guarantor shall
deliver to the Lender an officer's certificate of the Guarantor certifying that,
as of the date of delivery of such financial statements, the Guarantor is in
compliance with all the terms of this Guaranty including, without limitation,
each of the covenants set forth in Paragraph 9.
11. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAWS RULES THEREOF. This Guaranty may not be modified, altered or
amended except by a writing signed by both the Guarantor and the Lender.
12. THE GUARANTOR IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED
IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT WHICH IS RELATED TO ANY MATTER CONTAINED IN THIS GUARANTY,
AND THE GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION,
DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT PROVIDED THAT SERVICE
OF PROCESS IS MADE BY ANY LAWFUL MEANS, THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM OR THAT VENUE IN ANY SUCH COURT IS IMPROPER. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE GUARANTOR IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
GUARANTY OR ANY MATTER ARISING HEREUNDER.
E-3
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the day and year first above written.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
By:______________________________________
Name:
Title:
E-4
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 1
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT
AND SECURED NOTE
Dated as of September 30, 1997
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland") and
American Business Credit, Inc. ("ABC", and together with Upland, the
"Borrowers"), (y) the Secured Note, dated June 9, 1997 (the "Note"), from the
Borrowers to the Lender, and (z) the Guaranty, dated June 9, 1997 (the
"Guaranty"), from the Borrowers' parent, American Business Financial Services,
Inc. ("ABFS"), to the Lender.
Section 1. Amendment of the Interim Warehouse Agreement and Note.
(a) The "Maturity Date" referenced in the Interim Warehouse
Agreement and in the Note is hereby amended to be the earliest
of (i) December 31, 1997 and (ii) the date on which a
Securitization occurs (other than the ABFS Mortgage Loan Trust
1997-2 Securitization (the "1997-2 Securitization")).
(b) All references to the "1997-1 Securitization" in the Interim
Warehouse Agreement and in the Note are hereby amended to be
references to the "1997-2 Securitization".
Section 2. Amendment of the Guaranty.
(a) Section 9 of the Guaranty is hereby deleted in its
entirety and replaced with the following:
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's stated net worth
less intangible assets shall not be less that $27,000,000;
(ii) the Guarantor shall maintain a minimum of $15,000,000 of
outstanding subordinated debentures maturing in more than one
year; (iii) the Guarantor's minimum adjusted capital shall not
be less than $42,000,000, such amount being the sum of (x) the
Guarantor's stated net worth less intangible assets and (y)
the Guarantor's outstanding subordinated debentures maturing
in more than one year; (iv) the Guarantor's leverage ratio
shall not exceed 3.75:1, such ratio being the ratio of (x) the
excess of (A) the Guarantor's total liabilities over (B)
outstanding subordinated debentures maturing in more than one
year, to (y) the sum of (A) the Guarantor's stated net worth
less intangible assets and (B) outstanding subordinated
debentures maturing in more than one year; and (v) the
subordinated debentures shall be subordinate to the
Guarantor's obligations hereunder.
Section 3. Confirmation of the Interim Warehouse Agreement, Note and
Guaranty.
<PAGE>
As amended by Section 1 and Section 2 hereof, all provisions of the
Interim Warehouse Agreement, the Note and the Guaranty, are reconfirmed as of
the date hereof. Each of the Borrowers and ABFS, in addition, hereby reconfirms
and remakes as of the date hereof each and every one of its representations,
warranties and covenants as set forth in the Interim Warehouse Agreement, the
Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS CREDIT, INC.
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
HOMEAMERICAN CREDIT, INC. D/B/A
UPLAND MORTGAGE
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By: /s/ Jeffrey French
-------------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 2
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT,
SECURED NOTE AND GUARANTY
Dated as of December 22, 1997
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland") and
American Business Credit, Inc. ("ABC", and together with Upland, the
"Borrowers"), (y) the Secured Note, dated as of June 9, 1997 (the "Note"), from
the Borrowers to the Lender, and (z) the Guaranty, dated as of June 9, 1997 (the
"Guaranty"), from the Borrowers' parent, American Business Financial Services,
Inc. ("ABFS" or the "Guarantor"), to the Lender.
WHEREAS, the Lender, the Borrowers and the Guarantor desire to add the
Guarantor's Affiliate, New Jersey Mortgage and Investments Corp. ("New Jersey
Mortgage"), as a borrower under the Interim Warehouse Agreement, the Secured
Note and the Guaranty; and
WHEREAS, the Lender and the Guarantor desire to amend the financial
covenants contained in the Guaranty;
NOW THEREFORE, the Lender, the Borrowers, New Jersey Mortgage and the
Guarantor hereby amend the Interim Warehouse Agreement, the Secured Note and the
Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement.
(a) The Introductory Clause of the Interim Warehouse Agreement
is hereby deleted in its entirety and replaced with the following:
This FIRST AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY
AGREEMENT, dated as of June 9, 1997 (as amended or otherwise
modified from time to time, this "Agreement") among PRUDENTIAL
SECURITIES CREDIT CORPORATION, a Delaware corporation, having
an office at 1220 N. Market Street, Wilmington, Delaware 19801
(the "Lender"), AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation, having its principal office at 111 Presidential
Boulevard, Bala Cynwyd, Pennsylvania 19004 ("ABC"), NEW JERSEY
MORTGAGE AND INVESTMENTS CORP., a New Jersey Corporation
having its principal office at 111 Presidential Boulevard,
Bala Cynwyd, Pennsylvania 19004 ("New Jersey Mortgage"), and
HOMEAMERICAN CREDIT, INC. doing business as UPLAND MORTGAGE, a
Pennsylvania corporation, having its principal office at 111
Presidential Boulevard, Bala Cynwyd, Pennsylvania 19004
("Upland", and together with ABC and New Jersey Mortgage, the
"Borrowers").
<PAGE>
(b) The second sentence of Section 1(A)(1) of the Interim
Warehouse Agreement is hereby deleted in its entirety and replaced with the
following:
The Borrowers agree that the Loan shall be used to warehouse
fixed and adjustable rate, first or second lien, business and
consumer purpose residential mortgage loans that are to be
included in a Securitization (the "Mortgage Loans, as such
Mortgage Loans are identified to the Lender in writing and in
electronic form from time to time.
(c) Section 1(A)(2)(iii)(B) of the Interim Warehouse Agreement
is hereby deleted in its entirety and replaced with the following:
prior to the initial Advance, legal opinions from counsel
(which may be in-house counsel or counsel employed by an
affiliate) to (x) ABC and Upland in the form of Exhibit B-1
and Exhibit B-2, respectively, attached hereto, and (y) New
Jersey Mortgage in substantially similar form.
(d) The definition of "Maturity Date" in Section 1(B)(2) is hereby
deleted in its entirety and replaced with the following:
Maturity Date means, the earliest of (i) March 31, 1998 and
(ii) the date on which a Securitization occurs (other than the
ABFS Home Equity Asset Backed Certificates 1997-2
Securitization (the "97-2 Securitization")). The Maturity Date
may be extended by the Lender, in the Lender's sole and
unreviewable discretion, on any date by the execution and
delivery of a Credit Increase Confirmation and Note Amendment
in the form of Exhibit C hereto.
(e) Section 2(B)(4) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
Lender shall have received an opinion from counsel (which may
be in-house counsel or counsel employed by an affiliate) to
(x) ABC and Upland, in substantially the form of Exhibit B-1
and B-2, respectively, attached hereto, and (y) New Jersey
Mortgage in substantially similar form.
(f) Section 4(1) of the Interim Warehouse Agreement is hereby deleted
in its entirety and replaced with the following:
ABC and Upland have been duly organized and are validly
existing as corporations in good standing under the laws of
the State of Pennsylvania and New Jersey Mortgage has been
duly organized and is validly existing as a corporation in
good standing under the laws of the State of New Jersey.
(g) Section 16 of the Interim Warehouse Agreement is hereby amended to
add the following notice addressee:
<PAGE>
If to New Jersey Mortgage:
Anthony J. Santilli
Chairman
New Jersey Mortgage and Investments Corp.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
Phone Number: (610) 668-2440
Fax Number: (610) 668-1468
with a copy to:
Lawrence F. Flick, II, Esq.
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Phone Number: 215-569-5500
Fax Number: 215-569-5555
(h) All references to "either Borrower" in the Interim Warehouse
Agreement are hereby amended to be references to "any Borrower".
Section 2. Amendment of the Note.
The Note is hereby deleted in its entirety and replaced with the
Secured Note, dated as of December 22, 1997 (the "New Note"), a copy of which is
attached hereto as Exhibit C. All remaining obligations of ABC and Upland
incurred under the Note are hereby assumed by the Borrowers (including New
Jersey Mortgage) and included as obligations under the New Note.
Section 3. Amendment of the Guaranty.
(a) The first Whereas clause of the Guaranty is hereby deleted in its
entirety and replaced with the following:
WHEREAS, Prudential Securities Credit Corporation (the
"Lender") has entered in to the First Amended and Restated
Interim Warehouse and Security Agreement dated as of June 9,
1997 (the "Warehouse Agreement") with HomeAmerican Credit,
Inc. d/b/a Upland Mortgage ("Upland"), New Jersey Mortgage and
Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New
Jersey Mortgage, the "Borrowers") (capitalized terms not
defined herein shall have the meanings set forth in the
Warehouse Agreement, unless otherwise noted) providing for a
loan by the Lender to the Borrowers secured by certain
Mortgage Loans; and
(b) The second sentence of Section 1 of the Guaranty is hereby deleted
in its entirety and replaced with the following:
<PAGE>
In addition, the Guarantor agrees that in the event that any
of the Borrowers defaults in the performance of or payment
when due of any or all obligations or sums hereby guaranteed,
the Guarantor shall forthwith pay such sums or perform such
obligations.
(c) The fifth sentence of Section 1 of the Guaranty is hereby deleted
in its entirety and replaced with the following:
This Guaranty shall be a continuing Guaranty and shall remain
in full force and effect until all the obligations of the
Borrowers hereby guaranteed are paid or performed in full.
(d) Section 9 of the Guaranty is hereby deleted in its entirety and
replaced with the following:
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's Tangible Net Worth
("Tangible Net Worth" being Net Worth less intangible assets,
and "Net Worth" being the sum of (a) the book value of the
common stock, plus (b) paid in capital, plus (c) retained
earnings, plus (d) the book value of any preferred stock not
payable within five years) at all times shall not be less than
the greater of (x) $15,000,000 and (y) the sum of (A) the
Guarantor's Net Worth as of September 30, 1997, plus (B) 50%
of the positive earnings of the Guarantor subsequent to
September 30, 1997, plus (C) the net proceeds to the Guarantor
from the issuance of any common stock or preferred stock
subsequent to September 30, 1997, minus, (D) its intangible
assets; (ii) the Guarantor shall maintain a minimum of
$15,000,000 of outstanding subordinated debentures maturing in
more than one year; (iii) the Guarantor's leverage ratio shall
not exceed 3.75:1, such ratio being the ratio of (x) the
excess of (A) the Guarantor's total liabilities over (B)
outstanding subordinated debentures maturing in more than one
year, to (y) the sum of (A) the Guarantor's Tangible Net Worth
and (B) outstanding subordinated debentures maturing in more
than one year; and (v) the subordinated debentures shall be
subordinate to the Guarantor's obligations hereunder,
including, any unsecured obligations to the Lender. All
calculations made pursuant to this Section 9 shall be made in
accordance with generally accepted accounting principles.
Section 4. Confirmation of the Interim Warehouse Agreement, the Note and the
Guaranty.
As amended by Section 1, Section 2 and Section 3 hereof, all provisions
of the Interim Warehouse Agreement, the Note and the Guaranty, are reconfirmed
as of the date hereof. Each of the Borrowers (including New Jersey Mortgage) and
the Guarantor, in addition, hereby reconfirms and remakes as of the date hereof
each and every one of its representations, warranties and covenants as set forth
in the Interim Warehouse Agreement, the Note or the Guaranty, as applicable.
Section 5. Delivery of Documents.
Pursuant to Sections 1(A)(2)(iii)(B) and 2(B)(4) of the Interim
Warehouse Agreement, the opinion of counsel of New Jersey Mortgage is attached
hereto as Exhibit A-1. Pursuant to Section
<PAGE>
2(B)(2) of the Interim Warehouse Agreement, the certificate of the Secretary of
New Jersey Mortgage is attached hereto as Exhibit B-1.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<PAGE>
AMERICAN BUSINESS CREDIT, INC., as Borrower
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By: /s/ David M. Levin
-------------------------------------
Name: David M. Levin
Title: Senior Vice President-Finance and
Chief Financial Officer
<PAGE>
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/ Jeffrey French
-------------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 3
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT,
SECURED NOTE AND GUARANTY
Dated as of March 30, 1998
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland"), New
Jersey Mortgage and Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New Jersey Mortgage,
the "Borrowers"), as amended by Credit Increase Confirmation and Note Amendment
No. 1, dated September 30, 1997 and Credit Increase Confirmation and Note
Amendment No. 2, dated December 22, 1997, (y) the Secured Note, dated as of
December 22, 1997 (the "Note"), from the Borrowers to the Lender, and (z) the
Guaranty, dated as of June 9, 1997 (the "Guaranty"), from the Borrowers' parent,
American Business Financial Services, Inc. ("ABFS" or the "Guarantor"), to the
Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement; and
WHEREAS, the Lender and the Guarantor desire to amend the financial
covenants contained in the Guaranty;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement.
(a) Section 1(A)(1) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
The Lender agrees to lend to the Borrowers up to $50,000,000
(such borrowing, the "Loan") to be made in one or more
advances (each, an "Advance"); provided, however, that, in no
event shall the outstanding debt owed to the Lender by the
Borrowers or any of their Affiliates (including, without
limitation, American Business Leasing, Inc. and Federal
Leasing Corp.) under any loan agreement (including, without
limitation, this Agreement) exceed $50,000,000; provided,
further, that, at any time when funds are on deposit in a
Pre-Funding Account (as defined herein), the amount of the
Loan shall not exceed the amount on deposit in such Pre-
Funding Account. The Borrower agrees that the Loan shall be
used to warehouse fixed and adjustable rate, first or second
lien, business and consumer purpose residential mortgage loans
that are to be included in a Securitization (the "Mortgage
Loans"), as such Mortgage Loans are identified to the Lender
in writing and in electronic form from time to time. Such
Mortgage Loans may be (a) included at the time of closing of
the Securitization or (b) purchased by the Securitization
trust subsequent to
<PAGE>
closing with funds on deposit in an account (a "Pre-Funding
Account") relating to the Securitization and designated for
such purpose. All Mortgage Loans financed hereunder shall be
closed loans; i.e., this facility shall not be used for "wet"
or "table" fundings. The Lender may refuse to lend against any
Mortgage Loan(s) which the Lender reasonably believes will not
be eligible for inclusion in a securitized pool, similar to
the pool included in the 98-1 Securization, either (x) due to
the characteristics of such Mortgage Loan or (y) due to the
expected aggregate characteristics of the Mortgage Loans.
