FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1997
Commission File Number: 0-18819
MONACO FINANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado
(State or Other Jurisdiction of Incorporation or Organization)
84-1088131
(I.R.S. Employer Identification No.)
370 Seventeenth Street, Suite 5060 Denver, Colorado 80202
(Address of Principal Executive Offices)
(303) 592-9411
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports),
Yes X No
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of the Issuer's Common Stock, as of June 30,
1997:
Class A Common Stock, $.01 par value: 7,153,379 shares
Class B Common Stock, $.01 par value: 1,323,715 shares
Exhibit index is located on page 27.
Total number of pages is 118.
1
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED JUNE 30, 1997
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the three
months ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Operations for the six
months ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Balance Sheets at June 30, 1997
(unaudited) and December 31, 1996 5
Consolidated Statement of Shareholders' Equity for the
six months ended June 30, 1997(unaudited) 6
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8-16
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-26
PART II - OTHER INFORMATION 27
EXHIBIT 11 - Computation of Net Earnings (Loss) per
Common and Common Equivalent Share 29
EXHIBIT 27 - Financial Data Schedule 30
EXHIBIT 10.53 - Trust and Security Agreement related to the placement of
$42,646,534 and $2,569,068 aggregate principal amount of automobile
receivables-backed Class A Certificates and Class B Certificates,
respectively. 31
EXHIBIT 10.54 - Form of Class A Certificate issued by MF Receivables Corp. II
related to the private placement of $42,646,534 of 6.71% automobile
receivables-backed notes. 85
EXHIBIT 10.55 - Form of Class B Certificate issued by MF Receivables Corp. II
related to the placement of $2,569,068 of automobile receivables-backed
notes. 91
EXHIBIT 10.56 - Loan Agreement dated June 26, 1997, between Monaco Funding
Corp. and Heartland Bank relating to the $2,525,000 Promissory Note. 96
SIGNATURES 118
2
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
MONACO FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
<S> <C> <C>
1997 1996
------------- -----------
REVENUES:
Interest $ 3,091,430 $3,232,771
Other income 6 4,120
------------- -----------
Total revenues 3,091,436 3,236,891
COSTS AND EXPENSES:
Provision for credit losses (Note 2) 77,270 247,261
Operating expenses 2,708,709 2,750,589
Interest expense (Note 4) 1,353,350 1,071,279
------------- -----------
Total costs and expenses 4,139,329 4,069,129
------------- -----------
(Loss) from continuing operations before income taxes (1,047,893) (832,238)
Income tax (benefit) (Note 6) - (311,257)
------------- -----------
(Loss) from continuing operations (1,047,893) (520,981)
(Loss) on disposal of discontinued business, net of
applicable income taxes (Note 7) - (207,551)
------------- -----------
Net (loss) ($1,047,893) ($728,532)
============= ===========
EARNINGS (LOSS) PER SHARE (NOTES 1 AND 5):
(Loss) from continuing operations ($0.14) ($0.07)
(Loss) on disposal of discontinued business - (0.03)
------------- -----------
Net (loss) per common and common equivalent share ($0.14) ($0.10)
============= ===========
Weighted average number of shares outstanding 7,724,594 6,957,329
<FN>
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MONACO FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
<S> <C> <C>
1997 1996
------------- -------------
REVENUES:
Interest $ 6,356,556 $ 6,425,603
Other income 122,000 33,423
------------- -------------
Total revenues 6,478,556 6,459,026
COSTS AND EXPENSES:
Provision for credit losses (Note 2) 194,249 548,524
Operating expenses 5,887,984 5,249,376
Interest expense (Note 4) 2,754,510 2,122,429
------------- -------------
Total costs and expenses 8,836,743 7,920,329
------------- -------------
(Loss) from continuing operations before income taxes (2,358,187) (1,461,303)
Income tax (benefit) (Note 6) - (546,527)
------------- -------------
(Loss) from continuing operations (2,358,187) (914,776)
(Loss) on disposal of discontinued business, net of
applicable income taxes (Note 7) - (301,451)
------------- -------------
Net (loss) ($2,358,187) ($1,216,227)
============= =============
EARNINGS (LOSS) PER SHARE (NOTES 1 AND 5):
(Loss) from continuing operations ($0.32) ($0.13)
(Loss) on disposal of discontinued business - (0.04)
------------- -------------
Net (loss) per common and common equivalent share ($0.32) ($0.17)
============= =============
Weighted average number of shares outstanding 7,348,344 6,964,054
<FN>
See notes to consolidated financial statements.
4
<PAGE>
</TABLE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 288,375 $ 1,227,441
Restricted cash 5,636,503 4,463,744
Automobile receivables - net (Notes 2 and 4) 76,298,286 81,890,935
Repossessed vehicles held for sale 2,565,787 2,314,869
Income tax receivable (Note 6) 350,000 350,000
Deferred income taxes (Note 6) 1,581,651 1,581,651
Furniture and equipment, net of accumulated
depreciation of $1,758,355 (1997) and $1,326,215 (1996) 2,237,526 2,055,902
Other assets 1,945,562 1,379,526
--------------- --------------
Total assets $ 90,903,690 $ 95,264,068
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 875,304 $ 851,838
Accrued expenses and other liabilities 710,077 619,125
Notes payable (Note 4) 5,200,000 5,250,000
Promissory note payable (Note 4) 2,525,000 -
Installment note payable (Note 4) - 3,000,000
Convertible subordinated debt (Note 4) 1,385,000 1,385,000
Senior subordinated debt (Note 4) 4,166,666 5,000,000
Convertible senior subordinated debt (Note 4) 5,000,000 5,000,000
Automobile receivables-backed notes (Note 4) 55,523,451 59,156,101
--------------- --------------
Total liabilities 75,385,498 80,262,064
Commitments and contingencies (Note 3)
Stockholders' equity (Note 5)
Preferred stock; no par value, 5,000,000 shares
authorized, none issued or outstanding - -
Class A common stock, $.01 par value; 17,750,000
shares authorized, 7,153,379 shares (1997) and
5,648,379 shares (1996) issued 71,534 56,484
Class B common stock, $.01 par value; 2,250,000
shares authorized, 1,323,715 shares (1997) and
1,323,715 shares (1996) issued 13,237 13,237
Additional paid-in capital 24,925,414 22,066,089
Retained earnings (deficit) (9,491,993) (7,133,806)
--------------- --------------
Total stockholders' equity 15,518,192 15,002,004
--------------- --------------
Total liabilities and stockholders' equity $ 90,903,690 $ 95,264,068
=============== ==============
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Class A Class B Additional
Common Stock Common Stock Paid-in- Retained
Shares Amount Shares Amount Capital Earnings Total
--------- ------- --------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 5,648,379 $56,484 1,323,715 $13,237 $22,066,089 ($7,133,806) $15,002,004
Exercise of stock options 5,000 50 - - 9,325 - 9,375
Conversion of installment note payable 1,500,000 15,000 - - 2,850,000 - 2,865,000
Net (loss) for the six months - - - - - (2,358,187) (2,358,187)
--------- ------- --------- ------- ----------- ------------ ------------
Balance - June 30, 1997 7,153,379 $71,534 1,323,715 $13,237 $24,925,414 ($9,491,993) $15,518,192
========= ======= ========= ======= =========== ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
6
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
Six Months ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
- ---------------------------------------------------------------------
(Loss) from continuing operations ($2,358,187) ($914,776)
Adjustments to reconcile (loss) from continuing operations to
net cash provided by operating activities:
Depreciation 441,448 271,660
Provision for credit losses 194,249 548,524
Amortization of excess interest 2,384,155 1,322,506
Amortization of other assets 364,360 377,363
Deferred tax asset - (542,989)
Other 3,027 23,294
------------- -------------
1,029,052 1,085,582
Change in assets and liabilities:
Receivables (426,025) (339,115)
Prepaid expenses (179,301) (158,678)
Accounts payable 23,466 127,365
Accrued liabilities and other (61,259) 329,273
------------- -------------
Net cash flows from continuing operations 385,933 1,044,427
Net cash flows from discontinued operations - 102,115
Net cash provided by operating activities 385,933 1,146,542
------------- -------------
Cash flows from investing activities:
- ---------------------------------------------------------------------
Retail installment sales contracts - purchased (16,529,660) (26,251,091)
Retail installment sales contracts - originated - (1,519,376)
Proceeds from payments on contracts - purchased 18,814,031 15,644,544
Proceeds from payments on contracts - originated 880,709 3,123,058
Purchase of furniture and equipment (616,268) (474,098)
Equipment deposits and other 726 -
------------- -------------
Net cash provided by (used in) investing activities 2,549,538 (9,476,963)
------------- -------------
Cash flows from financing activities:
- ---------------------------------------------------------------------
Net borrowings (repayments) under line of credit (50,000) -
Net (increase) in restricted cash (1,172,759) (337,660)
Borrowings on asset-backed notes 49,917,896 18,998,420
Repayments on asset-backed notes (53,550,546) (16,754,800)
Repayments on senior subordinated debentures (833,334) -
Proceeds from issuance of convertible senior subordinated notes - 5,000,000
Purchases of treasury stock - (85,114)
Proceeds from exercise of stock options 9,375 -
Proceeds from issuance of promissory note 2,525,000 -
Increase in debt issue and conversion costs (720,169) (259,389)
------------- -------------
Net cash provided by (used in) financing activities (3,874,537) 6,561,457
------------- -------------
Net (decrease) in cash and cash equivalents (939,066) (1,768,964)
Cash and cash equivalents, January 1 1,227,441 7,247,670
------------- -------------
Cash and cash equivalents, June 30 $ 288,375 $ 5,478,706
============= =============
<FN>
See notes to consolidated financial statements.
</TABLE>
7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Monaco Finance, Inc. (the "Company"), is engaged in the business of
providing alternative financing programs primarily to purchasers of used
vehicles. The Company commenced operations in June 1988. The Company provides
such automobile financing programs by acquiring retail installment sale
contracts (the "Contracts") from certain selected automobile dealers in
approximately 21 states ("Dealer Network") . The contracts are acquired by the
Company through automobile financing programs it sponsors. In February
1996, the Company announced that it intended to discontinue its CarMart retail
used car sales and associated financing operations. The CarMart business
ceased operations on May 31, 1996.
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-QSB and consequently do not
include all of the disclosures normally made in the registrant's annual Form
10-KSB filing. These financial statements should be read in conjunction with
the financial statements and notes thereto included in Monaco Finance, Inc.'s
latest annual report on Form 10-KSB.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
Monaco Finance, Inc. and its wholly-owned subsidiaries, CarMart Auto
Receivables Company, MF Receivables Corp. I, MF Receivables Corp. II and
Monaco Funding Corp. (the "Subsidiaries"). All intercompany accounts and
transactions have been eliminated in consolidation.
INTERIM UNAUDITED FINANCIAL STATEMENTS
Information with respect to June 30, 1997 and 1996, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations
of the Company. The results of operations for the three and six months ended
June 30, 1997 and 1996 are not necessarily indicative of the results of the
entire year.
REPOSSESSED VEHICLES HELD FOR RESALE
At June 30, 1997 and December 31, 1996, 708 and 651 repossessed vehicles,
respectively, were held for resale. Included in vehicles held for resale are
vehicles which have been sold for which payment has not been received and
unlocated vehicles (skips), the value for which may be reimbursed from
insurance.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform to the classifications used in the current year.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income (loss) by the weighted
average number of common and common equivalent shares outstanding during
the period. Common stock equivalents are determined using the treasury stock
method. The computation of weighted average common and common equivalent
shares outstanding excludes anti-dilutive common equivalent shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes that such estimates have
been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.
TREASURY STOCK
In accordance with Section 7-106-302 of the Colorado Business Corporation
Act, shares of its own capital stock acquired by a Colorado corporation are
deemed to be authorized but unissued shares. APB Opinion No. 6 requires the
accounting treatment for acquired stock to conform to applicable state law. As
8
<PAGE>
such, 26,900 shares of Class A Common Stock purchased in 1996 have been
reported as a reduction to Class A Common Stock and Additional
Paid-in-Capital.
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, on
January 1, 1996. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position, results of
operations, or liquidity.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (subsequently amended by SFAS No. 127). SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Management of the Company
does not expect that adoption of SFAS No. 125 will have a material impact on
the Company's financial position, results of operations, or liquidity.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---------- ----------
Cash Payments for
Interest $2,813,246 $1,991,788
Income Taxes $ 2,704 $ 655
<FN>
</TABLE>
Non-cash investing and financing activities: In April 1997, Pacific USA
Holdings Corp. ("Pacific") converted the entire $3,000,000 outstanding
principal amount of an installment note payable made by Pacific to the Company
into 1.5 million shares of the Company's Class A Common Stock. See Note 4.
<TABLE>
<CAPTION>
NOTE 2 - AUTOMOBILE RECEIVABLES
Automobile Receivables consist of the following:
June 30, December 31,
<S> <C> <C>
1997 1996
------------ ------------
Automobile Receivables
Retail installment sales contracts $10,275,490 $11,777,343
Retail installment sales contracts-Trust (Note 4) 64,493,068 71,129,192
Excess interest receivable 5,805,957 6,555,682
Other 856,522 616,230
Accrued interest 1,097,727 1,331,450
------------ ------------
Total finance receivables 82,528,764 91,409,897
Allowance for credit losses (6,230,478) (9,518,962)
------------ ------------
Automobile receivables - net $76,298,286 $81,890,935
============ ============
<FN>
</TABLE>
At June 30, 1997, the accrual of interest income was suspended on $0 of
principal amount of retail installment sales contracts.
At the time installment sales contracts ("Contracts") are originated or
purchased, the Company estimates future losses of principal based on the type
and terms of the contract, the credit quality of the borrower and the
underlying value of the vehicle financed. This estimate of loss is based on
9
<PAGE>
the Company's risk model, which takes into account historical data from
similar contracts originated or purchased by the Company since its inception
in 1988. However, since the risk model uses past history to predict the
future, changes in national and regional economic conditions, borrower mix and
other factors could result in actual losses differing from initially predicted
losses.
The allowance for credit losses, as presented below, has been established
utilizing data obtained from the Company's risk models and is continually
reviewed and adjusted in order to maintain the allowance at a level which, in
the opinion of management, provides adequately for current and future losses
that may develop in the present portfolio. A provision for credit losses is
charged to earnings in an amount sufficient to maintain the allowance. This
allowance is reported as a reduction to Automobile Receivables.
<TABLE>
<CAPTION>
Allowance for
Credit Losses
---------------
<S> <C>
Balance as of December 31, 1996 $ 9,518,962
Provision for credit losses 194,249
Unearned interest income 1,634,430
Unearned discounts 645,665
Retail installment sale contracts charged off (11,588,258)
Recoveries 5,825,430
---------------
Balance as of June 30, 1997 $ 6,230,478
===============
<FN>
</TABLE>
The provision for credit losses is based on estimated losses on all Contracts
purchased prior to January 1, 1995 with zero discounts ("100% Contracts") and
for all Contracts originated by CarMart which have been and will continue to
be provided for by additions to the Company's allowance for credit losses as
determined by the Company's risk analysis.
Effective January 1, 1995, upon the acquisition of certain Contracts from its
Dealer Network, a portion of future interest income, as determined by the
Company's risk analysis, was capitalized into Automobile Receivables (excess
interest receivable) and correspondingly used to increase the allowance for
credit losses (unearned interest income). Subsequent receipts of excess
interest are applied to reduce excess interest receivable. For the three and
six months ended June 30, 1997, $1,170,550 and $2,384,155, respectively, of
excess interest income was amortized against excess interest receivable.
Unearned discounts result from the purchase of Contracts from the Dealer
Network at less than 100% of the face amount of the note. All such discounts
are used to increase the allowance for credit losses.
Effective October 1, 1996, the Company adopted a new methodology for reserving
for and analyzing its loan losses. This accounting method is commonly referred
to as static pooling. The static pooling reserve methodology allows the
Company to stratify its Automobile Receivables portfolio, and the related
components of its Allowance for Credit Losses (i.e. discounts, excess
interest, charge offs and recoveries) into separate and identifiable quarterly
pools. These quarterly pools, along with the Company's estimate of future
principal losses and recoveries, are analyzed quarterly to determine the
adequacy of the Allowance for Credit Losses. The method previously used by the
Company to analyze the Allowance for Credit Losses was based on the total
Automobile Receivables portfolio. In management's opinion, the static pool
reserve method provides a more sophisticated and comprehensive analysis of the
adequacy of the Allowance for Credit Losses and is preferable to the method
previously used. With the adoption of the static pooling reserve method, the
Company increased its Allowance for Credit Losses by $4,912,790 in the fourth
quarter of 1996. This amount was included in the Consolidated Statements of
Operations under the caption "Cumulative effect of a change in accounting
principle".
As part of its adoption of the static pooling reserve method, where necessary,
the Company adjusted its quarterly pool allowances to a level necessary to
cover all anticipated future losses (i.e. life of loan) for each related
quarterly pool of loans.
Under static pooling, excess interest and discounts are used to increase
the Allowance for Credit Losses and represent the Company's primary reserve
for future losses on its portfolio. To the extent that any quarterly pool's
excess interest and discount reserves are insufficient to absorb future
estimated losses, net of recoveries, adjusted for the impact of current
delinquencies, collection efforts, and other economic indicators including
analysis of the Company's historical data, the Company will provide for such
deficiency through a charge to the Provision for Credit Losses and the
establishment of an additional Allowance for Credit Losses. To the extent that
any excess interest and discount reserves are determined to be sufficient to
absorb future estimated losses, net of recoveries, the difference will be
accreted into interest income on an effective yield method over the estimated
remaining life of the related quarterly static pool.
10
<PAGE>
NOTE 3 - COMMITMENTS & CONTINGENCIES
CONTINGENCIES
In August 1996, the Company settled a lawsuit filed by Milton Karsh, a
former officer and Director of the Company. Under the settlement, the Company
agreed to retain the plaintiff as a consultant for the period of three years,
to reimburse the plaintiff's attorney fees and to release and abandon any
claim to ownership or option to acquire 20,715 shares of Class B Common Stock
owned by the plaintiff.
The Company has agreed to pay all litigation costs, including fees, and to
indemnify the Directors to the maximum extent provided by Colorado law, as
stated in the Company's By-Laws.
NOTE 4 - DEBT
CONVERTIBLE SUBORDINATED DEBENTURES
On March 15, 1993, the Company completed a private placement of $2,000,000,
7% Convertible Subordinated Notes (the "Notes") with interest payable
semiannually commencing September 1, 1993. The principal amount of the Notes,
plus accrued and unpaid interest, is due on March 1, 1998. Additionally, the
purchasers of the Notes exercised an option to purchase an additional
$1,000,000 aggregate principal amount of the Notes on September 15, 1993. The
Notes are convertible into the Class A Common Stock of the Company at any time
prior to maturity at a conversion price of $3.42 per share, subject to
adjustment for dilution. As detailed below, Notes with an aggregate principal
amount of $1,615,000 have been converted resulting in the issuance of 472,219
shares of Class A Common Stock. Commencing March 15, 1996, the Company has the
option to pre-pay up to one-third of the outstanding Notes at par.
<TABLE>
<CAPTION>
Class A
Common Stock
Conversion Date Notes Converted Issued
- --------------- ---------------- ------------
<S> <C> <C>
September 1994 $ 385,000 112,572
March 1995 770,000 225,147
August 1995 85,000 24,853
September 1995 375,000 109,647
----------------
$ 1,615,000 472,219
================ ============
<FN>
</TABLE>
SENIOR SUBORDINATED DEBENTURES
On November 1, 1994 the Company sold, in a private placement, unsecured
Senior Subordinated Notes ("Senior Notes") in the principal amount of
$5,000,000 to Rothschild North America, Inc. The Senior Notes accrue interest
at a fixed rate per annum of 9.5% through October 1, 1997, and for each month
thereafter, a fluctuating rate per annum equal to the lesser of (a) 11.5% or
(b) 3.5% above the London Interbank Offered Rate ("LIBOR").
Interest is due and payable the first day of each quarter commencing on
January 1, 1995. Principal payments in the amount of $416,667 are due and
payable the first day of January, April, July and October of each year
commencing January 1, 1997. The unpaid principal amount of the Senior Notes,
plus accrued and unpaid interest, are due October 1, 1999.
AUTOMOBILE RECEIVABLES - BACKED NOTES
In November 1994 MF Receivables Corp I. ("MF I"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $23,861,823
of 7.6% automobile receivables-backed notes ("Series 1994-A Notes"). The
Series 1994-A Notes accrue interest at a fixed rate of 7.6% per annum. The
Series 1994-A Notes are expected to be fully amortized by March 1998; however,
the debt maturities are based on principal payments received on the
underlying receivables, which may result in a different final maturity.
11
<PAGE>
In May of 1995, MF I issued its Floating Rate Auto Receivable-Backed Note
("Revolving Note" or "Series 1995-A Note"). The Revolving Note has a stated
maturity of October 16, 2002. MF I acquires Contracts from the Company which
are pledged under the terms of the Revolving Note and Indenture for up to $40
million in borrowing. Subsequently, the Revolving Note is repaid by the
proceeds from the issuance of secured Term Notes or repaid from collection of
principal payments and interest on the underlying Contracts. The Revolving
Note can be used to borrow up to an aggregate of $150 million through May 16,
1998. The Term Notes have a fixed rate of interest and likewise are repaid
from collections on the underlying Contracts. An Indenture and Servicing
Agreement require that the Company and MF I maintain certain financial ratios,
as well as other representations, warranties and covenants. The Indenture
requires MF I to pledge all Contracts owned by it for repayment of the
Revolving Note or Term Notes, including Contracts pledged as collateral for
Series 1994-A Term Notes, the Series 1995-B Term Notes, as well as all future
Contracts acquired by MF I.
The Series 1995-A Note bears interest at LIBOR plus 75 basis points. The
initial funding of this Note was $26,966,489 on May 16, 1995. The Company, as
servicer, provides customary collection and servicing activities for the
Contracts. The Revolving Note has a stated maturity of October 16, 2002 and an
expected termination date of May 16, 1998. The maximum limit for the Series
1995-A Note is $40 million. On September 15, 1995, MF Receivables issued its
Series 1995-B Term Notes ("Series 1995-B Notes") in the amount of $35,552,602.
The Series 1995-B Notes accrue interest at a fixed note rate of 6.45% per
annum. The Series 1995-B Notes are expected to be fully amortized by June
1999; however, the debt maturities are based on principal payments received on
the underlying receivables which may result in a different final maturity. The
proceeds from the issuance of the Series 1995-B Notes were used to retire, in
full, the 1995-A Note.
In June 1997, MF Receivables Corp. II ("MF II"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $42,646,534
of Class A automobile receivables-backed notes ("Series 1997-1A Notes" or
"Term Note") to an outside investor and $2,569,068 of Class B automobile
receivables-backed notes ("Class B Notes") to Monaco Funding Corp., a
wholly-owned special purpose subsidiary of the Company. The Series 1997-1A
Notes accrue interest at a fixed rate of 6.71% per annum and are expected to
be fully amortized by December 2002; however, the debt maturities are based on
principal payments received on the underlying receivables, which may result in
a different final maturity. An Indenture and Servicing Agreement require that
the Company and MF II maintain certain financial ratios, as well as other
representations, warranties and covenants.
In connection with the purchase of the Class B Notes, Monaco Funding Corp.
borrowed $2,525,000 from a financial institution ("Promissory Note"). The
Promissory Note accrues interest at a fixed rate of 16% per annum and is
collateralized by the proceeds from the Class B Notes. The Class B Notes are
expected to be fully amortized by December 2002; however, the debt maturities
are based on principal payments received on the underlying receivables, which
may result in a different final maturity. Monaco Funding Corp. is required to
maintain certain covenants and warranties under the Pledge Agreement.
Under the Trust and Security Agreement, MF II shall have the option to redeem
all of the Series 1997-1A Notes at any time after the balance of the Series
1997-1A Notes is less than or equal to 20% of the initial balance of the
Series 1997-1A Notes. MF II also has the option to redeem the Class B Notes
at any time after the balance of the Series 1997-1A Notes has been reduced to
zero or has been redeemed. The proceeds from the issuance of the Series
1997-1A Notes and the Promissory Note were used to retire, in full, the 1995-A
Note, which can be used to accumulate an additional $114.4 million in $40
million increments.
The assets of MF I, MF II and Monaco Funding Corp. are not available to pay
general creditors of the Company. In the event there is insufficient cash flow
from the Contracts (principal and interest) to service the Revolving Note and
Term Notes a nationally recognized insurance company (MBIA) has guaranteed
repayment. The MBIA insured Series 1994-A Notes, Series 1995-A Note, Series
1995-B Notes, and Series 1997-1A Notes received a corresponding AAA rating by
Standard and Poor's and an Aaa rating by Moody's and were purchased by
institutional investors. The underlying Contracts accrue interest at rates of
approximately 21% to 29%. All cash collections in excess of disbursements to
the Series 1994-A, Series 1995-A, Series 1995-B, Series 1997-1A and Promissory
Note noteholders and other general disbursements are paid to MF I and MF II
on a monthly basis.
As of June 30, 1997, the Series 1994-A Notes, Series 1995-A Note, Series
1995-B Notes and the Series 1997-1A Notes and underlying receivables backing
those notes were as follows:
12
<PAGE>
<TABLE>
<CAPTION>
Underlying
Receivable
Note Balance Balance
------------- -----------
<S> <C> <C> <C>
Series 1994-A Notes $ 2,814,025 $ 2,754,640
Series 1995-A Note - 75,865
Series 1995-B Notes 10,062,892 10,470,865
Series 1997-1 Notes 42,646,534 49,499,775 (also collateralizes the Promissory Note)
------------- ------------
TOTAL $ 55,523,451 $62,801,145
============= ===========
<FN>
</TABLE>
CONVERTIBLE SENIOR SUBORDINATED NOTE OFFERING
On January 9, 1996, the Company entered into a Purchase Agreement for the
sale of an aggregate of $5 million in principal amount of 12% Convertible
Senior Subordinated Notes due 2001 (the "12% Notes"). This agreement was
subsequently amended and passed by the Company's Booard of Directors on
September, 10, 1996. Interest on the 12% Notes is payable monthly at the rate
of 12% per annum and the 12% Notes are convertible, subject to certain terms
contained in the Indenture, into shares of the Company's Class A Common Stock,
par value $.01 per share, at a conversion price of $4.00 per share,
subject to adjustment under certain circumstances. The 12% Notes were issued
pursuant to an Indenture dated January 9, 1996, between the Company and
Norwest Bank Minnesota, N.A., as trustee. The Company agreed to register, for
public sale, the shares of restricted Common Stock issuable upon conversion of
the 12% Notes. The 12% Notes were sold pursuant to an exemption from the
registration requirements under the Securities Act of 1933, as amended.
Provisions have been made for the issuance of up to an additional $5 million
in principal amount of the 12% Notes on or before September 10, 1998, with an
initial conversion price of $3.00 per share.
REVOLVING LINE OF CREDIT - LASALLE NATIONAL BANK
In January 1996, the Company entered into a revolving line of credit
agreement with LaSalle National Bank ("LaSalle")providing a line of credit of
up to $15 million, not to exceed a borrowing base consisting of eligible
accounts receivable to be acquired. The scheduled maturity date of the line of
credit is January 1, 1998. At the option of the Company, the interest rate
charged on the loans shall be either .5% in excess of the prime rate charged
by lender or 2.75% over the applicable LIBOR rate. The Company is obligated to
pay the lender a fee equal to .25% per annum of the average daily unused
portion of the credit commitment. The obligation of the lender to make
advances is subject to standard conditions. The collateral securing payment
consists of all Contracts pledged and all other assets of the Company. The
Company has agreed to maintain certain restrictive financial covenants. As of
June 30, 1997, the Company had borrowed $5,200,000 against this line of
credit.
INSTALLMENT NOTE PAYABLE - PACIFIC USA HOLDINGS CORP.
On October 9, 1996, the Company entered into a Securities Purchase Agreement
with Pacific USA Holdings Corp. ("Pacific") whereby, among other things,
Pacific agreed to acquire certain shares of the Company's Class A Common
Stock. On November 1, 1996, the Company entered into a Loan Agreement with
Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan"). On
February 7, 1997, the Securities Purchase Agreement was terminated by the
parties; however, the Pacific Loan and its corresponding Installment Note
remained in effect.
On April 25, 1997, the Company executed a Conversion and Rights Agreement (the
"Conversion Agreement") with Pacific. The Conversion Agreement converted the
entire $3,000,000 outstanding principal amount of the installment note made by
Pacific to the Company into 1.5 million restricted shares of the Company's
Class A Common Stock. The Conversion Agreement also released the Company from
all liability under the Loan Agreement executed on October 29, 1996 between
the Company and Pacific pursuant to which the $3 million loan was made.
The Installment Note accrued interest at a fixed rate per annum of 9% and was
payable interest only from November, 1996 through November, 1997; monthly
principal payments of $100,000 were due beginning December, 1997, and
continuing each month thereafter through and including November, 1998. The
unpaid principal amount of the Installment Note, plus accrued and unpaid
interest, was due and payable November 16, 1998.
13
<PAGE>
The collateral securing payment of the Installment Note consisted of 100% of
the authorized, issued and outstanding shares of stock of MF Receivables Corp.
I, consisting of 1,000 shares of common stock $0.01 par value per share. Among
other covenants, the Company had agreed to maintain the monthly outstanding
balance of all retail installment contracts owned by MF Receivables Corp. I,
less the then outstanding principal balance of all debt issued by MF
Receivables Corp. I, at a level in excess of 3.5 times the then outstanding
principal balance of the Installment Note.
NOTE 5 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has two classes of common stock. The two classes are the same
except for the voting rights of each. Each share of Class B common stock is
entitled to three votes while each share of Class A common stock is entitled
to one vote.
STOCK OPTION PLANS
During the six months ended June 30, 1997, stock options to acquire 125,000
shares were granted to certain officers of the Company under the
Company's stock option plan. During this same period, 5,000 options were
exercised and options to acquire 89,400 shares were canceled.
ADOPTION OF NEW ACCOUNTING RULES
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (the Model), for purposes of valuing its stock options
grants. The Model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, it requires the input of highly subjective assumptions including
the expected stock price volatility, expected dividend yields, the risk free
interest rate, and the expected life. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the value determined by the Model is
not necessarily indicative of the ultimate value of the granted options.
OTHER
On April 25, 1997, Morris Ginsburg, the Company's President, and Irwin L.
Sandler, the Company's Executive Vice President and Secretary/Treasurer,
agreed to grant an option (the "Option") to purchase all shares of the
Company's common stock owned by them to SPGC, LLC ("SPGC") at $4.00 per share.
The Option is subject to execution of a definitive option agreement
acceptable to the parties. The option agreement will also provide that
Messrs. Ginsburg and Sandler may "put" 50% of the shares owned or controlled
by them to SPGC on the second anniversary of the effectiveness of the Option
and the other 50% on the third anniversary of the Option at $4.00 per share.
Messrs. Ginsburg and Sandler have agreed to deliver to SPGC irrevocable
proxies for all shares owned or controlled by them upon effective of the
Option. The Option will become effective when SPGC provides security for the
prompt payment of the "put" price in the form of cash, letter of credit or
other collateral satisfactory to Messrs. Ginsburg and Sandler. SPGC is a
limited liability corporation controlled by The Stone Pine Companies, a
privately held group of financial services companies. In connection with the
Option, the Company has engaged SPGC to provide strategic advisory and
investment banking services. Subject to certain termination provisions, Pac-
14
<PAGE>
ific USA Holdings Corp. has delivered irrevocable proxies to Messrs. Ginsburg
and Sandler for the 1.5 million shares of Class A Common Stock acquired
through the Conversion Agreement (See Note 4).
NOTE 6 - INCOME TAXES
The Company is required to measure current and deferred tax consequences of
all events recognized in the financial statements by applying the provisions
of enacted tax laws to determine the amount of taxes payable or refundable
currently or in future years. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. The major and primary
source of any differences is due to the Company accounting for income and
expense items differently for financial reporting and income tax purposes.