(b) The definition of "Maturity Date" in Section 1(B)(2) is hereby
deleted in its entirety and replaced with the following:
Maturity Date means, (i) if no Pre-Funding Account is utilized
in the Securitization the earlier of (a) June 30, 1998 and
(ii) the date on which a Securitization occurs (other than the
ABFS Home Equity Loan Trust 1998- 1 Securitization (the "98-1
Securitization")) and (ii) if a Pre-Funding Account is
utilized in the Securitization, the earlier of (a) September
30, 1998 and (b) the date on which the funds in the
Pre-Funding Account are reduced to zero. The Maturity Date may
be extended by the Lender, in the Lender's sole and
unreviewable discretion, on any date by the execution and
delivery of a Credit Increase Confirmation and Note Amendment
in the form of Exhibit C hereto.
(c) The last sentence of Section 3 of the Interim Warehouse Agreement
is hereby deleted in its entirety and replaced with the following:
The related Borrower hereby pledges all of its right, title
and interest in and to the Collateral to the Lender to secure
the repayment of principal of and interest on the Loan and all
other amounts owing by the Borrowers to the Lender hereunder
or under any other agreement or arrangement among either
Borrower or its Affiliates and the Lender or its affiliates
now existing or hereafter entered into by such parties
(collectively, the "Secured Obligations").
(d) Section 10(C) of the Interim Warehouse Agreement is hereby deleted
in its entirety and replaced with the following:
Any default of any term, condition or agreement or
any breach of any representation or warranty of the
Guarantor under the Guaranty or any other guaranty
executed by the Guarantor in favor of the Lender or
its affiliates.
(e) The following is hereby added as Section 10(I) of the Interim
Warehouse Agreement:
Any "event of default" under any agreement between either
Borrower or any of their Affiliates and the Lender or any of
its affiliates.
Section 2. Amendment of the Guaranty.
<PAGE>
(a) Section 9 of the Guaranty is hereby deleted in its entirety and
replaced with the following:
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's Tangible Net Worth
("Tangible Net Worth" being Net Worth less intangible assets,
less receivables from Affiliates, and "Net Worth" being the
sum of (a) the book value of the common stock, plus (b) paid
in capital, plus (c) retained earnings, plus (d) the book
value of any preferred stock not payable within five years) at
all times shall not be less than the sum of (A) $15,000,000,
(B) 75% of the positive earnings of the Guarantor subsequent
to December 31, 1997, plus (C) the net proceeds to the
Guarantor from the issuance of any common stock or preferred
stock subsequent to December 31, 1997; (ii) the Guarantor
shall maintain a minimum of $25,000,000 of outstanding
subordinated debentures maturing in more than one year; (iii)
the Guarantor's leverage ratio shall not exceed 3.75:1, such
ratio being the ratio of (x) the excess of (A) the Guarantor's
total liabilities over (B) outstanding subordinated debentures
maturing in more than one year, to (y) the sum of (A) the
Guarantor's Tangible Net Worth and (B) outstanding
subordinated debentures maturing in more than one year; (iv)
the subordinated debentures shall be subordinate to the
Guarantor's obligations hereunder, including, any unsecured
obligations to the Lender; and (v) the Guarantor shall at no
time have guarantees outstanding in respect of obligations in
excess of $200,000,000. All calculations made pursuant to this
Section 9 shall be made in accordance with generally accepted
accounting principles.
(b) Section 10 of the Guaranty is hereby deleted in its entirety and
replaced with the following:
10. As long as this Guaranty is in effect, the Guarantor shall
(i) promptly upon preparation, but in no event later than 50
days following the end of its first three fiscal quarters,
deliver to the Lender its unaudited company-prepared financial
statements as of the end of such fiscal quarter, prepared in
accordance with GAAP, and (ii) promptly upon preparation, but
in no event later than 105 days following the end of its
fourth fiscal quarter, deliver to the Lender its audited and
certified financial statements, prepared in accordance with
GAAP, as of the end of and for the most recently ended fiscal
year, which audits and certification shall be prepared by a
nationally recognized independent accounting firm or by a
regionally recognized independent accounting firm with the
prior written consent of the Lender, which consent shall not
be unreasonably withheld. In all cases, financial statements
shall include, without limitation, a balance sheet, a profit
and loss statement and a statement of cash flows. In
conjunction with the delivery of each of the financial
statements to be delivered by the Guarantor pursuant to this
Paragraph 10, the Guarantor shall deliver to the Lender (a)
and officer's certificate of the Guarantor certifying that, as
of the date of delivery of such financial statement, the
Guarantor is in compliance with all the terms of this Guaranty
including, without limitation, each of the covenants set forth
in Paragraph 9, (b) a schedule setting forth by month of
maturity all outstanding subordinated debentures of the
Guarantor, and (c)
<PAGE>
a schedule of other receivables and other assets of the
Guarantor. Such Certificate shall, as appropriate, set forth
any calculations necessary to determine such compliance.
Section 3. Confirmation of the Interim Warehouse Agreement, the Note and the
Guaranty.
As amended by Section 1 and Section 2 hereof, all provisions of the
Interim Warehouse Agreement and the Guaranty, are reconfirmed as of the date
hereof. Each of the Borrowers and the Guarantor, in addition, hereby reconfirms
and remakes as of the date hereof each and every one of its representations,
warranties and covenants as set forth in the Interim Warehouse Agreement, the
Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS CREDIT, INC.,
as Borrower
By: /s/ Beverly Santilli
-------------------------------------
Name: Beverly Santilli
Title: President
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By: /s/ Jeffrey M. Ruben
-------------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By: /s/ Jeffrey M. Ruben
-------------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By: /s/ Anthony J. Santilli, Jr.
-------------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
<PAGE>
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/ Jeffrey French
-------------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 4
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT,
SECURED NOTE AND GUARANTY
Dated as of May 29, 1998
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland"), New
Jersey Mortgage and Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New Jersey Mortgage,
the "Borrowers"), as amended by Credit Increase Confirmation and Note Amendment
No. 1, dated as of September 30, 1997, Credit Increase Confirmation and Note
Amendment No. 2, dated as of December 22, 1997, and Credit Increase Confirmation
and Note Amendment No. 3, dated as of March 30, 1998 (y) the Secured Note, dated
as of December 22, 1997 (the "Note"), from the Borrowers to the Lender, and (z)
the Guaranty, dated as of June 9, 1997 (the "Guaranty"), from the Borrowers'
parent, American Business Financial Services, Inc.
("ABFS" or the "Guarantor"), to the Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement; and
WHEREAS, the Lender and the Guarantor desire to amend the financial
covenants contained in the Guaranty;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement.
(a) The first WHEREAS clause of the Interim Warehouse Agreement is
hereby deleted in its entirety and replaced with the following:
WHEREAS, the Lender intends to lend and the Borrowers intend
to borrow up to $100,000,000 (one hundred million dollars) to
fund the purchase of origination by the Borrowers of fixed and
floating-rate, first and second lien, business and consumer
purpose residential mortgage loans; and
(b) Section 1(A)(1) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
The Lender agrees to lend to the Borrowers up to $100,000,000
(such borrowing, the "Loan") to be made in one or more
advances (each, an "Advance"); provided, however, that, in no
event shall the outstanding debt owed to the Lender by the
Borrowers or any of their Affiliates (including, without
limitation, American Business Leasing, Inc. and
<PAGE>
Federal Leasing Corp.) under any loan agreement (including,
without limitation, this Agreement) exceed $100,000,000;
provided, further, that, at any time when funds are on deposit
in a Pre-Funding Account (as defined herein), the amount of
the Loan shall not exceed the amount on deposit in such
Pre-Funding Account. The Borrower agrees that the Loan shall
be used to warehouse fixed and adjustable rate, first or
second lien, business and consumer purpose residential
mortgage loans that are to be included in a Securitization
(the "Mortgage Loans"), as such Mortgage Loans are identified
to the Lender in writing and in electronic form from time to
time. Such Mortgage Loans may be (a) included at the time of
closing of the Securitization or (b) purchased by the
Securitization trust subsequent to closing with funds on
deposit in an account (a "Pre-Funding Account") relating to
the Securitization and designated for such purpose. All
Mortgage Loans financed hereunder shall be closed loans; i.e.,
this facility shall not be used for "wet" or "table" fundings.
The Lender may refuse to lend against any Mortgage Loan(s)
which the Lender reasonably believes will not be eligible for
inclusion in a securitized pool, similar to the pool included
in the 98-1 Securization, either (x) due to the
characteristics of such Mortgage Loan or (y) due to the
expected aggregate characteristics of the Mortgage Loans.
Section 2. Amendment of the Note.
The maximum amount of the Loan referenced in the Note shall be
$100,000,000.
Section 3. Amendment of the Guaranty.
Section 9 of the Guaranty is hereby deleted in its entirety and
replaced with the following:
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's Tangible Net Worth
("Tangible Net Worth" being Net Worth less intangible assets,
less receivables from Affiliates, and "Net Worth" being the
sum of (a) the book value of the common stock, plus (b) paid
in capital, plus (c) retained earnings, plus (d) the book
value of any preferred stock not payable within five years) at
all times shall not be less than the sum of (A) $15,000,000,
(B) 75% of the positive earnings of the Guarantor subsequent
to December 31, 1997, plus (C) the net proceeds to the
Guarantor from the issuance of any common stock or preferred
stock subsequent to December 31, 1997; (ii) the Guarantor
shall maintain a minimum of $43,000,000 of outstanding
subordinated debentures maturing in more than one year; (iii)
the Guarantor's leverage ratio shall not exceed 3.75:1, such
ratio being the ratio of (x) the excess of (A) the Guarantor's
total liabilities over (B) outstanding subordinated debentures
maturing in more than one year, to (y) the sum of (A) the
Guarantor's Tangible Net Worth and (B) outstanding
subordinated debentures maturing in more than one year; (iv)
the subordinated debentures shall be subordinate to the
Guarantor's obligations hereunder, including, any unsecured
obligations to the Lender; and (v) the Guarantor shall at no
time have guarantees outstanding in respect of obligations in
excess of $250,000,000. All calculations made pursuant to this
Section 9 shall be made in accordance with generally accepted
accounting principles.
<PAGE>
Section 4. Confirmation of the Interim Warehouse Agreement, the Note and the
Guaranty.
As amended by Section 1, Section 2 and Section 3 hereof, all provisions
of the Interim Warehouse Agreement, the Note and the Guaranty, are reconfirmed
as of the date hereof. Each of the Borrowers and the Guarantor, in addition,
hereby reconfirms and remakes as of the date hereof each and every one of its
representations, warranties and covenants as set forth in the Interim Warehouse
Agreement, the Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS CREDIT, INC., as Borrower
By: /s/ Beverly Santilli
-------------------------------------
Name: Beverly Santilli
Title: President
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By: /s/ Jeffrey M. Ruben
-------------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By: /s/ Jeffrey M. Ruben
-------------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
<PAGE>
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By: /s/ Anthony J. Santilli, Jr.
-------------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 5
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT
AND SECURED NOTE
Dated as of June 30, 1998
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland"), New
Jersey Mortgage and Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New Jersey Mortgage,
the "Borrowers"), as amended by Credit Increase Confirmation and Note Amendment
No. 1, dated as of September 30, 1997, Credit Increase Confirmation and Note
Amendment No. 2, dated as of December 22, 1997, Credit Increase Confirmation and
Note Amendment No. 3, dated as of March 30, 1998, and Credit Increase
Confirmation and Note Amendment No. 4, dated May 29, 1998, (y) the Secured Note,
dated as of December 22, 1997 (the "Note"), from the Borrowers to the Lender,
and (z) the Guaranty, dated as of June 9, 1997 (the "Guaranty"), from the
Borrowers' ultimate parent, American Business Financial Services, Inc. ("ABFS"
or the "Guarantor"), to the Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement and Note.
(a) The definition of "Maturity Date" in Section 1(B)(2) is hereby
deleted in its entirety and replaced with the following:
Maturity Date means, (i) if no Pre-Funding Account is utilized
in the Securitization the earlier of (a) July 31, 1998 and (b)
the date on which a Securitization occurs (other than the ABFS
Mortgage Loan Trust 1998-2 Securitization (the "98-2
Securitization")) and (ii) if a Pre-Funding Account is
utilized in the Securitization, the earlier of (a) September
30, 1998 and (b) the date on which the funds in the
Pre-Funding Account are reduced to zero. The Maturity Date may
be extended by the Lender, in the Lender's sole and
unreviewable discretion, on any date by the execution and
delivery of a Credit Increase Confirmation and Note Amendment
in the form of Exhibit C hereto.
(b) All references to the "98-1 Securitization" in the Interim
Warehouse Agreement, the Note and the Guaranty are hereby amended to be
references to the "98-2 Securitization".
Section 2. Confirmation of the Interim Warehouse Agreement, Note and Guaranty.
As amended by Section 1 hereof, all provisions of the Interim Warehouse
Agreement, the Note and the Guaranty, are reconfirmed as of the date hereof.
Each of the Borrowers and ABFS, in
<PAGE>
addition, hereby reconfirms and remakes as of the date hereof each and every one
of its representations, warranties and covenants as set forth in the Interim
Warehouse Agreement, the Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS CREDIT, INC., as Borrower
By:/s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By:/s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By:/s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By:/s/ Anthony J. Santilli, Jr.
-----------------------------------
Name: Anthony J. Santill, Jr.
Title: Chairman
<PAGE>
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By:/s/ Jeffrey French
-----------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 6
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT
AND SECURED NOTE
Dated as of July 31, 1998
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland"), New
Jersey Mortgage and Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New Jersey Mortgage,
the "Borrowers"), as amended by Credit Increase Confirmation and Note Amendment
No. 1, dated as of September 30, 1997, Credit Increase Confirmation and Note
Amendment No. 2, dated as of December 22, 1997, Credit Increase Confirmation and
Note Amendment No. 3, dated as of March 30, 1998, Credit Increase Confirmation
and Note Amendment No. 4, dated May 29, 1998, and Credit Increase Confirmation
and Note Amendment No. 5, dated June 30, 1998, (y) the Secured Note, dated as of
December 22, 1997 (the "Note"), from the Borrowers to the Lender, and (z) the
Guaranty, dated as of June 9, 1997 (the "Guaranty"), from the Borrowers'
ultimate parent, American Business Financial Services, Inc. ("ABFS" or the
"Guarantor"), to the Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement and Note.
The definition of "Maturity Date" in Section 1(B)(2) is hereby
deleted in its entirety and replaced with the following:
Maturity Date means, (i) if no Pre-Funding Account is utilized
in the Securitization the earlier of (a) August 31, 1998 and
(b) the date on which a Securitization occurs (other than the
ABFS Mortgage Loan Trust 1998-2 Securitization (the "98-2
Securitization")) and (ii) if a Pre-Funding Account is
utilized in the Securitization, the earlier of (a) November
30, 1998 and (b) the date on which the funds in the
Pre-Funding Account are reduced to zero. The Maturity Date may
be extended by the Lender, in the Lender's sole and
unreviewable discretion, on any date by the execution and
delivery of a Credit Increase Confirmation and Note Amendment
in the form of Exhibit C hereto.
Section 2. Confirmation of the Interim Warehouse Agreement, Note and Guaranty.
As amended by Section 1 hereof, all provisions of the Interim Warehouse
Agreement, the Note and the Guaranty, are reconfirmed as of the date hereof.
Each of the Borrowers and ABFS, in addition, hereby reconfirms and remakes as of
the date hereof each and every one of its
<PAGE>
representations, warranties and covenants as set forth in the Interim Warehouse
Agreement, the Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
AMERICAN BUSINESS CREDIT, INC., as Borrower
By:/s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By: /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By: /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
<PAGE>
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By:/s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/ Jeffrey French
-----------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 7
TO THE
FIRST AMENDED AND RESTATED
INTERIM WAREHOUSE AND SECURITY AGREEMENT
AND SECURED NOTE
Dated as of August 27, 1998
Reference is made to (x) the First Amended and Restated Interim
Warehouse and Security Agreement, dated as of June 9, 1997 (the "Interim
Warehouse Agreement") among Prudential Securities Credit Corporation (the
"Lender") and HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("Upland"), New
Jersey Mortgage and Investments Corp. ("New Jersey Mortgage"), and American
Business Credit, Inc. ("ABC", and together with Upland and New Jersey Mortgage,
the "Borrowers"), as amended by Credit Increase Confirmation and Note Amendment
No. 1, dated as of September 30, 1997, Credit Increase Confirmation and Note
Amendment No. 2, dated as of December 22, 1997, Credit Increase Confirmation and
Note Amendment No. 3, dated as of March 30, 1998, Credit Increase Confirmation
and Note Amendment No. 4, dated May 29, 1998, Credit Increase Confirmation and
Note Amendment No. 5, dated June 30, 1998, and Credit Increase Confirmation and
Note Amendment No. 6, dated July 31, 1998, (y) the Secured Note, dated as of
December 22, 1997 (the "Note"), from the Borrowers to the Lender, and (z) the
Guaranty, dated as of June 9, 1997 (the "Guaranty"), from the Borrowers'
ultimate parent, American Business Financial Services, Inc. ("ABFS" or the
"Guarantor"), to the Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement and Note.
(a) The definition of "Maturity Date" in Section 1(B)(2) is hereby
deleted in its entirety and replaced with the following:
Maturity Date means the earlier of (i) August 31, 1999 and
(ii) the date on which an Event of Default occurs. The
Maturity Date may be extended by the Lender, in the Lender's
sole and unreviewable discretion, on any date by the execution
and delivery of a Credit Increase Confirmation and Note
Amendment in the form of Exhibit C hereto.
(b) The definition of "Collateral Deficiency Situation" in Section 1 is
hereby deleted in its entirety and replaced with the following:
A Collateral Deficiency Situation shall be deemed to be
existing as of any day on which (x) the outstanding principal
amount of the Loan as of such day exceeds (y) the lesser of
(i) 98.5% of the outstanding principal balance of the Pledged
Mortgage Loans and (ii) the product of (1) the Market Value of
the Pledged Mortgage Loans (disregarding the Market Value of
any Mortgage Loans proposed to be pledged to the Lender on
such day) and
<PAGE>
.95.
(c) Section 1(B) of the Interim Warehouse Agreement is hereby deleted
in its entirety and replaced with the following:
The amount of each Advance shall not be less than $1,000,000 or greater
than the lesser of:
1. 98.5% of the aggregate outstanding principal
balance of the Mortgage Loans calculated as of the related
Cut-Off Date (or, if the Borrower is using the proceeds of the
Advance to purchase or originate the related Mortgage Loans at
their aggregate outstanding principal balance as of the
settlement date for the purchase, then their aggregate
outstanding principal balance as of such settlement date)
proposed to be pledged to the Lender in connection with such
Advance, minus, in the event that a Collateral Deficiency
Situation exists as of the date of such Advance, the
Restoration Amount as of the date of such Advance; and
2. the product of (x) the Market Value of the
Mortgage Loans proposed to be pledged to the Lender in
connection with such Advance and (y) .95, minus, in the event
that a Collateral Deficiency Situation exists as of the date
of such Advance the Restoration Amount as of the date of such
Advance. The Lender may amend the Advance rate in the Lender's
sole and unreviewable discretion, on any date by the execution
and delivery of a Credit Increase Confirmation and Note
Amendment in the form of Exhibit C hereto.
(d) Section 1(C) of the Interim Warehouse Agreement is hereby deleted
in its entirety and replaced with the following:
The Loan evidenced hereby shall mature on the Maturity Date
and all amounts outstanding hereunder shall be due and payable on the Maturity
Date. In addition, each quarter, on the earlier to occur of the last business
day of such quarter and the closing of a Securitization for such quarter, the
Loan balance shall be reduced to $5,000,000 or less. Pledged Mortgage Loans that
remain in this facility for longer than one hundred and eighty (180) days, as
measured on a cumulative basis with respect to each Pledged Mortgage Loan during
the term of this facility, shall be valued at a Market Value equal to zero. For
illustrative purposes, if a Pledged Mortgage Loan has been on the line for sixty
(60) days, is then taken off the line for five (5) days and then returned to the
line for an additional 30 days, it will be measured as ninety (90) days old
Section 2. Confirmation of the Interim Warehouse Agreement, Note and Guaranty.
As amended by Section 1 hereof, all provisions of the Interim Warehouse
Agreement, the Note and the Guaranty, are reconfirmed as of the date hereof.
Each of the Borrowers and ABFS, in addition, hereby reconfirms and remakes as of
the date hereof each and every one of its representations, warranties and
covenants as set forth in the Interim Warehouse Agreement, the Note or the
Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS CREDIT, INC., as Borrower
By: /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE, as Borrower
By: /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
NEW JERSEY MORTGAGE AND
INVESTMENTS CORP., as Borrower
By: /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
<PAGE>
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By: /s/ Anthony J. Santilli, Jr.
-----------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/ Jeffrey French
-----------------------------------
Name: Jeffrey French
Title: Vice President
<PAGE>
CREDIT INCREASE CONFIRMATION
AND NOTE AMENDMENT NO. 1
TO THE
INTERIM WAREHOUSE AND SECURITY AGREEMENT
FOR CONTRACTS, SECURED NOTE AND GUARANTY
Dated as of May 29, 1998
Reference is made to (x) the Interim Warehouse and Security Agreement
for Contracts, dated as of April 3, 1998 (the "Interim Warehouse Agreement")
among Prudential Securities Credit Corporation (the "Lender") and Federal
Leasing Corp. ("Federal Leasing") and American Business Leasing, Inc. ("ABL",
and together with Federal Leasing, the "Borrowers"), (y) the Secured Note, dated
as of April 3, 1998 (the "Note"), from the Borrowers to the Lender, and (z) the
Guaranty, dated as of April 3, 1998 (the "Guaranty"), from the Borrowers'
parent, American Business Financial Services, Inc. ("ABFS" or the "Guarantor"),
to the Lender.
WHEREAS, the Lender and the Borrowers desire to amend the Interim
Warehouse Agreement; and
WHEREAS, the Lender and the Guarantor desire to amend the financial
covenants contained in the Guaranty;
NOW THEREFORE, the Lender, the Borrowers and the Guarantor hereby amend
the Interim Warehouse Agreement, the Secured Note and the Guaranty as follows:
Section 1. Amendment of the Interim Warehouse Agreement.
Section 1(A)(1) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
The Lender agrees to lend to the Borrowers up to $50,000,000
(such borrowing, the "Loan") to be made in one or more
advances (each, an "Advance"); provided, however, that, in no
event shall the outstanding debt owed to the Lender by the
Borrowers or any of their Affiliates (including, without
limitation, American Business Credit, Inc., HomeAmerican
Credit, Inc. d/b/a Upland Mortgage and New Jersey Mortgage and
Investments Corp.) under any loan agreement (including,
without limitation, this Agreement) exceed $100,000,000;
provided, further, that, at any time when funds are on deposit
in a Pre-Funding Account (as defined herein), the amount of
the Loan shall not exceed the amount on deposit in such Pre-
Funding Account. The Borrower agrees that the Loan shall be
used to warehouse Contracts that are to be included in a
Securitization, as such Contracts are identified to the Lender
in writing and in electronic form from time to time. Such
Contracts may be (a) included at the time of closing of the
Securitization or (b) purchased by the Securitization trust
subsequent to closing with funds on deposit in an account (a
"Pre-Funding Account") relating to the Securitization and
designated for such purpose. The Lender may refuse to lend
against any Contract(s) which the Lender reasonably believes
will not be eligible for inclusion in a securitized pool
either (x) due to the characteristics of such Contract or (y)
due to the expected aggregate characteristics of the
Contracts.
<PAGE>
Section 2. Amendment of the Guaranty.
Section 9 of the Guaranty is hereby deleted in its entirety and
replaced with the following:
9. The Guarantor covenants with the Lender that, during the
term of this Guaranty: (i) the Guarantor's Tangible Net Worth
("Tangible Net Worth" being Net Worth less intangible assets,
less receivables from Affiliates, and "Net Worth" being the
sum of (a) the book value of the common stock, plus (b) paid
in capital, plus (c) retained earnings, plus (d) the book
value of any preferred stock not payable within five years) at
all times shall not be less than the sum of (A) $15,000,000,
(B) 75% of the positive earnings of the Guarantor subsequent
to December 31, 1997, plus (C) the net proceeds to the
Guarantor from the issuance of any common stock or preferred
stock subsequent to December 31, 1997; (ii) the Guarantor
shall maintain a minimum of $43,000,000 of outstanding
subordinated debentures maturing in more than one year; (iii)
the Guarantor's leverage ratio shall not exceed 3.75:1, such
ratio being the ratio of (x) the excess of (A) the Guarantor's
total liabilities over (B) outstanding subordinated debentures
maturing in more than one year, to (y) the sum of (A) the
Guarantor's Tangible Net Worth and (B) outstanding
subordinated debentures maturing in more than one year; (iv)
the subordinated debentures shall be subordinate to the
Guarantor's obligations hereunder, including, any unsecured
obligations to the Lender; and (v) the Guarantor shall at no
time have guarantees outstanding in respect of obligations in
excess of $250,000,000. All calculations made pursuant to this
Section 9 shall be made in accordance with generally accepted
accounting principles.
Section 3. Confirmation of the Interim Warehouse Agreement, the Note and the
Guaranty.
As amended by Section 1 and Section 2 hereof, all provisions of the
Interim Warehouse Agreement, the Note and the Guaranty, are reconfirmed as of
the date hereof. Each of the Borrowers and the Guarantor, in addition, hereby
reconfirms and remakes as of the date hereof each and every one of its
representations, warranties and covenants as set forth in the Interim Warehouse
Agreement, the Note or the Guaranty, as applicable.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN BUSINESS LEASING, INC.,
as Borrower
By: /s/ Beverly Santilli
-------------------------------------
Name: Beverly Santilli
Title: President
FEDERAL LEASING CORP., as Borrower
By: /s/ Jeffrey M. Ruben
-------------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
AMERICAN BUSINESS FINANCIAL
SERVICES, INC., as Guarantor
By: /s/ Anthony J. Santilli, Jr.
-------------------------------------
Name: Anthony J. Santilli, Jr.
Title: President
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By: /s/ Elizabeth W. Castagna
-------------------------------------
Name: Elizabeth W. Castagna
Title: Treasurer
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
AND
CONFIRMATION OF GUARANTY
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND CONFIRMATION OF GUARANTY
(this "Amendment") is made as of October 1, 1997, among AMERICAN BUSINESS
CREDIT, INC., a Pennsylvania corporation ("ABC"), HOMEAMERICAN CREDIT, INC., a
Pennsylvania corporation d/b/a Upland Mortgage ("HAC"), AMERICAN BUSINESS
LEASING, INC., a Pennsylvania corporation ("ABL"), NEW JERSEY MORTGAGE &
INVESTMENT CORP., a New Jersey corporation d/b/a Ocean to Ocean Financial Group,
Inc. ("NJMI") and FEDERAL LEASING CORP., a New Jersey corporation ("Federal
Leasing") (ABC, HAC, and ABL are "Co-Borrowers"); AMERICAN BUSINESS FINANCIAL
SERVICES, INC., a Delaware corporation ("Parent"); the Lenders (herein so
called) described below; and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
Administrative Agent for Lenders ("Agent").
R E C I T A L S:
A. ABC, HAC, ABL, Parent, Lenders and Agent are parties to a certain
Credit Agreement (as amended and supplemented, herein so called) dated as of
July 31, 1997.
B. Parent has executed an unconditional continuing guaranty agreement,
dated as of July 31, 1997, guarantying full payment of certain guaranteed
obligations defined therein, including without limitation, the obligations (the
"Obligation") of the Co-Borrowers arising under the Credit Agreement and related
Credit Documents (the "Guaranty Agreement").
C. Parent desires to acquire New Jersey Mortgage & Investment Corp., a
residential lender with its principal place of business in Roseland, New Jersey,
and its wholly owned subsidiary, Federal Leasing Corp., an equipment lessor with
its principal place of business in Roseland, New Jersey (the "Acquisition").
D. The Acquisition will require Parent to assume certain indebtedness
of NJMI (the "Additional Indebtedness").
E. Federal Leasing and NJMI desire to assume all rights, duties and
obligations of a Co- Borrower under the Credit Agreement and become a
Co-Borrower for all purposes under the Credit Agreement.
F. Co-Borrowers, Parent and Lenders wish to enter into this Amendment
to permit the incurrence of the Additional Indebtedness, to add NJMI and Federal
Leasing as additional Co-Borrowers under the Credit Agreement, and to make
certain other modifications to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Lenders, Agent, Co-Borrowers, and Parent
covenant and agree as follows:
<PAGE>
1. Definitions. Terms used herein and defined in the Credit Agreement shall have
the meanings set forth in the Credit Agreement, except as otherwise provided
herein. All references to "Sections" herein are references to Sections of the
Credit Agreement.
2. Consents. Agent and each Lender, subject to the terms and conditions set
forth herein, hereby consent to the Acquisition and agree and acknowledge that
(i) the Acquisition is a Permitted Acquisition under the terms of the Credit
Agreement and (ii) the indebtedness assumed by Parent in connection with the
Acquisition, up to a maximum amount of $20,000,000 of indebtedness currently
owed by NJMI and Federal Leasing, is Debt acceptable to Required Lenders and
constitutes Permitted Debt under the Credit Agreement pursuant to Section 8.1(j)
thereof. The foregoing consent is expressly conditioned upon the following terms
and conditions:
(a) within sixty (60) days following the closing of the Acquisition,
all Debt of NJMI pursuant to a working capital line of credit extended to NJMI
by Rothchild & Sons Limited shall be repaid in full and such facility shall be
terminated;
(b) promptly following the closing of the Acquisition, the Debt of NJMI
under the "Warehouse Lines of Credit" (herein so called) extended by CoreStates
Bank, N.A. and Bank of Boston, N.A. shall be refinanced with Borrowings under
the Credit Agreement and the Warehouse Lines of Credit shall be terminated;
(c) the remaining Debt assumed by Parent and not repaid pursuant to
clauses (a) and (b) above shall be either (i) Debt subordinated in right of
payment to the Obligation pursuant to subordination agreements executed by the
holders of such Debt (the "Junior Lenders") in form and substance acceptable to
Agent and its counsel (the "Subordination Agreements"), which subordinated debt
is payable to the Junior Lenders, assuming no Default Condition or Event of
Default exists, in accordance with its scheduled amortization over a five year
period, or (ii) the capital lease described on Exhibit A attached hereto.