A reconciliation of the statutory federal income tax to the effective
anticipated tax is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Pretax income (loss) - continuing and
discontinued operations $(1,047,893) $(1,187,238) $(2,358,187) $(1,966,303)
============ =========== ============ ============
Federal tax expense (benefit)
at statutory rate - 34% $ (356,284) $ (403,661) $ (801,784) $ (668,543)
State income tax expense (benefit) (35,628) (55,045) (80,178) (81,533)
------------ ------------ ------------ ------------
(391,912) (458,706) (881,962) (750,076)
Less valuation allowance (391,912) - (881,962) -
------------ ------------ ------------ ------------
Income tax expense (benefit) $ 0 $ (458,706) $ 0 $ (750,076)
============ ============ ============ ============
<FN>
</TABLE>
Deferred taxes are recorded based upon differences between the financial
statements and tax basis of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities as of June 30,
1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Federal and State NOL tax carry-forward $ 6,725,069
Other 50,551
------------
6,775,620
Less: Valuation Allowance 2,719,345
------------
Total deferred tax assets 4,056,275
Deferred tax liabilities:
Depreciation (68,057)
Allowances (2,406,567)
------------
Total deferred tax liability (2,474,624)
------------
Net deferred tax asset $ 1,581,651
============
<FN>
</TABLE>
The net deferred asset disclosed above equals the deferred income taxes on the
balance sheet. The valuation allowance relates to those deferred tax assets
that may not be fully utilized.
As of June 30, 1997, the Company had a net operating loss carryforward of
approximately $18.0 million for income tax reporting purposes which, if
unused, will expire in 2011 and 2012.
15
<PAGE>
The Company's ability to generate future taxable income will depend upon its
ability to implement its growth strategy. At June 30, 1997, management has
estimated that it is more likely than not that the Company will have some
future net taxable income within the net operating loss carryforward period.
Accordingly, a valuation allowance against the deferred tax asset has been
established such that operating loss carryforwards will be utilized primarily
to the extent of estimated future taxable income. The need for this allowance
is subject to periodic review. Should the allowance be increased in a future
period, the tax benefits of the carryforwards will be recorded at the time as
an increase to the Company's income tax expense. Should the allowance be
reduced in a future period, the tax benefits of the carryforwards will be
recorded at the time as an reduction to the Company's income tax expense.
The increase of approximately $0.9 million in the valuation allowance during
the first six months of 1997 was primarily due to a $1.6 million increase in
net operating loss carryforward partially offset by a $0.7 million increase
in deferred tax liabilities related to Allowances and Loan Origination Fees.
NOTE 7 - DISCONTINUED OPERATIONS
In February 1996, the Company announced that it intends to discontinue its
CarMart retail used car sales and associated financing operations. In April
1996, the Company extended the expected disposal date of the CarMart business
from April 30, 1996 to May 31, 1996.
Effective May 31, 1996, the Company entered into a sublease agreement on all
of its former CarMart properties for the entire lease terms at an amount
approximately equal to the Company's obligation.
NOTE 8 - SUBSEQUENT EVENTS
On July 24, 1997, the Company redeemed the outstanding principal balance of
its 7.6% automobile receivables-backed notes ("Series 1994-A Notes"). The
bonds were redeemed at their principal amount of $1,220,665.33 plus accrued
interest to July 24, 1997. Upon redemption of the Series 1994-A Notes, the
underlying automobile receivables of approximately $2.5 million were pledged
under the terms of the Revolving Note (see Note 4).
16
<PAGE>
ITEM 2. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report on form 10-QSB for the period ended June 30, 1997
contains forward looking statements. Additional written or oral foreward
looking statements may be made by the company from time to time in filings
with the Securities and Exchange Commission or otherwise. Such forward
looking statements are within the meaning of that term in section 27 A of the
Securities Act of 1933, as amended, and section 21 E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of revenues, income, or loss, capital expenditures,
plans for future operations, financing needs or plans, objectives related to
the Automobile Receivables and the related allowance, and plans related to
products or services of the Company, as well as assumptions related to the
foregoing.
Foreward looking statements are inherently subject to risks and uncertainties
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward looking statements. Statements in this quarterly
report included in the "Notes to Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. Additional factors that could cause actual results to
differ from materially from those expressed in such forward looking statements
are set forth in Exhibit 99 to the Company's annual report filed on form
10-KSB for December 31, 1996.
SUMMARY
The Company's revenues and (loss) from continuing operations primarily are
derived from the Company's Loan Portfolio consisting of Contracts purchased
from the Dealer Network, Contracts purchased from third party originators, and
Contracts purchased from vehicle sales at the Companies Dealerships.
In February 1996 the Company announced that it intended to discontinue its
CarMart retail used car sales and its associated financing operations related
to its CarMart business. The CarMart business ceased operations on May 31,
1996. The results of operations of the CarMart business for 1996 were included
in the loss on disposal.
The average discount on all Contracts purchased pursuant to discounted Finance
Programs during the six months ended June 30, 1997 and 1996 was approximately
4.6% and 9%, respectively. The Company services all of the loans that it
owns. The loan portfolio at June 30, 1997 carries a contract annual
percentage rate of interest that approximates 22.9%, before discounts, and has
an original weighted average term of approximately 51 months. The average
amount financed per Contract for the six months ended June 30, 1997 and 1996
was approximately $10,604 and $9,449, respectively.
RESULTS OF OPERATION
OVERVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
Three Months Ended June 30, Six Months Ended June 30,
<S> <C> <C> <C> <C>
(dollars in thousands, except per share amounts) 1997 1996 1997 1996
----------- ----------- ----------- -----------
Total revenues $ 3,091 $ 3,237 $ 6,479 $ 6,459
Total costs and expenses $ 4,139 $ 4,069 $ 8,837 $ 7,920
(Loss) from continuing operations before income taxes $ (1,048) $ (832) $ (2,358) $ (1,461)
Income tax (benefit) - $ (311) - $ (546)
(Loss) from continuing operations $ (1,048) $ (521) $ (2,358) $ (915)
(Loss) on disposal of discontinued business, net of income taxes - $ (208) - $ (301)
Net (loss) $ (1,048) $ (729) ($2,358) $ (1,216)
Net (loss) per share $ (0.14) $ (0.10) $ (0.32) $ (0.17)
Weighted average number of shares outstanding 7,724,594 6,957,329 7,348,344 6,964,054
<FN>
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
AS A % OF OUTSTANDING LOAN PORTFOLIO
Three Months Ended June 30, Six Months Ended June 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ------------ ------------ ------------
Average Interest Bearing Loan Portfolio Balance $76,933,922 $63,709,724 $78,924,793 $63,207,194
============ ============ ============ ============
Interest Income 16.1% 20.3% 16.1% 20.3%
Interest Expense 7.0% 6.7% 7.0% 6.7%
------------ ------------ ------------ ------------
9.1% 13.6% 9.1% 13.6%
Operating Expenses 14.1% 17.3% 14.9% 16.6%
Provision for Credit Losses 0.4% 1.5% 0.5% 1.7%
Other Income - - -0.3% -0.1%
------------ ------------ ------------ ------------
14.5% 18.8% 15.1% 18.2%
Loss from continuing operations before income taxes -5.4% -5.2% -6.0% -4.6%
Income Tax Benefit - -1.9% - -1.7%
------------ ------------ ------------ ------------
Loss from continuing operations -5.4% -3.3% -6.0% -2.9%
Loss on disposal of discontinued business, net of taxes - -1.3% - -0.9%
------------ ------------ ------------ ------------
Net Loss -5.4% -4.6% -6.0% -3.8%
============ ============ ============ ============
<FN>
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
<S> <C> <C>
June 30, 1997 December 31, 1996
-------------- ------------------
(dollars in thousands)
Total assets $ 90,904 $ 95,264
Total liabilities $ 75,386 $ 80,262
Stockholders' equity $ 15,518 $ 15,002
<FN>
</TABLE>
The Company's revenues decreased 4% from $3.2 million in the second quarter of
1996 to $3.1 million in the comparable 1997 period. Net (loss) increased from
$(0.7) million in 1996 to $(1.0) million in 1997. (Loss) per share for 1997
was $(0.14), based on 7.7 million weighted average shares outstanding,
compared with $(0.10) per share, based on 7.0 million weighted average shares
outstanding, for 1996.
For the six months ended June 30, the Company's net revenues for 1996 and
1997 were essentially flat at $6.5 million. Net loss increased from $(1.2)
million in 1996 to $(2.4) million in 1997. (Loss) per share for 1997 was
$(0.32), based on 7.3 million weighted average shares outstanding, compared
with $(0.17) per share, based on 7.0 million weighted average shares
outstanding, for 1996.
18
<PAGE>
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
SELECTED OPERATING DATA
Three Months , Six Months
Ended June 30 Ended June 30,
<S> <C> <C> <C> <C>
(dollars in thousands, except where noted) 1997 1996 1997 1996
-------- ------- -------- -------
Interest income $ 3,091 $3,233 $ 6,357 $6,426
Other income - $ 4 $ 122 $ 33
Provision for credit losses $ 77 $ 247 $ 194 $ 549
Operating expenses $ 2,709 $2,751 $ 5,888 $5,249
Interest expense $ 1,353 $1,071 $ 2,755 $2,122
Operating expenses as a % of Average
Gross Receivables 3.5% 4.3% 7.5% 8.3%
Contracts from Dealer Network 709 1,758 1,316 2,706
Contracts from Company Dealerships - 44 - 148
-------- ------- -------- -------
Total contracts 709 1,802 1,316 2,854
Average amount financed (dollars) $10,679 $9,932 $10,604 $9,449
<FN>
</TABLE>
REVENUES
Total revenues for the quarter ended June 30, 1997 decreased $.1 million
when compared to the same period in 1996 primarily due to a decrease of
$141,000 in interest income when compared to the same period in 1996. The
rate of interest income earned for the quarter ended June 30, 1997 was 16.1%
based on an average interest bearing portfolio balance of $76,933,922 as
compared to a rate of interest income earned of 20.3% based on an average
interest bearing portfolio balance of $63,709,724 for the quarter ended June
30, 1996. Total revenues for the six months ended June 30, 1997 were
essentially flat when compared to the same period in 1996 primarily due to a
one-time credit of $120,000 from the Company's forced place insurance provider
partially offset by a decrease of $69,000 in interest income when
compared to the same period in 1996. The rate of interest income earned for
the six months ended June 30, 1997 was 16.1% based on an average interest
bearing portfolio balance of $78,924,793 as compared to a rate of interest
income earned of 20.3% based on an average interest bearing portfolio balance
of $63,207,194 for the six months ended June 30, 1996. The decrease in
effective yield reported by the Company for the three and six months ended
June 30, 1997 when compared to the prior year's comparable period was due
primarily to the Company's use of the excess interest method of accounting and
a change in the Company's portfolio mix, resulting in somewhat lower contract
interest rates and lower purchase discounts. Acquisition of Contracts with
lower interest rates and discounts was due to increased competition in the
sub-prime automobile finance industry and the Company's strategy to acquire
loans with perceived higher credit quality. The Company's management believes
the yields for the first six months of 1997, should be representative of loans
purchased for the balance of the year using similar programs and buying
criteria which are subject to change based on the Company's future business
plans.
The lower reported interest rate - when compared to the contract annual
percentage rate of interest (22.9% at June 30, 1997 and 25.0% at June 30,
1996) - results from the Company's use of the excess interest method of
accounting. Under this method the Company uses part of its interest income as
well as contract discounts and a provision for credit losses to establish its
allowance for credit losses on its portfolio over their entire life.
The most significant aspect of the growth of the Company's loan portfolio is
attributable to loans generated from the Dealer Network during 1996. During
1996, the Company's loan portfolio increased 34% from $62.2 million at
December 31, 1995 to $82.9 million at December 31, 1996. The number of
contracts generated from the Dealer Network increased 25% during 1996 and the
dollar value of contracts acquired increased $21.5 million or 51%. The
increase in contracts mainly was due to the expansion of the Dealer Network
during 1996.
During the first six months of 1997, the Company's net Automobile Receivables
decreased from $81.9 million at December 31, 1996 to $76.3 million at June
30, 1997. During the three months period ended June 30, 1997, the Company
originated 709 loans totaling $7.6 million with an average amount financed of
$10,679 as compared to loan originations of 1,802 totaling $17.9 million with
an average amount financed of $9,932 for the three months ended June 30,
1996. During the six months ended June 30, 1997, the Company originated
1,316 loans totaling $14.0 million with an average amount financed of $10,604
as compared with loan originations of 2,854 totaling $27.0 million with an
average amount financed of $9,449 for the six months ended June 30, 1996. The
average discount on all contracts purchased decreased from 9% in the first six
months of 1996 to approximately 4.6% in the comparable period of 1997.
19
<PAGE>
The decline in the number and dollar value of loan originations during the
first six months of 1997 as compared to the first six months of 1996 of 54%
and 48%, respectively, as well as the decline in purchase discounts of
approximately 50% and the increase in average amount financed of 12%, resulted
from a change in the Company's business philosophy in the latter part of 1996
which carried over into the first half of 1997. This change resulted from the
completion of the Company's proprietary credit scoring system and as a result
of closing its CarMart retail sales and financing operations and ceasing
its deep discount loan acquisition programs. All of these measures were in
accordance with the Company's loan acquisition strategy to acquire loans which
the Company believes have increased credit quality.
At June 30, 1997, only $2.6 million of the Company's Auto Receivable Loan
Portfolio was generated from the discontinued CarMart operations as compared
to $8.4 million of its portfolio at June 30, 1996.
COSTS AND EXPENSES
The provision for credit losses decreased $170,000 from $247,000 in the
quarter ended June 30, 1996 to $77,000 in the comparable 1997 period. For the
six months ended June 30, the provision for credit losses decreased $354,000
from $548,000 in 1996 to $194,000 in 1997. The provision for credit losses
represents estimated current losses based on the Company's risk analysis of
historical trends and expected future results. The decreases in the provisions
for credit losses primarily were due to the introduction of the excess
interest method to record allowances effective January 1, 1995 (see Note 2),
as well as changes in certain of the Company's programs. Net charge-offs as a
percentage of Average Net Automobile Receivables decreased from 9.8% in the
first six months of 1996 to7.3% in the comparable 1997 period. Although the
Company believes that its allowance for credit losses is sufficient for the
life of its current portfolio, a provision for credit losses may be charged to
future earnings in an amount sufficient to maintain the allowance. The Company
had 2.2% of its loan portfolio over 60 days past due at December 31, 1996
compared with 1.4% at June 30, 1997.
The Company believes that the decrease in net charge-offs as a percentage of
Average Net Automobile Receivables is due to the following factors:
1. Portfolio mix; Changes in the composition of the Company's portfolio,
due specifically to closing the CarMart retail stores and elimination of the
high interest rate, deep-discount programs, may reduce charge-offs as a
percentage of average automobile receivables.
2. Credit quality; All originations subsequent to August 31, 1996, were
acquired using the Company's credit scorecard including more stringent credit
criteria. These Contracts may result in lower net charge-offs and higher
risk adjusted yields in the future than for comparable periods in 1996.
3. Collections and recoveries; In February 1997, the Company upgraded
its collection and recovery departments. The top three people in charge of
these departments have many years of experience in collecting sub-prime
automobile contracts. It is too soon to determine whether changes in the
department will result in significant long-term reductions in net charge-offs.
Effective October 1, 1996, the Company adopted a new methodology for reserving
for and analyzing its loan losses. This accounting method is commonly referred
to as static pooling. The static pooling reserve methodology allows the
Company to stratify its Automobile Receivables portfolio, and the related
components of its Allowance for Credit Losses (i.e. discounts, excess
interest, charge offs and recoveries) into separate and identifiable quarterly
pools. These quarterly pools, along with the Company's estimate of future
principle losses and recoveries, are analyzed quarterly to determine the
adequacy of the Allowance for Credit Losses. The method previously used by the
Company to analyze the Allowance for Credit Losses was based on the total
Automobile Receivables portfolio.
As part of its adoption of the static pooling reserve method, where necessary,
the Company adjusted its quarterly pool allowances to a level necessary to
cover all anticipated future losses (i.e. life of loan) for each related
quarterly pool of loans.
Under static pooling, excess interest and discounts are used to increase the
Allowance for Credit Losses and represent the Company's primary reserve for
future losses on its portfolio. To the extent that any quarterly pool's excess
interest and discount reserves are insufficient to absorb future estimated
losses, net of recoveries, adjusted for the impact of current delinquencies,
collection efforts, and other economic indicators including analysis of the
Company's historical data, the Company will provide for such deficiency
through a charge to the Provision for Credit Losses and the establishment of
an additional Allowance for Credit Losses. To the extent that any excess
interest and discount reserves are determined to be sufficient to absorb
future estimated losses, net of recoveries, the difference will be accreted
into interest income on an effective yield method over the estimated remaining
life of the related quarterly static pool.
20
<PAGE>
Operating expenses decreased $42,000 from $2,751,000 in the second
quarter of 1996 to $2,709,000 in the comparable 1997 period. This decrease
primarily was due to a decrease in salaries and benefits of $350,000 partially
offset by a $228,000 increase due to lower loan origination fees and an
$81,000 increase in depreciation and amortization. For the six months ended
June 30, operating expenses increased $0.6 million, or 12%, from $5.3 million
in 1996 to $5.9 million in 1997. This increase primarily was due to an
increase of $419,000 as a result of lower loan origination fees and an
increase in depreciation and amortization of $157,000 and consulting and
professional fees of $122,000, partially offset by a decrease in salaries and
benefits of $225,000 The major components of the increase in operating
expenses are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands) 1997 1996 Increase (Decr.) 1997 1996 Increase (Decr.)
------- ------- ----------------- ------- ------- -----------------
Salaries and benefits $1,201 $1,551 $ (350) $2,728 $2,953 $ (225)
Depreciation and amortization 402 321 81 806 649 157
Consulting and professional fees 518 517 1 1,114 992 122
Telephone 120 131 (11) 275 217 58
Travel and entertainment 46 98 (52) 122 173 (51)
Loan origination fees (92) (320) 228 (172) (591) 419
Rent/Office Supplies/Postage 259 261 (2) 528 512 16
All other 255 192 63 487 344 143
------- ------- ---------------- ------- ------ -----------------
$2,709 $2,751 $ (42) $5,888 $5,249 $ 639
======= ======= ================ ======= ====== =================
<FN>
</TABLE>
Interest expense increased $0.3 million, or 26%, from $1.1 million in the
second quarter of 1996 to $1.3 million in the second quarter of 1997. For the
six months ended June 30, interest expense increased $0.6 million, or 30%,
from $2.1 million in 1996 to $2.7 million in 1997. These increases primarily
were due to an increase in borrowings that provided the necessary working
capital for the Company to increase its loan portfolio from $67.6 million at
June 30, 1996 to $74.8 million at June 30, 1997. Since June 30, 1996, net
increases (decreases) in the Company's debt were as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Notes payable - LaSalle $ 5,200
Promissory note payable 2,525
Convertible senior subordinated debt (833)
Automobile receivables-backed notes 3,609
--------
Total $10,501
========
<FN>
</TABLE>
The average annualized interest rate on the Company's debt was 7.0% for the
second quarter of 1997and 1996 and was 7.1 % for the first six months of 1997
and 1996.
The annualized net interest margin percentage, representing the difference
between interest income and interest expense divided by average finance
receivables, decreased from 13.4% in the second quarter of 1996 to 9.0% in the
second quarter of 1997. For the six months ended June 30, the annualized net
interest margin percentage decreased from 13.8% in 1996 to 9.1% in 1997. These
decreases were due primarily to the amortization of excess interest receivable
as described in Note 2 of the Notes to Consolidated Financial Statements.
NET INCOME (LOSS)
Net loss from continuing operations increased $0.5 million from $(0.5)
million in the second quarter of 1996 to $(1.0) million in the second quarter
of 1997. For the six months ended June 30, net loss from continuing
operations increased $(1.4) million from $(0.9) million in 1996 to $(2.3)
million in 1997. These increases in loss were primarily due to the following
changes on the Consolidated Statements of Operations:
21
<PAGE>
<TABLE>
<CAPTION>
(INCREASE) TO NET (LOSS) FROM CONT. OPERATIONS
Three Months Ended June 30 Six Months Ended June 30
---------------------------- ------------------------
<S> <C> <C>
(in millions of dollars)
Interest and other income $ (0.2) -
Provision for credit losses 0.2 0.3
Operating expenses - (0.6)
Interest expense (0.3) (0.6)
Income tax expense (0.2) (0.5)
---------------------------- --------------------------------
Net (increase) to net (loss)
from continuing operations $ (0.5) $ (1.4)
============================ ================================
<FN>
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows for the six months ended June 30, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
CASH FLOW DATA
Six Months Ended June 30,
<S> <C> <C>
(dollars in thousands) 1997 1996
-------- --------
Cash flows provided by (used in):
Operating activities $ 386 $ 1,147
Investing activities 2,550 (9,477)
Financing activities (3,875) 6,561
-------- --------
Net (decrease) in cash and cash equivalents $ (939) $(1,769)
======== ========
<FN>
</TABLE>
The Company's business has been and will continue to be cash intensive. The
Company's principal need for capital is to fund cash payments made to Dealers
and to third-party originators in connection with purchases of installment
contracts. These purchases have been financed through the Company's capital,
private placement borrowings and cash flows from operations. It is the
Company's intent to use its Revolving Note and revolving line of credit, as
described in detail below, to provide the liquidity to finance the purchase of
installment Contracts.
In order to further insure the Company's ability to finance the purchase of
installment contracts and thereby continue to grow, the Company is seeking to
obtain an additional warehouse credit facility on terms more favorable than
the Revolving Note described in Note 4 to the Company's Consolidated Financial
Statements. If the Company is successful in obtaining such a credit facility,
it will provide the Company with additional working capital to the extent that
the new cash advance terms are more favorable than the Revolving Note.
Although the Company believes it will be able to consummate such a new credit
facility, no assurance can be given that it will be consummated.
In addition to its efforts to obtain a new credit facility, as described
above, the Company on November 1, 1996, obtained a $3 million term loan from
Pacific USA Holdings Corp., which was converted to 1,500,000 shares of Class
A Common Stock as of April 25, 1997, as described in Note 4 to the Company's
Consolidated Financial Statements.
The Agreements underlying the terms of the Company's Automobile Receivable -
Backed Securitization Program ("Securitization Program") and the corresponding
Revolving Notes and Warehouse Notes, described below, contain certain
covenants which if not complied with, could materially restrict the Company's
liquidity. Although the Company endeavors to comply with these covenants, no
assurance is given that the Company will continue to be in compliance.
Furthermore, if Net Charge-Offs increase in the future, the Company's
liquidity and its ability to increase its loan portfolio may be impacted
negatively. Under the terms of the Revolving Note, approximately 80% of the
face amount of Contracts, in the aggregate, is advanced to the Company for
purchasing qualifying Contracts. The balance must be financed through capital.
During 1993, the Company completed the Note Offering described in Note 4 of
the Notes to Consolidated Financial Statements. In the Note Offering, the
Company sold 7% Convertible Subordinated Notes in the aggregate principal
amount of $2,000,000. The purchasers of the Notes exercised an option to
purchase an additional $1,000,000 aggregate principal amount on September 15,
22
<PAGE>
1993. The principal amount of the Notes, plus accrued interest thereon, is due
March 1, 1998. The Notes are convertible into Class A Common Stock of the
Company at any time prior to maturity at a conversion price of $3.42 per
share, subject to adjustment for dilution. Certain of these Notes with an
aggregate principal amount of $1,615,000 were converted in 1994 and 1995,
resulting in the issuance of 472,219 shares of Class A Common Stock.
On November 1, 1994, the Company sold in a private placement unsecured Senior
Subordinated Notes (Senior Notes") in the principal amount of $5,000,000 to
Rothschild North America, Inc. Interest is due and payable the first day of
each quarter commencing on January 1, 1995. Principal payments in the amount
of $416,667 are due and payable the first day of January, April, July and
October of each year, commencing January 1, 1997. The unpaid principal amount
of the Notes, plus accrued and unpaid interest, are due October 1, 1999.
In November 1994 MF Receivables Corp I. ("MF I"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $23,861,823
of 7.6% automobile receivables-backed notes ("Series 1994-A Notes"). The
Series 1994-A Notes accrue interest at a fixed rate of 7.6% per annum. The
Series 1994-A Notes are expected to be fully amortized by March 1998; however,
the debt maturities are based on principal payments received on the underlying
receivables, which may result in a different final maturity.
In May of 1995, MF I issued its Floating Rate Auto Receivable-Backed Note
("Revolving Note" or "Series 1995-A Note"). The Revolving Note has a stated
maturity of October 16, 2002. MF I acquires Contracts from the Company which
are pledged under the terms of the Revolving Note and Indenture for up to $40
million in borrowing. Subsequently, the Revolving Note is repaid by the
proceeds from the issuance of secured Term Notes or repaid from collection of
principal payments and interest on the underlying Contracts. The Revolving
Note can be used to borrow up to an aggregate of $150 million through May 16,
1998. The Term Notes have a fixed rate of interest and likewise are repaid
from collections on the underlying Contracts. An Indenture and Servicing
Agreement require that the Company and MF I maintain certain financial ratios,
as well as other representations, warranties and covenants. The Indenture
requires MF I to pledge all Contracts owned by it for repayment of the
Revolving Note or Term Notes, including Contracts pledged as collateral for
Series 1994-A Term Notes, the Series 1995-B Term Notes, as well as all future
Contracts acquired by MF I.
The Series 1995-A Note bears interest at LIBOR plus 75 basis points. The
initial funding of this Note was $26,966,489 on May 16, 1995. The Company, as
servicer, provides customary collection and servicing activities for the
Contracts. The Revolving Note has a stated maturity of October 16, 2002 and an
expected termination date of May 16, 1997. The maximum limit for the Series
1995-A Note is $40 million. On September 15, 1995, MF Receivables issued its
Series 1995-B Term Notes ("Series 1995-B Notes") in the amount of $35,552,602.
The Series 1995-B Notes accrue interest at a fixed note rate of 6.45% per
annum. The Series 1995-B Notes are expected to be fully amortized by June
1999; however, the debt maturities are based on principal payments received on
the underlying receivables which may result in a different final maturity. The
proceeds from the issuance of the Series 1995-B Notes were used to retire, in
full, the 1995-A Note.
In June 1997, MF Receivables Corp. II ("MF II"), a wholly owned special
purpose subsidiary of the Company, sold, in a private placement, $42,646,534
of Class A automobile receivables-backed notes ("Series 1997-1A Notes" or
"Term Note") to an outside investor and $2,569,068 of Class B automobile
receivables-backed notes ("Class B Notes") to Monaco Funding Corp., a
wholly-owned special purpose subsidiary of the Company. The Series 1997-1A
Notes accrue interest at a fixed rate of 6.71% per annum and are expected to
be fully amortized by December 2002; however, the debt maturities are based on
principal payments received on the underlying receivables, which may result in
a different final maturity. An Indenture and Servicing Agreement require that
the Company and MF II maintain certain financial ratios, as well as other
representations, warranties and covenants.
In connection with the purchase of the Class B Notes, Monaco Funding Corp.
borrowed $2,525,000 from a financial institution ("Promissory Note"). The
Promissory Note accrues interest at a fixed rate of 16% per annum and is
collateralized by the proceeds from the Class B Notes. The Class B Notes are
expected to be fully amortized by December 2002; however, the debt maturities
are based on principal payments received on the underlying receivables, which
may result in a different final maturity. Monaco Funding Corp. is required to
maintain certain covenants and warranties under the Pledge Agreement.
Under the Trust and Security Agreement, MF II shall have the option to redeem
all of the Series 1997-1A Notes at any time after the balance of the Series
1997-1A Notes is less than or equal to 20% of the initial balance of the
Series 1997-1A Notes. MF II also has the option to redeem the Class B Notes
at an time after the balance of the Series 1997-1A Notes has been reduced to
zero or has been redeemed. The proceeds from the issuance of the Series
1997-1A Notes and the Promissory Note were used to retire, in full, the 1995-A
Note, which can be used to accumulate an additional $114.4 million in $40
million increments.
The assets of MF I, MF II and Monaco Funding Corp. are not available to pay
general creditors of the Company. In the event there is insufficient cash flow
from the Contracts (principal and interest) to service the Revolving Note and
Term Notes a nationally recognized insurance company (MBIA) has guaranteed
23
<PAGE>
repayment. The MBIA insured Series 1994-A Notes, Series 1995-A Note, Series
1995-B Notes, and Series 1997-1A Notes received a corresponding AAA rating by
Standard and Poor's and an Aaa rating by Moody's and were purchased by
institutional investors. The underlying Contracts accrue interest at rates of
approximately 21% to 29%. All cash collections in excess of disbursements to
the Series 1994-A, Series 1995-A, Series 1995-B, Series 1997-1A and Promissory
Note noteholders and other general disbursements are paid to MF I and MF II
on a monthly basis.
As of June 30, 1997, the Series 1994-A Notes, Series 1995-A Note, Series
1995-B Notes and the Series 1997-1A Notes and underlying receivables backing
those notes were as follows:
<TABLE>
<CAPTION>
Underlying
Receivable
Note Balance Balance
------------- ------------
<S> <C> <C> <C>
Series 1994-A Notes $ 2,814,025 $ 2,754,640
Series 1995-A Note - 75,865
Series 1995-B Notes 10,062,892 10,470,865
Series 1997-1 Notes 42,646,534 49,499,775 (also collateralizes the Promissory Note)
-------------
TOTAL $ 55,523,451 $62,801,145
============= ============
<FN>
</TABLE>
On January 9, 1996, the Company entered into a Purchase Agreement for the sale
of an aggregate of $5 million in principal amount of 12% Convertible Senior
Subordinated Notes due 2001 (the "12% Notes"). This agreement was subsequently
amended and passed by the Company's Board of Directors on September, 10, 1996.
Interest on the 12% Notes is payable monthly at the rate of 12% per annum and
the 12% Notes are convertible, subject to certain terms contained in the
Indenture, into shares of the Company's Class A Common Stock, par value $.01
per share, at a conversion price of $4.000 per share, subject to adjustment
under certain circumstances. The 12% Notes were issued pursuant to an
Indenture dated January 9, 1996, between the Company and Norwest Bank
Minnesota, N.A., as trustee. The Company agreed to register, for public sale,
the shares of restricted Common Stock issuable upon conversion of the 12%
Notes. The 12% Notes were sold pursuant to an exemption from the registration
requirements under the Securities Act of 1933, as amended.
Provisions have been made for the issuance of up to an additional $5 million
in principal amount of the 12% Notes on or before September 10, 1998, with an
initial conversion price of $3.00 per share.
In January 1996, the Company entered into a revolving line of credit agreement
with LaSalle National Bank providing a line of credit of up to $15 million,
not to exceed a borrowing base consisting of eligible accounts receivable to
be acquired. The scheduled maturity date of the line of credit is January 1,
1998. At the option of the Company, the interest rate charged on the loans
shall be either .5% in excess of the prime rate charged by the lender or 2.75%
over the applicable LIBOR rate. The Company is obligated to pay the lender a
fee equal to .25% per annum of the average daily unused portion of the credit
commitment. The obligation of the lender to make advances is subject to
standard conditions. The collateral securing payment of the line of credit
consists of all Contracts pledged and all other assets of the Company. The
Company has agreed to maintain certain restrictive loan covenants. As of June
30, 1997, the Company had borrowed $5,200,000 against this line of credit.
On October 9, 1996, the Company entered into a Securities Purchase Agreement
with Pacific USA Holdings Corp. ("Pacific") whereby, amongst other things,
Pacific agreed to acquire certain shares of the Company's Class A Common
Stock. On November 1, 1996, the Company entered into a Loan Agreement with
Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan"). On
February 7, 1997, the Securities Purchase Agreement was terminated by the
parties; however, the Pacific Loan and its corresponding Installment Note
remained in effect.