3. Credit Agreement Amendments. The Credit Agreement shall be and hereby is
amended as follows:
(a) NJMI and Federal Leasing are each hereby added to the Credit
Agreement as a Co- Borrower and each reference in this Amendment, the Credit
Agreement and other related Credit Documents and all schedules and exhibits
thereto to Co-Borrowers shall be references to ABC, HAC, ABL, NJMI and Federal
Leasing. Each of NJMI and Federal Leasing hereby assumes all of the obligations
and duties of the Co-Borrowers under the Credit Agreement and agrees to be bound
by all of the covenants and agreements set forth therein. Each of NJMI and
Federal Leasing hereby makes and affirms, as to itself, and as of the date
hereof, each representation and warranty of the Co- Borrowers set forth in the
Credit Agreement. For purposes of Section 12.2 of the Credit Agreement, the
addresses and fax numbers for NJMI and Federal Leasing are those set forth
beside their names on the signature pages below.
(b) The definitions of "Borrowing Base" and "Co-Borrowers" are hereby
amended in their entirety to read as follows:
"Co-Borrowers" means ABC, HAC, ABL, NJMI and Federal Leasing.
<PAGE>
"Borrowing Base" means, at any time, the sum of:
(a) the total collateral value of each
Eligible-Mortgage Loan and each Eligible-Commercial Loan,
equal to 98% of the lowest of (i) the unpaid principal balance
of the underlying promissory note, (ii) the actual amount
funded by ABC, HAC or NJMI, as the case may be, with respect
to that Eligible-Mortgage Loan or Eligible-Commercial Loan, or
(iii) the Market Value thereof, as determined by
Administrative Agent; plus
(b) the total collateral value of each
Eligible-Seasoned Loan, equal to 90% of the lowest of (i) the
unpaid principal balance of the underlying promissory note,
(ii) the actual amount funded by ABC, HAC, or NJMI, as the
case may be, with respect to that Eligible-Seasoned Loan, or
(iii) the Market Value thereof, as determined by
Administrative Agent; plus
(c) the total collateral value of each Eligible Lease
and Eligible-Seasoned Lease, equal to 85% of the lower of (i)
the actual amount funded by ABL or Federal Leasing with
respect to that Eligible Lease or Eligible-Seasoned Lease, or
(ii) the net present value of the current lease balance
determined in accordance with the discounting methods agreed
upon in writing by ABL or Federal Leasing and Administrative
Agent from time to time.
(c) The definition of "Note Payment Accounts" is hereby amended to
change the Account Number information for ABC, HAC and ABL as follows and to add
the following non-interest bearing restricted checking accounts maintained with
Administrative Agent:
o For ABC, Account No. 0010-267-2640, styled "American Business
Financial Services, Inc. - Note Payment Account."
o For HAC, Account No. 0010-267-2640, styled "American Business
Financial Services, Inc. - Note Payment Account."
o For ABL, Account No. 0010-267-2640, styled "American Business
Financial Services, Inc. - Note Payment Account."
o For NJMI, Account No. 0010-267-2640 styled "New Jersey Mortgage and
Investment - Note Payment Account"
o for Federal Leasing, Account No. 0010-267-2640 styled "Federal
Leasing - Note Payment Account"
(d) The following definitions are hereby added to the Credit Agreement
to read as follows:
"Federal Leasing" means Federal Leasing Corp., a New Jersey
corporation.
"NJMI" means New Jersey Mortgage and Investment Corp., a New Jersey
corporation d/b/a Ocean to Ocean Financial Group, Inc.
(e) Section 9.1 is hereby amended in its entirety to read as follows:
<PAGE>
Section 9.1 Tangible Net Worth. During the time periods set forth
below, Tangible Net Worth may never be less than the amounts set forth opposite
such time periods:
________________________________________________________________________________
Time Periods Minimum Tangible Net Worth
________________________________________________________________________________
July 31, 1997 - October 1, 1997 $25,000,000
________________________________________________________________________________
October 1, 1997 - 12/30/97 $15,000,000
________________________________________________________________________________
12/31/97 - 3/30/98 $16,500,000
________________________________________________________________________________
3/31/98 - 6/29/98 $19,000,000
________________________________________________________________________________
6/30/98 - 9/29/98 $21,500,000
________________________________________________________________________________
9/30/98 and thereafter $25,000,000
________________________________________________________________________________
(f) Schedule 6.2 of the Credit Agreement is hereby revised in its
entirety and replaced with the Schedule 6.2 attached hereto.
(g) Paragraph D. 4. of Schedule 4.1 of the Credit Agreement is hereby
amended to add the following provision to the end of such Paragraph:
"; provided, however, that UCC financing statements need not be
filed of record for any such Lease under which the aggregate
original equipment cost is less than $10,000."
(h) Exhibit D-3 of the Credit Agreement is hereby revised in its
entirety and replaced with Exhibit D-3 attached hereto.
(i) Each schedule and exhibit to the Credit Agreement is amended as
necessary to reflect the addition of NJMI and Federal Leasing as Co-Borrowers
under the Credit Agreement and each reference to Co-Borrower therein shall be
deemed to include references to NJMI and Federal Leasing and each reference to
the Credit Agreement shall be deemed to be a reference to the Credit Agreement,
as amended hereby.
4. Confirmation of Guaranty Agreement. Parent agrees, accepts and consents to
the terms and provisions hereof and each other Credit Document in effect as of
the date hereof and confirms the continued validity of the Guaranty Agreement
including, but not limited to the application of the Guaranty Agreement to the
indebtedness of each of NJMI and Federal Leasing.
5. Conditions Precedent. The obligation of Agent and each Lender to be bound by
the provisions hereof shall be subject to the fulfillment of the following
conditions precedent, in a manner satisfactory to Agent:
(a) Agent shall have received the following, duly executed by
each party thereto, other than Agent, each in form and substance
satisfactory to Agent:
(i) This Amendment;
<PAGE>
(ii) Warehouse Notes in the following original principal
amounts executed by Co-Borrowers, payable to the order of the following
Lenders, in substantially the form of Exhibit A-1 to the Credit
Agreement:
________________________________________________________________________________
Texas Commerce Bank, National $55,000,000.00
Association
________________________________________________________________________________
The Bank of New York $15,000,000.00
________________________________________________________________________________
CoreStates Bank $10,000,000.00
________________________________________________________________________________
FirstTrust Bank $ 5,000,000.00
________________________________________________________________________________
National City Bank $15,000,000.00
________________________________________________________________________________
(iii) Swing note in the original principal amount of
$30,000,000.00, executed by Co-Borrowers, payable to the order of
Administrative Agent and in substantially the form of Exhibit A-2 to
the Credit Agreement;
(iv) Security Agreements executed by NJMI and Federal
Leasing as debtors and Administrative Agent as secured party, and in
substantially the form of Exhibit C-1 to the Credit Agreement;
(v) Financing Statements executed by NJMI and Federal
Leasing as debtors and Administrative Agent as secured party, for
filing with the following UCC filing offices, and in substantially the
form of Exhibit C-2 to the Credit Agreement:
________________________________________________________________________________
Name Jurisdiction
________________________________________________________________________________
NJMI New Jersey Secretary of State
Essex County
________________________________________________________________________________
Federal Leasing New Jersey Secretary of State
Essex County
________________________________________________________________________________
(vi) UCC search reports for financing statements filed
against NJMI or Federal Leasing as debtor with the relevant UCC filing
offices as of the indicated dates together with appropriate UCC-3
Termination Statements releasing such liens as Administrative Agent
shall require:
<PAGE>
________________________________________________________________________________
Name Jurisdiction
________________________________________________________________________________
NJMI New Jersey Secretary of State
Essex County, New Jersey
Orange County, New Jersey
Georgia Secretary of State
Fulton County, Georgia
Illinois Secretary of State
Cook County, Illinois
Missouri Secretary of State
Fulton County, Missouri
Boone County, Missouri
Ohio Secretary of State
Stark County, Ohio
Pennsylvania Secretary of State
Allegheny County, Pennsylvania
Montgomery Country, Pennsylvanian
________________________________________________________________________________
Federal Leasing New Jersey Secretary of State
Essex County, New Jersey
California Secretary of State
Placer County, Californian
Colorado Secretary of State
Arapahoe County, Colorado
Florida Secretary of State
Palm Beach County, Florida
Illinois Secretary of State
Du Page County, Illinois
________________________________________________________________________________
(vii) Officers Certificate for NJMI, executed by the
President and Secretary of NJMI as to (a) the due incumbency of its
officers authorized to execute or attest to the Credit Documents, (b)
resolutions duly adopted by its directors approving and authorizing the
execution of the Credit Documents, (c) its bylaws, and (d) its
corporate charter accompanied by Annex A-Resolutions, Annex B-Bylaws,
Annex C-Corporate Charter;
(viii) Officers Certificate of Federal Leasing, executed
by the President and Secretary of Federal Leasing as to (a) the due
incumbency of its officers authorized to execute or attest to the
Credit Documents, (b) resolutions duly adopted by its directors
approving and authorizing the execution of the Credit Documents, (c)
its bylaws, and (d) its corporate charter accompanied by Annex
A-Resolutions, Annex B-Bylaws, Annex C-Corporate Charter;
(ix) Certificates of Qualification, Good Standing and
Authority for each of NJMI and Federal Leasing in the jurisdiction of
its incorporation;
(x) Articles of Incorporation for NJMI, certified as of
a recent date by the New Jersey Secretary of State;
(xi) Articles of Incorporation for Federal Leasing,
certified as of a recent date by the New Jersey Secretary of State;
<PAGE>
(xii) Copies of the Subordinated Debt documents of NJMI
and Federal Leasing, certified as true and correct by a Responsible
Officer of Parent, NJMI and Federal Leasing;
(xiii) An Acquisition-Compliance Certificate;
(xiv) Certified copy of the resolutions adopted by the
Boards of Directors of each Co-Borrower and Parent, authorizing the
execution and delivery of this Amendment;
(xv) Subordination Agreements executed by each Junior
Lender; and
(xvi) All other documents Agent may reasonably request
with respect to any matter relevant to this Amendment or the
transactions contemplated hereby.
(b) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents shall be true and correct in all material
respects on and as of the date hereof with the same effect as if made
on and as of the date hereof.
(c) All corporate and legal proceedings and all documents
required to be completed and executed by the provisions of, and all
instruments to be executed in connection with the transactions
contemplated by, this Amendment and any related agreements shall be
satisfactory in form and substance to Agent.
6. Representations and Warranties. Co-Borrowers and Parent, without in any way
limiting the representations and warranties provided in the Credit Agreement,
each hereby represent and warrant to Agent that:
(a) Co-Borrowers and Parent are authorized to enter into this
Amendment;
(b) The execution, delivery and performance of this Amendment
by Co-Borrowers and Parent do not violate, or conflict with, any law,
rule, regulation, order, agreement or contract binding upon such
parties, or to which such parties are subject; and
(c) This Amendment is valid and binding upon each of the
Co-Borrowers and Parent, respectively, in accordance with its terms,
except as limited by Debtor Laws. The execution, delivery and
performance of this Amendment by each Co-Borrower and Parent does not
require the consent of any other Person and does not and will not
constitute a violation of any law, agreement or understanding to which
any of the Co-Borrowers or Parent is a party or by which any of them is
bound.
(d) As of the date of this Amendment, no Default or Potential
Default has occurred and is continuing.
(e) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby,
and the other Credit Documents are true and correct in all
material respects on and as of the date hereof with the same
effect as if made on and as of the date hereof.
<PAGE>
7. No Waivers. The entering into of this Amendment will not be deemed to be a
waiver of any requirement or obligation under the Credit Agreement and Agent and
Lenders reserve all of their rights thereunder.
8. Continued Effect. Each Co-Borrower and Parent acknowledges and confirms
that, except to the extent amended hereby or in connection herewith, all
terms, provisions and conditions of the Credit Agreement and the other Credit
Documents, and all documents executed in connection therewith, shall continue
in full force and effect and shall remain enforceable and binding in
accordance with their respective terms and shall inure to the benefit of Agent
and Lenders. The Collateral shall continue to secure the Obligation. Each
party hereto acknowledges and agrees that Agent shall have all the rights of
secured party, beneficiary, Agent, or payee under all security agreements,
pledge agreements, memoranda of deposits, guaranties, financing statements and
other documents relating to the Credit Agreement. From and after the effective
date of this Amendment, all references in the Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as amended
hereby.
9. Counterparts. This Amendment may be executed in any number of counterparts,
each of which shall for all purposes be deemed an original and all of which are
identical.
10. Successors and Assigns. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
11. Miscellaneous. The substantive laws of the State of Texas shall govern the
validity, construction, enforcement and interpretation of this Amendment, except
to the extent that the federal laws of the United States shall supersede. This
Amendment embodies the entire Agreement between the parties hereto with respect
to the amendment of the Credit Agreement and supersedes all oral agreements,
conditions, and understandings with respect to the subject matter hereof.
12. Expenses. The Co-Borrowers agree to pay all reasonable costs incurred in
connection with the execution and consummation of this Amendment.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
EFFECTIVE as of October 1, 1997.
(address)
American Business Credit, Inc. AMERICAN BUSINESS CREDIT, INC., as
BalaPointe Office Centre a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santill, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.
Tel: 610/668-2440
Fax: 610/668-1132
(address)
HomeAmerican Credit, Inc. HOMEAMERICAN CREDIT, INC., as a
BalaPointe Office Centre Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.
Tel: 610/668-2440
Fax: 610/668-1132
<PAGE>
(address)
American Business Leasing, Inc. AMERICAN BUSINESS LEASING, INC.,
BalaPointe Office Centreas a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
Tel: 610/668-2440
Fax: 610/668-1132
(address)
New Jersey Mortgage & Investment Corp. NEW JERSEY MORTGAGE &
BalaPointe Office Centre INVESTMENT CORP., as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
Tel: 610/668-2440
Fax: 610/668-1132
(address)
Federal Leasing Corp. FEDERAL LEASING CORP.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By: /s/ Anthony J. Santilli, Jr.
Chief Financial Officer ------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
Tel: 610/668-2440
Fax: 610/668-1132
(address)
American Business Financial Services, Inc. AMERICAN BUSINESS FINANCIAL
BalaPointe Office Centre SERVICES, INC., as Parent
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman
Tel: 610/668-2440
Fax: 610/668-1132
<PAGE>
(address)
Texas Commerce Bank National Association TEXAS COMMERCE BANK NATIONAL
P.O. Box 337 ASSOCIATION, as Administrative
Hurst, Texas 76053-0337 Agent and a Lender
Attn: Pam Skinner
Tel: (817) 656-6768
Fax: (817) 656-6763 By: /s/ Pamela E. Skinner
------------------------------
Pamela E. Skinner,
Vice President
(address)
The Bank of New York THE BANK OF NEW YORK
One Wall Street, 17th Floor
New York, New York 10286
Attn: Patricia Dominus By: /s/ Patricia M. Dominus
Tel: (212) 635-6467 ------------------------------
Fax: (212) 635-6468 Patricia M. Dominus,
Vice President
(address)
CoreStates Bank, N.A. CORESTATES BANK, N.A.
1-8-11-24
1339 Chestnut Street
Philadelphia, Pennsylvania 19101 By: /s/ Joe Romano
Attn: Joe Romano ------------------------------
Tel: (215) 973-7038 Joe Romano,
Fax: (215) 786-7704 Senior Vice President
(address)
Firstrust Bank FIRSTRUST BANK
1931 Cottman Avenue
Philadelphia, Pennsylvania 19111
Attn: John Hollingsworth By: /s/ John Hollingsworth
Tel: (215) 728-8449 ------------------------------
Fax: (215) 728-8767 John Hollingsworth,
Assistant Vice President
<PAGE>
(address)
National City Bank NATIONAL CITY BANK
421 West Market Street
Louisville, Kentucky 40202
Attn: Michael Nicholson By: /s/ Michael W. Nicholson
Tel: (502) 581-6744 ------------------------------
Fax: (502) 581-4154 Michael W. Nicholson,
Vice President
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as
of February 20, 1998, among AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation ("ABC"), HOMEAMERICAN CREDIT, INC., a Pennsylvania corporation d/b/a
Upland Mortgage ("HAC"), AMERICAN BUSINESS LEASING, INC., a Pennsylvania
corporation ("ABL"), NEW JERSEY MORTGAGE & INVESTMENT CORP., a New Jersey
corporation d/b/a Ocean to Ocean Financial Group, Inc. ("NJMI") and FEDERAL
LEASING CORP., a New Jersey corporation ("Federal Leasing") (ABC, HAC, ABL,
NJMI, and Federal Leasing are, collectively, the "Co-Borrowers"); AMERICAN
BUSINESS FINANCIAL SERVICES, INC., a Delaware corporation ("Parent"); the
Lenders (herein so called) described below; and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION (formerly Texas Commerce Bank, National Association) as
Administrative Agent for Lenders ("Agent").
R E C I T A L S:
A. ABC, HAC, ABL, Parent, Lenders, and Agent are parties to that
certain Credit Agreement (as amended and supplemented, herein so called) dated
as of July 31, 1997.
B. Co-Borrowers, Parent, and Lenders wish to enter into this amendment
to increase the capacity for Lease Borrowings under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Lenders, Agent, Co-Borrowers, and Parent
covenant and agree as follows:
1. Definitions. Terms used herein and defined in the Credit Agreement shall have
the meanings set forth in the Credit Agreement, except as otherwise provided
herein. All references to "Sections," "Schedules," and "Exhibits" are references
to sections, schedules, and exhibits of the Credit Agreement
2. Amendments. The Credit Agreement shall be and hereby is amended as follows:
(A) Defined Terms. Section 1.1 is amended by entirely amending the
following defined terms:
"Administrative Agent" means, at any time, Chase Bank of Texas,
National Association, formerly named Texas Commerce Bank National Association
(or its successor appointed under Section 11.6), acting as administrative,
collateral, managing, and syndication agent for Lenders under the Credit
Documents.
"Lease Sublimit" means, at any time, 40% of the total Commitments.
(B) Notice. The notice provisions for Agent beside its signature to the
Credit Agreement is entirely amended as follows:
Chase Bank of Texas, National Association
<PAGE>
P.O. Box 337
Hurst, Texas 76053-0337
Attn: Pamela E. Skinner
Tel: (817) 656-6768
Fax: (817) 656-6763
3. Conditions Precedent. The obligation of Agent and each Lender to be bound by
the provisions hereof shall be subject to the fulfillment of the following
conditions precedent, in a manner satisfactory to Agent:
(a) Agent shall have received the following, duly executed by
each party thereto, other than Agent, each in form and substance
satisfactory to Agent:
(i) This Amendment; and
(ii) All other documents Agent may reasonably request
with respect to any matter relevant to this Amendment or the
transactions contemplated hereby.
(b) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents shall be true and correct in all material
respects on and as of the date hereof with the same effect as if made
on and as of the date hereof.
(c) All corporate and legal proceedings and all documents
required to be completed and executed by the provisions of, and all
instruments to be executed in connection with the transactions
contemplated by, this Amendment and any related agreements shall be
satisfactory in form and substance to Agent.
4. Representations and Warranties. Co-Borrowers and Parent, without in any way
limiting the representations and warranties provided in the Credit Agreement,
each hereby represent and warrant to Agent that:
(a) Co-Borrowers and Parent are authorized to enter into this
Amendment;
(b) The execution, delivery, and performance of this Amendment
by Co-Borrowers and Parent do not violate, or conflict with, any law,
rule, regulation, order, agreement, or contract binding upon such
parties, or to which such parties are subject; and
(c) This Amendment is valid and binding upon each of the
Co-Borrowers and Parent, respectively, in accordance with its terms,
except as limited by Debtor Laws. The execution, delivery, and
performance of this Amendment by each Co-Borrower and Parent does not
require the consent of any other Person and does not and will not
constitute a violation of any law, agreement, or understanding to which
any of the Co-Borrowers or Parent is a party or by which any of them is
bound.
<PAGE>
(d) As of the date of this Amendment, no Default or Potential
Default has occurred and is continuing, except as was disclosed in
Borrower's compliance report of December 31, 1997.
(e) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents are true and correct in all material respects on
and as of the date hereof with the same effect as if made on and as of
the date hereof.
5. No Waivers. The entering into of this Amendment will not be deemed to be a
waiver of any requirement or obligation under the Credit Agreement and Agent and
Lenders reserve all of their rights thereunder.
6. Continued Effect. Each Co-Borrower and Parent acknowledges and confirms that,
except to the extent amended hereby or in connection herewith, all terms,
provisions, and conditions of the Credit Agreement and the other Credit
Documents, and all documents executed in connection therewith, shall continue in
full force and effect and shall remain enforceable and binding in accordance
with their respective terms and shall inure to the benefit of Agent and Lenders.
The Collateral shall continue to secure the Obligation. Each party hereto
acknowledges and agrees that Agent shall have all the rights of secured party,
beneficiary, Agent, or payee under all security agreements, pledge agreements,
memoranda of deposits, guaranties, financing statements, and other documents
relating to the Credit Agreement. From and after the effective date of this
Amendment, all references in the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement as amended hereby, and
references to Credit Documents shall include this Amendment. To the extent not
amended hereby, all existing references in the Credit Documents to Texas
Commerce Bank, National Association, shall be deemed to be references to Chase
Bank of Texas, National Association.
7. Counterparts. This document may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts shall be construed together to constitute one and the same
document.
8. Successors and Assigns. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto, and their respective successors and assigns.
9. MISCELLANEOUS. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS AMENDMENT,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES SHALL SUPERSEDE.
THIS AMENDMENT EMBODIES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE AMENDMENT OF THE CREDIT AGREEMENT AND SUPERSEDES ALL ORAL
AGREEMENTS, CONDITIONS, AND UNDERSTANDINGS WITH RESPECT TO THE SUBJECT MATTER
HEREOF.
10. Expenses. The Co-Borrowers agree to pay all reasonable costs incurred in
connection with the execution and consummation of this Amendment.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
EFFECTIVE as of February 20, 1998.
(address)
American Business Credit, Inc. AMERICAN BUSINESS CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santill, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.
Tel: 610/668-2440
Fax: 610/668-1132
HomeAmerican Credit, Inc. HOMEAMERICAN CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.
Tel: 610/668-2440
Fax: 610/668-1132
(address)
American Business Leasing, Inc. AMERICAN BUSINESS LEASING, INC.,
BalaPointe Office Centreas as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.,
Chairman
Tel: 610/668-2440
Fax: 610/668-1132
<PAGE>
(address)
New Jersey Mortgage & Investment Corp. NEW JERSEY MORTGAGE &
BalaPointe Office Centre INVESTMENT CORP.,
111 Presidential Boulevard, Suite 215 as a Co-Borrower
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Federal Leasing Corp. FEDERAL LEASING CORP.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By: /s/ Anthony J. Santilli, Jr.
Chief Financial Officer ------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Financial Services, Inc. AMERICAN BUSINESS FINANCIAL
BalaPointe Office Centre SERVICES, INC.,
111 Presidential Boulevard, Suite 215 as Parent
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.,
Chairman
Tel: 610/668-2440
Fax: 610/668-1132
(address)
Chase Bank of Texas National Association CHASE BANK OF TEXAS, NATIONAL
P.O. Box 337 ASSOCIATION (formerly Texas
Hurst, Texas 76053-0337 Commerce Bank, National
Attn: Pamela E. Skinner Association), as Agent and a
Tel: 817/656-6768 Lender
Fax: 817/656-6763
By /s/ Pamela E. Skinner
-------------------------------
Pamela E. Skinner,
Vice President
<PAGE>
(address)
The Bank of New York THE BANK OF NEW YORK
One Wall Street, 17th Floor
New York, New York 10286
Attn: Patricia Dominus By: /s/ Patricia M. Dominus
Tel: (212) 635-6467 ------------------------------
Fax: (212) 635-6468 Patricia M. Dominus,
Vice President
(address)
CoreStates Bank, N.A. CORESTATES BANK, N.A.
1-8-11-24
1339 Chestnut Street
Philadelphia, Pennsylvania 19101 By: /s/ Joe Romano
Attn: Joe Romano ------------------------------
Tel: (215) 973-7038 Joe Romano,
Fax: (215) 786-7704 Senior Vice President
(address)
Firstrust Bank FIRSTRUST BANK
1931 Cottman Avenue
Philadelphia, Pennsylvania 19111
Attn: John Hollingsworth By: /s/ John Hollingsworth
Tel: (215) 728-8449 ------------------------------
Fax: (215) 728-8767 John Hollingsworth,
Assistant Vice President
(address)
National City Bank NATIONAL CITY BANK
421 West Market Street
Louisville, Kentucky 40202
Attn: Michael Nicholson By: /s/ Michael W. Nicholson
Tel: (502) 581-6744 ------------------------------
Fax: (502) 581-4154 Michael W. Nicholson,
Vice President
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as
of March 18, 1998, among AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation ("ABC"), HOMEAMERICAN CREDIT, INC., a Pennsylvania corporation d/b/a
Upland Mortgage ("HAC"), AMERICAN BUSINESS LEASING, INC., a Pennsylvania
corporation ("ABL"), NEW JERSEY MORTGAGE & INVESTMENT CORP., a New Jersey
corporation d/b/a Ocean to Ocean Financial Group, Inc. ("NJMI") and FEDERAL
LEASING CORP., a New Jersey corporation ("Federal Leasing") (ABC, HAC, ABL,
NJMI, and Federal Leasing are, collectively, the "Co-Borrowers"); AMERICAN
BUSINESS FINANCIAL SERVICES, INC., a Delaware corporation ("Parent"); the
Lenders (herein so called) described below; and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent for Lenders ("Agent").
ABC, HAC, ABL, NJMI, Federal Leasing, Parent, Lenders, and Agent are
parties to that certain Credit Agreement (as renewed, extended, amended, or
restated, herein so called) dated as of July 31, 1997, providing for loans to
Co-Borrowers on a revolving basis. Co-Borrower's, Parent, and Lenders have
agreed, upon the following terms and conditions, to amend the Credit Agreement
to increase the Commitment of Firstrust Bank ("Firstrust"), and to add Hibernia
National Bank ("Hibernia") as a Lender thereto.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Lenders, Agent, Co-Borrowers, and Parent
covenant and agree as follows:
1. Definitions. Terms used herein and defined in the Credit Agreement shall have
the meanings set forth in the Credit Agreement, except as otherwise provided
herein. All references to "Sections," "Schedules," and "Exhibits" are references
to sections, schedules, and exhibits of the Credit Agreement
2. Amendments. The Credit Agreement shall be and hereby is amended as follows:
(A) Lenders and Commitments. Firstrust's Commitment has been increased,
and Hibernia National Bank has been added as a Lender, under the Credit
Agreement. Accordingly, Schedule 2 to the Credit Agreement is amended in its
entirety in the form of, and all references to that schedule in the Credit
Documents are changed to, Amended Schedule 2 attached to this amendment.
3. Conditions Precedent. The obligation of Agent and each Lender to be bound by
the provisions hereof shall be subject to the fulfillment of the following
conditions precedent, in a manner satisfactory to Agent:
(a) Agent shall have received the following, duly executed by
each party thereto, other than Agent, each in form and substance
satisfactory to Agent:
(i) This Amendment;
<PAGE>
(ii) For any officer of any Company signing below on
behalf of such Company but not
included in certificates of incumbency for such Company delivered to
Administrative Agent before this amendment, Administrative Agent receives a
certificate of the secretary or assistant secretary of such Company about the
due incumbency of that officer, and if Administrative Agent reasonably requires,
Administrative Agent receives resolutions of the directors of each Company
authorizing this amendment certified as accurate and complete by the secretary
or assistant secretary of each such Company.
(iii) All other documents Agent may reasonably request
with respect to any matter relevant to this Amendment or the
transactions contemplated hereby.
(b) Firstrust shall have received a Warehouse Note from each
Co-Borrower in the amount of its Commitment as amended hereby;
(c) Hibernia shall have received a Warehouse Note from each
Co-Borrower in the amount of its Commitment;
(d) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents shall be true and correct in all material
respects on and as of the date hereof with the same effect as if made
on and as of the date hereof.
(e) All corporate and legal proceedings and all documents
required to be completed and executed by the provisions of, and all
instruments to be executed in connection with the transactions
contemplated by, this Amendment and any related agreements shall be
satisfactory in form and substance to Agent.
4. Representations and Warranties. Co-Borrowers and Parent, without in any way
limiting the representations and warranties provided in the Credit Agreement,
each hereby represent and warrant to Agent that:
(a) Co-Borrowers and Parent are authorized to enter into this
Amendment;
(b) The execution, delivery, and performance of this Amendment
by Co-Borrowers and Parent do not violate, or conflict with, any law,
rule, regulation, order, agreement, or contract binding upon such
parties, or to which such parties are subject; and
(c) This Amendment is valid and binding upon each of the
Co-Borrowers and Parent, respectively, in accordance with its terms,
except as limited by Debtor Laws. The execution, delivery, and
performance of this Amendment by each Co-Borrower and Parent does not
require the consent of any other Person and does not and will not
constitute a violation of any law, agreement, or understanding to which
any of the Co-Borrowers or Parent is a party or by which any of them is
bound.
(d) As of the date of this Amendment, no Default or Potential
Default has occurred and is continuing, except as was disclosed in
Borrower's compliance report of December 31, 1997.
<PAGE>
(e) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents are true and correct in all material respects on
and as of the date hereof with the same effect as if made on and as of
the date hereof.
5. No Waivers. The entering into of this Amendment will not be deemed to be a
waiver of any requirement or obligation under the Credit Agreement and Agent and
Lenders reserve all of their rights thereunder.
6. Continued Effect. Each Co-Borrower and Parent acknowledges and confirms that,
except to the extent amended hereby or in connection herewith, all terms,
provisions, and conditions of the Credit Agreement and the other Credit
Documents, and all documents executed in connection therewith, shall continue in
full force and effect and shall remain enforceable and binding in accordance
with their respective terms and shall inure to the benefit of Agent and Lenders.