On April 25, 1997, the Company executed a Conversion and Rights Agreement (the
"Conversion Agreement") with Pacific. The Conversion Agreement converted the
entire $3,000,000 outstanding principal amount of the installment note made by
Pacific to the Company into 1.5 million restricted shares of the Company's
Class A Common Stock. The Conversion Agreement also released the Company from
all liability under the Loan Agreement executed on October 29, 1996 between
the Company and Pacific pursuant to which the $3 million loan was made.
In March 1996, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of Class A Common Stock,
representing approximately 10% of its Class A Common Stock outstanding.
Subject to applicable securities laws, repurchases may be made at such times,
and in such amounts, as the Company's management deems appropriate. As of
June 30, 1997, the Company had repurchased 26,900 shares of Class A Common
Stock.
24
<PAGE>
The Company has never paid cash dividends on its Common Stock and does not
anticipate a change in this policy in the foreseeable future. Certain of the
Company's loan agreements contain covenants that restrict the payment of cash
dividends.
The Company's cash needs will, in part, continue to be funded through a
combination of earnings and cash flow from operations and its existing
warehouse credit facility and line of credit. In addition, the Company
continues to pursue additional sources of funds including, but not limited to,
various forms of debt and/or equity. The ability of the Company to maintain
past growth levels will, in large part, be dependent upon obtaining such
additional sources of funding, of which no assurance can be given. Failure to
obtain additional funding sources will materially restrict the Company's
future business activities and could, in the future, require the Company to
sell certain of the Loans in its Portfolio to meet its liquidity
requirements.
OTHER
ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board ("FASB")issued Statement
No. 123, Accounting for Stock Based Compensation, (SFAS 123) which encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options and other equity instruments to employees. SFAS
123 is required for such grants, described above, to acquire goods and
services from non-employees. Additionally, although expense recognition is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting rules to disclose pro forma net income and earnings per share
information using the new method. The Company has adopted SFAS 123 in the
fourth quarter of fiscal 1995 and disclosed pro forma net income and earnings
per share information related to the 272,500 employee stock options granted in
1996 in Note 6 of Form 10-KSB of the Notes to Consolidated Financial
Statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (subsequently amended by SFAS No. 127). SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Management of the Company
does not expect that adoption of SFAS No. 125 will have a material impact on
the Company's financial position, results of operations, or liquidity.
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company from inception to June 30, 1997.
FUTURE EXPANSION AND STRATEGY
The Company's strategy is to increase the size of its loan portfolio
while maintaining the integrity of the credit quality of auto loans acquired.
The Company plans to implement its growth strategy by: (1) Expanding its
Dealer Network; (2) Increasing the number and amount of loans purchased from
third-party originators; (3) Purchasing portfolios of seasoned loans
originated by others; (4) Continuing its efforts to increase the credit
quality of its portfolios and reduce credit losses and charge-offs; and (5)
Decrease the percentage of Operating Expenses to Total Portfolio Outstanding
by increasing the Portfolio while decreasing Operating Expenses.
During 1996 the Company acquired Contracts from approximately 425 Dealers in
21 states, the majority of which were purchased in 5 states ("Primary
States"). In order to increase efficiency and reduce operating expenses , the
Company in 1997 has temporarily reduced its marketing representatives from 16
to 6 in the Primary States. In order to expand it's Dealer Network in the last
half of 1997 the Company intends to selectively hire and train new marketing
representatives and to emphasize quality Dealer service.
In the latter part of 1996 the Company initiated a program of purchasing loans
from a third-party originator for a fee. These loans were underwritten by the
third-party originator to conform to standards established by the Company.
All loans purchased by the Company are either re-underwritten or audited by
Company personnel prior to funding. During the first half of 1997 the Company
has entered into agreements with two similar originators. These third-party
agreements, if successful, may provide additional loan production for the
Company without certain of the costs associated with purchasing loans through
its dealer network.
25
<PAGE>
The Company also plans to pursue the purchase of loan portfolios previously
originated by sub-prime automobile contract originators. The Company does not
know, at this time, if such portfolios can be acquired at prices that provide
a risk adjusted yield to the Company that is sufficient to meet the Company's
criteria, nor does the Company know if Capital or credit facilities can be
obtained to fund such purchases.
Other strategies for the future include forming a strategic alliance with
another company, either currently engaged in or interested in entering the
sub-prime automobile finance industry. An alliance, if formed, may result in
additional Capital and warehouse lines of credit as well as increased loan
volume and cost efficiencies obtained by combining operations.
In addition to the above, the Company intends to pursue contractual servicing
arrangements, whereby, the Company will earn fee income by providing servicing
of loan portfolios owned by third-parties. Although no assurance can be given
that such contractual arrangements will be consummated, the Company believes
such opportunities exist and intends to pursue them accordingly.
Implementation of the foregoing strategy will be dependent upon a number of
factors including, but not limited to: i) competition; ii) marketing
efficiency; iii) ability of the Company to acquire Contracts at prices
commensurate with estimated risk; and, iv) maintaining and increasing capital
and warehouse lines of credit, of which no assurance is given.
26
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED JUNE 30, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(b.) Certain of the Company's loan agreements, including loan agreements
entered into in the first quarter of 1996, contain covenants that restrict the
payment of cash dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders of Monaco Finance, Inc. was held
on July 22, 1997.
(b) Morris Ginsburg, Irwin L. Sandler, David M. Ickovic, Brian O'Meara and
Craig L. Caukin were elected as Directors of the Company to serve until the
next annual meeting of the shareholders or until their successors are elected
or qualified. The aforementioned was passed with the following votes:
MORRIS GINSBURG
9,005,649 FOR;-0- WITHHELD; 278,503 AGAINST; and -0- ABSTAIN.
IRWIN L. SANDLER
9,022,854 FOR;-0- WITHHELD; 261,298 AGAINST; and -0- ABSTAIN.
DAVID M. ICKOVIC
9,024,854 FOR;-0- WITHHELD; 259,298 AGAINST; and -0- ABSTAIN.
BRIAN O'MEARA
9,023,854 FOR;-0- WITHHELD; 260,298 AGAINST; and -0- ABSTAIN.
CRAIG L. CAUKIN
9,024,654 FOR;-0- WITHHELD; 259,498 AGAINST; and -0- ABSTAIN.
(c) Also, at the annual meeting, shareholders voted to ratify the
appointment of Ehrhardt, Keefe, Steiner & Hottman, P.C. as the Company's
independent certified public accountants for the current fiscal year and until
such time as its successor is approved by the Company's Board of Directors
(9,067,927 For, -0- Withheld, 115,052 Against, and 101,173 Abstained).
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 - Computation of Net Earnings per Common and Common Equivalent
Share. Page 29.
27 - Financial Data Schedule. Page 30.
10.53 - Trust and Security Agreement related to the placement of
$42,646,534 and $2,569,068 aggregate principal amount
of automobile receivables-backed Class A Certificates
and Class B Certificates, respectively. Page 31.
10.54- Form of Class A Certificate issued by MF Receivables Corp.II
related to the private placement of $42,646,534 of
6.71% automobile receivables-backed notes. Page 85.
27
<PAGE>
10.55 - Form of Class B Certificate issued by MF Receivables Corp.II
related to the placement of $2,569,068 of automobile
receivables-backed notes. Page 91.
10.56 - Loan Agreement dated June 26, 1997, between Monaco Funding
Corp. and Heartland Bank relating to the $2,525,000
Promissory Note. Page 96.
(b) Reports on Form 8 - K:
A Form 8-K dated April 25, 1997 was filed announcing the conversion of
the Company's $3,000,000 Installment Note Payable with Pacific USA Holdings
Corp. into 1.5 million restricted shares of the Company's Class A Common
Stock.
28
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
MONACO FINANCE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
EARNINGS (LOSS) PER SHARE - PRIMARY AND FULLY DILUTED
NET EARNINGS (LOSS)
- -----------------------------------------------------------
(Loss) from continuing operations $(1,047,893) $ (520,981) $(2,358,187) $ (914,776)
(Loss) on disposal of discontinued business - (207,551) - (301,451)
------------ ----------- ------------ ------------
Net (loss) $(1,047,893) $ (728,532) $(2,358,187) $(1,216,227)
============ =========== ============ ============
AVERAGE SHARES OUTSTANDING
- -----------------------------------------------------------
Weighted average shares outstanding 7,724,594 6,957,329 7,348,344 6,964,054
Shares issuable from assumed exercise of stock options (a) (b) (b) (b) (b)
Shares issuable from assumed exercise of underwriters'
units (a) (b) (b) (b) (b)
Shares issuable from assumed exercise of stock
warrants (a) (b) (b) (b) (b)
------------ ----------- ------------ ------------
Common stock and common stock equivalents - primary 7,724,594 6,957,329 7,348,344 6,964,054
Shares issuable from assumed conversion of 7% subordinated
debt (c) (b) (b) (b) (b)
------------ ----------- ------------ ------------
Common stock and common stock equivalents - fully
diluted 7,724,594 6,957,329 7,348,344 6,964,054
============ =========== ============ ============
EARNINGS (LOSS)PER SHARE - PRIMARY AND FULLY DILUTED
- -----------------------------------------------------------
(Loss) from continuing operations $ (0.14) $ (0.07) $ (0.32) $ (0.13)
(Loss) on disposal of discontinued business - (0.03) - (0.04)
------------ ----------- ------------ ------------
Net (loss) per share $ (0.14) $ (0.10) $ (0.32) $ (0.17)
============ =========== ============ ============
<FN>
Notes:
(a) Common Stock equivalents are calculated using the treasury stock method.
(b) The computation of average number of common stock and common stock equivalent shares outstanding
excludes anti-dilutive common equivalent shares.
(c) Subordinated debentures were not included in the calculation of primary earnings per share in
accordance with paragraph 33 of APB Opinion No. 15.
</TABLE>
29
<PAGE>
EXHIBIT 27
<TABLE>
<CAPTION>
MONACO FINANCE, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.[/LEGEND]
Item 3 -mos Year-to-date
- ---------------------------------------------------------- ------------ --------------
<S> <C> <C>
Fiscal year end 31-Dec-97 31-Dec-97
Period end 30-Jun-97 30-Jun-97
Period type 3 month 6 month
Cash and cash items $ 5,924,878 $ 5,924,878
Marketable securities $ 0 $ 0
Notes and accounts receivable trade $ 82,528,764 $ 82,528,764
Allowance for doubtful accounts ($6,230,478) ($6,230,478)
Inventory $ 0 $ 0
Total current assets $ 0 $ 0
Property, plant and equipment $ 3,995,881 $ 3,995,881
Accumulated depreciation $ 1,758,355 $ 1,758,355
Total assets $ 90,903,690 $ 90,903,690
Total current liabilities $ 0 $ 0
Bonds, mortgages and similar debt $ 73,800,117 $ 73,800,117
Preferred stock-mandatory redemption $ 0 $ 0
Preferred stock no-mandatory redemption $ 0 $ 0
Common stock $ 84,771 $ 84,771
Other stockholders' equity $ 15,433,421 $ 15,433,421
Total liabilities and stockholders' equity $ 90,903,690 $ 90,903,690
Net sales of tangible products $ 0 $ 0
Total revenues $ 3,091,436 $ 6,478,556
Cost of tangible goods sold $ 0 $ 0
Total costs and expenses applicable to sales and revenues $ 2,708,709 $ 5,887,984
Other costs and expenses $ 0 $ 0
Provision for doubtful accounts and notes $ 77,270 $ 194,249
Interest and amortization of debt discount $ 1,353,350 $ 2,754,510
Income before taxes and other items ($1,047,893) ($2,358,187)
Income tax expense $ 0 $ 0
Income/(loss) continuing operations ($1,047,893) ($2,358,187)
Discontinued operations $ 0 $ 0
Extraordinary items $ 0 $ 0
Cumulative effect-changes in accounting principals $ 0 $ 0
Net income (loss) ($1,047,893) ($2,358,187)
Earnings per share-primary ($0.14) ($0.32)
Earnings per share-fully diluted ($0.14) ($0.32)
<FN>
</TABLE>
30
<PAGE>
EXHIBIT
10.53
- ------------------------------------------------------------------------------
TRUST AND SECURITY AGREEMENT
among
MF RECEIVABLES CORP. II
(the "Transferor")
MONACO FINANCE, INC.
(the "Servicer")
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Trustee")
and
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Back-up Servicer")
- ------------------------------------------------------------------------------
Dated as of June 1, 1997
31
<PAGE>
TABLE OF CONTENTS PAGE
ARTICLE I DEFINITIONS 35
SECTION 1.1 Definitions 35
ARTICLE II THE CERTIFICATES 46
SECTION 2.1 Form Generally 46
SECTION 2.2 Classes of Certificates; Denomination 46
SECTION 2.3 Formation, Execution, Authentication, Delivery and Dating 46
SECTION 2.4 Temporary Certificates 47
SECTION 2.5 Registration, Registration of Transfer and Exchange 47
SECTION 2.6 Limitation on Transfer and Exchange 47
SECTION 2.7 Mutilated, Destroyed, Lost or Stolen Certificate 48
SECTION 2.8 Payment of Principal and Interest; Principal and Interest
Rights Preserved 48
SECTION 2.9 Persons Deemed Owner 49
SECTION 2.10 Cancellation 49
SECTION 2.11 Tax Treatment 49
ARTICLE III [intentionally deleted] 50
ARTICLE IV ISSUANCE OF CERTIFICATES; SUBSTITUTION OF COLLATERAL 51
SECTION 4.1 Conditions of Issuance of Certificates 51
SECTION 4.2 Security for Certificates 51
SECTION 4.3 Substitutions and Removals of Loan Contracts 52
SECTION 4.4 Releases 52
SECTION 4.5 Trust Estate 53
SECTION 4.6 Nature of Transfer 53
ARTICLE V SATISFACTION AND DISCHARGE 54
SECTION 5.1 Satisfaction and Discharge of Trust and Security Agreement
54
SECTION 5.2 Application of Trust Money 54
ARTICLE VI DEFAULTS AND REMEDIES 55
SECTION 6.1 Events of Default 55
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment 55
SECTION 6.3 Collection of Indebtedness and Suits for Enforcement by
Trustee 56
SECTION 6.4 Remedies 56
SECTION 6.5 Optional Preservation of Trust Estate 56
SECTION 6.6 Trustee May File Proofs of Claim 57
SECTION 6.7 Trustee May Enforce Claims Without Possession of Certificates
57
SECTION 6.8 Application of Money Collected 57
SECTION 6.9 Limitation on Suits 58
SECTION 6.10 Unconditional Right of Certificateholders to Receive
Principal and Interest 58
SECTION 6.11 Restoration of Rights and Remedies 59
SECTION 6.12 Rights and Remedies Cumulative 59
SECTION 6.13 Delay or Omission; Not Waiver 59
SECTION 6.14 Control by Certificateholders 59
SECTION 6.15 Waiver of Certain Events by Less than All Certificateholders
59
SECTION 6.16 Undertaking for Costs 59
SECTION 6.17 Waiver of Stay or Extension Laws 60
SECTION 6.18 Sale of Trust Estate 60
SECTION 6.19 Action on Certificates 60
ARTICLE VII THE TRUSTEE 61
SECTION 7.1 Certain Duties and Responsibilities 61
SECTION 7.2 Notice of Default and Trigger Events 62
SECTION 7.3 Certain Rights of Trustee 62
SECTION 7.4 Not Responsible for Recitals or Issuance of Certificates
62
SECTION 7.5 May Hold Certificates 63
SECTION 7.6 Money Held in Trust 63
SECTION 7.7 Compensation and Reimbursement 63
SECTION 7.8 Corporate Trustee Required; Eligibility 63
SECTION 7.9 Resignation and Removal; Appointment of Successor 64
SECTION 7.10 Acceptance of Appointment by Successor 64
SECTION 7.11 Merger, Conversion, Consolidation or Succession to Business
of Trustee 64
SECTION 7.12 Co-Trustees and Separate Trustees 64
SECTION 7.13 Rights with Respect to the Servicer 65
SECTION 7.14 Appointment of Authenticating Agent 65
SECTION 7.15 Trustee to Hold Loan Contracts 66
SECTION 7.16 Money for Certificate Payments to Be Held in Trust 67
32
<PAGE>
SECTION 7.17 Representation and Warranties of the Trustee 67
ARTICLE VIII THE CERTIFICATE OF INSURANCE POLICY 69
SECTION 8.1 Payments under the Certificate Insurance Policy 69
ARTICLE IX AMENDMENTS TO TRUST AND SECURITY AGREEMENT 70
SECTION 9.1 Amendments without Consent of Certificateholders 70
SECTION 9.2 Amendments with Consent of Certificateholders 70
SECTION 9.3 Execution of Amendments 71
SECTION 9.4 Effect of Amendments 71
SECTION 9.5 Reference in Certificates to Amendments 71
ARTICLE X REDEMPTION OF CERTIFICATES 72
SECTION 10.1 Redemption at the Option of the Transferor; Election to
Redeem 72
SECTION 10.2 Notice to Trustee; Deposit of Redemption Price 72
SECTION 10.3 Notice of Redemption by the Trustee 72
SECTION 10.4 Certificates Payable on Redemption Date 72
SECTION 10.5 Release of Loan Contracts 72
ARTICLE XI TRANSFEROR REPRESENTATIONS, WARRANTIES AND COVENANTS 74
SECTION 11.1 Representations, Warranties and Covenants to the Transferor
74
SECTION 11.2 Covenants 75
SECTION 11.3 Limitations on Liability of Directors, Officers, or
Employees of the Transferor 77
ARTICLE XII ACCOUNTS AND ACCOUNTING 78
SECTION 12.1 Collection of Money 78
SECTION 12.2 Collection Account; Payments 78
SECTION 12.3 Reports by the Trustee 80
ARTICLE XIII PROVISIONS OF GENERAL APPLICATION 81
SECTION 13.1 Acts of Certificateholders 81
SECTION 13.2 Notices, etc., to Trustee, MBIA, Transferor and Servicer
81
SECTION 13.3 Notices to Certificateholders; Waiver 81
SECTION 13.4 Effect of Headings and Table of Contents 81
SECTION 13.5 Successors and Assigns 82
SECTION 13.6 Separability 82
SECTION 13.7 Benefits of Trust and Security Agreement 82
SECTION 13.8 Legal Holidays 82
SECTION 13.9 Governing Law 82
SECTION 13.10 Counterparts 82
SECTION 13.11 Corporate Obligation 82
SECTION 13.12 Compliance Certificates and Opinions 82
SECTION 13.13 MBIA Default or Termination 83
SECTION 13.14 Notifications 83
33
<PAGE>
This Trust and Security Agreement, dated as of June 1, 1997, is made by and
among MF Receivables Corp. II (the "Transferor"), Monaco Finance, Inc., a
Colorado corporation (the "Servicer"), and Norwest Bank Minnesota, National
Association, a national banking association, as Trustee and Back-up Servicer
(the "Trustee" and "Back-up Servicer").
PRELIMINARY STATEMENT
The Transferor has duly authorized the execution and delivery of this
Trust and Security Agreement to provide for the issuance of the Certificates
issuable as provided in this Trust and Security Agreement. All covenants and
agreements made by the Transferor, the Servicer, the Trustee and the Back-up
Servicer herein are for the benefit and security of the Holders of the
Certificates and MBIA. The Transferor, the Servicer, the Trustee and the
Back-up Servicer are entering into this Trust and Security Agreement, and the
Trustee is accepting the trusts created hereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged.
All things necessary to make this Trust and Security Agreement a valid
agreement of the Transferor, the Servicer, the Trustee and the Back-up
Servicer in accordance with its terms have been done.
CONVEYANCE CLAUSE
The Transferor does hereby absolutely transfer, assign, set over, and
otherwise convey to the Trustee for the ratable benefit of the
Certificateholders and MBIA all of the Transferor's rights, title and interest
now or hereafter acquired in and to the following and any and all benefits
accruing to the Transferor from: (a) the Loan Contracts, including all
Substitute Loan Contracts and all rights with respect thereto, including all
guaranties and other agreements or arrangements of whatever character from
time to time supporting or securing payment of any such Loan Contract, and all
rights with respect to any agreement or arrangements with the vendors, dealers
or manufacturers of the Vehicles to the extent specifically related to any
such Loan Contract; (b) all payments received with respect to the Loan
Contracts after the Cut-Off Date or the applicable Acquisition Date, including
without limitation, all periodic payments due from the Obligors thereunder,
all amounts paid by guarantors under the Loan Contracts, all amounts received
on Defaulted Loan Contracts and with respect to liquidation, all amounts
received pursuant to any physical damage, collision or Force Placed Insurance
issued with respect to any of the related Vehicles, all rebates (including but
not limited to, warranty rebates, dealer rebates, sales tax rebates and
insurance premium rebates), and all late payment charges paid by Obligors and
any other incidental charges or fees received from an Obligor, including but
not limited to, late fees, collection fees and bounced check charges; (c) a
security interest in the Vehicles securing the Loan Contracts; (d) the Loan
Acquisition Agreement, the Purchase Agreement and the Servicing Agreement; (e)
the Trust Accounts and all amounts from time to time on deposit in the Trust
Accounts; (f) the original Loan Contracts, the Certificates of Title and
Applications for Certificates of Title related to the Loan Contracts and the
Loan Contract Files; and (g) proceeds of the foregoing (including, but not by
way of limitation, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, investment property, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any
and every kind, and other forms of obligations and receivables which at any
time constitute all or part or are included in the proceeds of any of the
foregoing), in each case whether now owned or hereafter acquired (all of the
foregoing being hereinafter referred to as the "Trust Estate"). The foregoing
conveyance does not constitute and is not intended to result in a creation or
an assumption by the Trustee, any Certificateholder or MBIA of any obligation
of the Transferor, the Company, the Servicer or any other Person in connection
with the Trust Estate or under any agreement or instrument relating thereto.
The trust created by the foregoing assignment shall be known as the "MF
Receivables Auto Loan Trust 1997-1."
The Trustee acknowledges its acceptance on behalf of the
Certificateholders and MBIA of all right, title and interest previously held
by the Transferor in and to the Trust Estate, and declares that it shall
maintain such right, title and interest in accordance with the provisions
hereof and agrees to perform the duties herein required to the best of its
ability to the end that the interests of the Certificateholders and MBIA may
be adequately and effectively protected.
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 hereto agree as follows:
34
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Except as otherwise expressly provided or
unless the context otherwise requires, the following terms have the respective
meanings set forth below for all purposes of this Trust and Security
Agreement, and the definitions of such terms are equally applicable both to
the singular and plural forms of such terms.
"Acquisition Date": Any date upon which Substitute Loan Contracts are
acquired by the Transferor and conveyed to the Trust Estate.
"Accrual Period": With respect to each Payment Date, the period
commencing on and including the preceding Payment Date and ending on and
including the day prior to the applicable Payment Date; except, however, with
respect to the Initial Payment Date, the period commencing on and including
the Closing Date and ending on and including the day prior to the Initial
Payment Date.
"Act": With respect to any Certificateholder, the meaning specified in
Section 13.01.
"Additional Principal Amount": The meaning given in Section 12.02(d)(x)
hereof.
"Additional Servicer Fee": The amount, if any, of the fee payable in
accordance with Section 6.02 of the Servicing Agreement to a successor
Servicer appointed pursuant to Section 6.02 of the Servicing Agreement that is
in excess of the Servicer Fee.
"Affiliate": With respect to any Person, any other person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Aggregate Loan Balance": The sum of all Loan Balances.
"Amended Loan Schedule": The meaning given in the Loan Acquisition
Agreement.
"Amendment to Loan Acquisition Agreement for Substitute Loan Contracts":
The meaning given in the Loan Acquisition Agreement.
"Application for Certificate of Title": With regard to each Vehicle for
which a Certificate of Title has not been issued naming the Company or the
Trustee as secured party, evidence that an application for a Certificate of
Title naming the Company or the Trustee as secured party has been submitted
with the appropriate authority.
"Authenticating Agent": Any entity appointed by the Trustee pursuant to
Section 7.14 hereof.
"Back-up Servicer": Initially, Norwest Bank Minnesota, National
Association until a successor Person shall have become the Back-up Servicer
pursuant to the applicable provisions of this Trust and Security Agreement and
the Servicing Agreement, and thereafter "Back-up Servicer" shall mean such
successor Person.
"Back-up Servicer Fee": With respect to each Payment Date, one-twelfth
of the product of (i) the Back-up Servicer Fee Rate and (ii) the Class A
Certificate Balance as of the close of business on the immediately preceding
Payment Date (after giving effect to any payments of the Class A Principal
Distribution Amount occurring on such date), except that with respect to the
Initial Payment Date, an amount equal to $1,066.
"Back-up Servicer Fee Rate": 0.05% per annum.
"Benefit Plan Investor": The meaning set forth in 29 Code of Federal
Regulations '2510.3-101.
"Business Day": Any day other than (i) a Saturday, (ii) a Sunday, (iii)
a day on which banking institutions in New York City or in the city in which
the principal place of business of the Transferor, the Servicer, or the
corporate trust office of the Trustee is located or the Federal Reserve are
authorized or obligated by law or executive order to close, or (iv) solely for
purposes of draws on the Certificate Insurance Policy pursuant to Article
Eight hereof, a day on which MBIA is closed.
"Calculation Date": The last day of a Monthly Period, except that with
respect to any calculation of the Loan Balance of a Loan Contract as of the
Closing Date, the Calculation Date shall mean the close of business on the
Cut-Off Date.
"Certificate(s)": Any one of the Class A Certificates or Class B
Certificates.
"Certificate Balance": The Class A Certificate Balance and/or the Class
B Certificate Balance, as applicable in accordance with the context in which
such term is used.
35
<PAGE>
"Certificate Insurance Policy": The certificate guaranty insurance
policy dated as of the Closing Date issued by MBIA insuring the Class A
Certificates, the form of which is attached hereto as Exhibit C.
"Certificate Interest Rate": The Class A Interest Rate and/or the Class
B Interest Rate, as applicable.
"Certificateholder or Holder": The person in whose name a Certificate is
registered in the Certificate Register.
"Certificate of Title": With regard to each Vehicle, the original title
relating thereto or in States in which the department of motor vehicles
delivers the original certificate of title to the Obligor, the "lien card,"
"notice of recorded lien" or similar document which is delivered to the
secured party in lieu of the original certificate of title, in each case,
which shall name the related Obligor as the owner of the Vehicle and the
Company or the Trustee as secured party, except with respect to those Loan
Contracts acquired by the Company from CarMart Auto Receivables Company, for
which the certificate of title names "Bank One, Texas N.A." as the secured
party and those Loan Contracts acquired by the Company from Interstate
Diversified Financial, Inc., for which the certificate of title names
"Interstate Diversified Financial, Inc." as the secured party.
"Certificate Register": The register maintained pursuant to Section 2.05
hereof.
"Certificate Registrar": As specified in Section 2.05 hereof, Norwest
Bank Minnesota, National Association.
"Class A Interest Rate": 6.71% per annum.
"Class A Certificate": Any one of the Certificates executed by the
Transferor and authenticated by the Trustee in substantially the form set
forth in Exhibit A hereto.
"Class A Certificate Balance": The Initial Class A Certificate Balance less
all amounts distributed to Class A Certificateholders as payments of
principal.
"Class A Principal Distribution Amount": With respect to any Payment
Date other than the Stated Maturity, the amount by which (i) the Class A
Certificate Balance exceeds (ii) the difference between the Aggregate Loan
Balance and the Required Collateralization Amount, and with respect to the
Payment Date occurring on the Stated Maturity, an amount necessary to reduce
the Class A Certificate Balance to zero.
"Class B Interest Rate": 16% per annum.
"Class B Certificate": Any one of the Certificates executed by the
Transferor and authenticated by the Trustee in substantially the form set
forth in Exhibit B hereto.
"Class B Certificate Balance": The Initial Class B Certificate Balance
less all amounts actually distributed to Class B Certificateholders as
payments of principal.
"Class B Event": The occurrence of either of the following: (i) the
Cumulative Net Default Rate exceeds 85% of the level specified for such period
in the Cumulative Default Table or (ii) a Trigger Event occurs.
"Class B Principal Distribution Amount": With respect to any Payment
Date other than the Payment Date on the Expected Maturity, an amount equal to
75% of all amounts then remaining on deposit in the Collection Account after
the payment of all amounts pursuant to clauses (i) through (xii) of Section
12.02(d); provided that with respect to any Payment Date occurring on or after
the occurrence of a Class B Event, an amount equal to 100% of all amounts then
remaining on deposit in the Collection Account after the payment of all
amounts pursuant to clauses (i) through (xii) of Section 12.02(d). With
respect to the Payment Date occurring on the Expected Maturity, an amount
necessary to reduce the Class B Certificate Balance to zero.
"Closing Date": June 26, 1997.
"Code": The Internal Revenue Code of 1986, as amended, or any successor
statute thereto.
"Collection Account": The account established and maintained pursuant to
Section 12.02(a) hereof.
"Company": Monaco Finance, Inc., a Colorado corporation.
"Consolidated Operating Income": With respect to any fiscal quarter, the
sum of (i) the consolidated net income of the Servicer and any Subsidiaries,
after deduction of all expenses, taxes and other proper charges, determined in
accordance with GAAP, (ii) plus (to the extent deducted in (i) above) all
provisions for any federal, state or other income taxes made by the Servicer
and its Subsidiaries during such quarter, and (iii) all Consolidated Total
Interest Expense of the Servicer and its Subsidiaries, excluding non-recourse
interest expense, during such quarter.
"Consolidated Total Interest Expense": With respect to any fiscal
quarter, the aggregate amount of interest required to be paid or accrued by
the Servicer and its Subsidiaries during such period on all Indebtedness of
the Servicer and its Subsidiaries, excluding non-recourse interest expense,
outstanding during any such period, whether such interest was or is required
to be reflected as an item of expense or capitalized, including, without
limitation, payments consisting of interest under capitalized leases, interest
on Senior Debt, interest on Subordinated Indebtedness, and all amortization of
36
<PAGE>
commitment fees, agency fees and similar expenses in connection with the
borrowing of money.
"Controlling Holders": Holders of Class A Certificates representing at
least 51% of the Class A Certificate Balance, and after the Class A
Certificate Balance has been reduced to zero, Holders of Class B Certificates
representing at least 51% of the Class B Certificate Balance.
"Corporate Trust Office": The principal corporate trust office of the
Trustee at 6th Street & Marquette Avenue, Minneapolis, Minnesota 55479-0070,
Attention: Corporate Trust Services/Asset Backed Administration, or at such
other address as the Trustee may designate from time to time by notice to the
Certificateholders, the Servicer, MBIA and the Transferor, or the principal
corporate trust office of any successor Trustee.
"Collection Policy": The Servicer's collection policy attached as
Exhibit C to the Servicing Agreement.
"Cross Default Event": The occurrence of the following: (A) The Servicer
shall be in default under, or in violation of, any covenant under any loan
agreements related to recourse debt such that the lenders under such loan
agreements would be authorized, pursuant to the terms of such agreements and
upon the expiration of any cure period or grace period with respect to such
violation or default, to demand immediate payment by the Servicer of (i)
$1,000,000 or more of the total recourse debt of the Servicer for purposes of
determining whether a Trigger Event has occurred or (ii) 10% or more of the
total recourse debt of the Servicer for purposes of determining whether a
Servicer Event of Default has occurred, and such default or violation shall
not have been cured, remedied or waived in writing by the lenders after 90
days (counting from the initial date of the violation or default and not from
the expiration of any applicable cure or grace period), and (B) MBIA shall
have notified the Trustee in writing that the occurrence of the event
described in clause (A) above constitutes a Servicer Event of Default.
"Cumulative Default Table": The table attached hereto as Exhibit E.
"Cumulative Gross Default Rate": As of any Determination Date, the ratio
of (i) the sum of the Loan Balances of Loan Contracts that have become
Defaulted Loan Contracts during the period from the Closing Date through the
end of the related Monthly Period to (ii) the Initial Aggregate Loan Balance.
"Cumulative Net Default Rate": As of any Determination Date, the ratio
of (i) the sum of the Loan Balances of Loan Contracts that have become
Defaulted Loan Contracts during the period from the Closing Date through the
end of the related Monthly Period reduced by Recoveries received during the
period from the Closing Date through the end of the related Monthly Period to
(ii) the Initial Aggregate Loan Balance.
"Cut-Off Date": The close of business on May 31, 1997.
"Default": Any occurrence or circumstance which with notice or the lapse
of time or both would become an Event of Default.
"Defaulted Loan Contract": A Loan Contract shall become a Defaulted Loan
Contract upon the occurrence of the earliest of the following: (i) any
portion of the Scheduled Payments due under the Loan Contract becomes 120 days
or more delinquent; (ii) the Vehicle securing such Loan Contract is
repossessed and sold by the Servicer, (iii) the Servicer determines in its
sole discretion in accordance with its Collection Policy that the remaining
Scheduled Payments due under such Loan Contract are uncollectible and such
Loan Contract is written off or (iv) the Servicer determines in its sole
discretion in accordance with its Collection Policy that the Vehicle securing
such Loan Contract cannot be recovered from the related Obligor.
"Delinquency Rate": As of any Calculation Date, the aggregate Loan
Balance of Loan Contracts (other than Defaulted Loan Contracts) as to which
Obligors are 31 days or more past due in making any portion of the Scheduled
Payments, divided by the Aggregate Loan Balance as of such Calculation Date.
"Delinquent Loan Contract": As of any Calculation Date, a Loan Contract
(a) (i) with respect to which an Obligor (or an insurance company on its
behalf) has not made a Scheduled Payment by the applicable Due Date or (ii)
the Vehicle securing such Loan Contract is repossessed by the Servicer, and
(b) which is not a Defaulted Loan Contract.
"Determination Date": The third Business Day preceding each Payment
Date.
"Due Date": The date on which a Scheduled Payment is due in accordance
with the terms of the related Loan Contract.
"Eligible Account": (i) A segregated trust account or accounts
maintained with a depository institution or trust company whose long-term
unsecured debt obligations are rated at least A+ by Standard & Poor's Ratings
Group and at least A1 by Moody's Investors Service, Inc., and who is
reasonably acceptable to MBIA or (ii) a segregated trust account or accounts
maintained with a Federal or state chartered depository institution that is
acceptable to MBIA subject to regulations regarding fiduciary funds on deposit
substantially similar to 12 C.F.R. Section 9.10(b), or (iii) a trust account
at the Trustee's Corporate Trust Office, provided that such Trustee is
acceptable to MBIA. Norwest Bank Minnesota, National Association is a Trustee
acceptable to MBIA.
"Eligible Investments": Any and all of the following:
(a) direct obligations of, and obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America, the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
37
<PAGE>
Association, the Federal Home Loan Banks or any agency or instrumentality of
the United States of America the obligations of which are backed by the full
faith and credit of the United States of America;
(b) (i) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by or federal funds sold by any depository institution or
trust company (including the Trustee or its agent acting in their respective
commercial capacities) incorporated under the laws of the United States of
America or any State thereof and subject to supervision and examination by
federal and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in the
highest available rating category of S&P and Moody's and provided that each
such investment has an original maturity of no more than 365 days, and (ii)
any other demand or time deposit or deposit which is fully insured by the
Federal Deposit Insurance Corporation;
(c) repurchase obligations with a term not to exceed 30 days with respect
to any security described in clause (a) above and entered into with a
depository institution or trust company (acting as a principal) rated in the
highest available rating category by S&P and Moody's; provided, however, that
collateral transferred pursuant to such repurchase obligation must be of the
type described in clause (a) above and must (i) be valued daily at current
market price plus accrued interest, (ii) pursuant to such valuation, equal, at
all times, 105% of the cash transferred by the Trustee in exchange for such
collateral and (iii) be delivered to the Trustee or, if the Trustee is
supplying the collateral, an agent for the Trustee, in such a manner as to
accomplish perfection of a security interest in the collateral by possession
of certificated securities.
(d) commercial paper having an original maturity of less than 365 days and
issued by an institution having a short term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the time
of such investment;
(e) a guaranteed investment contract approved in writing by each of the
Rating Agencies and MBIA and issued by an insurance company or other
corporation having a long term unsecured debt rating in the highest available
rating category of each of the Rating Agencies at the time of such investment;
(f) money market funds registered under the Investment Company Act of
1940, as amended, whose shares are registered under the Securities Act of
1933, and having ratings in the highest available rating categories of S&P and
Moody's at the time of such investment which invest only in other Eligible
Investments; any such money market funds which provide for demand withdrawals
being conclusively deemed to satisfy any maturity requirement for Eligible
Investments set forth in this Agreement; and
(g) any investment approved in writing by each of the Rating Agencies and
MBIA.
The Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above. All Eligible
Investments shall be in the name of the Trustee for the benefit of the
Certificateholders and MBIA.
"Eligible Loan Contract": The meaning set forth in the Loan Acquisition
Agreement.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default": The meaning set forth in Section 6.01 hereof.
"Expected Maturity": December 14, 2002.
"Final Due Date": With respect to each Loan Contract, the final Due Date
thereunder.
"Final Payment Date": The actual date on which the last amounts are
distributed with respect to any Certificates, whether on the Stated Maturity,
Expected Maturity or earlier pursuant to an optional redemption under Article
Ten, acceleration or otherwise.
"FIserv": FIserv, Inc.
"Force Placed Insurance": Insurance coverage for each Vehicle on which
no other Insurance Policy exists due to an Obligor's failure to pay premiums
or otherwise, and which shall be obtained by the Servicer in accordance with
Section 3.05 of the Servicing Agreement.
"GAAP": Generally accepted accounting principles, as in effect from time
to time.
"Guaranty Amounts": Any and all amounts paid by the individual guarantor
indicated on the applicable Loan Contract.
"Holder": See Certificateholder.
"Indebtedness": With respect to any Person, all recourse obligations,
which in accordance with GAAP shall be classified upon such Person's balance
sheet as a liability, and in any event shall include all (i) recourse
obligations of such Person for borrowed money or which has been incurred in
connection with the acquisition of property or assets, (ii) recourse
obligations secured by any Lien upon property or assets owned by such Person,
even though the Person has not assumed or become liable for the payment of
such obligations, (iii) recourse obligations created or arising under any
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conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default
are limited to repossession or sale of property and (iv) recourse guaranties
of the Indebtedness of others.
"Independent Accountants": Ehrhardt, Keefe, Steiner & Hottman, or any
other firm of independent certified public accountants of recognized national
standing, or otherwise acceptable to MBIA.
"Initial Aggregate Loan Balance": The Aggregate Loan Balance as of the
Cut-Off Date, which is $51,381,366.
"Initial Certificate Balance": The sum of the Initial Class A
Certificate Balance and the Initial Class B Certificate Balance.
"Initial Class A Certificate Balance": $42,646,534.
"Initial Class B Certificate Balance": $2,569,068.
"Initial Loan Contracts": The Loan Contracts listed on the Loan Schedule
as of the Closing Date.
"Initial Payment Date": July 14, 1997.
"Insolvency Laws": The United States Bankruptcy Code or any similar
applicable state law.
"Insolvency Event": With respect to a specified Person, (a) the
commencement of an involuntary case against such Person under the Federal
bankruptcy laws, as now or hereinafter in effect, or another present or future
Federal or state bankruptcy, insolvency or similar law, and such case is not
dismissed within 60 days; or (b) the filing of a decree or entry of an order
for relief by a court having jurisdiction in the premises in respect of such
Person or any substantial part of its property in an involuntary case under
any applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for
any substantial part of its property, or ordering the winding-up or
liquidation of such Person's affairs; or (c) the commencement by such Person
of a voluntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the consent by
such Person to the entry of an order for relief in an involuntary case under
any such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for such Person or for any substantial part
of its property, or the making by such Person of any general assignment for
the benefit of creditors, or the failure by such Person generally to pay its
debts as such debts become due, or the taking of action by such Person in
furtherance of any of the foregoing.
"Insurance Agreement": The Insurance Agreement, dated as of June 1,
1997, by and among MBIA, the Transferor, the Servicer, the Company, the
Trustee and the Back-up Servicer.
"Insurance Policy": With respect to a Vehicle and a Loan Contract, any
insurance policy maintained by the Obligor pursuant to the related Loan
Contract that covers physical damage to the Vehicle, collision and Force
Placed Insurance (including policies procured by the Servicer on behalf of the
Obligor), which policy shall name the Company as loss payee.
"Insurance Proceeds": With respect to a Vehicle and a Loan Contract, any
amount received during the related Monthly Period pursuant to an Insurance
Policy issued with respect to such Vehicle and the related Loan Contract, net
of any costs of collecting such amounts not otherwise reimbursed.
"Investment Letter": A letter substantially in the form of Exhibit D
attached hereto.
"Lien": The meaning specified in the Loan Acquisition Agreement.
"Loan Acquisition Agreement": The Loan Acquisition Agreement dated as of
June 1, 1997 entered into by and between the Company and the Transferor, as
amended from time to time in accordance with the terms thereof.
"Loan Assets": The meaning specified in the Loan Acquisition Agreement.
"Loan Balance": As of any date of determination, the principal amount of
such Loan Contract as of the Cut-Off Date or Acquisition Date, as applicable
(including amounts added to the principal amount of the Loan Contract for
Force Placed Insurance premiums), minus the sum of (a) the portion of
Scheduled Payments and Prepayments allocable to principal paid by or on behalf
of the related Obligor and (b) the portion of the Purchase Price with respect
to any Loan Contract allocable to principal as of the close of business on the
last day of the Monthly Period (or, prior to the end of the first Monthly
Period, calculated as of the close of business on the day immediately prior to
the Cut-Off Date); provided, however, that the Loan Balance of a Defaulted
Loan Contract shall be zero.
"Loan Contracts": The retail installment contracts, installment sale
contracts, and such other motor vehicle loan contracts (and all rights with
respect thereto, including all guaranties and other agreements or arrangements
of whatever character from time to time supporting or securing payment of any
Loan Contract and all rights with respect to any agreements or arrangements
with the vendors, dealers or manufacturers of the Vehicles to the extent
specifically related to any Loan Contract) which are identified on either the
Loan Schedule delivered to the Trustee and MBIA on the Closing Date or on an
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Amended Loan Schedule delivered to the Trustee and MBIA on an Acquisition Date
on which Substitute Loan Contracts are delivered to the Trustee; provided
that, except as otherwise provided herein, from and after the date on which a
Loan Contract is purchased, removed, or substituted by the Company or the
Transferor in accordance with the terms hereof or the terms of the Loan
Acquisition Agreement, such repurchased, removed or replaced Loan Contract
shall no longer constitute a Loan Contract for purposes of the Transaction
Documents.
"Loan Contract File": With respect to each Loan Contract, a file
containing the following:
(i) A copy of each Loan Contract;
(ii) Any evidence of insurance and any other documents evidencing or
related to any Insurance Policy;
(iii) evidence that the Obligor took possession of the Vehicle and
that the Vehicle was in good working order and acceptable to the Obligor at
the time of receipt by the Obligor;
(iv) the original credit application executed by the Obligor;
(v) a copy of the Certificate of Title or Application for Certificate of
Title; and
(vi) any and all other documents that the Servicer would keep on file
with respect to a loan contract held for its own account in accordance with
its customary practices.
"Loan Schedule": The list of Loan Contracts attached hereto as Schedule
I, together with and as amended by, all related Amended Loan Schedules, each
of which shall include with respect to each Loan Contract: (a) a number
identifying the Loan Contract, (b) the Loan Balance, (c) the Obligor, (d) the
Obligor's billing address, (e) the original and remaining months to maturity
of the Loan Contract, (f) the Scheduled Payment, (g) the frequency with which
Scheduled Payments are due, (h) the annual percentage rate, (i) whether such
Loan Contract is a Tier I Loan Contract, a Tier II Loan Contract, a Tier III
Loan Contract or a Tier IV Loan Contract, (j) the dates of the first and last
Scheduled Payment, (k) the original amount financed, (l) the delinquency
status as of the Cut-off Date and (m) the number of extensions since
origination.
"MBIA": MBIA Insurance Corporation.
"MBIA Default or Termination": The occurrence and continuance of any of
the following events:
(a) the failure by MBIA to make a payment under the Certificate
Insurance Policy in accordance with its terms;
(b) the occurrence of an "Insurer Insolvency," as that term is
defined in the Insurance Agreement, with respect to MBIA; or
(c) 124 days have elapsed since the Class A Certificates have been
paid in full, MBIA has been paid all amounts owed to it under the Insurance
Agreement, the Certificate Insurance Policy has been surrendered to MBIA and
the Insurance Agreement has been terminated.
"MBIA Premium": The meaning set forth in the Insurance Agreement.
"MBIA Premium Rate": The meaning set forth in the Insurance Agreement.
"Monaco": Monaco Finance, Inc., a Colorado corporation.
"Monthly Net Default Rate": With respect to any Monthly Period, an
amount equal to (1) (a) the sum of the Loan Balances of all Loan Contracts
that have become Defaulted Loan Contracts during such Monthly Period minus (b)
the amount of Recoveries collected during such Monthly Period divided by (2)
the Aggregate Loan Balance as of the Calculation Date immediately preceding
such Monthly Period.
"Monthly Period": As to any Determination Date or Payment Date, the
period beginning on the first day and ending on the last day of the calendar
month preceding the month in which such Determination Date or Payment Date
occurs, except that with respect to the Initial Payment Date, the period
beginning on the Closing Date and ending on the last day of the calendar month
preceding such Initial Payment Date.
"Monthly Servicer's Report": The report prepared by the Servicer
pursuant to Section 4.01 of the Servicing Agreement, substantially in the form
of Exhibit A thereto.
"Moody's": Moody's Investors Service, Inc., or any successor in interest
thereto reasonably acceptable to MBIA.
"Net Worth Requirement": The requirement that the Servicer's
consolidated Tangible Net Worth shall not be less than the sum of (i)
$11,000,000 plus (ii) 75% of the cumulative after tax consolidated net income
since March 31, 1997, such cumulative amount being calculated without any
offset and reduction for net losses incurred during any period since such
date.
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"Obligor": The purchaser of a Vehicle under each related Loan Contract,
including any guarantor of such purchaser and their respective successors and
assigns.
"Officer's Certificate": A certificate signed by the Chairman of the
Board, the Vice-Chairman of the Board, the President, a Vice President, the
Treasurer or the Secretary of the Servicer or the Transferor, which
certificate shall comply with the requirements of Section 13.12 hereof.
"Opinion of Counsel": A written opinion of counsel, who may, except as
otherwise expressly required herein, be counsel employed by the Transferor,
the Servicer or the Trustee, or other counsel, in each case reasonably
acceptable to the Trustee and MBIA and which opinion shall comply with the
applicable requirements of Section 13.12 hereof.
"Outstanding": With respect to Certificates, as of any date of
determination, all Certificates theretofore authenticated and delivered
hereunder, except:
(i) Certificates theretofore canceled by the Certificate Registrar or
delivered to the Certificate Registrar for cancellation;
(ii) Certificates for whose payment money in the necessary amount has
been theretofore irrevocably deposited with the Trustee or any Paying Agent
(other than the Transferor) in trust for the Holders of such Certificates
(provided, however, that if such Certificates are to be redeemed, notice of
such redemption has been duly given pursuant hereto or any provision therefor,
satisfactory to the Trustee, has been made); and
(iii) Certificates in exchange for or in lieu of which other
Certificates have been authenticated and delivered pursuant hereto, unless
proof satisfactory to the Trustee is presented that any such Certificates are
held by a bona fide purchaser;
provided, however, that for purposes of disbursing payments from the
Certificate Insurance Policy and in determining whether the Holders of the
requisite Certificate Balance of Certificates have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by the Transferor or any other obligor upon the Certificates or any
Affiliate of the Transferor or such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Certificates which the Trustee
knows to be so owned shall be so disregarded.
"Overcollateralization Level Test": The test which is violated when the
average of the Overcollateralization Percentages for two consecutive
Determination Dates is equal to or greater than 85.0%; provided that for the
Determination Dates occurring in each November, December and January, such
percentage shall equal 86.5%.
"Overcollateralization Percentage:" As of any Determination Date, the ratio,
expressed as a percentage, of (A) the Outstanding Class A Certificate Balance
as of the related Payment Date (after taking into account all distributions of
principal to be made on such date) to (B) the Aggregate Loan Balance as of the
related Calculation Date.
"Paying Agent": The agent appointed pursuant to Section 11.02(q) hereof
and, initially, Norwest Bank Minnesota, National Association.
"Payment Date": The fourteenth day of each calendar month (or if such
day is not a Business Day, the next succeeding Business Day) commencing on the
Initial Payment Date.
"Person": Any individual, corporation, partnership, association, limited
liability company, joint-stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Placement Agent": Rothschild, Inc.
"Preference Claim": The meaning given in Section 8.01(d) hereof.
"Prepayment": Any full or partial payment of Scheduled Payments not yet
due on a Loan Contract.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Prospective Holder": The meaning ascribed to such term in Section
2.06(a) hereof.
"Purchase Agreement": The Purchase Agreement dated June 1, 1997 by and
between MF Receivables Corp. I and MF Receivables Corp. II.
"Purchase Price": With respect to any Loan Contract repurchased by the
Company pursuant to Sections 2.06 or 3.03 of the Loan Acquisition Agreement or
by the Transferor pursuant to Section 4.03 hereof, the sum of (i) the Loan
Balance of the related Loan Contract on the Calculation Date on or immediately
preceding the date when the Loan Contract is repurchased, less the Loan
Balance of any Substitute Loan Contract (but not less than zero) and (ii) any
accrued interest at the interest rate specified in such Loan Contract through
the date of repurchase.
"Rating Agencies": Standard & Poor's and Moody's.
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"Record Date": The close of business on the last day of the month
preceding the applicable Payment Date, whether or not such day is a Business
Day, except with respect to the Initial Payment Date, the Record Date shall be
the Closing Date.
"Recoveries": With respect to a Defaulted Loan Contract and for any
Monthly Period occurring after the date on which such Loan Contract becomes a
Defaulted Loan Contract, all payments that the Servicer received from or on
behalf of an Obligor regarding such Defaulted Loan Contract or from
liquidation of the related Vehicle, including but not limited to Scheduled
Payments, Guaranty Amounts, any and all rebates and Insurance Proceeds, as
reduced by any reasonably incurred out-of-pocket expenses incurred by the
Servicer in enforcing such Defaulted Loan Contract.
"Redemption Account": The account established and maintained pursuant to
Section 12.02(e) hereof.
"Redemption Date": The meaning specified in Section 10.01 hereof.
"Redemption Price": With respect to any Class of Certificates being
redeemed pursuant to Article Ten hereof, and as of the related Redemption
Date, the Class A Certificate Balance or the Class B Certificate Balance, as
applicable, of such Class of Certificates, together with interest accrued and
unpaid thereon to but excluding the related Redemption Date at the applicable
Certificate Interest Rate (exclusive of installments of interest and principal
maturing on or prior to such date, payment of which shall have been made or
duly provided for to the Holder of such Certificate on the applicable Record
Date or as otherwise provided in this Trust and Security Agreement).
"Redemption Record Date": The meaning specified in Section 10.01 hereof.
"Re-Liening Expense Account": The meaning given in Section 12.02(f)
hereof.
"Re-liening Trigger Event": The occurrence of either of the following
events on any date of determination:
(i) a Servicer Event of Default; or
(ii) a Trigger Event.
"Request for Release of Documents": The meaning specified in the
Servicing Agreement.
"Required Collateralization Amount": As of the Closing Date,
$8,734,832, and as of any date of determination thereafter, the greater of (i)
17% of the Aggregate Loan Balance (including any Loan Contracts to be acquired
and excluding any Loan Contracts to be released on such date of
determination) and (ii) 3.0% of the Initial Aggregate Loan Balance.
"Responsible Officer": When used with respect to the Trustee, any
officer assigned to the Corporate Trust Department (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, any Assistant Secretary, any Trust Officer or any other Officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and having direct responsibility for the
administration of this Trust and Security Agreement, and also, with respect to
a particular matter, any other officer, to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Sale": As defined in Section 6.18 hereof.
"Scheduled Payments": With respect to a Loan Contract, the periodic
payment set forth in such Loan Contract due from the Obligor on the related
Due Date, plus any amounts due on the applicable Final Due Date, including
Force Placed Insurance premiums that are added to the principal balance of a
Loan Contract.
"Senior Debt": The sum of (a) the recourse obligations of the Servicer
under any revolving line of credit; (b) all other Indebtedness of the
Servicer now or hereafter existing which by their terms are not subordinated
to any other Indebtedness of the Servicer; and (c) all renewals, extensions or
refunding of any obligations described in clauses (a) and (b) above.
"Servicer": Monaco Finance, Inc., a Colorado corporation, and any
successor Servicer appointed in accordance with the terms of the Servicing
Agreement.
"Servicer Default": The meaning given in the Servicing Agreement.
"Servicer Event of Default": The meaning given in the Servicing
Agreement.
"Servicer Fee": An amount equal to the product of one-twelfth of the
Servicer Fee Rate and the Aggregate Loan Balance as of the first day of the
related Monthly Period except that with respect to the Initial Payment Date,
an amount equal to $51,381.
"Servicer Fee Rate": 2.0% per annum.
"Servicer Termination Notice": The meaning given in the Servicing
Agreement.
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"Servicing Agreement": The Servicing Agreement dated as of June 1, 1997
by and among the Trustee, the Servicer, the Back-up Servicer and the
Transferor, as amended from time to time in accordance with the terms thereof.
"Servicing Charges": The sum of (i) all late payment charges paid by
Obligors on Delinquent Loan Contracts after payment in full of any Scheduled
Payments due in a prior Monthly Period and Scheduled Payments for the related
Monthly Period and (ii) any other incidental charges or fees received from an
Obligor, including but not limited to, late fees, collection fees and bounced
check charges.
"Servicing Officer": Those officers of the Servicer or Back-up Servicer,
as applicable, involved in, or responsible for, the administration and
servicing of the Loan Contracts, as identified on the list of Servicing
Officers furnished by the Servicer or Back-up Servicer, as applicable, to the
Trustee, MBIA and the Certificateholders from time to time.
"Standard & Poors": Standard & Poors Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor in interest thereto reasonably
acceptable to MBIA.
"Stated Maturity": December 14, 2002.
"State": Any state of the United States of America and, in addition, the
District of Columbia, Puerto Rico, its territories or possessions and any
military addresses.
"Subordinated Indebtedness": All Indebtedness of the Servicer and its
Affiliates, which by its terms is subordinated to Senior Debt.
"Subsidiary": Any corporation of which more than 50% (by number of
votes) of the Voting Stock shall be owned by such parent corporation and/or
one or more corporations which are themselves Subsidiaries of such parent
corporation.
"Substitute Loan Contract": The meaning set forth in the Loan
Acquisition Agreement.
"Tangible Net Worth": The excess of (a) the tangible assets of Monaco
and any Affiliates and Subsidiaries calculated in accordance with GAAP, as
reduced by adequate reserves in each case where reserves are proper, over (b)
all indebtedness (including subordinated debt) of Monaco and its Subsidiaries
and its Affiliates; provided, however, that (i) in no event shall there be
included in the above calculation any intangible assets such as patents,
trademarks, trade names, copyrights, licenses, goodwill, organizational costs,
advances, or loans to, or receivables from, directors, officers, employees or
Affiliates (other than Affiliates that are special purpose entities owned by
Monaco or any Affiliate thereof), amounts relating to covenants not to
compete, prepaid assets, deferred charges, pension assets or treasury stock of
Monaco or any Affiliates or any Subsidiaries or any other securities unless
the same are readily marketable in the United States of America or entitled to
be used as a credit against federal income tax liabilities, (ii) securities
included as tangible assets shall be taken into account at their current
market price or cost, whichever is lower, and (iii) any write-up in the book
value of any assets shall not be taken into account except as required by
GAAP.
"Tier I Loan Contracts": Loan Contracts that meet Monaco's highest
underwriting criteria for the origination of loan contracts among its four
levels of criteria.
"Tier II Loan Contracts": Loan Contracts that meet Monaco's second
highest underwriting criteria for the origination of loan contracts among its
four levels of criteria.
"Tier III Loan Contracts": Loan Contracts that meet Monaco's third
highest underwriting criteria for the origination of loan contracts among its
four levels of criteria.
"Tier IV Loan Contracts": Loan Contracts that meet Monaco's lowest
underwriting criteria for the origination of loan contracts among its four
levels of criteria.
"Total Stockholders Equity": The sum of preferred and common stock,
additional paid-in capital and retained earnings, less treasury stock,
determined in accordance with GAAP.
"Transaction Documents": This Trust and Security Agreement, the
Servicing Agreement, the Loan Acquisition Agreement, the Purchase Agreement
and the Insurance Agreement.
"Transferor": MF Receivables Corp. II, a Delaware corporation and all
successors thereto.
"Transition Cost": Any documented expenses reasonably incurred by a
successor Servicer or the Trustee in connection with a transfer of servicing
from the Servicer to a successor Servicer as successor Servicer pursuant to
Section 6.02 of the Servicing Agreement, but not to exceed $50,000.
"Trigger Event": The occurrence of any one of the following events that
has not been waived in writing by MBIA:
(i) an Event of Default occurs;
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(ii) Monaco fails to meet the Net Worth Requirement or a Cross-Default
Event occurs with respect to Monaco;
(iii) any payment is made or is required to be made by MBIA under the
Certificate Insurance Policy;
(iv) if for any reason the Trustee, for the benefit of MBIA and the
Certificateholders, no longer has a valid perfected first priority security
interest in the Loan Contracts;
(v) (a) on or before the ninth Payment Date, the Monthly Net Default Rate
exceeds 3.5% in two of the most current three months or (b) thereafter, the
average Monthly Net Default Rate for the most current three Monthly Periods
exceeds 3.0%;
(vi) the average Delinquency Rate for the most current three Monthly
Periods exceeds 13.0%, or the Delinquency Rate for the most current Monthly
Period exceeds 20.0%, or the sum of the Delinquency Rates for the most current
two Monthly Periods exceeds 26%;
(vii) the Cumulative Gross Default Rate exceeds the level specified for
such period in the Cumulative Default Table;
(viii) the Cumulative Net Default Rate exceeds the level specified for
such period in the Cumulative Default Table;
(ix) the Overcollateralization Level Test has been violated:
(x) Morris Ginsburg and Craig Caukin shall both (a) become deceased, (b)
fail to be employees of Monaco in similar capacities as the capacities they
possessed on the Closing Date, or (c) become incapacitated and incapable of
working for a period of three consecutive months or more, and, in any such
event, a replacement satisfactory to MBIA shall not have been appointed within
60 days thereafter;
(xi) as reported in Monaco's most recent annual and quarterly consolidated
financial statements determined in accordance with GAAP, the ratio of Senior
Debt to the sum of Total Stockholders' Equity plus Subordinated Indebtedness
exceeds 4.0 to 1.0;
(xii) any event whereby any party shall (a) acquire 51% or more of the
total outstanding shares of Monaco (including both Class A and Class B shares)
or (b) obtain 51% or more of the voting control with respect to the total
outstanding shares of Monaco;
(xiii) except as permitted by the Transaction Documents, the Transferor
shall enter into any merger or Monaco shall enter into any transaction or
merger whereby it is not the surviving entity;
(xiv) a final ruling or judgment against, or settlement by, Monaco or its
Affiliates or Subsidiaries whereby damages are awarded, or the settlement is,
in excess of 10% of the Total Stockholder's Equity and such amounts are not
otherwise covered by insurance, and, in case of a judgment, such judgment has
not been discharged or stayed within 60 days;
(xv) the Transferor or the Trust is required to register as an "investment
company" under the Investment Company Act of 1940;
(xvi) an Insolvency Event occurs with respect to the Servicer;
(xvii) default in the performance of any covenant of the Servicer or the
Company in the Transaction Documents or breach of any representation or
warranty of the Servicer or the Company in the Transaction Documents (other
than breaches of representations and warranties contained in Section 3.01 of
the Loan Acquisition Agreement unless the Company and/or Transferor has failed
to cure such breach within the time period and in the manner provided for in
the Loan Acquisition Agreement), which default or breach has a material
adverse effect on MBIA or the Certificateholders and continues unremedied
beyond any cure period provided for therein;
(xviii) except as permitted by the relevant Transactions Document, any
assignment, or attempt to make an assignment, by the Servicer or the
Transferor of its rights and obligations under the Transaction Documents; or
(xix) the Company shall fail to make any payment under any of the
Transaction Documents (after giving effect to any applicable cure period
provided for therein)
provided, however that MBIA may, in its sole discretion, waive any
Trigger Event; provided further, that Trigger Events are not subject to cure.
"Trust": The Trust created hereby, which shall be known as the MF
Receivables Auto Loan Trust 1997-1.
"Trust and Security Agreement": This Trust and Security Agreement, as
amended from time to time in accordance with the terms hereof.
"Trustee": Norwest Bank Minnesota, National Association, until a
successor Person shall have become the Trustee pursuant to the applicable
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provisions of this Trust and Security Agreement, and thereafter "Trustee"
shall mean such successor Person.
"Trust Accounts": The Collection Account and the Redemption Account.
"Trust Estate": The meaning specified in the conveyance clause of this
Trust and Security Agreement.
"Trustee Fee": With respect to each Payment Date, one-twelfth of the
product of (i) the Trustee Fee Rate and (ii) the Class A Certificate Balance
as of the close of business on the immediately preceding Payment Date, except
that with respect to the Initial Payment Date, an amount equal to $1,066.
"Trustee Fee Rate": .05% per annum.
"UCC": The Uniform Commercial Code as in effect in the applicable
jurisdiction.
"Unrestricted Cash": The sum of (i) the unrestricted cash balance of the
Servicer and (ii) an amount equal to any availability the Servicer and any of
its wholly owned Subsidiaries may have under any revolving line of credit,
including the amount of any availability of MF Receivables Corp. I under its
warehouse notes based on the eligible loan contracts available to be sold by
the Company to MF Receivables Corp. I and computed on the same basis as a
warehouse funding is computed pursuant to the Amended and Restated Indenture
dated as of May 1, 1995 among the Company, MF Receivables Corp. I and Norwest
Bank Minnesota, National Association, as amended by the First Amendment to
Amended and Restated Indenture dated as of September 1, 1995, and as amended
from time to time thereafter.
"Vehicle(s)": New and used automobiles and light trucks, which secure
the Loan Contracts.
"Voting Stock": Securities of any class or classes, the holders of which
are ordinarily, in the absence of contingencies, entitled to elect a majority
of the corporate directors (or Persons performing similar functions).
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ARTICLE II
THE CERTIFICATES
SECTION 2.1. FORM GENERALLY.
The Class A Certificates, the Class B Certificates and the certificates
of authentication shall be in substantially the form set forth, respectively,
in Exhibits A and B attached hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Trust and Security Agreement, and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon, as
may, consistently herewith, be determined by the officers executing such
Certificates, as evidenced by their execution of the Certificates.
The definitive Certificates shall be typewritten, printed, lithographed
or engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any manner acceptable to the Trustee and the
initial purchasers of the Certificates, all as determined by the officers
executing such Certificates, as evidenced by their execution of such
Certificates.
SECTION 2.2. CLASSES OF CERTIFICATES; DENOMINATIONSECTION
(a) This Agreement provides for the issuance by the Transferor of
Certificates consisting of Class A Certificates and Class B Certificates, all
subject to and in accordance with the terms of this Agreement. Each
Certificate shall bear upon the face thereof the designation selected for the
Class to which it belongs.
All Class A Certificates issued under this Agreement shall in all
respects represent a fractional undivided interest in the Trust Estate, pari
passu with all other Class A Certificates, and shall be entitled to the
benefits hereof without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in accordance with
the terms and provisions of this Agreement.
All Class B Certificates issued under this Agreement shall in all
respects represent a fractional undivided interest in the Trust Estate, pari
passu with all other Class B Certificates and subordinate to certain payments
as provided herein (although the Class B Certificates are not secured by and
do not have the benefit of any Certificate Insurance Policy or any proceeds
therefrom), and shall be entitled to the benefits hereof without preference,
priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions
of this Agreement.