The Collateral shall continue to secure the Obligation. Each party hereto
acknowledges and agrees that Agent shall have all the rights of secured party,
beneficiary, Agent, or payee under all security agreements, pledge agreements,
memoranda of deposits, guaranties, financing statements, and other documents
relating to the Credit Agreement. From and after the effective date of this
Amendment, all references in the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement as amended hereby, and
references to Credit Documents shall include this Amendment. To the extent not
amended hereby, all existing references in the Credit Documents to Texas
Commerce Bank, National Association, shall be deemed to be references to Chase
Bank of Texas, National Association.
7. Counterparts. This document may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts shall be construed together to constitute one and the same
document.
8. Successors and Assigns. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto, and their respective successors and assigns.
9. MISCELLANEOUS. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS AMENDMENT,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES SHALL SUPERSEDE.
THIS AMENDMENT EMBODIES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE AMENDMENT OF THE CREDIT AGREEMENT AND SUPERSEDES ALL ORAL
AGREEMENTS, CONDITIONS, AND UNDERSTANDINGS WITH RESPECT TO THE SUBJECT MATTER
HEREOF.
10. Expenses. The Co-Borrowers agree to pay all reasonable costs incurred in
connection with the execution and consummation of this Amendment.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
EFFECTIVE as of the date first stated above.
(address)
American Business Credit, Inc. AMERICAN BUSINESS CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santill, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.,
Tel: 610/668-2440 Chairman
Fax: 610/668-1132
HomeAmerican Credit, Inc. HOMEAMERICAN CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.,
Tel: 610/668-2440 Chairman
Fax: 610/668-1132
(address)
American Business Leasing, Inc. AMERICAN BUSINESS LEASING, INC.,
BalaPointe Office Centreas as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr..
Chairman
Tel: 610/668-2440
Fax: 610/668-1132
<PAGE>
(address)
New Jersey Mortgage & Investment Corp. NEW JERSEY MORTGAGE &
BalaPointe Office Centre INVESTMENT CORP.,
111 Presidential Boulevard, Suite 215 as a Co-Borrower
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Federal Leasing Corp. FEDERAL LEASING CORP.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By: /s/ Anthony J. Santilli, Jr.
Chief Financial Officer ------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Financial Services, Inc. AMERICAN BUSINESS FINANCIAL
BalaPointe Office Centre SERVICES, INC.,
111 Presidential Boulevard, Suite 215 as Parent
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Anthony J. Santilli, Jr.,
Chairman
Tel: 610/668-2440
Fax: 610/668-1132
(address)
Chase Bank of Texas National Association CHASE BANK OF TEXAS, NATIONAL
P.O. Box 337 ASSOCIATION (formerly Texas
Hurst, Texas 76053-0337 Commerce Bank, National
Attn: Pamela E. Skinner Association), as Agent and a
Tel: 817/656-6768 Lender
Fax: 817/656-6763
By /s/ Pamela E. Skinner
-------------------------------
Pamela E. Skinner,
Vice President
<PAGE>
(address)
The Bank of New York THE BANK OF NEW YORK
One Wall Street, 17th Floor as a Lender
New York, New York 10286
Attn: Patricia Dominus By: /s/ Patricia M. Dominus
Tel: (212) 635-6467 ------------------------------
Fax: (212) 635-6468 Patricia M. Dominus,
Vice President
(address)
CoreStates Bank, N.A. CORESTATES BANK, N.A.
1-8-11-24 as a Lender
1339 Chestnut Street
Philadelphia, Pennsylvania 19101 By: /s/ Joe Romano
Attn: Joe Romano ------------------------------
Tel: (215) 973-7038 Joe Romano,
Fax: (215) 786-7704 Relationship Manager
(address)
Firstrust Bank FIRSTRUST BANK
1931 Cottman Avenue as a Lender
Philadelphia, Pennsylvania 19111
Attn: John Hollingsworth By: /s/ John Hollingsworth
Tel: (215) 728-8449 ------------------------------
Fax: (215) 728-8767 John Hollingsworth,
Assistant Vice President
(address)
National City Bank of Kentucky NATIONAL CITY BANK OF KENTUCKY,
421 West Market Street as a Lender
Louisville, Kentucky 40202
Attn: Michael Nicholson By: /s/ Michael W. Nicholson
Tel: (502) 581-6744 ------------------------------
Fax: (502) 581-4154 Michael W. Nicholson,
Vice President
(address)
Hibernia National Bank HIBERNIA NATIONAL BANK,
313 Carondelet Street as a Lender
11th Floor
New Orleans, Louisiana 70130
Attn: Stephanie Freeman By /s/ Stephanie Freeman
Tel: 504/533-3345 ------------------------------
Fax: 504/533-5344 Stephanie Freeman
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as
of May 31, 1998, among AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation ("ABC"), HOMEAMERICAN CREDIT, INC., a Pennsylvania corporation d/b/a
Upland Mortgage ("HAC"), AMERICAN BUSINESS LEASING, INC., a Pennsylvania
corporation ("ABL"), NEW JERSEY MORTGAGE & INVESTMENT CORP., a New Jersey
corporation d/b/a Ocean to Ocean Financial Group, Inc. ("NJMI") and FEDERAL
LEASING CORP., a New Jersey corporation ("Federal Leasing") (ABC, HAC, ABL,
NJMI, and Federal Leasing are, collectively, the "Co-Borrowers"); AMERICAN
BUSINESS FINANCIAL SERVICES, INC., a Delaware corporation ("Parent"); the
Required Lenders; and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as
Administrative Agent for Required Lenders ("Agent").
ABC, HAC, ABL, NJMI, Federal Leasing, Parent, Required Lenders, and
Agent are parties to that certain Credit Agreement (as renewed, extended,
amended, or restated, herein so called) dated as of July 31, 1997, providing for
loans to Co-Borrowers on a revolving basis. Co-Borrower's, Parent, and Required
Lenders have agreed, upon the following terms and conditions, to amend the
Credit Agreement to permit Parent to maintain certain debt.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Required Lenders, Agent, Co-Borrowers, and
Parent covenant and agree as follows:
1. Definitions. Terms used herein and defined in the Credit Agreement shall have
the meanings set forth in the Credit Agreement, except as otherwise provided
herein. All references to "Sections," "Schedules," and "Exhibits" are references
to sections, schedules, and exhibits of the Credit Agreement
2. Amendments. Section 8.1(g) of the Credit Agreement is entirely amended as
follows:
(g) Debt in an aggregate principal amount of up to
$100,000,000 under one or more warehouse financing agreements; so long
as, the lenders or their agents under each of those arrangements enter
into intercreditor arrangements reasonably acceptable to Administrative
Agent to the extent those financing arrangements extend to
Business-Purposes Loans, Mortgage Loans, or Leases that would be deemed
supported Wet Borrowings if financed under this agreement.
3. Conditions Precedent. The obligation of Agent and each Lender to be bound by
the provisions hereof shall be subject to the fulfillment of the following
conditions precedent, in a manner satisfactory to Agent:
(a) Agent shall have received the following, duly executed by
each party thereto, other than Agent, each in form and substance
satisfactory to Agent:
(i) This Amendment;
<PAGE>
(ii) For any officer of any Company signing below on
behalf of such Company but not included in certificates of incumbency
for such Company delivered to Administrative Agent before this
amendment, Administrative Agent receives a certificate of the secretary
or assistant secretary of such Company about the due incumbency of that
officer, and if Administrative Agent reasonably requires,
Administrative Agent receives resolutions of the directors of each
Company authorizing this amendment certified as accurate and complete
by the secretary or assistant secretary of each such Company.
(iii) All other documents Agent may reasonably
request with respect to any matter relevant to this Amendment or the
transactions contemplated hereby.
(b) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents shall be true and correct in all material
respects on and as of the date hereof with the same effect as if made
on and as of the date hereof.
(c) All corporate and legal proceedings and all documents
required to be completed and executed by the provisions of, and all
instruments to be executed in connection with the transactions
contemplated by, this Amendment and any related agreements shall be
satisfactory in form and substance to Agent.
4. Representations and Warranties. Co-Borrowers and Parent, without in any way
limiting the representations and warranties provided in the Credit Agreement,
each hereby represent and warrant to Agent that:
(a) Co-Borrowers and Parent are authorized to enter into this
Amendment;
(b) The execution, delivery, and performance of this Amendment
by Co-Borrowers and Parent do not violate, or conflict with, any law,
rule, regulation, order, agreement, or contract binding upon such
parties, or to which such parties are subject; and
(c) This Amendment is valid and binding upon each of the
Co-Borrowers and Parent, respectively, in accordance with its terms,
except as limited by Debtor Laws. The execution, delivery, and
performance of this Amendment by each Co-Borrower and Parent does not
require the consent of any other Person and does not and will not
constitute a violation of any law, agreement, or understanding to which
any of the Co-Borrowers or Parent is a party or by which any of them is
bound.
(d) As of the date of this Amendment, no Default or Potential
Default has occurred and is continuing.
(e) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents are true and correct in all material respects on
and as of the date hereof with the same effect as if made on and as of
the date hereof.
<PAGE>
5. No Waivers. The entering into of this Amendment will not be deemed to be a
waiver of any requirement or obligation under the Credit Agreement and Agent and
Required Lenders reserve all of their rights thereunder.
6. Continued Effect. Each Co-Borrower and Parent acknowledges and confirms
that, except to the extent amended hereby or in connection herewith, all
terms, provisions, and conditions of the Credit Agreement and the other Credit
Documents, and all documents executed in connection therewith, shall continue
in full force and effect and shall remain enforceable and binding in
accordance with their respective terms and shall inure to the benefit of Agent
and Required Lenders. The Collateral shall continue to secure the Obligation.
Each party hereto acknowledges and agrees that Agent shall have all the rights
of secured party, beneficiary, Agent, or payee under all security agreements,
pledge agreements, memoranda of deposits, guaranties, financing statements,
and other documents relating to the Credit Agreement. From and after the
effective date of this Amendment, all references in the Credit Documents to
the Credit Agreement shall be deemed to be references to the Credit Agreement
as amended hereby, and references to Credit Documents shall include this
Amendment.
7. Counterparts. This document may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts shall be construed together to constitute one and the same
document.
8. Successors and Assigns. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto, and their respective successors and assigns.
9. MISCELLANEOUS. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS AMENDMENT,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES SHALL SUPERSEDE.
THIS AMENDMENT EMBODIES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE AMENDMENT OF THE CREDIT AGREEMENT AND SUPERSEDES ALL ORAL
AGREEMENTS, CONDITIONS, AND UNDERSTANDINGS WITH RESPECT TO THE SUBJECT MATTER
HEREOF.
10. Expenses. The Co-Borrowers agree to pay all reasonable costs incurred in
connection with the execution and consummation of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
EFFECTIVE as of the date first stated above.
(address)
American Business Credit, Inc. AMERICAN BUSINESS CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santill, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
HomeAmerican Credit, Inc. HOMEAMERICAN CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Leasing, Inc. AMERICAN BUSINESS LEASING, INC.,
BalaPointe Office Centreas as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
<PAGE>
New Jersey Mortgage & Investment Corp. NEW JERSEY MORTGAGE &
BalaPointe Office Centre INVESTMENT CORP.,
111 Presidential Boulevard, Suite 215 as a Co-Borrower
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Federal Leasing Corp. FEDERAL LEASING CORP.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By: /s/ Anthony J. Santilli, Jr.
Chief Financial Officer ------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Financial Services, Inc. AMERICAN BUSINESS FINANCIAL
BalaPointe Office Centre SERVICES, INC.,
111 Presidential Boulevard, Suite 215 as Parent
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Chase Bank of Texas National Association CHASE BANK OF TEXAS, NATIONAL
P.O. Box 337 ASSOCIATION (formerly Texas
Hurst, Texas 76053-0337 Commerce Bank, National
Attn: Audrey B. Mather Association), as Agent and a
Tel: 713/216-4476 Lender
Fax: 713/216-2162
By /s/ Audrey B. Mather
-------------------------------
Audrey B. Mather,
Vice President
<PAGE>
(address)
The Bank of New York THE BANK OF NEW YORK
One Wall Street, 17th Floor as a Lender
New York, New York 10286
Attn: Patricia Dominus By: /s/ Patricia M. Dominus
Tel: (212) 635-6467 ------------------------------
Fax: (212) 635-6468 Patricia M. Dominus,
Vice President
(address)
CoreStates Bank, N.A. CORESTATES BANK, N.A.
1-8-11-24 as a Lender
1339 Chestnut Street
Philadelphia, Pennsylvania 19101 By: /s/ Joe Romano
Attn: Joe Romano ------------------------------
Tel: (215) 973-7038 Joe Romano,
Fax: (215) 786-7704 Relationship Manager
(address)
Firstrust Bank FIRSTRUST BANK
1931 Cottman Avenue as a Lender
Philadelphia, Pennsylvania 19111
Attn: John Hollingsworth By: /s/ John Hollingsworth
Tel: (215) 728-8449 ------------------------------
Fax: (215) 728-8767 John Hollingsworth,
Assistant Vice President
(address)
National City Bank of Kentucky NATIONAL CITY BANK OF KENTUCKY,
421 West Market Street as a Lender
Louisville, Kentucky 40202
Attn: Michael Nicholson By: /s/ Michael W. Nicholson
Tel: (502) 581-6744 ------------------------------
Fax: (502) 581-4154 Michael W. Nicholson,
Vice President
<PAGE>
(address)
Hibernia National Bank HIBERNIA NATIONAL BANK,
313 Carondelet Street as a Lender
11th Floor
New Orleans, Louisiana 70130
Attn: Angela Bentley By /s/ Angela Bentley
Tel: 504/533-2319 ------------------------------
Fax: 504/533-5344 Angela Bentley,
National Accounts Representative
<PAGE>
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as
of December 1, 1997, among AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation ("ABC"), HOMEAMERICAN CREDIT, INC., a Pennsylvania corporation d/b/a
Upland Mortgage ("HAC"), AMERICAN BUSINESS LEASING, INC., a Pennsylvania
corporation ("ABL"), NEW JERSEY MORTGAGE & INVESTMENT CORP., a New Jersey
corporation d/b/a Ocean to Ocean Financial Group, Inc. ("NJMI") and FEDERAL
LEASING CORP., a New Jersey corporation ("Federal Leasing") (ABC, HAC, ABL,
NJMI, and Federal Leasing are, collectively, the "Co-Borrowers"); AMERICAN
BUSINESS FINANCIAL SERVICES, INC., a Delaware corporation ("Parent"); certain
Lenders; and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Administrative Agent
for Lenders ("Agent").