The rights of the Holders of the Class B Certificates to receive payments
of interest and principal in respect of the Class B Certificates on any
Payment Date shall be subordinated to other payments as set forth in Section
12.02(d) and Section 6.08.
(b) The aggregate principal amount of Class A Certificates which may
be authenticated and delivered hereunder is $42,646,534, and the aggregate
principal amount of Class B Certificates which may be authenticated and
delivered hereunder is $2,569,068, except for Certificates of such Class
authenticated and delivered upon registration of transfer or in exchange for
or in lieu of, other Certificates of such Class pursuant to Sections 2.04,
2.05 or 2.07 hereof. The Certificates shall be issuable only as registered
Certificates without coupons in denominations of at least $250,000 and
integral multiples of $100,000 (except that one Class A Certificate and one
Class B Certificate may be issued in nonstandard denominations in excess of
$250,000); provided, however, that, the foregoing shall not restrict or
prevent the transfer in accordance with Sections 2.05 and 2.06 hereof of any
Certificate with a remaining certificate balance of less than $250,000.
SECTION 2.3. FORMATION, EXECUTION, AUTHENTICATION, DELIVERY AND
DATING
(a) By its conveyance of the Trust Estate to the Trustee as set forth
in the Conveyance Clause hereof, the Transferor hereby establishes the Trust
in exchange for the proceeds of the sale of the Class A Certificates and the
Class B Certificates and all other rights of the Transferor set forth herein.
On the Closing Date, Certificates shall be issued in accordance with the terms
hereof by the Transferor on behalf of the Trust and, upon written order from
the Transferor, the Trustee shall authenticate (i) the Class A Certificates
with an aggregate Class A Certificate Balance equal to $42,646,534 and (ii)
the Class B Certificates with an aggregate Class B Certificate Balance equal
to $2,569,068.
(b) The Certificates shall be executed on behalf of the Transferor by
its President or one of its Vice Presidents under its corporate seal imprinted
or otherwise reproduced thereon. The signature of these officers on the
Certificates must be manual.
(c) Certificates bearing the manual signatures of individuals who
were at any time the proper officers of the Transferor shall bind the
Transferor, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication or delivery of such
Certificates or did not hold offices at the date of authentication or delivery
of such Certificates.
(d) Each Certificate shall bear on its face the Closing Date and be
dated as of the date of its authentication.
(e) No Certificate shall be entitled to any benefit under this Trust
and Security Agreement or be valid or obligatory for any purpose, unless there
appears on such Certificate a certificate of authentication substantially in
the form provided for herein executed by the Trustee or by any Authenticating
Agent by the manual signature of one of its authorized officers, and such
certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
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SECTION 2.4. TEMPORARY CERTIFICATES
Pending the preparation of definitive Certificates, the Transferor may
execute, and upon Transferor order, the Trustee shall authenticate and
deliver, temporary Certificates which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any denomination, containing the same
terms and representing the same rights as the definitive Certificates in lieu
of which they are issued.
If temporary Certificates are issued, the Transferor will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the office or agency of the Transferor to be maintained as
provided in Section 11.02(q) hereof, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Certificates, the
Transferor shall execute and the Trustee shall authenticate and deliver in
exchange therefor one or more definitive Certificates of any authorized
denominations and of a like initial aggregate principal amount, class and
Stated Maturity or Expected Maturity. Until so exchanged, the temporary
Certificates shall in all respects be entitled to the same benefits under this
Trust and Security Agreement as definitive Certificates.
SECTION 2.5. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE
(a) The Transferor shall cause to be kept at an office or agency to
be maintained by the Transferor in accordance with Section 11.02(q) hereof a
register (the "Certificate Register"), in which, subject to such reasonable
regulations as it may prescribe, the Transferor shall provide for the
registration of Certificates and the registration of transfers of
Certificates. Norwest Bank Minnesota, National Association, 6th Street and
Marquette Avenue, Minneapolis, Minnesota 55479-0113, is hereby appointed
"Certificate Registrar" for the purpose of registering Certificates and
transfers of Certificates as herein provided. The Trustee and MBIA shall have
the right to examine the Certificate Register at all reasonable times and to
rely conclusively upon a certificate of the Certificate Registrar as to the
names and addresses of the Holders of the Certificates and the balance and
numbers of such Certificates as held.
(b) Upon surrender for registration of transfer of any Certificate at
the office or agency of the Transferor to be maintained as provided in Section
11.02(q) hereof and subject to the conditions set forth in Section 2.06
hereof, the Transferor shall execute, and the Trustee or its agent shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized denominations, and
of a like balance, Class and Stated Maturity or Expected Maturity.
(c) At the option of the Holder, Certificates may be exchanged for
other Certificates of any authorized denominations and of a like balance,
Class and Stated Maturity or Expected Maturity, upon surrender of the
Certificates to be exchanged at such office or agency. Whenever any
Certificates are so surrendered for exchange, the Transferor shall execute,
and the Trustee or its agent shall authenticate and deliver, the Certificates
which the Certificateholder making the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates pursuant to this Trust and Security Agreement shall
evidence the same interest and shall be entitled to the same benefits under
this Trust and Security Agreement as the Certificates surrendered upon such
registration of such transfer or exchange pursuant to this Trust and Security
Agreement.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed or be accompanied by a written instrument
of transfer in form satisfactory to the Transferor and the Certificate
Registrar duly executed, by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Certificates, but the Transferor may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Certificates, other than exchanges pursuant to Section 2.04 or 9.05 hereof not
involving any registration of transfer.
Notwithstanding anything else to the contrary contained herein, the
interest in the Trust evidenced by the Certificates is not an obligation of
the Transferor but is limited solely to the Trust Estate conveyed hereunder
and, with respect to the Class A Certificates, the Certificate Insurance
Policy.
SECTION 2.6. LIMITATION ON TRANSFER AND EXCHANGE
(a) The Certificates have not been registered or qualified under the
Securities Act of 1933, as amended (the "1933 Act") or the securities laws of
any state. No transfer of any Certificate shall be made unless that transfer
is made in a transaction which does not require registration or qualification
under the 1933 Act or under applicable state securities or "Blue Sky" laws.
In the event that a transfer is to be made without registration or
qualification, such Certificateholder's prospective transferee (the
"Prospective Holder") shall either (i) deliver to the Trustee an Investment
Letter or (ii) deliver to the Trustee an opinion of counsel that the transfer
is exempt from such registration or qualification (which opinion shall not be
at the expense of the Transferor, the Trustee, the Servicer or the Trust
Estate). Neither the Transferor nor the Trustee is obligated to register or
qualify the Certificates under the 1933 Act or any other securities law. Any
such Holder desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee, MBIA and the Transferor against any liability, cost or
expense (including attorneys' fees) that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws. The
Trustee shall promptly, after receipt of such information as is provided by
the Servicer, furnish to any Holder, or any Prospective Holder designated by a
Holder, the information required to be delivered to Holders and Prospective
Holders of Certificates in connection with resales of the Certificates to
permit compliance with Rule 144A of the 1933 Act in connection with such
resales. Such information shall be provided to the Trustee by the Servicer.
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(b) No acquisition or transfer of a Certificate or any interest
therein may be made to any "Benefit Plan Investor" (as defined in 29 C.F.R.
'2510.3-101) or to any person who is directly or indirectly purchasing such
Certificates or an interest therein on behalf of, as named fiduciary of, as
trustee of, or with assets of, such a Benefit Plan Investor unless the Trustee
is provided with evidence that establishes to the satisfaction of the Trustee
that (i) either no "prohibited transaction" under ERISA or the Code will occur
in connection with such prospective acquiror's or transferee's acquisition and
holding of the Certificates or that the acquisition and holding of the
Certificates by such prospective acquiror or transferee is subject to a
statutory or administrative exemption, and (ii) that the prospective
acquiror's or transferee's acquisition and holding will not subject the
Transferor, the Servicer or the Trustee to any obligation or liability
(including obligations or liabilities under ERISA or Section 4975 of the Code)
in addition to those explicitly undertaken in the Transaction Documents.
(c) The Trustee shall have no liability to the Trust Estate or any
Certificateholder arising from a transfer of any such Certificate in reliance
upon a certification described in this Section 2.06.
SECTION 2.7. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATE
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Trustee and MBIA such security or indemnity (provided that an agreement of
indemnity shall suffice from the initial Certificateholders) as may be
required by the Trustee and MBIA to save the Transferor, the Trustee and MBIA
or any agent of any of them harmless, then, in the absence of notice to the
Transferor or the Certificate Registrar that such Certificate has been
acquired by a bona fide purchaser, the Transferor shall execute and, upon its
request, the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of the same tenor, initial principal balance, Class and Stated
Maturity or Expected Maturity, bearing a number not contemporaneously
outstanding. If after the delivery of such new Certificate, a bona fide
purchaser of the original Certificate in lieu of which such new Certificate
was issued presents for payment such original Certificate, MBIA, the
Transferor and the Trustee shall be entitled to recover such new Certificate
from the person to whom it was delivered or any person taking therefrom,
except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage,
cost or expenses incurred by MBIA, the Transferor or the Trustee or any agent
of any of them in connection therewith. If any such mutilated, destroyed, lost
or stolen Certificate shall have become or shall be about to become due and
payable, or shall have become subject to redemption in full, instead of
issuing a new Certificate, the Transferor may pay such Certificate without
surrender thereof, except that any mutilated Certificate shall be surrendered.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Certificates, but the Transferor may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Certificates, other than exchanges pursuant to Section 2.04 hereof not
involving any registration of transfer. Upon the issuance of any new
Certificate under this Section, the Transferor may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every new Certificate issued pursuant to this Section 2.07, in lieu of
any destroyed, lost or stolen Certificate, shall constitute an original
additional contractual obligation of the Transferor, whether or not the
destroyed, lost or stolen Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits hereof equally and
proportionately with any and all other Certificates duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates.
SECTION 2.8. PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND
INTEREST RIGHTS PRESERVED
(a) The Certificates shall bear interest on the Class A Certificate
Balance or the Class B Certificate Balance thereof for each applicable Accrual
Period at the related Certificate Interest Rate (calculated on the basis of a
360-day year consisting of 12 months of 30 days each) for such Certificates,
until the last day of the Accrual Period preceding the Final Payment Date and
(to the extent that the payment of such interest shall be legally enforceable)
on any overdue installment of interest from the date such interest became due
and payable (giving effect to any applicable grace periods provided herein)
until fully paid. Interest shall be due and payable in arrears on each Payment
Date, with each payment of interest calculated as described above on the Class
A Certificate Balance or Class B Certificate Balance, as applicable, as of the
close of business on the preceding Payment Date; provided that the payment of
interest on the Class B Certificates is subordinate to the payment of interest
on the Class A Certificates and to certain other payments in accordance with
Section 12.02(d). In making any such interest payment, if the interest
calculation with respect to a Certificate shall result in a portion of such
payment being less than $.01, then such payment shall be decreased to the
nearest whole cent, and no subsequent adjustment shall be made in respect
thereof.
(b) The principal of each Certificate shall be payable in
installments on each Payment Date ending no later than the Stated Maturity or
Expected Maturity thereof unless such Certificate becomes due and payable at
an earlier date by declaration of acceleration, call for redemption or
otherwise. All reductions in the principal amount of a Certificate effected by
payments of installments of principal made on any Payment Date shall be
binding upon all future Holders of such Certificate and of any Certificate
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, whether or not such payment is noted on such Certificate. Each
installment of principal payable on the Class A Certificates shall be in an
amount equal to the Class A Principal Distribution Amount and the Additional
Principal Amount, if any, available to be paid in accordance with the
priorities of Section 12.02(d) hereof. Each installment of principal payable
on the Class B Certificates shall be in an amount equal to the Class B
Principal Distribution Amount; provided that the payment of the Class B
Principal Distribution Amount shall be subordinate to the payments of
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principal and interest on the Class A Certificates and to certain other
payments in accordance with Section 12.02(d) hereof. The principal payable on
the Certificates of any Class shall be paid on each Payment Date beginning on
the Initial Payment Date and ending on the Final Payment Date, and with
respect to all of the Certificates of any Class, on a pro rata basis based
upon the relative face amount of each Certificate of such Class; provided,
however, that if as a result of such proration a portion of such principal
would be less than $.01, then such payment shall be increased to the nearest
whole cent, and such portion shall be deducted from the next succeeding
principal payment.
(c) The principal of and interest on the Certificates are payable by
check mailed by first-class mail to the Person whose name appears as the
Registered Holder of such Certificate on the Certificate Register at the
address of such Person as it appears on the Certificate Register or by wire
transfer in immediately available funds to the account specified in writing to
the Trustee by such Registered Holder at least five Business Days prior to the
Record Date for the Payment Date on which wire transfers will commence, in
such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts. Except
as set forth in the final sentence of this Section 2.08(c), all payments on
the Certificates shall be paid without any requirement of presentment. The
Transferor shall notify MBIA, the Rating Agencies and the Person in whose name
a Certificate is registered at the close of business on the Record Date next
preceding the Payment Date on which the Transferor expects that the final
installment of principal of such Certificate will be paid that the Transferor
expects that such final installment will be paid on such Payment Date. Such
notice shall be mailed no later than the tenth day prior to such Payment Date
and shall specify the place where such Certificate may be surrendered. Funds
representing any such checks returned undeliverable shall be held in
accordance with Section 7.16 hereof. Each Certificateholder shall surrender
its Certificate to the Trustee prior to payment of the final installment of
principal of such Certificate.
(d) Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Certificates, if the Certificates
have become or been declared due and payable following an Event of Default and
such acceleration of maturity and its consequences have not been rescinded and
annulled, then payments of principal of and interest on such Certificates
shall be made in accordance with Section 6.08 hereof.
(e) Each Certificateholder, by acceptance of its Certificate, agrees
that the Certificates shall not be obligations of the Transferor, the Servicer
or any Affiliate thereof, but shall be payable solely from the Trust Estate.
Each Holder of a Certificate, by acceptance of such Certificate, agrees that
during the term of this Trust and Security Agreement and for one year and one
day after the termination hereof or, with respect to the Class A
Certificateholders only, until an MBIA Default or Termination has occurred,
such Holder and any Affiliate thereof will not file any involuntary petition
or otherwise institute any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding or other proceeding under any federal or state
bankruptcy or similar law against the Transferor.
SECTION 2.9. PERSONS DEEMED OWNER
Prior to due presentment for registration of transfer of any Certificate,
the Transferor, MBIA, the Trustee and any agent of the Transferor, MBIA or the
Trustee shall treat the Person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving payments of
principal of and interest on such Certificate and for all other purposes
whatsoever, whether or not such Certificate be overdue, and neither the
Transferor, MBIA, the Trustee nor any agent of the Transferor, MBIA or the
Trustee shall be affected by notice to the contrary.
SECTION 2.10. CANCELLATION
All Certificates surrendered to the Trustee for payment, registration of
transfer or exchange (including Certificates surrendered to any Person other
than the Trustee which shall be delivered to the Trustee) shall be promptly
canceled by the Trustee. No Certificates shall be authenticated in lieu of or
in exchange for any Certificates canceled as provided in this Section 2.10,
except as expressly permitted by this Trust and Security Agreement. All
canceled Certificates held by the Trustee shall be disposed of by the Trustee
as is customary with its standard practice.
SECTION 2.11. TAX TREATMENT
The Transferor has structured this Agreement and the Certificates with
the intention that (i) the Class A Certificates and Class B Certificates be
treated as nonrecourse debt of the Transferor secured by the Trust Estate and
(ii) the Trust be disregarded as an entity separate from the Transferor;
provided that if and to the extent any Class of Certificates is determined not
to constitute debt by an applicable taxing authority, the Transferor and the
Certificateholders further intend that the Trust formed hereby be treated as a
partnership, with the assets of the partnership including all of the assets
comprising the Trust Estate and the partners of the partnership being the
Certificateholders of such Class and the Transferor. The Transferor, the
Trustee, the Servicer, MBIA and each Certificateholder, by acceptance of its
Certificate (and any Person that is a beneficial owner of any interest in a
Certificate, by virtue of such Person's acquisition of a beneficial interest
therein) agree to report the transactions contemplated hereby in accordance
with such stated intentions unless and until determined to the contrary by an
applicable taxing authority. In connection therewith the Transferor shall,
and shall be authorized to the extent necessary to (i) be designated as the
"tax matters partner" of the Trust, (ii) maintain capital accounts and make
partnership allocations in accordance with section 704 of the Code and (iii)
file Form 8832 with the Internal Revenue Service and make the election
provided for to have the Trust be classified as a partnership for federal
income tax purposes.
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ARTICLE III
[intentionally deleted]
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ARTICLE IV
ISSUANCE OF CERTIFICATES; SUBSTITUTIONS OF
SECTION 4.1. CONDITIONS TO ISSUANCE OF CERTIFICATES
The Certificates to be issued on the Closing Date shall be executed by
the Transferor and delivered to the Trustee for authentication, and thereupon,
the same shall be authenticated and delivered by the Trustee upon Transferor
order and upon receipt by the Trustee of the following:
(a) the Loan Acquisition Agreement with the related loan schedule
attached thereto, the Purchase Agreement with the related loan schedule
attached thereto, the Servicing Agreement and the Loan Schedule attached
hereto as Schedule I;
(b) the original manually executed counterpart of each Loan Contract
and each original Certificate of Title or the Application for Certificate of
Title;
(c) a board resolution of each of the Transferor, the Servicer and
the Company authorizing, as applicable, the execution, delivery and
performance of the Transaction Documents and the transactions contemplated
hereby and by the other Transaction Documents, certified by the Secretary or
an Assistant Secretary of the Transferor, the Servicer or the Company, as
applicable;
(d) a copy of an officially certified document, dated not more than
30 days prior to the Closing Date, evidencing the due organization and good
standing of each of the Transferor, the Servicer and the Company in their
respective States of incorporation;
(e) copies of the Certificate of Incorporation and By-Laws of each of
the Transferor, the Servicer and the Company, certified by the Secretary or an
Assistant Secretary of the Transferor, the Servicer and the Company, as
applicable;
(f) evidence of filing with the Secretary of State of the State (and
with the relevant county, if required by the applicable state law) of the
Company's chief executive office of UCC-1 financing statements executed by the
Company, as debtor, and naming the Transferor as secured party, the Loan
Assets as collateral and the Trustee as assignee; and evidence of filing with
the Secretary of State of the State (and with the relevant county, if required
by the applicable state law) of the Transferor's chief executive office of
UCC-1 financing statements executed by the Transferor, as debtor, and naming
the Trustee for the benefit of the Certificateholders and MBIA as secured
party, and the Trust Estate as collateral;
(g) a certificate listing the Servicing Officers of the Servicer as
of the Closing Date;
(h) the Certificate Insurance Policy for the Class A Certificates and
the Insurance Agreement;
(i) evidence of the deposit by the Transferor into the Collection
Account of any amounts paid on the Loan Contracts since the Cut-Off Date; and
(j) such other documents as the Trustee or MBIA may reasonably
require.
By the delivery of the Certificate Insurance Policy by MBIA, the Trustee
may assume that MBIA has received any documentation required to be delivered
to it pursuant to this Section 4.01 if MBIA has not notified the Trustee
otherwise by 11:00 a.m. New York time on the Closing Date.
SECTION 4.2. SECURITY FOR CERTIFICATES
(a) The Transferor and the Company shall file UCC-1 financing
statements described in Section 4.01(f) hereof. From time to time, the
Servicer shall take or cause to be taken such actions and execute such
documents as are necessary to perfect and protect the Trustee's and MBIA's
respective interests in the Loan Contracts and the security interests in the
related Vehicles against all other Persons, including, without limitation, the
filing of financing statements, amendments thereto and continuation
statements, the execution of transfer instruments and the making of notations
on or taking possession of all records or documents of title. If the original
Certificate of Title is not available on the Cut-Off Date or any Acquisition
Date, the Company shall deliver the Application for Certificate of Title to
the Trustee on such Cut-Off Date or Acquisition Date; provided, however, that
the Company shall deliver to the Trustee the original Certificate of Title
relating to each Vehicle within 120 days of the delivery of the Application
for Certificate of Title; provided further, however that the Company shall
have 150 days from the Closing Date or Acquisition Date, as applicable, to
deliver the original Certificate of Title for Vehicles registered in North
Carolina, South Carolina, Georgia, Mississippi, Texas, Nevada and Wisconsin.
(b) If any change in either the Company's or the Transferor's name,
identity, structure or the location of its principal place of business or
chief executive office occurs, then the Transferor shall, or the Transferor
shall cause the Company, to deliver 30 days prior written notice of such
change or relocation to the Servicer, MBIA and the Trustee and no later than
the effective date of such change or relocation, the Servicer shall file such
amendments or statements as may be required to preserve and protect the
Trustee's and MBIA's respective interests in the Trust Estate.
(c) During the term of this Trust and Security Agreement, the
Transferor will maintain its chief executive office and principal place of
business in one of the States of the United States.
(d) The Servicer agrees to pay all reasonable costs and disbursements
in connection with the perfection and the maintenance of perfection, as
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against all third parties, of the Trustee's and MBIA's respective right, title
and interest in and to the Trust Estate.
SECTION 4.3. SUBSTITUTIONS AND REMOVALS OF LOAN CONTRACTS
(a) If at any time the Transferor, MBIA, the Certificateholders or
the Trustee obtains knowledge (within the meaning of 7.01(e) hereof),
discovers or is notified by the Servicer that any of the representations and
warranties of the Company in the Loan Acquisition Agreement were incorrect at
the time as of which such representations and warranties were made, then the
Person discovering such defect, omission, or circumstance shall promptly
notify MBIA, the Certificateholders and the other parties to this Trust and
Security Agreement.
(b) In the event that any representation or warranty of the Company
in the Loan Acquisition Agreement is incorrect and materially and adversely
affects the interests of MBIA or the Holders of the Certificates, or if any
breach of any of the representations and warranties set forth in Sections
3.01(a)(ii), 3.01(a)(v), 3.01(a)(vii) or 3.01(a)(xvi) of the Loan Acquisition
Agreement, the Transferor shall require the Company pursuant to the Loan
Acquisition Agreement to eliminate or otherwise cure the circumstance or
condition which has caused such representation or warranty to be incorrect
within 30 days of discovery or notice thereof. If the Company fails or the
Company or the Back-up Servicer is unable to cure such circumstance or
condition in accordance with the Loan Acquisition Agreement, or if the
original Certificate of Title is not delivered to the Trustee within the time
period specified in Section 4.02(a) hereof, then the Transferor shall require
the Company to substitute or purchase pursuant to the Loan Acquisition
Agreement for any Loan Asset as to which such representation or warranty is
incorrect or any Loan Contract as to which the original Certificate of Title
has not been delivered to the Trustee within the time specified in Section
3.03 of the Loan Acquisition Agreement. The proceeds of a purchase shall be
remitted by the Transferor to the Servicer for deposit by the Servicer in the
Collection Account pursuant to Section 3.03 of the Servicing Agreement.
(c) If the Transferor fails to enforce the purchase or substitution
obligation of the Company under the Loan Acquisition Agreement, the Trustee is
hereby appointed attorney-in-fact to act on behalf of and in the name of the
Transferor to require such purchase or substitution.
(d) With respect to (i) any Loan Contract to be prepaid, (ii) any
Loan Contract that becomes a Defaulted Loan Contract or (iii) any Loan
Contract that becomes a Delinquent Loan Contract, the Transferor shall be
entitled to remove such Loan Contract from the Trust Estate and (A) deposit
the Purchase Price for such Loan Contract and/or (B) deliver a Substitute Loan
Contract meeting the same requirements as those specified in Section 3.04 of
the Loan Acquisition Agreement for substitutions and purchases by the Company
upon breaches of a representation or warranty by the Company thereunder;
provided, however, that the cumulative amount of prepaid Loan Contracts,
Delinquent Loan Contracts and Defaulted Loan Contracts which are substituted
and/or purchased by the Transferor shall not exceed 10% of the Initial
Aggregate Loan Balance, (ii) the weighted average remaining term to maturity
of the Loan Contracts immediately after such substitution does not vary by
more than 1.5 months shorter or longer from the weighted average remaining
term to maturity immediately prior to such substitution and (iii) each such
Substitute Loan Contract has a final Scheduled Payment on or before the
Calculation Date immediately preceding the date that is six months prior to
the Stated Maturity.
(e) With respect to a Substitute Loan Contract, on the applicable
Acquisition Date the Transferor shall provide each of the following items to
the Persons identified below:
(i) to the Trustee and MBIA, an Amendment to the Loan Acquisition
Agreement for Substitute Loan Contracts and an Amended Loan Schedule providing
with respect to the Substitute Loan Contracts the information required to
supplement the Loan Schedule;
(ii) to the Trustee, the original manually executed counterpart of
the Loan Contract relating to such Substitute Loan Contract and the original
Certificate of Title or Application for Certificate of Title relating to the
Vehicle securing such Substitute Loan Contract; and
(iii) to the Servicer, the Loan Contract File.
SECTION 4.4. RELEASES
(a) The Transferor shall be entitled to obtain a release and
reconveyance from the Trustee for any Loan Contract and the related Vehicle at
any time (i) after a payment by the Company or the Transferor of the Purchase
Price of the Loan Contract, (ii) after a Substitute Loan Contract is
substituted for such Loan Contract and the Purchase Price, if any, is paid,
(iii) after liquidation of the Loan Contract in accordance with Section
3.01(b) of the Servicing Agreement and the deposit of all Recoveries thereon
in the Collection Account, or (iv) upon the termination of a Loan Contract
(due to among other causes, prepayment in full of the Loan Contract and sale
or other disposition of the related Vehicle), if the Transferor delivers to
the Trustee and MBIA an Officer's Certificate (A) identifying the Loan
Contract and Vehicle to be released, (B) requesting the release thereof, (C)
setting forth the amount deposited in the Collection Account with respect
thereto, and (D) certifying that the amount deposited in the Collection
Account (x) equals the Purchase Price of the Loan Contract, in the event a
Loan Contract and the related Vehicle are being removed from the Trust Estate
pursuant to (i) or (ii) above or (y) equals the entire amount of Recoveries
received with respect to such Loan Contract and related Vehicle in the event
of a release pursuant to (iii) or (iv) above.
(b) Upon satisfaction of the conditions specified in subsection (a)
hereof, the Trustee shall release from this Trust and Security Agreement,
reconvey and deliver to or upon the order of the Transferor (or to or upon the
order of the Company if it has satisfied its obligations under Section 4.03
hereof and 3.04 of the Loan Acquisition Agreement with respect to a Loan
Contract), the Loan Contract, the Certificate of Title and/or the Application
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for Certificate of Title and all interests in the Vehicle described in the
Transferor's request for release and reconveyance.
SECTION 4.5. TRUST ESTATE
The Trustee may, and when required by the provisions of Articles Four,
Five, Six, Ten and Twelve hereof shall, execute instruments to release
property from the lien of this Trust and Security Agreement, or convey the
Trustee's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions hereof. No party relying upon an
instrument executed by the Trustee as provided in this Article Four shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
SECTION 4.6. NATURE OF TRANSFER
To the extent that the transfer of the Trust Estate from the Transferor
to the Trustee is deemed to be a secured financing, the Transferor shall be
deemed hereunder to have granted to the Trustee, and the Transferor does
hereby grant to the Trustee, a security interest in all of the Transferor's
right, title and interest in, to and under the Trust Estate, whether now owned
or hereafter acquired. For purposes of such grant, this Agreement shall
constitute a security agreement under applicable law.
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ARTICLE V
SATISFACTION AND DISCHARGE
SECTION 5.1. SATISFACTION AND DISCHARGE OF TRUST AND SECURITY
AGREEMENT
(a) Following payment in full of (i) all of the Certificates, (ii)
the fees and charges of the Trustee, (iii) all other obligations of the
Transferor under this Trust and Security Agreement and (iv) all amounts owing
to MBIA under the Insurance Agreement, and the release by the Trustee of the
Trust Estate in accordance with Section 5.01(b) hereof, the Trust and Security
Agreement shall be discharged and the Trustee shall notify the Rating Agencies
thereof.
(b) Upon payment in full of the amounts referred to in clauses (i)
through (iv) of Section 5.01(a) hereof, the Transferor may submit to the
Trustee an Officer's Certificate requesting the release and conveyance to the
Transferor or its designee of a stated amount of the funds on deposit in the
Collection Account and some or all of the other Trust Estate (collectively,
the "Withdrawn Collateral"), accompanied by an Opinion of Counsel reasonably
acceptable to MBIA or, if an MBIA Default or Termination has occurred and is
continuing, acceptable to the Controlling Holders, to the effect that, after
the release of the Withdrawn Collateral, there will remain an amount in the
Collection Account or otherwise subject to this Agreement at least equal to
the payments of interest due on the Outstanding Certificates and the Class A
Principal Distribution Amounts and Class B Principal Distribution Amounts that
are subject to recapture as preferential transfers pursuant to Section 547 of
the Bankruptcy Code or, alternatively, to the effect that no such payments are
subject to recapture. In rendering such Opinion of Counsel, such counsel may
rely as to factual matters, including, without limitation, the date on which
funds were received and the source of funds, upon an Officer's Certificate.
Promptly after receipt of such Officer's Certificate, Opinion of Counsel and
authorization to release from MBIA, the Trustee shall release and convey its
interest in the Withdrawn Collateral and deliver the Withdrawn Collateral to
the Transferor or its designee. The Transferor shall be entitled to deliver
more than one such Officer's Certificate and Opinion of Counsel until the
entire Trust Estate is released, conveyed and delivered to the Transferor or
its designee. Notwithstanding the foregoing, MBIA or, if an MBIA Default or
Termination has occurred and is continuing, the Controlling Holders, may waive
the requirement that the Transferor deliver such Officer's Certificate and/or
Opinion of Counsel and authorize the Trustee by written direction to release
and convey all or a portion of the Collection Account or other items of the
Trust Estate upon payment in full of the amounts referred to in clauses (i)
through (iv) of Section 5.01(a) hereof. Notwithstanding termination of this
Agreement, the Trustee shall remain obligated to make claims under the
Certificate Insurance Policy with respect to any Preference Claim.
(c) In connection with the discharge of this Trust and Security
Agreement and the release and conveyance of the Trust Estate, the Trustee
shall release and from the lien hereof and otherwise convey and deliver to or
upon the order of the Transferor all property remaining in the Trust Estate
and shall execute and file, at the expense of the Transferor, UCC financing
statements (which shall be prepared by the Servicer) evidencing such
discharge, conveyance and release.
SECTION 5.2. APPLICATION OF TRUST MONEY
Subject to the last paragraph of Section 7.16 hereof, all monies
deposited with the Trustee pursuant to Section 5.01 hereof shall be held in
trust and if invested, shall be invested in Eligible Investments of the type
described in clause (f) of the definition thereof, and applied by the Trustee,
in accordance with the provisions of the Certificates and this Trust and
Security Agreement, to the payment, either directly or through any Paying
Agent as the Trustee may determine, to the Persons entitled thereto, of the
principal and interest for whose payment such money has been deposited with
the Trustee; but such money need not be segregated from other funds except to
the extent required herein or to the extent required by law.