ABC, HAC, ABL, NJMI, Federal Leasing, Parent, Lenders, and Agent are
parties to that certain Credit Agreement (as renewed, extended, amended, or
restated, herein so called) dated as of July 31, 1997, providing for loans to
Co-Borrowers on a revolving basis. Co-Borrower's, Parent, and Lenders have
agreed, upon the following terms and conditions, to amend the Credit Agreement
to permit High-LTV Borrowings (as defined in Paragraph 2 below), and to permit
Parent to incur certain additional Debt.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Lenders, Agent, Co-Borrowers, and Parent
covenant and agree as follows:
1. Definitions. Terms used herein and defined in the Credit Agreement shall have
the meanings set forth in the Credit Agreement, except as otherwise provided
herein. All references to "Sections," "Schedules," and "Exhibits" are references
to sections, schedules, and exhibits of the Credit Agreement
2. Amendments. The Credit Agreement is amended as follows:
(A) Section 1.1 is amended by entirely amending or adding the following
definitions in alphabetical order with the other definitions in that section:
"Applicable-Covered Rate" means -- for each Borrowing-Purpose
Category in the table below -- the annual interest rate stated beside
that category:
Borrowing-Purpose Category Applicable-Covered Rate
- --------------------------------------------------------------------------------
Wet Borrowings and High-LTV Borrowings 1.6250%
- --------------------------------------------------------------------------------
Seasoned Borrowings and Commercial Loan Borrowings 1.7500%
- --------------------------------------------------------------------------------
Lease Borrowings 2.0000%
- --------------------------------------------------------------------------------
Other Borrowings 1.3875%
================================================================================
<PAGE>
"Applicable Margin" means -- for each Borrowing-Purpose
Category and relevant Borrowing-Price Category in the table below --
the interest margin beside those categories:
Borrowing-Purpose Category Borrowing-Price Category Applicable Margin
- --------------------------------------------------------------------------------
Wet Borrowings and High-LTV Base Rate 0.2500%
Borrowings
- --------------------------------------------------------------------------------
LIBOR 1.6250%
- --------------------------------------------------------------------------------
Seasoned Borrowings and Base Rate 0.3750%
Commercial Loan Borrowings
- --------------------------------------------------------------------------------
LIBOR 1.7500%
- --------------------------------------------------------------------------------
Lease Borrowings Base Rate 0.6250%
- --------------------------------------------------------------------------------
LIBOR 2.0000%
- --------------------------------------------------------------------------------
Other Borrowings Base Rate 0.0000%
- --------------------------------------------------------------------------------
LIBOR 1.3875%
================================================================================
"Borrowing Base" means, at any time, the sum of:
(a) the total collateral value of each
Eligible-Mortgage Loan and each Eligible-Commercial Loan,
equal to 98% of the lowest of (i) the unpaid principal balance
of the underlying promissory note, (ii) the actual amount
funded by ABC or HAC, as the case may be, with respect to that
Eligible-Mortgage Loan or Eligible-Commercial Loan, or (iii)
the Market Value thereof, as determined by Administrative
Agent; plus
(b) the total collateral value of each
Eligible-Seasoned Loan and Eligible- High-LTV Loan, equal to
90% of the lowest of (i) the unpaid principal balance of the
underlying promissory note, (ii) the actual amount funded by
ABC, HAC, or NMJI, as the case may be, with respect to that
Eligible-Seasoned Loan or Eligible-High-LTV Loan respectively,
or (iii) the Market Value thereof, as determined by
Administrative Agent; plus
(c) the total collateral value of each Eligible Lease
and Eligible-Seasoned Lease, equal to 85% of the lower of (i)
the actual amount funded by ABL with respect to that Eligible
Lease or Eligible-Seasoned Lease, or (ii) the net present
value of the current lease balance determined in accordance
with the discounting methods agreed upon in writing by ABL and
Administrative Agent from time to time.
"Borrowing-Purpose Category" means any category of Borrowing
determined with respect to its purpose, e.g., a Dry Borrowing, Wet
Borrowing, Swing Borrowing, Second-Lien Borrowing, Seasoned Borrowing,
High-LTV Borrowing, Commercial Loan Borrowing, or Lease Borrowing.
<PAGE>
"Eligible-Mortgage Loan" means, at any time, a Mortgage Loan
(other than a Seasoned Loan or High-LTV Loan) for which the applicable
conditions for eligibility described in Schedule 4.1 are satisfied and
which may under Section 4.1 be included in the Borrowing Base.
"Eligible-High-LTV Loan" means, at any time, a High-LTV Loan
for which the applicable conditions for eligibility described in
Schedule 4.1 are satisfied and which may under Section 4.1 be included
in the Borrowing Base.
"High-LTV Borrowing" means a Borrowing that is subject to the
High-LTV Sublimit and the Mortgage Loan for which meets the eligibility
requirements set forth on Schedule 4.1.
"High-LTV Loan" means a Mortgage Loan which has a
loan-to-value ratio greater than 90%, and less than or equal to 125%.
"High-LTV Sublimit" means, at any time, 5% of the total
Commitments.
(B) Section 2.1 is amended to add the following bullet immediately
after the fourth bullet point:
o The total Principal Debt of High-LTV Borrowings may never
exceed the High LTV Sublimit.
(C) Sections 8.1(h)(v) and (vi) of the Credit Agreement are entirely
amended as follows:
(v) Debt in an outstanding principal amount of $3,000,000
under that certain Rothschild Senior Subordinated Note issued by Parent and due
July 1, 2002.
(vi) Debt in an aggregate principal amount of up to
$125,000,000 (as reduced by any amounts repaid thereunder) under
certain Unsecured Subordinated Investment Notes and certain Unsecured
Adjustable-Rate Subordinated Money Market Notes issued pursuant to an
Indenture with First Trust National Association, as trustee, and
Parent, as issuer, dated as of May 27, 1997 (the Debt described in
clauses (i)-(v) above being hereinafter referred to as the
"existing-Subordinated Debt"); and
(vii) Debt, so long as that Debt (A) is subject to
subordination, payment blockage, and standstill provisions at least as
favorable to Lenders as applicable to the existing-Subordinated Debt
under this agreement or otherwise, and (B) is subject to
representations, covenants, events of default, and other provisions not
significantly more onerous to any Company than the existing-
Subordinated Debt.
(D) Section 12.10(c) is entirely amended as follows:
(c) Executed by Parent, Co-Borrowers, and
Administrative Agent and executed or approved in writing by all
Lenders if action of all Lenders is specifically provided in any
Credit Document or if it purports to (i) except as otherwise stated
in Section 12.10(a), extend the due date or decrease the scheduled
amount of any payment under -- or reduce
<PAGE>
the rate or amount of interest, fees, or other amounts payable to
Administrative Agent or any Lender under -- any Credit Document,
(ii) change the definition of "Borrowing Base" (or any component
of it), "Commitment", "Eligible-Mortgage Loan","Eligible-
Commercial Loan", "Eligible Lease", "Eligible-Seasoned Lease",
"Eligible-Seasoned Loan", "Eligible-High-LTV Loan", "Market
Value", "Required Lenders", "Stated- Termination Date", or
"Termination Percentage", (iii) change the Swing Sublimit, the
Wet Sublimit, the Second-Lien Sublimit, the Seasoned Sublimit,
the High-LTV Sublimit, the Commercial Loan Sublimit or the Lease
Sublimit, (iv) amend Schedule 4.1, or (v) partially or fully
release any Guaranty or any Collateral, except releases of
Collateral contemplated in this agreement.
(E) Schedule 4.1 and Exhibits D-1 and D-3 are entirely amended in the
forms of, and all references in the Credit Agreement to Schedule 4.1 and
Exhibits D-1 and D-3 are changed to, the attached Amended Schedule 4.1 and
Amended Exhibits D-1 and D-3, respectively.
3. Conditions Precedent. The obligation of Agent and each Lender to be bound by
the provisions hereof shall be subject to the fulfillment of the following
conditions precedent, in a manner satisfactory to Agent:
(a) Agent shall have received the following, duly executed by
each party thereto, other than Agent, each in form and substance
satisfactory to Agent:
(i) This Amendment;
(ii) For any officer of any Company signing below on
behalf of such Company but not included in certificates of
incumbency for such Company delivered to Administrative Agent
before this amendment, Administrative Agent receives a
certificate of the secretary or assistant secretary of such
Company about the due incumbency of that officer, and if
Administrative Agent reasonably requires, Administrative Agent
receives resolutions of the directors of each Company
authorizing this amendment certified as accurate and complete
by the secretary or assistant secretary of each such Company;
and
(iii) All other documents Agent may reasonably
request with respect to any matter relevant to this Amendment
or the transactions contemplated hereby.
(b) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents shall be true and correct in all material
respects on and as of the date hereof with the same effect as if made
on and as of the date hereof.
(c) All corporate and legal proceedings and all documents
required to be completed and executed by the provisions of, and all
instruments to be executed in connection with the transactions
contemplated by, this Amendment and any related agreements shall be
satisfactory in form and substance to Agent.
<PAGE>
4. Representations and Warranties. Co-Borrowers and Parent, without in any way
limiting the representations and warranties provided in the Credit Agreement,
each hereby represent and warrant to Agent that:
(a) Co-Borrowers and Parent are authorized to enter into
this Amendment;
(b) The execution, delivery, and performance of this Amendment
by Co-Borrowers and Parent do not violate, or conflict with, any law,
rule, regulation, order, agreement, or contract binding upon such
parties, or to which such parties are subject; and
(c) This Amendment is valid and binding upon each of the
Co-Borrowers and Parent, respectively, in accordance with its terms,
except as limited by Debtor Laws. The execution, delivery, and
performance of this Amendment by each Co-Borrower and Parent does not
require the consent of any other Person and does not and will not
constitute a violation of any law, agreement, or understanding to which
any of the Co-Borrowers or Parent is a party or by which any of them is
bound.
(d) As of the date of this Amendment, no Default or Potential
Default has occurred and is continuing.
(e) The representations and warranties of the Co-Borrowers and
Parent contained in the Credit Agreement, as amended hereby, and the
other Credit Documents are true and correct in all material respects on
and as of the date hereof with the same effect as if made on and as of
the date hereof.
5. No Waivers. The entering into of this Amendment will not be deemed to be a
waiver of any requirement or obligation under the Credit Agreement and Agent and
Lenders reserve all of their rights thereunder.
6. Continued Effect. Each Co-Borrower and Parent acknowledges and confirms that,
except to the extent amended hereby or in connection herewith, all terms,
provisions, and conditions of the Credit Agreement and the other Credit
Documents, and all documents executed in connection therewith, shall continue in
full force and effect and shall remain enforceable and binding in accordance
with their respective terms and shall inure to the benefit of Agent and Lenders.
The Collateral shall continue to secure the Obligation. Each party hereto
acknowledges and agrees that Agent shall have all the rights of secured party,
beneficiary, Agent, or payee under all security agreements, pledge agreements,
memoranda of deposits, guaranties, financing statements, and other documents
relating to the Credit Agreement. From and after the effective date of this
Amendment, all references in the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement as amended hereby, and
references to Credit Documents shall include this Amendment.
7. Counterparts. This document may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts shall be construed together to constitute one and the same
document.
<PAGE>
8. Successors and Assigns. This Amendment shall be binding upon, and inure to
the benefit of, the parties hereto, and their respective successors and assigns.
9. MISCELLANEOUS. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS AMENDMENT,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES SHALL SUPERSEDE.
THIS AMENDMENT EMBODIES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE AMENDMENT OF THE CREDIT AGREEMENT AND SUPERSEDES ALL ORAL
AGREEMENTS, CONDITIONS, AND UNDERSTANDINGS WITH RESPECT TO THE SUBJECT MATTER
HEREOF.
10. Expenses. The Co-Borrowers agree to pay all reasonable costs incurred in
connection with the execution and consummation of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to Credit Agreement to be executed by their duly authorized officers as of the
date first above written.
EFFECTIVE as of the date first stated above.
(address)
American Business Credit, Inc. AMERICAN BUSINESS CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santill, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
HomeAmerican Credit, Inc. HOMEAMERICAN CREDIT, INC.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Leasing, Inc. AMERICAN BUSINESS LEASING, INC.,
BalaPointe Office Centreas as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
<PAGE>
(address)
New Jersey Mortgage & Investment Corp. NEW JERSEY MORTGAGE &
BalaPointe Office Centre INVESTMENT CORP.,
111 Presidential Boulevard, Suite 215 as a Co-Borrower
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Federal Leasing Corp. FEDERAL LEASING CORP.,
BalaPointe Office Centre as a Co-Borrower
111 Presidential Boulevard, Suite 215
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By: /s/ Anthony J. Santilli, Jr.
Chief Financial Officer ------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
American Business Financial Services, Inc. AMERICAN BUSINESS FINANCIAL
BalaPointe Office Centre SERVICES, INC.,
111 Presidential Boulevard, Suite 215 as Parent
Bala Cynwyd, Pennsylvania 19004
Attn: David M. Levin By /s/ Anthony J. Santilli, Jr.
Chief Financial Officer -------------------------------
Tel: 610/668-2440 Anthony J. Santilli, Jr.,
Fax: 610/668-1132 Chairman
(address)
Chase Bank of Texas National Association CHASE BANK OF TEXAS, NATIONAL
P.O. Box 337 ASSOCIATION (formerly Texas
Hurst, Texas 76053-0337 Commerce Bank, National
Attn: Audrey B. Mather Association), as Agent and a
Tel: 713/216-4476 Lender
Fax: 713/216-2162
By /s/ Audrey B. Mather
-------------------------------
Audrey B. Mather,
Vice President
<PAGE>
(address)
The Bank of New York THE BANK OF NEW YORK
One Wall Street, 17th Floor as a Lender
New York, New York 10286
Attn: Patricia Dominus By: /s/ Patricia M. Dominus
Tel: (212) 635-6467 ------------------------------
Fax: (212) 635-6468 Patricia M. Dominus,
Vice President
(address)
CoreStates Bank, N.A. FIRST UNION NATIONAL BANK
1-8-11-24 (successor in interest by merger
1339 Chestnut Street to CoreStates Bank, N.A.)
Philadelphia, Pennsylvania 19101 as a Lender
Attn: Joe Romano
Tel: (215) 973-7038 By /s/ Joe Romano
Fax: (215) 786-7704 -------------------------------
Joe Romano,
Commercial Officer
(address)
Firstrust Bank FIRSTRUST BANK
1931 Cottman Avenue as a Lender
Philadelphia, Pennsylvania 19111
Attn: John Hollingsworth By: /s/ John Hollingsworth
Tel: (215) 728-8449 ------------------------------
Fax: (215) 728-8767 John Hollingsworth,
Assistant Vice President
<PAGE>
(address)
National City Bank of Kentucky NATIONAL CITY BANK OF KENTUCKY,
421 West Market Street as a Lender
Louisville, Kentucky 40202
Attn: Robert Ogburn By: /s/ Robert J. Ogburn
Tel: (502) 581-6744 ------------------------------
Fax: (502) 581-4154 Robert J. Ogburn,
Vice President
(address)
Hibernia National Bank HIBERNIA NATIONAL BANK,
313 Carondelet Street as a Lender
11th Floor
New Orleans, Louisiana 70130
New Orleans, Louisiana 70130
Attn: Angela Bentley By /s/ Angela Bentley
Tel: 504/533-2319 -------------------------------
Fax: 504/533-5344 Angela Bentley,
National Accounts Representative
<PAGE>
AMENDED SCHEDULE 4.1
ELIGIBILITY CONDITIONS
A. Eligible-Mortgage Loan. A Mortgage Loan:
1. For which the applicable Wet Period has not expired if it supports a
Wet Borrowing.
1. The promissory note evidencing which (a) is the standard form approved
by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable to
Administrative Agent, (b) has a maturity within 30 years of its
origination, (c) is payable or endorsed (without restriction or
limitation) to a Co-Borrower's order (the "applicable Co-Borrower"),
(d) is endorsed without recourse and in blank by the applicable
Co-Borrower, (e) is fully funded, and (f) to the best knowledge of
the Co-Borrowers, is valid and enforceable without offset,
counterclaim, defense, or right of rescission or avoidance of any
kind other than for valid payments made on it and any exceptions to
enforceability under Debtor Laws.
2. For which no default in the payment of principal or interest or any
other default has continued uncured for 60 days, no foreclosure or
other similar proceedings have commenced, and no claim for any credit,
allowance, or adjustment exists.
3. Which is secured by a mortgage, deed of trust, or trust deed that (a)
is the standard form approved by VA, FHA, FNMA, or FHLMC or a form
otherwise acceptable to Administrative Agent and (b) grants a
first-priority Lien (or second-priority Lien in the case of a
Second-Lien Borrowing) on residential-real property described below
that will be perfected upon recording.
4. For which the underlying residential-real property (a) consists of land
and (i) a one- to four-family dwelling, (ii) a condominium unit that
is ready for occupancy, (iii) a manufactured home unit that is
permanently attached to the underlying residential-real property, or
(iv) a residential building, a portion of which may be used for
commercial purposes, but not (v) a mobile home, a co-op, or a
multi-family dwelling for more than four families, (b) is, if
required by Appraisal Requirements, covered by an Appraisal, and (c)
is insured against loss or damage by fire and all other hazards
normally included in standard-extended-coverage insurance (including,
without limitation, flood insurance if the property is in a
federally-designated-flood plain) in accordance with the Collateral
Documents for it and the applicable Co-Borrower is named as a
mortgagee for that insurance.
5. Which may or may not be covered by a valid and effective Take-Out
Commitment held by the applicable Co-Borrower (and if it is covered,
the Mortgage Loan conforms in all materials respects with all of the
requirements of that Take-Out Commitment).
6. The Collateral Documents for which (a) are delivered to Administrative
Agent within 270 days after the date of the related promissory note,
(b) are in compliance with all Governmental Requirements, (c) are
otherwise in compliance with the requirements of the Credit Documents
and otherwise in
<PAGE>
form and substance acceptable to Administrative Agent, and (d) are
subject to no Liens other than Lender Liens and other Permitted Liens.
7. Which has not (and no Collateral Document for which has) been (except
in respect of reacquisition in connection with the collapse of a
proposed securitization) (a) sold to an investor or securitized and
repurchased by any Co-Borrower, (b) rejected by an investor or
re-acquired by a Co-Borrower from out of a securitization program, (c)
delivered to an investor or securitization custodian or any Person for
them for more than the Shipping Period, or (d) delivered to the
applicable Co-Borrower for correction for more than the Correction
Period.
8. Which conforms to the applicable Co-Borrower's underwriting standards
in effect at that time.
9. Which has a maximum loan-to-value ratio of 90%.
10. Which has been held by the Administrative Agent as an Eligible-Mortgage
Loan for 270 days or less.
B. Eligible-Commercial Loan. A Commercial Loan:
1. For which the applicable Wet Period has not expired if it supports a
Wet Borrowing.
2. The promissory note evidencing which (a) is the standard form approved
by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable to
Administrative Agent, (b) has a maturity within 15 years of its
origination, (c) is payable or endorsed (without restriction or
limitation) to the applicable Co- Borrower's order, (d) is endorsed
without recourse and in blank by the applicable Co-Borrower, (e) is
fully funded, and (f) to the best knowledge of the Co-Borrowers, is
valid and enforceable without offset, counterclaim, defense, or right
of rescission or avoidance of any kind other than for valid payments
made on it and any exceptions to enforceability under Debtor Laws.
3. For which no default in the payment of principal or interest or any
other default has continued uncured for 60 days, no foreclosure or
other similar proceedings have commenced, and no claim for any credit,
allowance, or adjustment exists.
4. Which is secured by a mortgage, deed of trust, or trust deed that (a)
is the standard form approved by VA, FHA, FNMA, or FHLMC or a form
otherwise acceptable to Administrative Agent and (b) grants a
first-priority Lien (or a second-priority Lien in the case of a
Second-Lien Borrowing) on commercial property described below that will
be perfected upon recording.
5. For which the underlying real property (a) consists of land and a
commercial building or structure, (b) is, if required by Appraisal
Requirements, covered by an Appraisal, and (c) is insured against loss
or damage by fire and all other hazards normally included in
standard-extended-coverage insurance (including, without limitation,
flood insurance if the property is in a federally-designated- flood
plain) in accordance with the Collateral Documents for it and the
applicable Co-Borrower is named as a mortgagee for that insurance.
<PAGE>
6. Which may or may not be covered by a valid and effective Take-Out
Commitment held by the applicable Co-Borrower (and if it is covered,
the Commercial Loan conforms on all material respects with all of the
requirements of that Take-Out Commitment).
7. The Collateral Documents for which (a) are delivered to Administrative
Agent within 270 days after the date of the related promissory note,
(b) are in compliance with all Governmental Requirements, (c) are
otherwise in compliance with the requirements of the Credit Documents
and otherwise in form and substance acceptable to Administrative Agent,
and (d) are subject to no Liens other than Lender Liens and other
Permitted Liens.
8. Which has not (and no Collateral Document for which has) been (except
in respect of reacquisition in connection with the collapse of a
proposed securitization) (a) sold to an investor or securitized and
repurchased by any Co-Borrower, (b) rejected by an investor or
re-acquired by a Co-Borrower from and of a securitization program, (c)
delivered to an investor or securitization custodian or any Person for
it for more than the Shipping Period, or (d) delivered to the
applicable Co-Borrower for correction for more than the Correction
Period.
9. Which has a maximum loan-to-value ratio of 90%.
10. Which has been held by Administrative Agent as an Eligible-Commercial
Loan for 270 days or less.
C. Eligible-Seasoned Loan. An otherwise Eligible-Mortgage Loan or
Eligible-Commercial Loan except either (a) the Mortgage Loan or Commercial Loan
has been included in the Borrowing Base for more than 270 days or (b) the
underlying promissory note was originated more than 270 days before being
included in the Borrowing Base.
D. Eligible-High-LTV Loan. An otherwise Eligible-Mortgage Loan except such
Mortgage Loan (a) grants a first-priority Lien or second-priority Lien on
residential-real property described below that will be perfected upon recording,
(b) must be covered by a valid and effective Take-Out Commitment held by the
applicable Co-Borrower and conform in all material respects with all of the
requirements of that Take-Out Commitment, (c) has a maximum loan-to-value ratio
of 125%, and (d) has been held by the Administrative Agent as an
Eligible-High-LTV Loan for 60 days or less.
E. Eligible Lease. A Lease:
1. Which may not support a Wet Borrowing.
2. The lease agreement evidencing which (a) is payable or assigned
(without restriction or limitation) to the applicable Co-Borrower's
order, (b) is assigned without recourse and in blank by the
applicable Co-Borrower, (c) has been duly authorized by a bona fide,
legally competent lessee (or representative of such lessee), (d) has
been underwritten in accordance with the Co-Borrowers' standard
underwriting guidelines for Leases as disclosed to Administrative
Agent from time to time, (e) is executed as a single original, which
original is delivered to Administrative Agent (i.e. no multiple
counterparts of the Lease have been executed), (f) if copies are made
of the Lease, each such copy is clearly stamped as a "Copy," (g) is
accompanied by a listing of the machinery or
<PAGE>
equipment covered by the Lease, and (h) to the best knowledge of the
Co-Borrowers, is valid and enforceable without offset, counterclaim,
defense, or right of rescission or avoidance of any kind other than for
valid payments made on it and any exceptions to enforceability under
Debtor Laws.
3. For which no default in payment of lease payments or any other default
has continued uncured for 60 days, no collection or other similar
proceedings have commenced, and no claim for any credit, allowance, or
adjustment exists.
4. Which is secured by a security or pledge agreement (which may be part
of the lease agreement itself) that (a) is in a form acceptable to
Administrative Agent and (b) grants a first-priority Lien (to the
extent the Lease is construed as a financing for which a security
interest is required to reflect the applicable Co-Borrower's interest
in the machinery or equipment) on business machinery and equipment
leased to commercial and industrial customers located in the
continental United States that will be perfected upon recording of a
UCC financing statement (which may be a notice filing for leased
machinery and equipment as permitted under the UCC).
5. For which the underlying business machinery and equipment is insured
against loss or damage in accordance with the Collateral Documents for
it and the applicable Co-Borrower is named as a mortgagee for that
insurance.
6. For which all sums of money previously paid by any lessee as advance
rentals or deposit of security shall have been fully disclosed to
Administrative Agent.
7. The Collateral Documents for which (a) are delivered to Administrative
Agent within 270 days after the date of the related lease agreement,
(b) are in compliance with all Governmental Requirements, (c) are
otherwise in compliance with the requirements of the Credit Documents
and otherwise in form and substance acceptable to Administrative Agent,
and (d) are subject to no Liens other than Lender Liens and other
Permitted Liens.
8. Which has not (and no Collateral Document for which has) been (except
in respect of reacquisition in connection with the collapse of a
proposed securitization) (a) sold to an investor or securitized and
repurchased by any Co-Borrower, (b) rejected by an investor or
re-acquired by a Co-Borrower from out of a securitization program, (c)
delivered to an investor or securitization custodian or any Person for
them for more than the Shipping Period, or (d) delivered to the
applicable Co- Borrower for correction for more than the Correction
Period.
9. Which has been held by Administrative Agent as an Eligible Lease for
270 days or less.
F. Eligible Seasoned-Lease. An otherwise Eligible Lease except either (a) the
Lease has been included in the Borrowing Base for more than 270 days, or (b) the
underlying lease contract was originated more than 270 days before being
included in the Borrowing Base.
<PAGE>
COMPUTATION OF RATIO EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------ ------
(Dollar in Thousands)
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes
per statement of income.................... $11,454 $ 5,940 $2,319 $ 581 $137
Add
Portion of rents representative
of the interest factor..................... 575 223 125 66 45
Interest on indebtedness.................... 13,190 5,175 2,668 1,213 628
Amortization of debt expense and premium.... 1,170 648 493 374 184
------- ------- ------ ------ ----
Income as adjusted........................ $26,389 $11,986 $5,605 $2,234 $994
------- ------- ------ ------ ----
Fixed charges
Interest on indebtedness................... $13,190 $ 5,175 $2,668 $1,213 $628
Amortization of debt expense and premium... 1,170 648 493 374 184
Portion of rents representative
of interest factor........................ 575 223 125 66 45
------- ------- ------ ------ ----
Fixed charges............................. $14,935 $ 6,046 $3,286 $1,653 $857
------- ------- ------ ------ ----
Ratio of earnings to fixed charges.......... 1.77 1.98 1.40 1.35 1.16
======= ======= ====== ====== ====
</TABLE>
<PAGE>
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION
PARENT SUBSIDIARY OF INCORPORATION
- ------------------------------- ----------------------------------------------- ------------------------------
<S> <C> <C>
American Business Financial
Services, Inc. ("ABFS") American Business Credit, Inc. ("ABC") Pennsylvania
ABC Processing Service Center, Inc. Pennsylvania
ABC HomeAmerican Credit, Inc. ("HAC")(1) Pennsylvania
ABC HomeAmerican Consumer Discount, Inc. Pennsylvania
ABC American Business Leasing, Inc.("ABL") Pennsylvania
ABC ABC Holdings Corporation Pennsylvania
ABC American Business Finance Corporation Delaware
ABC August Advertising Agency Inc. Pennsylvania
ABC & HAC ABFS 1995-1, Inc. Delaware
ABC & HAC ABFS 1995-2, Inc. Delaware
ABC & HAC ABFS 1996-1, Inc. Delaware
ABC & HAC ABFS 1996-2, Inc. Delaware
ABC & HAC ABFS 1997-1, Inc. Delaware
ABC & HAC ABFS 1997-2, Inc. Delaware
ABC, HAC & New Jersey
Mortgage and Investment ABFS 1998-1, Inc. Delaware
Corp. ("NJMIC")
ABC, HAC & NJMIC ABFS 1998-2, Inc. Delaware
ABC NJMIC New Jersey
ABC Federal Leasing Corp. ("FLC") New Jersey
ABL and FLC ABFS 1998-A-1, Inc. Delaware
ABL and FLC ABFS 1998-A-2, Inc. Delaware
ABL and FLC ABFS Finance LLC Delaware
ABL and FLC ABFS Residual LLC Delaware
FLC FLC Financial Corp. Delaware
FLC FLC II Financial Corp. Delaware
</TABLE>
(1) HomeAmerican Credit, Inc. is doing business as Upland Mortgage.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Business Financial Services, Inc.
Bala Cynwyd, PA
We hereby consent to the use in this Registration Statement on Form
S-2 of our report dated September 11, 1998, relating to the consolidated
financial statements of American Business Financial Services, Inc. and
subsidiaries.
We also consent to the reference to our firm under the caption
"Experts" in the Prospectus.
/s/ BDO Seidman, LLP
-------------------------------
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
September 18, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 87-0418807
(State of Incorporation) (I.R.S. Employer
Identification No.)
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(Address of Principal Executive Offices) (Zip Code)
Subordinated Debentures
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners
of 10% or more of the voting securities of the obligors, or affiliates, are
based upon information furnished to the Trustee by the obligors. While the
Trustee has no reason to doubt the accuracy of any such information, it cannot
accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Saint Paul and State of Minnesota on the 10th
day of September, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
------------------------
Richard H. Prokosch
Assitant Vice President
/s/ Judith M. Zuzek
- --------------------
Judith M. Zuzek
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon its request therefor.
Dated: September 10, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
------------------------
Richard H. Prokosch
Assistant Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of American Business Financial Services, Inc.
and Subsidiaries as of June 30, 1998 and the year ended and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,485,759
<SECURITIES> 0
<RECEIVABLES> 67,556,693
<ALLOWANCES> 1,078,166
<INVENTORY> 0
<CURRENT-ASSETS> 88,437,038
<PP&E> 12,228,423
<DEPRECIATION> 4,443,760
<TOTAL-ASSETS> 226,551,060
<CURRENT-LIABILITIES> 119,085,555
<BONDS> 0
0
0
<COMMON> 3,523
<OTHER-SE> 42,738,643
<TOTAL-LIABILITY-AND-EQUITY> 226,551,060
<SALES> 0
<TOTAL-REVENUES> 60,986,692
<CGS> 0
<TOTAL-COSTS> 43,096,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,630,910
<INTEREST-EXPENSE> 13,189,832
<INCOME-PRETAX> 17,889,713
<INCOME-TAX> 6,435,297
<INCOME-CONTINUING> 11,454,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,454,416
<EPS-PRIMARY> 3.26
<EPS-DILUTED> 3.13
</TABLE>