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ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT
"Event of Default" wherever used herein means any one of the following
events:
(a) default in the payment of any interest or any other amounts due
and owing to the Class A Certificateholders when the same becomes due and
payable, and if there are no Class A Certificates Outstanding, default in the
payment of any interest upon any Class B Certificates when the same becomes
due and payable; or
(b) default in the payment of any principal of any Class A
Certificate when the same becomes due and payable, and if there are no Class A
Certificates Outstanding, default in the payment of any principal upon any
Class B Certificates when the same becomes due and payable; or
(c) default in the performance of any covenant of the Transferor or
breach of any representation or warranty of the Transferor in this Trust and
Security Agreement, the Loan Acquisition Agreement, the Insurance Agreement,
the Purchase Agreement or the Servicing Agreement (other than a covenant or
warranty default in the performance of which or breach of which is elsewhere
in this Section specifically dealt with), which default or breach has a
material adverse effect on MBIA or the Certificateholders and continuance of
such default or breach for a period of 30 days after the Transferor has actual
knowledge thereof;
(d) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Transferor under the United
States Bankruptcy Code or any other applicable Federal or state bankruptcy,
insolvency, reorganization, liquidation or other similar law now or hereafter
in effect or any arrangement with creditors or appointing a receiver,
liquidator, assignee, trustee, or sequestrator (or other similar official) for
the Transferor or for any substantial part of its property, or ordering the
winding up or liquidation of the Transferor's affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(e) the institution by the Transferor of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by the Transferor to the
institution of bankruptcy or insolvency proceedings against the Transferor, or
the filing by the Transferor of a petition or answer or consent seeking
reorganization or relief under the United States Bankruptcy Code or any other
applicable Federal or state bankruptcy insolvency, reorganization, liquidation
or other similar law now or hereafter in effect, or the consent by the
Transferor to the filing of any such petition or to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or other similar official) of the Transferor or of any
substantial part of the Transferor's property, or the making by the Transferor
of any assignment for the benefit of creditors, or the admission by it in
writing of its inability, or the failure by it generally, to pay its debts as
they become due, or the taking of corporate action by the Transferor in
furtherance of any such action.
SECTION 6.2. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT
If an Event of Default with respect to any of the Certificates at the
time Outstanding occurs and is continuing, then, and in every such case, the
Trustee shall, at the direction of MBIA, or if there is an MBIA Default or
Termination continuing, the Trustee shall, at the direction of the Controlling
Holders, declare the principal of all the Certificates to be immediately due
and payable, by notice given in writing to the Transferor (and to the Trustee
if given by Certificateholders); provided that, MBIA shall not declare the
Class A Certificate Balance of all of the Class A Certificates immediately due
and payable unless the Certificate Insurance Policy provides coverage for any
shortfall in the payment of accelerated principal and any interest due on the
Class A Certificates on the date established for redemption thereof pursuant
to such acceleration, and upon any such declaration, such principal shall
become immediately due and payable without any presentment, demand, protest or
other notice of any kind (except such notices as shall be expressly required
by the provisions of this Trust and Security Agreement), all of which are
hereby expressly waived.
At any time after such a declaration of acceleration has been made, but
before any Sale of the Trust Estate has been made or a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, MBIA, or if an MBIA Default or Termination has
occurred, the Controlling Holders, by written notice to the Transferor and the
Trustee, may rescind and annul such declaration and its consequences (except
that in the case of a payment default on the Class A Certificates, or if no
Class A Certificates are Outstanding, the Class B Certificates, the consent of
all the Holders of such Class shall be required to rescind and annul such a
declaration and its consequences) if:
(1) the Transferor has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Class A Certificates,
or if no Class A Certificates are Outstanding, the Class B Certificates;
(B) the principal of any Class A Certificates, or if no Class A
Certificates are Outstanding, the Class B Certificates which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by such Certificates from the time such principal first became due
until the date when paid;
(C) all sums paid or advanced, together with interest thereon, by the
Trustee, MBIA or any Certificateholder hereunder or by MBIA under the
Insurance Agreement or any Certificate Insurance Policy, and the reasonable
compensation, expenses, disbursements and advances of the Trustee, MBIA and
the Certificateholders, their agents and counsel incurred in connection with
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the enforcement of this Trust and Security Agreement and any other amounts due
and owing by the Transferor to the Certificateholders to the date of such
payment or deposit; and
(2) all Events of Default, other than the nonpayment of the principal on
the Class A Certificates, or if no Class A Certificates are Outstanding, the
Class B Certificates which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.15 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 6.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE
The Transferor covenants that if an Event of Default shall occur and be
continuing and any of the Certificates have been declared due and payable and
such declaration has not been rescinded and annulled, the Transferor will,
upon demand of the Trustee and at the direction of MBIA, or if an MBIA Default
or Termination has occurred at the direction of the Controlling Holders, pay
to the Trustee, for the benefit of the Holders of the Certificates and MBIA,
the whole amount then due and payable on the Certificates for principal and
interest, with interest upon the overdue principal at the rate borne by the
Certificates and, in addition thereto, 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,
MBIA, the Certificateholders, their respective agents and counsel.
If the Transferor fails to pay such amount forthwith upon such demand,
the Trustee, in its own name and as Trustee of an express trust shall, at the
direction of MBIA, and if an MBIA Default or Termination has occurred and is
continuing the Trustee may, and shall, at the direction of the Controlling
Holders, institute Proceedings for the collection of the sums so due and
unpaid, and prosecute such Proceeding to judgment or final decree, and
enforce the same against the Transferor and collect the monies adjudged or
decreed to be payable in the manner provided by law out of the property of the
Transferor, wherever situated.
If an Event of Default occurs and is continuing, the Trustee shall, at
the direction of MBIA, and if an MBIA Default or Termination has occurred and
is continuing the Trustee may in its discretion proceed, and shall at the
direction of the Controlling Holders proceed, to protect and enforce its
rights and the rights of MBIA by such appropriate Proceedings as the Trustee,
at the direction of MBIA, or if an MBIA Default or Termination has occurred
and is continuing, at its discretion shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Trust and Security Agreement or in aid of the exercise of
any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. REMEDIES
If an Event of Default shall have occurred and be continuing, the Trustee
shall, at the direction of MBIA, and if an MBIA Default or Termination has
occurred and is continuing, the Trustee may, and shall, at the direction of
the Controlling Holders, do one or more of the following:
(a) institute Proceedings for the collection of all amounts then due
and payable on the Certificates or under this Trust and Security Agreement,
whether by declaration or otherwise, enforce any judgment obtained, and
collect from the Transferor the monies adjudged due;
(b) take possession of and sell the Trust Estate securing the
Certificates or any portion thereof or rights or interest therein, at one or
more Sales called and conducted in any manner permitted by law;
(c) institute any Proceedings from time to time for the complete or
partial foreclosure of the lien created by this Trust and Security Agreement
with respect to the Trust Estate securing the Certificates;
(d) during the continuance of a default under a Loan Contract,
exercise any of the rights of the lender under such Loan Contract;
(e) exercise any remedies of a secured party under the Uniform
Commercial Code or any applicable law and take any other appropriate action to
protect and enforce the rights and remedies of the Trustee, MBIA and the
Holders of the Certificates hereunder; and
(f) institute proceedings against MBIA for the collection of any
amounts then due and payable under the Certificate Insurance Policy with
respect to which a proper claim has been made on the Certificate Insurance
Policy in accordance with the terms thereof, whether by declaration or
otherwise, enforce any judgment obtained, and collect from MBIA the monies
adjudged due;
provided, however, that without the consent of MBIA, or if an MBIA Default or
Termination has occurred and is continuing, all the Controlling Holders, the
Trustee may not sell or otherwise liquidate any portion of the Trust Estate
unless the proceeds of such Sale or liquidation distributable to the
Certificateholders are sufficient to discharge in full the amounts then due
and unpaid upon the Certificates of such Controlling Holders for principal and
interest together with any amounts owed to MBIA under the Insurance Agreement.
SECTION 6.5. OPTIONAL PRESERVATION OF TRUST ESTATE
If (i) an Event of Default shall have occurred and be continuing with
respect to the Certificates and (ii) no Certificates have been declared due
and payable, or such declaration and its consequences have been annulled and
rescinded, the Trustee shall, at the direction of MBIA, or if an MBIA Default
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or Termination has occurred and is continuing, the Trustee may in its sole
discretion if it determines it to be in the best interests of the Controlling
Holders and shall, upon request from the Controlling Holders elect, by giving
written notice of such election to the Transferor, to take possession of and
retain the Trust Estate securing the Certificates intact, collect or cause the
collection of the proceeds thereof and make and apply all payments and
deposits and maintain all accounts in respect of such Certificates in
accordance with the provisions of Article Twelve of this Trust and Security
Agreement. If the Trustee is unable to or is stayed from giving such notice to
the Transferor for any reason whatsoever, such election shall be effective as
of the time of such determination or request, as the case may be,
notwithstanding any failure to give such notice, and the Trustee shall give
such notice upon the removal or cure of such inability or stay (but shall have
no obligation to effect such removal or cure). Any such election may be
rescinded with respect to any portion of the Trust Estate securing the
Certificates remaining at the time of such rescission by written notice to the
Trustee and the Transferor from MBIA or, if an MBIA Default or Termination has
occurred and is continuing, from the Controlling Holders.
SECTION 6.6. TRUSTEE MAY FILE PROOFS OF CLAIM
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding relating to the Transferor or any other obligor upon any
of the Certificates or the property of the Transferor or of such other obligor
or their creditors, the Trustee (irrespective of whether the principal of any
of the Certificates shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Transferor for the payment of overdue principal or
interest) shall be entitled and empowered, to intervene in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Certificates issued hereunder and
to file such 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 any other amounts due the Trustee under Section
7.07 hereof and any other amounts due and owing to the Certificateholders) and
of MBIA and the Certificateholders allowed in such judicial Proceeding, and
(b) 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 MBIA and each Certificateholder to make such payments to the Trustee, and
in the event that the Trustee shall consent to the making of such payments
directly to MBIA or the Certificateholders, 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 7.07 hereof.
Nothing contained in this Trust and Security Agreement shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of MBIA or any Certificateholder any plan of reorganization, arrangement,
adjustment or composition affecting MBIA or any of the Certificates or the
rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of MBIA or any Certificateholder in any such Proceeding.
SECTION 6.7. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES
(a) In all Proceedings brought by the Trustee (and also any
Proceedings involving the interpretation of any provision of this Trust and
Security Agreement to which the Trustee shall be a party), the Trustee shall
be held to represent all of the Certificateholders, and it shall not be
necessary to make any Certificateholder a party to any such Proceedings.
(b) All rights of actions and claims under this Trust and Security
Agreement or any of the Certificates may be prosecuted and enforced by the
Trustee without the possession of any of the Certificates or the production
thereof in any Proceeding relating thereto, and any such Proceedings
instituted by the Trustee shall be brought in its own name as Trustee of an
express trust, and any recovery whether by judgment, settlement or otherwise
shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
be for MBIA and the ratable benefit of the Holders of the Certificates.
SECTION 6.8. APPLICATION OF MONEY COLLECTED
APPLICATION OF MONEY COLLECTED.
If the Certificates have been declared due and payable following an Event
of Default and such declaration has not been rescinded or annulled, any money
collected by the Trustee with respect to the Certificates pursuant to this
Article Six or otherwise and any other money that may be held thereafter by
the Trustee as security for the Certificates shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or interest, upon
presentation of the Certificates and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid; provided that
proceeds of a claim under the Certificate Insurance Policy will be used only
to pay interest and principal on the Class A Certificates in the manner set
forth in clauses Fifth and Sixth below:
FIRST: To the payment to the Trustee of the Trustee Fee then
due, and any costs and expenses incurred by it in connection with enforcing
the remedies provided for in this Article Six;
SECOND: To the payment to the Back-up Servicer of the Back-up
Servicer Fee then due;
THIRD: If Monaco is no longer the Servicer, to the payment to the
Servicer of the Servicer Fee and other amounts due the Servicer pursuant to
Section 12.02(d)(i) hereof;
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FOURTH: To the payment of the amounts then due and unpaid upon the
Class A Certificates for interest, with interest (to the extent payment
thereof is legally enforceable at the respective rate or rates prescribed
therefor in the Class A Certificates) on overdue principal and interest;
FIFTH: To the payment to MBIA of the MBIA Premium then due provided
that no MBIA Default or Termination shall be continuing and to the payment to
MBIA of any amounts previously paid by MBIA under the Certificate Insurance
Policy with respect to interest on the Class A Certificates and not hereto
fore repaid (without interest thereon);
SIXTH: To the payment of the amounts then due and unpaid upon the
Class B Certificates for interest, with interest (to the extent such interest
has been collected by the Trustee or a sum sufficient therefor has been so
collected and payment thereof is legally enforceable at the respective rate or
rates prescribed therefor in the Class B Certificates) on overdue interest;
SEVENTH: To the payments of the remaining Class A Certificate
Balance, without preference or priority of any kind among such Class A
Certificateholders;
EIGHTH: To the payment to MBIA of any amounts previously paid by MBIA
under the Certificate Insurance Policy and not theretofore repaid, together
with interest thereon and any other amounts due under the Insurance Agreement;
NINTH: If the Company is the Servicer, to the payment to the Servicer
of the Servicer Fee and other amounts due the Servicer pursuant to Section
12.02(d) hereof;
TENTH: To reimburse MBIA and the Certificateholders, pro rata, for
any costs or expenses incurred in connection with any enforcement action with
respect to this Trust and Security Agreement or the Certificates, or any other
amounts due and owing to the Certificateholders;
ELEVENTH: To the payment to the Trustee and the Back-up Servicer, any
other amounts due to the Trustee or the Back-up Servicer as expressly provided
herein and in the Servicing Agreement;
TWELFTH: To the payment to the Servicer of any other amounts due
the Servicer as expressly provided herein and in the Servicing Agreement;
THIRTEENTH: To the payment of the then remaining Class B Certificate
Balance, without preference or priority of any kind among Class B
Certificateholders;
FOURTEENTH: To the payment of any surplus to or at the written
direction of the Transferor or any other person legally entitled thereto.
SECTION 6.9. LIMITATION ON SUITS
No Holder of any Certificate shall have any right to institute any
Proceeding, judicial or otherwise, with respect to this Trust and Security
Agreement, or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as an MBIA Default or Termination has not
occurred, and if an MBIA Default or Termination has occurred and is
continuing, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Controlling Holders shall have made written request to the
Trustee to institute Proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of security or indemnity has failed to institute any such
Proceedings; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Controlling Holders; it
being understood and intended that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue of, or by availing of,
any provision of this Trust and Security Agreement to affect, disturb or
prejudice the rights of any other Holders of Certificates, or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Trust and Security Agreement, except in the manner herein
provided and for the equal and ratable benefit of all the Holders of
Certificates.
SECTION 6.10. UNCONDITIONAL RIGHT OF CERTIFICATEHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST
Notwithstanding any other provision in this Trust and Security Agreement,
the Holder of any Certificate shall have the right, which is absolute and
unconditional, to receive payment of the principal and interest on such
Certificate as such principal and interest becomes due and payable and to
institute any Proceeding for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
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SECTION 6.11. RESTORATION OF RIGHTS AND REMEDIES
If the Trustee, MBIA or any Certificateholder has instituted any
Proceeding to enforce any right or remedy under this Trust and Security
Agreement and such Proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee, MBIA or to such
Certificateholder, then, and in every case, the Transferor, the Trustee, MBIA
and the Certificateholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee, MBIA and the
Certificateholders shall continue as though no such Proceeding had been
instituted.
SECTION 6.12. RIGHTS AND REMEDIES CUMULATIVE
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Certificates in the last paragraph of
Section 2.07 hereof, no right or remedy herein conferred upon or reserved to
the Trustee, MBIA or to the Certificateholders 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 6.13. DELAY OR OMISSION; NOT WAIVER
No delay or omission of the Trustee, MBIA or of any Holder of any
Certificate 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 any acquiescence therein. Every right and remedy given by this
Article Six or by law to the Trustee, MBIA or to the Certificateholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee, MBIA or by the Certificateholders, as the case may be, subject in
each case, however, to the right of MBIA to control any such right and remedy
except as provided in Section 13.13 hereof.
SECTION 6.14. CONTROL BY CERTIFICATEHOLDERS
MBIA or, if an MBIA Default or Termination has occurred and is
continuing, the Controlling Holders shall have the right to 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 the Trustee; provided
that:
(a) such direction shall not be in conflict with any rule of law or
with this Trust and Security Agreement including, without limitation, any
provision hereof which expressly provides for approval by a greater percentage
of Certificate Balance of Certificates;
(b) any direction to the Trustee by the Certificateholders of a Class
to undertake a private sale of the Trust Estate shall be by the Holders of all
Outstanding Certificates of such Class, unless the condition set forth in
Section 6.18(b)(ii) hereof is met;
(c) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided, however,
that, subject to Section 7.01 hereof, the Trustee need not take any action
which a Responsible Officer or Officers of the Trustee in good faith
determines might involve it in personal liability or be unjustly prejudicial
to the Holders not directing or consenting to such action; and
(d) the Trustee has been furnished reasonable indemnity against
costs, expenses and liabilities which it might incur in connection therewith
as provided in Section 7.01(f) hereof.
SECTION 6.15. WAIVER OF CERTAIN EVENTS BY LESS THAN ALL
CERTIFICATEHOLDERS
MBIA, or if an MBIA Default or Termination has occurred and is
continuing, the Controlling Holders may on behalf of the Holders of all the
Certificates waive any past Default or Trigger Event hereunder and its
consequences, except:
(a) a Default in the payment of the principal of or interest on any
Class A Certificate, or if the Class A Certificate Balance has been reduced to
zero, on any Class B Certificate, or a Default described in Sections 6.01(d)
and (e) hereof, or
(b) in respect of a covenant or provision hereof which under Article
Nine hereof cannot be modified or amended without the consent of the Holder of
each Outstanding Certificate affected.
Upon any such waiver, such Default or Trigger Event shall cease to exist, and
any Event of Default or other consequence arising therefrom shall be deemed to
have been cured for every purpose of this Trust and Security Agreement; but no
such waiver shall extend to any subsequent or other Default or Trigger Event
or impair any right consequent thereon.
SECTION 6.16. UNDERTAKING FOR COSTS
All parties to this Trust and Security Agreement agree, and each Holder
of any Certificate by his 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 Trust and Security Agreement, or in any suit
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against the Trustee for any action taken, suffered or omitted by it as
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 6.16 shall not apply to any suit instituted by the Trustee or MBIA, or
to any suit instituted by the Controlling Holders, or to any suit instituted
by any Certificateholder for the enforcement of the payment of the principal
of or interest on any Certificate on or after one year and one day after the
Stated Maturity or Expected Maturity expressed in such Certificate.
SECTION 6.17. WAIVER OF STAY OR EXTENSION LAWS
The Transferor covenants (to the extent that it may lawfully do so) that it
will not, at any time, insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Trust and Security Agreement; and the Transferor
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 6.18. SALE OF TRUST ESTATE
(a) The power to effect any sale (a "Sale") of any portion of the
Trust Estate pursuant to Section 6.04 hereof shall not be exhausted by any one
or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate evidenced by and
securing the Certificates shall have been sold or all amounts payable on the
Certificates and under this Trust and Security Agreement with respect thereto
shall have been paid. The Trustee may with the prior written consent of MBIA,
or shall at the direction of MBIA from time to time postpone any Sale by
public announcement made at the time and place of such Sale.
(b) To the extent permitted by applicable law, the Trustee shall not,
in any private Sale, sell to a third party the Trust Estate, or any portion
thereof unless:
(i) MBIA, or if an MBIA Default or Termination has occurred, the
Controlling Holders, consent in writing to or directs the Trustee to make such
Sale; or
(ii) if an MBIA Default or Termination has occurred, the proceeds of
such Sale would not be less than the sum of all amounts due to the Trustee
hereunder and the Certificate Balance of the Certificates of the Controlling
Holders and interest due or to become due thereon on the Payment Date next
succeeding such Sale together with any amounts due and owing to MBIA under the
Insurance Agreement.
(c) The Trustee, MBIA or the Certificateholders may bid for and
acquire any portion of the Trust Estate in connection with a public Sale
thereof, and in lieu of paying cash therefor, any Certificateholder may make
settlement for the purchase price by crediting against amounts owing on the
Certificates of such Holder or other amounts owing to such Holder secured by
this Trust and Security Agreement, that portion of the net proceeds of such
Sale to which such Holder would be entitled, after deducting the reasonable
costs, charges and expenses incurred by the Trustee, MBIA or the
Certificateholders in connection with such Sale. The Certificates need not be
produced in order to complete any such Sale, or in order for the net proceeds
of such Sale to be credited against the Certificates. The Trustee, MBIA or the
Certificateholders may hold, lease, operate, manage or otherwise deal with any
property so acquired in any manner permitted by law.
(d) The Trustee shall execute and deliver an appropriate instrument
of conveyance transferring its interest in any portion of the Trust Estate in
connection with a Sale thereof. In addition, the Trustee is hereby irrevocably
appointed the agent and attorney-in-fact of the Transferor to transfer and
convey its interest in any portion of the Trust Estate 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
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any monies.
(e) The method, manner, time, place and terms of any Sale of all or
any portion of the Trust Estate shall be commercially reasonable.
SECTION 6.19. ACTION ON CERTIFICATES
The Trustee's right to seek and recover judgment on the Certificates or
under this Trust and Security Agreement shall not be affected by the seeking,
obtaining or application of any other relief under or with respect to this
Trust and Security Agreement. Neither the lien of this Trust and Security
Agreement nor any rights or remedies of the Trustee or the Certificateholders
or MBIA shall be impaired by the recovery of any judgment by the Trustee
against the Transferor or by the levy of any execution under such judgment
upon any portion of the Trust Estate or upon any of the assets of the
Transferor.
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ARTICLE VII
THE TRUSTEE
SECTION 7.1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default known to the
Trustee as provided in subsection (e) below:
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Trust and Security Agreement against the
Trustee; and
(ii) in the absence of bad faith or negligence on its part, the
Trustee may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements hereof; but in the
case of any such certificates or opinions, which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same and to determine whether or not they conform
to the requirements hereof.
(b) In case an Event of Default known to the Trustee, as provided in
subsection (e) below, has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Trust and Security
Agreement, and shall use the same degree of care and skill in its exercise, as
a reasonable person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(c) No provision hereof shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct or bad faith, except that:
(i) this subsection (c) shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
MBIA or the Controlling Holders relating to the time, method and place of
conducting any Proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this Trust and
Security Agreement, the Loan Acquisition Agreement or the Servicing Agreement
in accordance with the terms of this Trust and Security Agreement, the Loan
Acquisition Agreement and the Servicing Agreement; and
(iii) no provision hereof shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it, provided that nothing contained herein shall excuse
the Trustee for failure to perform its duties as Trustee hereunder.
(d) Whether or not therein expressly so provided, every provision of
this Trust and Security Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 7.01.
(e) For all purposes under this Trust and Security Agreement, the
Trustee shall not be deemed to have notice of any Event of Default described
in Section 6.01(d) or 6.01(e) hereof or any Default described in Section
6.01(c) hereof or of any Class B Event, Trigger Event or MBIA Default or
Termination unless a Responsible Officer assigned to and working in the
Trustee's corporate trust department has actual knowledge thereof, or unless
written notice of any event which is in fact such an Event of Default,
Default, Class B Event, Trigger Event or MBIA Default or Termination is
received by the Trustee at the Corporate Trust Office, and such notice
references any of the Certificates generally, the Transferor, the Trust Estate
or this Trust and Security Agreement.
(f) The Trustee shall be under no obligation to institute any suit,
or to take any remedial proceeding under this Trust and Security Agreement, or
to enter any appearance or in any way defend in any suit in which it may be
made defendant, or to take any steps in the execution of the trusts hereby
created or in the enforcement of any rights and powers hereunder until it
shall be indemnified to its satisfaction against any and all costs and
expenses, outlays and counsel fees and other reasonable disbursements and
against all liability, except liability that is adjudicated, in connection
with any action so taken.
(g) Notwithstanding any extinguishment of all right, title and
interest of the Transferor in and to the Trust Estate following an Event of
Default and a consequent declaration of acceleration of the maturity of any of
the Certificates, whether such extinguishment occurs through a Sale of the
Trust Estate to another person, the acquisition of the Trust Estate by the
Trustee with respect to the Trust Estate (or the proceeds thereof) and the
Certificateholders and the rights of the Certificateholders shall continue to
be governed by the terms of this Trust and Security Agreement.
(h) Notwithstanding anything to the contrary contained herein, the
provisions of subsections (e) through (g), inclusive, of this Section 7.01
shall be subject to the provisions of subsections (a) through (c), inclusive,
of this Section 7.01.
(i) The Trustee shall provide the reports and accountings as required
pursuant to Section 12.03 hereof.
(j) If any Loan Contract becomes a Defaulted Loan Contract, the
Trustee, upon Transferor or Servicer request may, and upon the request of MBIA
shall take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
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proceedings. Any such action shall be without prejudice to any right to claim
a Default or Event of Default under this Trust and Security Agreement and to
proceed thereafter as provided in Article Six hereof.
(k) As soon as practicable following receipt by the Trustee of
written notice from MBIA that either (i) 90 days have elapsed since a
Re-Liening Trigger Event has occurred and the Servicer has not filed
applications for new certificates of title noting the Trustee as secured
party, with respect to at least 75% of the vehicles which were not liened in
the name of the Trustee as of the date of the Re-Liening Trigger Event, or
(ii) 120 days have elapsed since a Re-Liening Trigger Event has occurred and
the Servicer has not filed applications for new certificates of title noting
the Trustee as secured party, with respect to 100% of the vehicles which were
not liened in the name of the Trustee as of the date of the Re-Liening Trigger
Event, the Trustee shall take all actions needed to ensure that a new
certificate of title noting the Trustee as secured party is obtained for any
Vehicle which, as of the date of receipt of such written notice from MBIA, is
not liened in the name of the Trustee or with respect to any application for
new title noting the Trustee's lien has not yet been filed. The Trustee shall
be reimbursed for its reasonable expenses incurred in connection with such
retitling in accordance with Section 12.02(d) hereof.
SECTION 7.2. NOTICE OF DEFAULT AND TRIGGER EVENTS
Promptly after the occurrence of any Default, Trigger Event, Class B
Event, Re-liening Trigger Event or MBIA Default or Termination known to the
Trustee (within the meaning of Section 7.01(e) hereof) which is continuing,
within one Business Day of obtaining such knowledge, the Trustee shall
transmit by telephonic or facsimile communication confirmed by mail to MBIA
and the Certificateholders, as their names and addresses appear on the
Certificate Register, and by mail to the Rating Agencies, notice of such
Default, Class B Event, Trigger Event, Re-liening Trigger Event or MBIA
Default or Termination hereunder known to the Trustee.
SECTION 7.3. CERTAIN RIGHTS OF TRUSTEE
Except as otherwise provided in Section 7.01,
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other obligation, paper or document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(b) any request or direction of the Transferor mentioned herein shall
be sufficiently evidenced by a Transferor request or Transferor order and any
resolution of the Board of Directors may be sufficiently evidenced by a board
resolution;
(c) whenever in the administration of this Trust and Security
Agreement the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel selected by the Trustee with due care or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust and Security Agreement at the
request or direction of any of the Certificateholders pursuant to this Trust
and Security Agreement, unless such Certificateholders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Transferor, upon reasonable notice and at reasonable times personally
or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
SECTION 7.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
CERTIFICATES
(a) The recitals contained in this Trust and Security Agreement and
in the Certificates, except the certificates of authentication on the
Certificates, shall be taken as the statements of the Transferor, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or condition of the Trust Estate or any
part thereof, or as to the title of the Transferor thereto or as to the
security afforded thereby or hereby, or as to the validity or genuineness of
any securities at any time pledged and deposited with the Trustee hereunder or
as to the validity or sufficiency of this Trust and Security Agreement or any
of the Certificates. The Trustee shall not be accountable for the use or
application by the Transferor of any of the Certificates or the proceeds
thereof or of any money paid to the Transferor or upon Transferor order under
any provisions hereof.
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(b) Except as otherwise expressly provided herein and without
limiting the generality of the foregoing, the Trustee shall have no
responsibility or liability for or with respect to the existence or validity
of any Vehicle or Loan Contract, the perfection of any security interest
(whether as of the date hereof or at any future time), the maintenance of or
the taking of any action to maintain such perfection, the validity of the
assignment of any portion of the Trust Estate to the Trustee or of any
intervening assignment, the review of any Loan Contract (it being understood
that the Trustee has not reviewed and does not intend to review the substance
or form of any such Loan Contract), the performance or enforcement of any Loan
Contract, the validity and sufficiency of the Certificate Insurance Policy,
the compliance by the Transferor or the Servicer with any covenant or the
breach by the Transferor or the Servicer of any warranty or representation
made hereunder or in any related document or the accuracy of any such warranty
or representation, any investment of monies in the Collection Account or any
loss resulting therefrom (other than as an obligor under any Eligible
Investment), the acts or omissions of the Transferor, the Servicer, MBIA or
any Obligor, any action of the Servicer taken in the name of the Trustee, or
the validity of the Servicing Agreement or the Loan Acquisition Agreement.
(c) The Trustee shall not have any obligation or liability under any
Loan Contract by reason of, or arising out of, this Trust and Security
Agreement or the granting of a security interest in such Loan Contract
hereunder or the receipt by the Trustee of any payment relating to any Loan
Contract pursuant hereto, nor shall the Trustee be required or obligated in
any manner to perform or fulfill any of the obligations of the Transferor
under or pursuant to any Loan Contract, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it, or
the sufficiency of any performance by any party, under any Loan Contract.
SECTION 7.5. MAY HOLD CERTIFICATES
The Trustee, the Servicer, any Paying Agent, the Certificate Registrar,
any Authenticating Agent or any other agent of the Transferor, in its
individual or any other capacity, may become the owner or pledgee of
Certificates, and if operative, may otherwise deal with the Transferor with
the same rights it would have if it were not Trustee, Servicer, Paying Agent,
Certificate Registrar, Authenticating Agent or such other agent.
SECTION 7.6. MONEY HELD IN TRUST
Money and investments held in trust by the Trustee or any Paying Agent
hereunder shall be held in one or more trust accounts hereunder but need not
be segregated from other funds, except to the extent required herein or
required by law. The Trustee or any Paying Agent shall be under no liability
for interest on any money received by it hereunder except as otherwise agreed
with the Transferor or otherwise specifically provided herein.
SECTION 7.7. COMPENSATION AND REIMBURSEMENT
(a) The Transferor agrees:
(i) to pay the Trustee monthly its fee for all services rendered by
it hereunder as Trustee, in the amount of the Trustee Fee (which compensation
shall not otherwise be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and to pay to the Back-up
Servicer its fee for all services rendered hereunder and under the Servicing
Agreement as Back-up Servicer, in the amount of the Back-up Servicer Fee;
(ii) except as otherwise expressly provided herein, to reimburse the
Trustee or the Back-up Servicer upon its request for all reasonable
out-of-pocket expenses, disbursements and advances incurred or made by the
Trustee or the Back-up Servicer in accordance with any provision of this Trust
and Security Agreement or the Servicing Agreement (including the reasonable
compensation and the expenses and disbursements of the Trustee's and Back-up
Servicer's agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(iii) to indemnify and hold harmless the Trust, the Trustee and the
Back-up Servicer from and against any loss, liability, expense, damage or
injury (other than those attributable to a Certificateholder in its capacity
as an investor in any of the Certificates) sustained or suffered pursuant to
this Trust and Security Agreement by reason of any acts, omissions or alleged
acts or omissions arising out of activities of the Trust, the Trustee or the
Back-up Servicer (including without limitation any violation of any applicable
laws by the Transferor as a result of the transactions contemplated by this
Trust and Security Agreement), including, but not limited to, any judgment,
award, settlement, reasonable attorneys' fees and other expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided that the Transferor shall not indemnify the Trustee if such
loss, liability, expense, damage or injury is due to the Trustee's gross
negligence or willful misconduct, willful misfeasance or bad faith in the
performance of duties. Any indemnification pursuant to this Section shall only
be payable from the assets of the Transferor and shall not be payable from the
assets of the Trust. The provisions of this indemnity shall run directly to
and be enforceable by an injured person subject to the limitations hereof and
this indemnification agreement shall survive the termination of this Trust and
Security Agreement.
SECTION 7.8. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY
There shall at all times be a trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any state, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $100,000,000, acceptable to MBIA, subject to supervision or examination
by Federal or state authority and having an office within the United States of
America, and which shall have a commercial paper or other short-term rating of
the highest short term rating categories by each of the Rating Agencies, or
otherwise acceptable to each of the Rating Agencies. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
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requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, 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. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 7.9. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 7.10 hereof.
(b) The Trustee may resign at any time by giving 30 days' written
notice thereof to the Transferor, MBIA and to each Certificateholder. If an
instrument of acceptance by a successor Trustee shall not have been delivered
to the Trustee within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and may prescribe, appoint a successor
Trustee in compliance with Section 7.08 hereof.
(c) The Trustee may be removed by MBIA, or if an MBIA Default or
Termination has occurred, by the Controlling Holders, at any time if one of
the following events have occurred:
(i) the Trustee shall cease to be eligible under Section 7.08 hereof
and shall fail to resign after written request therefor by the Transferor,
MBIA or by any Certificateholder, or
(ii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, or
(iii) the Trustee has failed to perform its duties hereunder or has
breached any representation or warranty made herein.
(d) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause
with respect to any of the Certificates, the Transferor by a board resolution,
shall, with the prior written consent of MBIA, promptly appoint a successor
Trustee reasonably satisfactory to MBIA. If no successor Trustee shall have
been so appointed by the Transferor within 30 days of notice of removal or
resignation and shall have accepted appointment in the manner hereinafter
provided, then MBIA may appoint a successor Trustee. If MBIA shall fail to
appoint a successor Trustee within 90 days or in the event of an MBIA Default
or Termination, then the Controlling Holders may petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Certificates.
(e) The Transferor shall give notice in the manner provided in
Sections 13.02 and 13.03 hereof of each resignation and each removal of the
Trustee and each appointment of a successor Trustee with respect to the
Certificates to the Certificateholders, MBIA and the Rating Agencies. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 7.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Transferor and the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee but, on request of the Transferor or
the successor Trustee, such retiring Trustee shall, upon payment of its
reasonable out-of-pocket costs and expenses, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee, and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the Transferor shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
SECTION 7.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE
Any Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such Person shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, and notice thereof shall be provided by
the Trustee to the Certificateholders, MBIA and the Rating Agencies. In case
any Certificates have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Certificates so authenticated with the same effect as if such successor
Trustee had itself authenticated such Certificates.
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SECTION 7.12. CO-TRUSTEES AND SEPARATE TRUSTEES
At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any of the Trust Estate may at the time be
located or for any other reason deemed appropriate, the Transferor, MBIA and
the Trustee shall have power to appoint, and, upon the written request of the
Trustee, MBIA or of the Holders representing at least 25% of the Certificate
Balance of all Certificates, the Transferor shall for such purpose join with
the Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Trustee and meeting the requirements of Section 7.08 hereof, either to act as
co-Trustee, jointly with the Trustee of all or any part of such Trust Estate,
or to act as separate Trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in
such Person or persons in the capacity aforesaid, any property, title, right
or power deemed necessary or desirable, subject to the other provisions of
this Section. If the Transferor does not join in such appointment within 15
days after the receipt by it of a request so to do, or in case an Event of
Default has occurred and is continuing, the Trustee and MBIA shall have power
to make such appointment.
Should any written instrument from the Transferor be reasonably required
by any co-Trustee or separate Trustee so appointed for more fully confirming
to such co-Trustee or separate Trustee such property, title, right or power,
any and all such instruments shall, on request, be executed, acknowledged and
delivered by the Transferor.
Every co-Trustee or separate Trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms:
(i) the Certificates shall be authenticated and delivered by, and all
rights, powers, duties and obligations under this Trust and Security Agreement
in respect of the custody of securities, cash and other personal property held
by, or required to be deposited or pledged with, the Trustee under this Trust
and Security Agreement, shall be exercised solely by the Trustee;
(ii) the rights, powers, duties and obligations conferred or imposed
upon the Trustee by this Trust and Security Agreement in respect of any
property covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Trustee or by the Trustee and such co-Trustee or
separate Trustee jointly, as shall be provided in the instrument appointing
such co-Trustee or separate Trustee, except to the extent that under any law
of any jurisdiction in which any particular act is to be performed, the
Trustee shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised and
performed by such co-Trustee or separate Trustee;
(iii) the Trustee at any time, by an instrument in writing executed
by it, with the concurrence of the Transferor evidenced by a board resolution,
may accept the resignation of or remove any co-Trustee or separate Trustee,
appointed under this Section, and, in case an Event of Default has occurred
and is continuing, the Trustee shall have power to accept the resignation of,
or remove, any such co-Trustee or separate Trustee without the concurrence of
the Transferor. Upon the written request of the Trustee, the Transferor shall
join with the Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation
or removal. A successor to any co-Trustee or separate Trustee that has so
resigned or been removed may be appointed in the manner provided in this
Section;
(iv) no co-Trustee or separate Trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee or any other such
Trustee hereunder nor shall the Trustee be liable by reason of any act or
omission of any co-Trustee or separate Trustee selected by the Trustee with
due care or appointed in accordance with directions to the Trustee pursuant to
Section 6.14 hereof; and
(v) any Act of Certificateholders delivered to the Trustee shall be
deemed to have been delivered to each such co-Trustee and separate Trustee.
SECTION 7.13. RIGHTS WITH RESPECT TO THE SERVICER
The Trustee's rights and obligations with respect to the Servicer and the
Back-up Servicer shall be governed by the Servicing Agreement.
SECTION 7.14. APPOINTMENT OF AUTHENTICATING AGENT
The Trustee may appoint an Authenticating Agent or Agents with respect to
the Certificates which shall be authorized to act on behalf of the Trustee to
authenticate Certificates issued upon original issue or upon exchange,
registration of transfer or pursuant to Section 2.07 hereof, and Certificates
so authenticated shall be entitled to the benefits of this Trust and Security
Agreement and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made herein to
the authentication and delivery of Certificates by the Trustee or the
Trustee's certificate of authentication or the delivery of Certificates to the
Trustee for authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating
Agent and a certificate of authentication executed on behalf of the Trustee by
an Authenticating Agent and delivery of the Certificates to the Authenticating
Agent on behalf of the Trustee. Each Authenticating Agent shall be acceptable
to the Transferor, MBIA and the Certificateholders and shall at all times be a
corporation having a combined capital and surplus of not less than the
equivalent of $50,000,000 and subject to supervision or examination by Federal
or state authority or the equivalent foreign authority, in the case of an
Authenticating Agent who is not organized and doing business under the laws of
the United States of America, any state thereof or the District of Columbia.
If such Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section.
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Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of such Authenticating Agent, shall continue to be
an Authenticating Agent without the execution or filing of any paper or any
further act on the part of the Trustee or such Authenticating Agent; provided,
such corporation shall be otherwise eligible under this Section.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee, MBIA and to the Transferor. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent, MBIA and to the Transferor. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time such Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Transferor and MBIA and
shall mail written notice of such appointment by first-class mail, postage
prepaid, to all Holders of Certificates, if any, with respect to which such
Authenticating Agent will serve, as their names and addresses appear in the
Certificate Register. Any successor Authenticating Agent upon acceptance of
its appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 7.07 hereof.
If an appointment is made pursuant to this Section, the Certificates may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Certificates described in the within-mentioned Trust
and Security Agreement.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
As Trustee
By:_____________________________
As Authenticating Agent
By:_____________________________
Authorized Officer
SECTION 7.15. TRUSTEE TO HOLD LOAN CONTRACTS
(a) The Trustee shall hold the original executed counterparts of each
Loan Contract and the original Certificates of Title or Applications for
Certificates of Title, as applicable, with respect to each Loan Contract at
its office in the state of Minnesota, and at any such new address in the state
of Minnesota as the Trustee shall inform the Transferor, the
Certificateholders, MBIA, the Servicer and the Company in writing from time to
time. The Trustee shall hold the Loan Contract, the original Certificates of
Title or Applications for Certificates of Title, as applicable, for the
benefit of the Certificateholders and MBIA, and maintain accurate records
pertaining to each Loan Contract to maintain a current inventory thereof.
Each Loan Contract held by the Trustee shall be stamped with a legend stating
"Assigned to and the Property of Norwest Bank Minnesota, National Association
as Trustee." Upon the written request of a Servicing Officer, the Trustee
shall perform such acts as reasonably requested in writing by the Servicer and
otherwise cooperate with the Servicer in enforcement of the
Certificateholders' and MBIA's rights and remedies with respect to the Loan
Contracts, the Certificates of Title and the Applications for Certificates of
Title.
(b) On or prior to the Closing Date and each Acquisition Date, the
Trustee shall confirm in writing to the Transferor with respect to each Loan
Contract acquired on such date, that it has obtained the original Loan
Contract and the original Certificate of Title or Application for Certificate
of Title, as applicable. If the Trustee discovers that any Loan Contracts,
Certificates of Title or Applications for Certificates of Title, as
applicable, are defective (that is, mutilated, damaged, defaced, incomplete,
improperly dated, clearly forged or otherwise altered) in any material
respect, the Trustee shall promptly notify the Company and MBIA, whereupon the
Company shall have 60 days to cure such defect. In addition, the Trustee
shall verify that it has obtained the original Certificate of Title with
respect to each Vehicle within the time period specified in Section 4.02(a).
If the Company does not cure any such defect within such time period, or if
the Trustee cannot verify that it has the original Certificate of Title for
each Loan Contract within such time period, the Trustee shall notify the
Company and MBIA, and in accordance with Section 3.03 of the Loan Acquisition
Agreement, the Company shall repurchase or substitute for such Loan Contract.
(c) In accordance with Section 3.01(b)(ii) of the Servicing
Agreement, or in the event a Loan Contract is paid in full, substituted,
removed, repurchased or any documentation held by the Trustee is otherwise
permitted to be released in accordance with the terms of the Trust and
Security Agreement, the Trustee shall promptly release the related Certificate
of Title, Application for Certificate of Title or Loan Contract as requested
by a Servicing Officer, upon receipt of a Request for Release of Documents.
In the case of a Loan Contract for which documentation is being requested on a
temporary basis, the Servicer shall promptly return the requested documents to
the Trustee when the Servicer's need therefor no longer exists.
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(d) In performing its duties under this Section 7.15 and under
Section 7.01(k), the Trustee shall exercise that degree of skill and care
consistent with the highest degree of skill and care that the Trustee
exercises with respect to similar motor vehicle loans owned and/or serviced by
it, and that is consistent with prudent industry standards. The Trustee shall
have no duty or obligation to review any of the Loan Contracts, the
Certificates of Title or the Applications for Certificates of Title, except as
expressly set forth herein.
SECTION 7.16. MONEY FOR CERTIFICATE PAYMENTS TO BE HELD IN
TRUST
The Trustee shall execute and deliver, and if there is any Paying Agent
other than the Trustee, the Transferor will cause each Paying Agent other than
the Trustee to execute and deliver to the Trustee and MBIA an instrument in
which such Paying Agent shall agree with the Trustee that, subject to the
provisions of this Section, such Paying Agent will:
(i) hold all sums held by it for the payment of principal or interest
on Certificates in trust for the benefit of the Certificateholders entitled
thereto and MBIA until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(ii) give the Trustee, MBIA and the Certificateholders notice of any
Default by the Transferor (or any other obligor upon the Certificates) in the
making of any payment of principal or interest; and
(iii) at any time during the continuance of any such Default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Transferor may at any time, for the purpose of obtaining the
satisfaction and discharge of this Trust and Security Agreement or for any
other purpose, pay, or by Transferor order direct any Paying Agent to pay, to
the Trustee all sums held in trust by such Paying Agent, such sums to be held
by the Trustee upon the same trusts as those upon which such sums were held by
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent in trust for the
payment of the principal or interest on any Certificate and remaining
unclaimed for three years after such principal or interest has become due and
payable shall be paid to the Transferor on Transferor request or to MBIA (upon
its written request) if such payment had been made by MBIA; and the Holder of
such Certificate shall thereafter, as an unsecured general creditor, and
subject to any applicable statute of limitations, look only to the Transferor
for payment thereof, and all liability of the Trustee, such Paying Agent or
MBIA with respect to such trust money or the related Certificate, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Transferor cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the city in which the Corporate Trust Office is located, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the
Transferor; and provided, further, that any amounts held that are proceeds of
a claim made under the Certificate Insurance Policy shall be returned to MBIA,
and the Certificateholders shall look only to MBIA for such payments. The
Trustee may also adopt and employ, at the expense of the Transferor, any other
reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Certificateholders whose right to or
interest in monies due and payable but not claimed is determinable from the
records of any Paying Agent, at the last address as shown on the Certificate
Register for each such Certificateholder).
SECTION 7.17. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
The Trustee makes the following representations and warranties:
(a) The Trustee has been duly organized and is validly existing as a
national banking association in good standing under the laws of the United
States of America, with power and authority to own its properties and to
conduct its business as such properties shall be currently owned and such
business is presently conducted.
(b) The Trustee has the power and authority to execute and deliver
each of this Trust and Security Agreement, the Servicing Agreement and the
Insurance Agreement and to carry out its respective terms; and the execution,
delivery, and performance of this Trust and Security Agreement shall have been
duly authorized by the Trustee by all necessary corporate action.
(c) Each of this Trust and Security Agreement, the Servicing
Agreement and the Insurance Agreement constitutes a legal, valid, and binding
obligation of the Trustee enforceable in accordance with its respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforceability shall be considered in a proceeding in equity or at law.
(d) The consummation of the transactions contemplated by this each of
this Trust and Security Agreement, the Servicing Agreement and the Insurance
Agreement and the fulfillment of the terms hereof and thereof shall not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or by-laws of the Trustee, or any indenture,
agreement, or other instrument to which the Trustee is a party or by which it
shall be bound; nor result in the creation or imposition of any lien upon any
of its properties pursuant to the terms of any such indenture, agreement, or
other instrument; nor violate any law or any order, rule, or regulation
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applicable to the Trustee of any court or of any Federal or state regulatory
body, administrative agency, or other governmental instrumentality having
jurisdiction over the Trustee or its properties.
(e) There are no proceedings or investigations pending or, to the
Trustee's best knowledge, threatened before any court, regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over the Trustee or its properties (i) asserting the invalidity
of this Trust and Security Agreement, the Servicing Agreement or the Insurance
Agreement, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Trust and Security Agreement, the Servicing Agreement or
the Insurance Agreement, (iii) seeking any determination or ruling that might
materially and adversely affect the performance by the Trustee of its
obligations under, or the validity or enforceability of, this Trust and
Security Agreement, the Servicing Agreement or the Insurance Agreement.
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ARTICLE VIII
THE CERTIFICATE INSURANCE POLICY
SECTION 8.1. PAYMENTS UNDER THE CERTIFICATE INSURANCE POLICY
(a) If on the close of business on the third Business Day prior to
any Payment Date, the amounts on deposit in the Collection Account and
available to be distributed on such Payment Date pursuant to Section 12.02(d)
hereof for the Class A Certificates are not sufficient to make the payment of
interest due on the Class A Certificates on such Payment Date in accordance
with Section 12.02(d)(iv) hereof after the payment of amounts due pursuant
Sections 12.02(d)(i) through (iii), the Trustee shall, no later than 10:00
a.m. New York time, on the second Business Day immediately preceding such
Payment Date make a claim under the Certificate Insurance Policy in an amount
equal to such insufficiency.
(b) At the option of MBIA at its sole discretion, if on the close of
business on the third Business Day prior to any Payment Date, the amounts on
deposit in the Collection Account and available to be distributed on such
Payment Date pursuant to Section 12.02(d) hereof for the Class A Certificates
are not sufficient to make the payment of the Class A Principal Distribution
Amount due on the Class A Certificates on such Payment Date in accordance with
Section 12.02(d)(vii) hereof after the payment of amounts due pursuant
Sections 12.02(d)(i) through (vi), but only if and to the extent that the
Class A Certificate Balance exceeds the Aggregate Loan Balance, the Trustee
shall at the direction of MBIA, no later than 10:00 a.m. New York time, on the
second Business Day immediately preceding such Payment Date make a claim under
the Certificate Insurance Policy in an amount equal to such insufficiency.
(c) If on the close of business on the third Business Day immediately
prior to the Stated Maturity for the Class A Certificates, the amounts on
deposit in the Collection Account for the Class A Certificates are not
sufficient to pay the entire then remaining Class A Certificate Balance (after
giving effect to the application of funds available to pay the Class A
Principal Distribution Amount in accordance with Section 12.02(d)(vii) hereof)
and after the payment of amounts due pursuant Sections 12.02(d)(i) through
(vi), the Trustee shall, no later than 10:00 a.m. New York time, on the second
Business Day immediately preceding such Payment Date, make a claim under the
Certificate Insurance Policy in an amount equal to such insufficiency.
(d) Proceeds of claims on the Certificate Insurance Policy shall be
deposited in the Collection Account, shall remain uninvested and shall be used
solely to pay amounts due in respect of interest and, to the extent specified
in clause (b) hereof, principal on the Class A Certificates on each Payment
Date and the entire then remaining Class A Certificate Balance at the Stated
Maturity for the Class A Certificates. In addition, on any day that the
Trustee has actual knowledge or receives notice that any amount previously
paid to a Class A Certificateholder has been subsequently recovered from such
Certificateholder pursuant to a final order of a court of competent
jurisdiction that such payment constitutes an avoidable preference within the
meaning of any applicable bankruptcy law to such Certificateholder (a
"Preference Claim"), the Trustee shall make a claim within one Business Day
upon the Certificate Insurance Policy for the full amount of such Preference
Claim in accordance with the terms of the Certificate Insurance Policy. Any
proceeds of any such Preference Claim received by the Trustee shall be paid to
the related Class A Certificateholders or the trustee in bankruptcy, as
applicable, and in accordance with the Certificate Insurance Policy.
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ARTICLE IX
AMENDMENTS TO TRUST AND SECURITY AGREEMENT
SECTION 9.1. AMENDMENTS WITHOUT CONSENT OF CERTIFICATEHOLDERS
The Transferor, the Servicer, the Back-up Servicer and the Trustee, with
the consent of MBIA but without the consent of the Holders of any
Certificates, at any time and from time to time, may amend this Trust and
Security Agreement for any of the following purposes:
(a) to correct or amplify the description of any property at any time
included in the Trust Estate, or better to assure, convey and confirm unto the
Trustee any property included or required to be included in the Trust Estate,
or to include additional property in the Trust Estate; or
(b) to evidence the succession of another Person to the Transferor,
and the assumption by such successor of the covenants of the Transferor herein
and in the Certificates contained, in accordance with Section 11.02(n) hereof;
or
(c) to add to the covenants of the Transferor, for the benefit of
MBIA and the Holders of all Certificates, or to surrender any right or power
herein conferred upon the Transferor; or
(d) to convey, transfer, assign, mortgage or pledge any property to
or with the Trustee; or
(e) to cure any ambiguity with respect to any provision herein which
may be defective or inconsistent with any other provisions with respect to
matters or questions arising hereunder, which shall not be inconsistent with
the provisions hereof, provided that such action shall not adversely affect
the interests of the Holders of the Certificates; or
(f) to evidence the succession of the Trustee pursuant to Article
Seven hereof; or
(g) to add events to the list of Events of Default.
The Trustee is hereby authorized to join in the execution of any such
amendment and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
any such amendment that affects the Trustee's own rights, duties, liabilities
or immunities under this Trust and Security Agreement or otherwise.
Promptly after the execution by the Transferor, the Servicer, the Back-up
Servicer and the Trustee of any amendment pursuant to this Section, the
Transferor shall mail to the Rating Agencies, MBIA and each Certificateholder
a copy of such amendment.
SECTION 9.2. AMENDMENTS WITH CONSENT OF CERTIFICATEHOLDERS
(a) With the consent of MBIA and the Controlling Holders, by Act of
said Holders delivered to the Transferor and the Trustee, the Transferor, the
Servicer, the Back-up Servicer and the Trustee may enter into amendments
hereto for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Trust and Security Agreement or
of modifying in any manner the rights of the Holders of the Certificates
hereunder; provided, however, that no such amendment shall, without the
consent of the Holders of each Outstanding Certificate affected thereby:
(i) change the Stated Maturity or Expected Maturity of any
Certificate or the due date of any installment of principal of, or any
installment of interest on, any Certificate, or reduce the principal amount
thereof or the Certificate Interest Rate or change any place of payment where,
or the coin or currency in which, any Certificate or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment; or
(ii) reduce the percentage in Outstanding principal balance of
Certificates, the consent of the Holders of which is required for any such
amendment, or the consent of the Holders of which is required for any waiver
of compliance with certain provisions of this Trust and Security Agreement or
Events of Default or their consequences; or
(iii) impair or adversely affect the Trust Estate; or
(iv) modify or alter the provisions of the proviso to the definition
of the term "Outstanding," "Class A Certificate Balance," "Class B Certificate
Balance" or "Controlling Holders"; or
(v) modify or alter the provisions of the proviso to Section 6.04
hereof; or
(vi) modify any of the provisions of this Section 9.02, except to
increase the percentage of Holders required for any modification or waiver or
to provide that certain other provisions of this Trust and Security Agreement
cannot be modified or waived without the consent of each Holder of each
Outstanding Certificate affected thereby; or
(vii) permit the creation of any lien ranking prior to or on a parity
with the lien of this Trust and Security Agreement with respect to any part of
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the Trust Estate or terminate the lien of this Trust and Security Agreement on
any property at any time subject hereto or deprive the Holder of any
Certificate of the security afforded by the lien of this Trust and Security
Agreement; or
(viii) modify any of Section 12.02(d) hereof.
(b) The Trustee is hereby authorized to join in the execution of any
amendment pursuant to clause (a) above and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee
shall not be obligated to enter into any such amendment that affects the
Trustee's own rights, duties, liabilities or immunities hereunder. It shall
be necessary for any Act of Certificateholders under this Section to approve
the particular form of any amendment. Promptly after the execution by the
Transferor, the Servicer, the Back-up Servicer and the Trustee of any
amendment pursuant to this Section, the Transferor shall mail to the Holders
of the Certificates, MBIA and the Rating Agencies a copy of such amendment.
SECTION 9.3. EXECUTION OF AMENDMENTS
In executing any amendments permitted by this Article or the
modifications thereby of the trusts created by this Trust and Security
Agreement, the Trustee and MBIA shall be entitled to receive upon request from
the Transferor, and (subject to Section 7.01 hereof) shall be fully protected
in relying in good faith upon, an Opinion of Counsel reasonably acceptable to
the Trustee and MBIA stating that the execution of such amendments is
authorized or permitted by this Trust and Security Agreement. The Trustee may,
but shall not be obligated to, enter into any such amendments which affects
the Trustee's own duties or immunities hereunder or otherwise.
SECTION 9.4. EFFECT OF AMENDMENTS
Upon the execution of any amendment under this Article, this Trust and
Security Agreement shall be modified in accordance therewith, and such
amendment shall form a part of this Trust and Security Agreement for all
purposes; and every Holder of Certificates theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
SECTION 9.5. REFERENCE IN CERTIFICATES TO AMENDMENTS
Certificates authenticated and delivered after the execution of any
amendment pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for
in such amendment. If the Transferor shall so determine, new Certificates so
modified as to conform, in the opinion of the Trustee and the Transferor, to
any such amendment may be prepared and executed by the Transferor and
authenticated and delivered by the Trustee in exchange for Outstanding
Certificates.
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ARTICLE X
REDEMPTION OF CERTIFICATES
SECTION 10.1. REDEMPTION AT THE OPTION OF THE TRANSFEROR; ELECTION TO
REDEEM
The Transferor shall have the option to redeem all of the Class A
Certificates at any time after the Class A Certificate Balance is less than or
equal to 20% of the Initial Class A Certificate Balance. The Transferor shall
have the option to redeem all of the Class B Certificates at any time after
the Class A Certificate Balance has been reduced to zero or the Class A
Certificates have been redeemed. In each case, such redemption shall be at
the applicable Redemption Price plus any fees due hereunder and all amounts
due to MBIA under the Insurance Agreement, provided, however that the Class
B Certificates may not be redeemed before the Class A Certificates. MBIA
shall have the same option to redeem the Class A Certificates in the absence
of the exercise thereof by the Transferor.
The Transferor shall set the redemption date (the "Redemption Date") and
the redemption record date (the "Redemption Record Date") for the Certificates
and give notice thereof to the Trustee pursuant to Section 10.02 hereof.
Installments of interest and principal that are due regarding the
Certificates on or prior to the related Redemption Date shall continue to be
payable to the Holders of such Certificates called for redemption as of the
relevant Record Dates according to their terms and the provisions of Section
2.08 hereof. The election of the Transferor or MBIA to redeem any Certificates
pursuant to this Section shall be evidenced by a board resolution or written
notice from MBIA, respectively, directing the Trustee to make the payment of
the Redemption Price on all of the Certificates to be redeemed from monies
deposited with the Trustee pursuant to Section 10.04 hereof.
SECTION 10.2. NOTICE TO TRUSTEE; DEPOSIT OF REDEMPTION PRICE
In the case of any redemption pursuant to Section 10.01 hereof, the
Transferor or MBIA, as applicable, shall, at least 15 days prior to the
related Redemption Date, notify the Trustee, MBIA and the Certificateholders
of such Redemption Date and shall deposit into the Redemption Account on such
notification date an amount equal to the Redemption Price of all Certificates
to be redeemed on such Redemption Date plus any fees and interest due under
Section 12.02(d)(i) through (v) and all amounts due to MBIA under the
Insurance Agreement.
SECTION 10.3. NOTICE OF REDEMPTION BY THE TRUSTEE
Upon receipt of such notice and such deposit set forth in Section 10.02
above, the Trustee shall provide notice of redemption pursuant to Section
10.01 hereof by first-class mail, postage prepaid, mailed no later than the
Business Day following the date on which such deposit was made, to MBIA and
each Holder of Certificates whose Certificates are to be redeemed, at his
address in the Certificate Register.
All notices of redemption shall state:
(1) the applicable Redemption Date;
(2) the applicable Redemption Price; and
(3) that on such Redemption Date, the Redemption Price will become
due and payable upon each such Certificate, and that interest thereon shall
cease to accrue on such date.
Notice of redemption of Certificates shall be given by the Trustee in the name
and at the expense of the Transferor or MBIA, as applicable. Failure to give
notice of redemption, or any defect therein, to any Holder of any Certificate
selected for redemption shall not impair or affect the validity of the
redemption of any other Certificate.
SECTION 10.4. CERTIFICATES PAYABLE ON REDEMPTION DATE
Notice of redemption having been given as provided in Section 10.03
hereof, the Certificates to be redeemed shall, on the applicable Redemption
Date, become due and payable at the Redemption Price and on such Redemption
Date (unless the Transferor or MBIA, as applicable, shall default in the
payment of the Redemption Price) such Certificates shall cease to bear
interest. The Holders of such Certificates shall be paid the Redemption Price
by the Paying Agent on behalf of the Transferor; provided, however, that
installments of principal and interest that are due regarding such
Certificates on or prior to such Redemption Date shall be payable to the
Holders of such Certificates registered as such on the relevant Record Dates
according to their terms and the provisions of Section 2.08 hereof.
If the Holders of any Certificate called for redemption shall not be so
paid, the principal shall, until paid, bear interest from the applicable
Redemption Date at the related Certificate Interest Rate.
SECTION 10.5. RELEASE OF LOAN CONTRACTS
In connection with any redemption permitted under this Article Ten, the
Transferor or MBIA, as the case may be, shall be permitted to obtain a release
and reconveyance to the Transferor or MBIA, as applicable, of the Loan
Contracts to the extent that (a) after giving effect to such release, (x) the
sum of the amount of funds then held in the Collection Account and the
Aggregate Loan Balance is equal to or exceeds (y) the Certificate Balance of
all Outstanding Certificates (after giving effect to such redemption) plus the
Required Collateralization Amount, provided that in connection with a
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redemption of the Class B Certificates, the Transferor shall be entitled to a
release and reconveyance of all of the Loan Contracts and (b) the applicable
Redemption Price shall have been deposited into the Redemption Account as
required by Section 10.02. In connection with any release and reconveyance of
Loan Contracts to MBIA pursuant to this Section 10.05, MBIA shall be entitled
to be reimbursed out of the proceeds of such Loan Contracts for amounts due
pursuant to the Insurance Agreement and, after the termination of the
Insurance Agreement in accordance with the terms thereof, shall convey amounts
in excess thereof to the Transferor.
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ARTICLE XI
TRANSFEROR REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 11.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
TRANSFEROR
The Transferor hereby makes the following representations and warranties
to the Trustee and for the benefit of MBIA and the Certificateholders. Such
representations and warranties speak as of the Closing Date and as of any
Acquisition Date, but shall survive any subsequent transfer, assignment,
contribution or conveyance of the Loan Assets to the Trustee.
(a) Organization and Good Standing. The Transferor is a
corporation duly organized, validly existing and in good standing under the
law of the state of Delaware and each other State where the nature of its
business requires it to qualify, except to the extent that the failure to so
qualify would not in the aggregate materially adversely affect the ability of
the Transferor to perform its obligations under the Transaction Documents;
(b) Authorization. The Transferor has the power, authority and
legal right to execute, deliver and perform under the terms of the Transaction
Documents and the execution, delivery and performance of the Transaction
Documents have been duly authorized by the Transferor by all necessary
corporate action;
(c) Binding Obligation. Each of (i) this Trust and Security
Agreement, assuming due authorization, execution and delivery by the Trustee,
the Back-up Servicer and the Servicer, (ii) the Insurance Agreement, assuming
due authorization, execution and delivery by MBIA, the Trustee, the Company,
the Back-up Servicer and the Servicer, (iii) the Servicing Agreement, assuming
due authorization, execution and delivery by the Servicer, the Back-up
Servicer and the Trustee, (iv) the Loan Acquisition Agreement, assuming due
authorization, execution and delivery by the Company, and (v) the Purchase
Agreement, assuming due authorization, execution and delivery by MF
Receivables Corp. I, constitutes a legal, valid and binding obligation of the
Transferor, enforceable again the Transferor in accordance with its terms
except that (A) 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 (B) 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 a proceeding at law or in equity;
(d) No Violation. The consummation of the transactions
contemplated by the fulfillment of the terms of the Transaction Documents will
not conflict with, result in any breach of any of the terms and provisions of
or constitute (with or without notice, lapse of time or both) a default under
the organizational documents or bylaws of the Transferor, or any material
indenture, agreement, mortgage, deed of trust or other instrument to which the
Transferor is a party or by which it is bound, or in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of
such indenture, agreement, mortgage, deed of trust or other such instrument,
other than any Lien created or imposed pursuant to the terms of the
Transaction Documents, or violate any law or, to the best of the Transferor's
knowledge, any material order, rule or regulation applicable to the Transferor
of any court or of any federal or state regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over the Transferor
or any of its properties.
(e) No Proceedings. There are no Proceedings or investigations to
which the Transferor, or any of the Transferor's Affiliates, is a party
pending, or, to the knowledge of Transferor, threatened, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality (A) asserting the invalidity of the Transaction Documents, (B)
seeking to prevent the issuance of any of the Certificates or the consummation
of any of the transactions contemplated by the Transaction Documents or (C)
seeking any determination or ruling that would materially and adversely affect
the performance by the Transferor of its obligations under, or the validity or
enforceability of, the Transaction Documents.
(f) Approvals. All approvals, authorizations, consents, orders or
other actions of any Person, or of any court, governmental agency or body or
official, required in connection with the execution and delivery of the
Transaction Documents and with the valid and proper authorization, issuance
and sale of the Certificates pursuant hereto (except approvals of State
securities officials under the Blue Sky Laws), have been or will be taken or
obtained on or prior to the Closing Date and each Acquisition Date.
(g) Place of Business. As of the Closing Date, the Transferor's
principal place of business and chief executive office is located at 370 17th
Street, Suite 5060C, Denver, Colorado 80202.
(h) Transfer and Assignment. Upon the delivery to the Trustee of
the Loan Contracts, the related Certificates of Title and the Applications for
Certificates of Title, the Trustee for the benefit of the Certificateholders
and MBIA shall have a first priority perfected security interest in the Loan
Contracts, the Vehicles, and in the proceeds thereof, except for Liens
permitted under Section 11.02(a) and limited with respect to proceeds to the
extent set forth in Section 9-306 of the UCC as in effect in the applicable
jurisdiction. All filings (including, without limitation, UCC filings) and
other actions as are necessary in any jurisdiction to perfect the ownership or
other interest of the Trustee in the Trust Estate, including the transfer of
the Certificates of Title and the Applications for Certificates of Title, and
the Loan Contracts, and the payment of any fees, have been made.
(i) Parent of the Transferor. As of the Closing Date, the Company
is the registered owner of all of the issued and outstanding common stock of
the Transferor, all of which common stock has been validly issued, is fully
paid and nonassessable.
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(j) Loan Acquisition Agreement. As of the Closing Date the
Transferor has entered into the Loan Acquisition Agreement with the Company
relating to its acquisition of the Loan Contracts and its security interest in
the Vehicles, and the representations and warranties made by the Company
relating to the Loan Contracts and the Vehicles have been validly assigned to
and are for the benefit of the Transferor, the Trustee, MBIA and the
Certificateholders and such representations and warranties are true and
correct in all material respects.
(k) Bulk Transfer Laws. The transfer, assignment and conveyance of
the Loan Contracts and security interest in the Vehicles by the Company to the
Transferor pursuant to the Loan Acquisition Agreement or by the Transferor
pursuant to this Trust and Security Agreement is not subject to the bulk
transfer or any similar statutory provisions in effect in any applicable
jurisdiction.
(l) The Loan Contracts. The Transferor hereby restates and makes
each of the representations and warranties with respect to the Loan Contracts
and the Vehicles that are made by the Company in Section 3.01 of the Loan
Acquisition Agreement.
SECTION 11.2. COVENANTS
The Transferor hereby makes the following covenants for the benefit of
the Trustee, MBIA and the Certificateholders, on which the Trustee relies in
accepting the Trust Estate in trust and in authenticating the Certificates and
on which MBIA relies in issuing the Certificate Insurance Policy. Such
covenants are made as of the Closing Date, but shall survive the transfer,
conveyance and assignment of the Trust Estate to the Trustee.
(a) No Liens. Except for the conveyances and grant of security
interests hereunder, the Transferor will not sell, pledge, assign or transfer
to any other Person, or grant, create, incur, assume or suffer to exist any
Lien on any Trust Estate now existing or hereafter created, or any interest
therein prior to the termination of this Trust and Security Agreement pursuant
to Section 5.01 hereof; the Transferor will notify the Trustee and MBIA of the
existence of any Lien on any Trust Estate immediately upon discovery thereof;
and the Transferor shall defend the right, title and interest of the Trustee
in, to and under the Trust Estate now existing or hereafter created, against
all claims of third parties claiming through or under the Transferor;
provided, however, that nothing in this Section 11.02(a) shall prevent or
be deemed to prohibit the Transferor from suffering to exist upon any of the
Trust Estate any Liens for municipal or other local taxes and other
governmental charges if such taxes or governmental charges shall not at the
time be due and payable or if the Transferor shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto.
(b) Delivery of Collections. The Transferor agrees to hold in
trust and promptly pay to the Servicer all amounts received by the Transferor
in respect of the Trust Estate (other than amounts distributed to or for the
benefit of the Transferor pursuant to Article Twelve hereof).
(c) Obligations with Respect to Loan Contracts. The Transferor
will duly fulfill all obligations on its part to be fulfilled under or in
connection with each Loan Contract and will do nothing to impair the rights of
the Trustee (for the benefit of the Certificateholders and MBIA) in the Loan
Contracts, the Vehicles and any other part of Trust Estate.
(d) Compliance with Law. The Transferor will comply, in all
material respects, with all acts, rules, regulations, orders, decrees and
directions of any governmental authority applicable to the Loan Contracts or
any part thereof; provided, however, that the Transferor may contest any act,
regulation, order, decree or direction in any reasonable manner which shall
not materially and adversely affect the rights of the Trustee (for the benefit
of the Certificateholders and MBIA) in the Loan Contracts and the Vehicles.
The Transferor will comply, in all material respects, with all requirements of
law applicable to the Transferor.
(e) Preservation of Security Interest. The Transferor shall
execute and file such continuation statements and any other documents which
may be required by law to fully preserve and protect the interest of the
Trustee (for the benefit of the Certificateholders and MBIA) in the Trust
Estate. If a Re-liening Trigger Event occurs, the Transferor will enforce its
rights against the Company under the Loan Acquisition Agreement to have
vehicles not already titled in the name of the Trustee to be re-titled noting
the security interest of the Trustee hereunder.
(f) Maintenance of Office, etc. The Transferor will not, without
providing 30 days notice to the Trustee and MBIA and without filing such
amendments to any previously filed financing statements as the Trustee or MBIA
may require or as may be required in order to maintain the Trustee's perfected
security interest in the Trust Estate, (a) change the location of its
principal executive office, or (b) change its name, identity or corporate
structure in any manner which would make any financing statement or
continuation statement filed by the Transferor in accordance with the
Servicing Agreement or this Trust and Security Agreement seriously misleading
within the meaning of Article 9-402(7) of any applicable enactment of the UCC.
(g) Further Assurances. The Transferor will make, execute or
endorse, acknowledge, and file or deliver to the Trustee from time to time
such schedules, confirmatory assignments, conveyances, transfer endorsements,
powers of attorney, certificates, reports and other assurances or instruments
and take such further steps relating to the Trust Estate, as the Trustee may
request and reasonably require.
(h) Notice of Liens. The Transferor shall notify the Trustee and
MBIA promptly after becoming aware of any Lien on any Trust Estate, except for
any Liens for municipal or other local taxes if such taxes shall not at the
time be due or payable without penalty or if the Transferor shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(i) Activities of the Transferor. The Transferor (a) shall engage
in only (1) the acquisition, ownership, selling and pledging of the property
acquired by the Transferor pursuant to the Loan Acquisition Agreement and the
Purchase Agreement, and causing the issuance of, receiving and selling the
Certificates issued pursuant to this Trust and Security Agreement and engaging
in other activities specified under its certificate of incorporation, and (2)
the exercise of any powers permitted to corporations under the corporate law
of the State of Delaware which are incidental to the foregoing or necessary to
accomplish the foregoing; (b) will (1) maintain its books and records
separate from the books and records of any other entity, (2) maintain separate
bank accounts and no funds of the Transferor shall be commingled with funds of
any other entity, (3) keep in full effect its existence, rights and franchises
as a corporation under the laws of the State of Delaware, and will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of this Trust and Security Agreement; and (c)
will not (1) dissolve or liquidate in whole or in part, (2) own any subsidiary
or lend or advance any moneys to, or make an investment in, any Person, (3)
make any capital expenditures, (4)(A) commence any case, proceeding or other
action under any existing or future bankruptcy, insolvency or similar law
seeking to have an order for relief entered with respect to it, or seeking
reorganization, arrangement, adjustment, wind-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, (B) seek
appointment of a receiver, trustee, custodian or other similar official for it
or any part of its assets, (C) make a general assignment for the benefit of
creditors, or (D) take any action in furtherance of, or consenting or
acquiescing in, any of the foregoing, (5) guarantee (directly or indirectly),
endorse or otherwise become contingently liable (directly or indirectly) for
the obligations of, or own or purchase any stock, obligations or securities of
or any other interest in, or make any capital contribution to, any other
Person, (6) merge or consolidate with any other Person, (7) engage in any
other action that bears on whether the separate legal identity of the
Transferor will be respected, including without limitation (A) holding itself
out as being liable for the debts of any other party or (B) acting other than
in its corporate name and through its duly authorized officers or agents, or
(8) create, incur, assume, or in any manner become liable in respect of any
indebtedness other than trade payables and expense accruals incurred in the
ordinary course of business and which are incidental to its business purpose;
provided, however, that the Transferor may take any action prohibited by this
clause (8) if (y) the Transferor shall cause, prior to the taking of such
action, an Opinion of Counsel experienced in federal bankruptcy matters, in
substance satisfactory to the Trustee, the Certificateholders, MBIA and the
Rating Agencies, to be delivered to the Trustee, the Certificateholders, MBIA
and the Rating Agencies and (z) the Rating Agencies shall indicate in writing
that the taking of such action will not affect the then current rating of any
Certificates or the shadow rating of this transaction. The Transferor shall
not amend any article in its Certificate of Incorporation that deals with any
matter discussed above without the prior written consent of MBIA. On or
before April 15 of each year, so long as this Trust and Security Agreement has
not terminated, the Transferor shall furnish to each Certificateholder, MBIA
and the Trustee an Officer's Certificate confirming that the Transferor has
complied with its obligations under this paragraph.
(j) Directors. The Transferor agrees that at all times, at least
two of the directors and one of the executive officers of the Transferor (or
two persons, one of whom is serving as both a director and an executive
officer) will not be a director, officer or employee of any direct or ultimate
parent, or Affiliate of the parent or of the Transferor; provided, however,
that such independent directors and officers may serve in similar capacities
for other "special purpose corporations" formed by the Company and its
Affiliates. The Transferor's Certificate of Incorporation shall at all times
provide that such independent directors shall have a fiduciary duty to the
Holders of the Certificates.
(k) Tax Treatment. The Transferor shall comply at all times with
Section 2.11 hereof and its records shall reflect such intended tax treatment.
(l) Notice of Trigger Events. Upon the Transferor's obtaining
knowledge of the occurrence of any Trigger Event, Class B Event or Re-liening
Trigger Event, the Transferor shall within one Business Day of obtaining such
knowledge notify MBIA, the Trustee and the Certificateholders of such
occurrence.
(m) Enforcement of this Trust and Security Agreement and Loan
Acquisition Agreement. The Transferor will take all actions necessary, and
diligently pursue all remedies available to it, to the extent commercially
reasonable, to enforce the obligations of the Servicer under the Servicing
Agreement and Monaco under the Loan Acquisition Agreement and to secure its
rights thereunder.
(n) Transferor May Consolidate, etc., Only on Certain Terms. The
Transferor shall not consoli-date or merge with or into any other Person or
convey or transfer its properties and assets substantially as an entirety to
any Person, unless:
(i) the Person (if other than the Transferor) formed by or surviving
such consolidation or merger or which acquires by conveyance or transfer the
properties and assets of the Transferor substantially as an entirety shall be
a Person organized and existing as a corporation under the laws of the United
States of America or any State thereof and shall have expressly assumed, by an
agreement supplemental hereto, executed and delivered to the Trustee, in form
and substance reasonably satisfactory to the Trustee, MBIA and the
Certificateholders, the obligation and covenants of this Trust and Security
Agreement and the Loan Acquisition Agreement on the part of the Transferor to
be performed or observed;
(ii) immediately after giving effect to such transaction, no Event of
Default or Default shall have occurred and be continuing;
(iii) the Transferor shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, conveyance or transfer and such Supplement comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel, for the benefit
of MBIA, the Trustee and the Certificateholders confirming the enforceability
of documents in connection with such consolidation, merger, conveyance or
transfer;
(iv) such consolidation, merger, conveyance or transfer shall be on
such terms as shall fully preserve the lien and security of this Trust and
Security Agreement, the perfection and priority thereof and the rights and
powers of the Trustee, MBIA and the Certificateholders;
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(v) the surviving corporation shall be a "special purpose
corporation" having an organizational charter substantially similar to the
certificate of incorporation of the Transferor including specific limitations
on its business purposes, and provisions for independent directors;
(vi) MBIA shall have given its prior written consent, which consent
shall not be unreasonably withheld or delayed; and
(vii) the Transferor shall have caused the Trustee to receive a
letter from the Rating Agencies to the effect that solely as a result of such
transaction, the rating issued with respect to the Class A Certificates will
not be downgraded and MBIA shall have received notice with respect to the
shadow rating and capital charge for the transaction.
(o) Successor Substituted. Upon any consolidation or merger, or any
conveyance or transfer of the properties and assets of the Transferor
substantially as an entirety in accordance with this Trust and Security
Agreement, the Person formed by or surviving such consolidation or merger (if
other than the Transferor) or the Person to which such conveyance or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Transferor under this Trust and Security Agreement with the
same effect as if such Person had been named as the Transferor herein. In the
event of any such conveyance or transfer, the Person named as the "Transferor"
in the first paragraph of this Trust and Security Agreement or any successor
which shall theretofore have become such in the manner prescribed in this
Article shall be released from its liabilities and from its obligations under
this Trust and Security Agreement and may be dissolved, wound-up and
liquidated at any time thereafter.
(p) Use of Proceeds. The proceeds from the sale of the
Certificates will be used by the Transferor (a) to pay the purchase price of
the Loan Assets pursuant to the Loan Acquisition Agreement and Purchase
Agreement, (b) to pay the expenses associated with this transaction, and (c)
for general corporate purposes. None of the transactions contemplated in
this Trust and Security Agreement, the Servicing Agreement or the Loan
Acquisition Agreement (including the use of the proceeds from the sale of the
Certificates) will result in a violation of Section 7 of the Securities and
Exchange Act of 1934, as amended, or any regulations issued pursuant thereto,
including Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. The Transferor does not own or intend
to carry or purchase any "margin security" within the meaning of said
Regulation G, including margin securities originally issued by it or any
"margin stock" within the meaning of said Regulation U.
(q) Maintenance of Office or Agency. The Transferor will maintain
an office or agency within the United States of America where Certificates may
be presented or surrendered for payment, where Certificates may be surrendered
for registration of transfer or exchange and where notices and demand to or
upon the Transferor in respect of the Certificates and this Trust and Security
Agreement may be served. The Transferor hereby initially appoints the Trustee
as the Paying Agent and its Corporate Trust Office as the office for each of
said purposes. The Transferor will give 30 days prior written notice to the
Trustee, MBIA and the Certificateholders of any change in the identity of the
Paying Agent or the location, of any such office or agency. If at any time the
Transferor shall fail to maintain any such 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 Trustee, and the Transferor
hereby appoints the Trustee its agent to receive all such presentations,
surrenders, notices and demands.
SECTION 11.3. LIMITATION ON LIABILITY OF DIRECTORS, OFFICERS, OR
EMPLOYEES OF THE TRANSFEROR
(a) Limitation on Liability of Directors, Officers, or Employees of
the Transferor. The directors, officers, or employees of the Transferor
shall not be under any liability to the Trust, MBIA, the Trustee, the
Certificateholders, the Company, the Servicer, the Back-up Servicer or any
other Person hereunder or pursuant to any document delivered hereunder, it
being expressly understood that all such liability is expressly waived and
released as a condition of, and as consideration for, the execution of this
Trust and Security Agreement and the issuance of the Certificates.
(b) Parties Will Not Institute Insolvency Proceedings. During the
term of this Agreement and for one year and one day after the termination
hereof, none of the parties hereto or any Affiliate thereof will file any
involuntary petition or otherwise institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under
any federal or state bankruptcy or similar law against the Transferor.
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ARTICLE XII
ACCOUNTS AND ACCOUNTINGS
SECTION 12.1. COLLECTION OF MONEY
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all
money and other property payable to or receivable by the Trustee pursuant
hereto. The Trustee shall, upon request from the Servicer, provide the
Servicer with sufficient information regarding the amount of collections
deposited by the Trustee in the accounts established pursuant to this Article
Twelve, in order to permit the Servicer to perform its duties under the
Servicing Agreement. The Trustee shall hold all such money and property so
received by it as part of the Trust Estate and shall apply it as provided
herein. If any Loan Contract becomes a Defaulted Loan Contract, the Trustee,
upon Transferor or Servicer request may, and upon the request of MBIA or if an
MBIA Default or Termination has occurred and is continuing, the Controlling
Holders shall take such action as may be appropriate to enforce such payment
or performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim
a Default or Event of Default under this Agreement and to proceed thereafter
as provided in Article Six hereof. If the Transferor receives any amounts
payable to or receivable by the Trustee pursuant to this Agreement, the
Transferor shall immediately, but not later than two Business Days after
receipt, remit such amounts to the Trustee for deposit in the Collection
Account. As of the Closing Date, the Servicer shall cause all payments
theretofore made with respect to the Loan Contracts that were received after
the Cut-Off Date by the Servicer to be deposited into the Collection Account
for the benefit of the Certificateholders and MBIA.
SECTION 12.2. COLLECTION ACCOUNT; PAYMENTS
(a) On or prior to the Closing Date, the Trustee shall open and
maintain an Eligible Account at its Corporate Trust Office in its name for the
benefit of MBIA and the Certificateholders (the "Collection Account") for
receipt of (i) payments deposited into the Collection Account in accordance
with Section 3.03 of the Servicing Agreement, (ii) with respect to the Class A
Certificates, proceeds of claims made under the Certificate Insurance Policy,
in accordance with Article Eight hereof, and (iii) any income and gain from
investments in Eligible Investments. Funds in the Collection Account shall
not be commingled with any other monies. All payments to be made from time to
time to the Certificateholders out of funds in the Collection Account pursuant
to this Trust and Security Agreement shall be made by the Trustee. All monies
deposited from time to time in the Collection Account pursuant to this Trust
and Security Agreement shall be held by the Trustee as part of the Trust
Estate as herein provided.
(b) Upon Transferor order, the Trustee shall invest the funds in the
Trust Accounts in Eligible Investments; provided however, that proceeds of
claims under the Certificate Insurance Policy shall remain uninvested. The
Transferor order shall specify the Eligible Investments in which the Trustee
shall invest, shall state that the same are Eligible Investments and shall
further specify the percentage of funds to be invested in each Eligible
Investment. No such Eligible Investment shall mature later than the second
Business Day preceding the next following Payment Date and shall not be sold
or disposed of prior to its maturity; provided that, Eligible Investments of
the type described in clause (a) of the definition of Eligible Investments may
mature on such Payment Date. In the absence of an Transferor order, the
Trustee shall invest funds in the Collection Account in Eligible Investments
described in clause (f) of the definition thereof. Eligible Investments shall
be made in the name of the Trustee for the benefit of the Certificateholders
and MBIA. The Trustee shall provide to the Servicer and MBIA monthly written
confirmation of such investments, describing the Eligible Investments in which
such amounts have been invested. Any funds not so invested must be insured by
the Federal Deposit Insurance Corporation.
(c) Any income or other gain from investments in Eligible Investments
as outlined in (b) above shall be credited to the Collection Account and any
loss resulting from such investments shall be charged to such account;
provided, however, that the Transferor shall make or cause to be made no later
than the applicable Payment Date a deposit to the Collection Account to the
extent of any losses therein. Except as otherwise specifically set forth
herein, the Trustee shall not be liable for any loss incurred on any funds
invested in Eligible Investments pursuant to the provisions of this Section
12.02 (other than in its capacity as obligor under any Eligible Investment).
(d) On each Payment Date if either no Default or Event of Default
shall have occurred and be continuing or a Default or Event of Default shall
have occurred and be continuing but the entire Certificate Balance of all
Certificates shall not have been declared due and payable pursuant to Section
6.02 hereof, then on such Payment Date, after making all transfers and
deposits to the Collection Account pursuant to Section 12.02(a) hereof, the
Trustee shall withdraw from the Collection Account including the reinvestment
income therein, and shall make the following disbursements in the following
order in accordance with the provisions of and instructions on the Monthly
Servicer's Report; provided, however, that (x) the proceeds of claims under
the Certificate Insurance Policy shall be used solely to pay the amounts due
under paragraphs (iv) and (vii) of this Section 12.02(d) in accordance with
the terms of the Certificate Insurance Policy; and (y) the Trustee shall
withdraw from the Collection Account and make interest payments to Class A
Certificateholders based on the Class A Certificate Balance and Class B
Certificateholders based on the Class B Certificate Balance even if it shall
not have received the Monthly Servicer's Report:
(i) to the Servicer, (A) the Servicer Fee then due and all Servicing
Charges and (B) from amounts received as Recoveries from any Defaulted Loan
Contracts, the amounts necessary to reimburse the Servicer for reasonable
costs and expenses incurred by the Servicer (including reasonable attorney's
fees and out-of-pocket expenses) in connection with the realization, attempted
realization or enforcement of rights and remedies upon Defaulted Loan
Contracts;
(ii) to the Trustee, the Trustee Fee then due;
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(iii) to the Back-up Servicer, the Back-up Servicer Fee then due;
(iv) to the Class A Certificateholders, the interest due on that
Payment Date on all Outstanding Class A Certificates and any overdue interest,
to be applied as provided in Section 2.08 hereof;
(v) to MBIA, the MBIA Premium then due to MBIA, together with any
amounts previously paid by MBIA under the Certificate Insurance Policy with
respect to any interest on the Class A Certificates and not heretofore repaid
(without any interest thereon) in accordance with the Insurance Agreement;
(vi) to the Class B Certificateholders, the interest due on that
Payment Date on all Outstanding Class B Certificates and any overdue interest,
to be applied as provided in Section 2.08 hereof;
(vii) to the Class A Certificateholders, the Class A Principal
Distribution Amount, and any Class A Principal Distribution Amount for a prior
Payment Date not paid to the Class A Certificateholders;
(viii) to MBIA, any amounts previously paid by MBIA under the
Certificate Insurance Policy and any other amounts due to MBIA under the
Insurance Agreement and not heretofore repaid, together with interest thereon
in accordance with the Insurance Agreement;
(ix) to (A) the Trustee and the Back-up Servicer, any other amounts
due and owing the Trustee or the Back-up Servicer as expressly provided
herein, provided such amounts have been reasonably approved by MBIA, and (B) a
successor Servicer after a successor Servicer has been appointed pursuant to
Section 6.02 of the Servicing Agreement, the Additional Servicer Fee, if any;
provided such Additional Servicer Fee shall have been reasonably approved by
MBIA and (C) a successor Servicer or the Trustee, any reasonable Transition
Costs incurred by any successor Servicer or the Trustee;
(x) to the Class A Certificateholders, following the occurrence of a
Trigger Event that has not been waived by MBIA, all remaining amounts on
deposit in the Collection Account (the "Additional Principal Amount") until
the Class A Certificates have been paid in full;
(xi) on or after a Payment Date following a Re-liening Trigger Event
and receipt by the Trustee of written notice from MBIA that either (a) 90 days
have elapsed since the Re-liening Trigger Event and the Company has not filed
applications for new certificates of title on at least 75% of the vehicles
which were not liened in the name of the Trustee as of the date of the
Re-liening Trigger Event or (b) 120 days have elapsed since the Re-liening
Trigger Event and the Company has not filed applications for new certificates
of title on 100% of the vehicles which were not liened in the name of the
Trustee as of the date of the Re-liening Trigger Event, to accumulate money in
the Re-liening Expense Account until the total amount deposited in such
account equals the product of $25 and the number of cars for which
applications for new certificates of title had not yet been filed (as
specified in the notice from MBIA);
(xii) on or after a Payment Date following a Re-liening Trigger
Event, if there are insufficient funds in the Re-Liening Expense Account, to
reimburse the Trustee for any reasonable out-of-pocket expenses incurred by
the Trustee in obtaining new certificates of title noting the Trustee's
security interest in the cars not already titled in its name;
(xiii) to the Class B Certificateholders, the Class B Principal
Distribution Amount;
(xiv) to the Servicer, amounts necessary to reimburse the Servicer
for amounts paid by it for any Force Placed Insurance Premiums;
(xv) to or upon the order of the Transferor, any remaining amounts on
deposit in the Collection Account.
(e) Prior to any Redemption Date, the Transferor shall cause the
Trustee to open and maintain a trust account at the Corporate Trust Office
(the "Redemption Account") in the name of the Trustee for the benefit of
Certificateholders and MBIA, for the receipt of the Redemption Price of any
Certificates to be redeemed in accordance with Article Ten hereof. On any
Redemption Date, the Trustee shall withdraw the applicable Redemption Price
from the Redemption Account and the Paying Agent shall remit the Redemption
Price to the applicable Certificateholders in accordance with Section 10.04
hereof. Moneys in the Redemption Account shall be invested in Eligible
Investments that mature no later than two Business Days prior to the relevant
Redemption Date. Eligible Investments shall be made in the name of the
Trustee for the benefit of the Certificateholders and MBIA. Any monies
deposited in the Redemption Account for purposes of redeeming Certificates
pursuant to Article Ten hereof shall, subject to Section 7.16 hereof, remain
in the Redemption Account until used to redeem such Certificates.
(f) Upon the occurrence of a Re-liening Trigger Event and receipt by
the Trustee of written notice from MBIA that either 90 days have elapsed
since the Re-liening Trigger Event and the Company has not filed applications
for new certificates of title on at least 75% of the vehicles which were not
liened in the name of the Trustee as of the date of the Re-liening Trigger
Event, or 120 days have elapsed since the Re-liening Trigger Event and the
Company has not filed applications for new certificates of title on 100% of
the vehicles which were not liened in the name of the Trustee, the Trustee
shall open and maintain a trust account at the Corporate Trust Office (the
"Re-Liening Expense Account") in the name of the Trustee for the benefit of
Certificateholders and MBIA, for the receipt of deposits pursuant to Section
12.02(d)(xi). The Trustee shall be entitled to reimburse itself out of the
Re-liening Expense Account for any reasonable out-of-pocket expenses incurred
by the Trustee in obtaining new certificates of title noting the Trustee's
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security interest in the vehicles not already liened in its name.
SECTION 12.3. REPORTS BY THE TRUSTEE
(a) On each Payment Date the Trustee shall account to each Holder of
Certificates on which payments of principal and interest are then being made
the amount which represents principal and the amount which represents
interest, and shall contemporaneously advise the Transferor and MBIA of all
such payments. The Trustee will satisfy its obligations under this Section
12.03 by delivering the Monthly Servicer's Report to each such Holder of the
Certificates, MBIA, the Transferor, the Rating Agencies and the Placement
Agent.
(b) The Trustee shall, on a monthly basis beginning on the first
Calculation Date, confirm the credit rating or, if more than one credit rating
has been assigned, each such credit rating of each institution in which funds
are invested pursuant to the definition of Eligible Investments and shall
promptly notify the Certificateholders and MBIA if any such credit rating has
been lowered.
(c) At least annually, or as otherwise required by law, the Trustee
shall distribute to Certificateholders any information returns, or other tax
information as is required by applicable tax law to be distributed to
Certificateholders. Such information shall be provided to the Trustee by the
Servicer. The Trustee, upon written request, will furnish the Servicer with
all information known to the Trustee as may be reasonably required in
connection with the preparation by the Servicer of returns. In no event shall
the Trustee be liable for any liabilities, costs or expenses of the Trust
Estate or the Certificateholders arising under any tax law, including without
limitation, Federal, state, or local income or franchise taxes or any other
tax imposed on or measured by income.
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ARTICLE XIII
PROVISIONS OF GENERAL APPLICATION
SECTION 13.1. ACTS OF CERTIFICATEHOLDERS
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Trust and Security Agreement to be
given or taken by Certificateholders may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such
Certificateholders 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 Trustee,
and, where it is hereby expressly required, to the Transferor. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Certificateholders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Trust and Security Agreement and (subject to Section 7.01 hereof)
conclusive in favor of the Trustee and the Transferor, if made in the manner
provided in this Section 13.01.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(c) The ownership of Certificates shall be proved by the Certificate
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Certificate shall bind the Holder
of every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Transferor in reliance thereon,
whether or not notation of such action is made upon such Certificate.
SECTION 13.2. NOTICES, ETC., TO TRUSTEE, MBIA, TRANSFEROR AND
SERVICER
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Certificateholders or other document provided or permitted hereby to be
made upon, given or furnished to, or filed with any party hereto shall be
sufficient for every purpose hereunder if in writing and telecopied or mailed,
first-class postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at Sixth Street & Marquette Avenue, Minneapolis,
Minnesota 55479-0070, or at any other address previously furnished in writing
to the Transferor, MBIA, the Certificateholders and the Servicer; or
(b) to MBIA at MBIA Insurance Corporation, 113 King Street, Armonk,
New York 10504, Attention: Insured Portfolio Management - Structured
Finance, or at any other address previously furnished in writing by MBIA to
the Trustee, the Certificateholders, the Servicer and the Transferor; or
(c) to the Transferor at 370 17th Street, Suite 5060C, Denver,
Colorado 80202, or at any other address previously furnished in writing to
the Trustee, MBIA, the Certificateholders and the Servicer by the Transferor;
or
(d) to the Servicer at 370 17th Street, Suite 5060, Denver, Colorado
80202, or at any other address previously furnished in writing to the
Trustee, MBIA, the Certificateholders and the Transferor.
(e) to each of (i) Standard & Poors, Attention: Asset Backed
Surveillance Group, 26 Broadway, New York, NY 10004, and (ii) Moody's Investor
Service, ABS Monitoring Group, 99 Church Street, New York, NY 10007.
SECTION 13.3. NOTICES TO CERTIFICATEHOLDERS; WAIVER
Where this Trust and Security Agreement provides for notice to
Certificateholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Certificateholder affected by such event,
at his address as it appears on the Certificate Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case in which notice to Certificateholders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Certificateholder shall affect the sufficiency of
such notice with respect to other Certificateholders, and any notice which is
mailed in the manner herein provided shall conclusively be presumed to have
been duly given.
Where this Trust and Security Agreement provides for notice in any
manner, such notice may be waived in writing by any Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Certificateholders shall be
filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage, or similar activity, it shall be impractical to
mail notice of any event to Certificateholders when such notice is required to
be given pursuant to any provision of this Trust and Security Agreement, then
any manner of giving such notice as shall be satisfactory to the Trustee shall
be deemed to be a sufficient giving of such notice.
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SECTION 13.4. 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 13.5. SUCCESSORS AND ASSIGNS
All covenants and agreements in this Trust and Security Agreement by the
Transferor shall bind its successors and assigns, whether so expressed or not.
There shall be no assignment hereof by the Transferor, except in accordance
with the provisions of Section 11.02(n) hereof.
SECTION 13.6. SEPARABILITY
In case any provision in this Trust and Security Agreement or in the
Certificates 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 13.7. BENEFITS OF TRUST AND SECURITY AGREEMENT
Nothing in this Trust and Security Agreement or in the Certificates,
express or implied, shall give to any Person, other than the parties hereto,
the Certificateholders, and any Paying Agent which may be appointed pursuant
to the provisions hereof, and any of their successors hereunder, any benefit
or any legal or equitable right, remedy or claim under this Trust and Security
Agreement or under the Certificates, except that MBIA is an express third
party beneficiary to this Trust and Security Agreement and is entitled to
enforce the provisions hereof as if it were a party hereto.
SECTION 13.8. LEGAL HOLIDAYS
In any case in which the date of any Payment Date or the Stated Maturity
or Expected Maturity of any Certificate shall not be a Business Day, then
(notwithstanding any other provision of a Certificate or this Trust and
Security Agreement) payment of principal or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the nominal date of any such Stated Maturity,
Expected Maturity or Payment Date and, assuming such payment is actually made
on such subsequent Business Day, no additional interest shall accrue on the
amount so paid for the period from and after any such nominal date.
SECTION 13.9. GOVERNING LAW
This Trust and Security Agreement and each Certificate shall be
construed in accordance with and governed by the internal laws of the State of
New York applicable to agreements made and to be performed therein, without
regard to the conflict of laws provisions of any State.
SECTION 13.10. COUNTERPARTS
This Trust and Security 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.
SECTION 13.11. CORPORATE OBLIGATION
No recourse may be taken, directly or indirectly, against any
incorporator, subscriber to the capital stock, stockholder, employee, officer
or director of the Transferor or of any predecessor or successor of the
Transferor with respect to the Transferor's obligations on the Certificates or
under this Trust and Security Agreement or any certificate or other writing
delivered in connection herewith.
SECTION 13.12. COMPLIANCE CERTIFICATES AND OPINIONS
Upon any application, order or request by the Transferor or the Servicer
to the Trustee to take any action under any provision of this Trust and
Security Agreement for which a specific request is required hereunder, the
Transferor or the Servicer, as applicable, shall furnish to the Trustee an
Officer's Certificate of the Transferor or the Servicer, as applicable,
stating that all conditions precedent, if any, provided for herein relating to
the proposed action have been complied with, except that in the case of any
such application or request as to which the furnishing of a different
certificate is specifically required by any provision of this Trust and
Security Agreement relating to such particular application or request, no
additional certificate need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for herein shall include:
(a) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(b) 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;
(c) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
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(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 13.13. MBIA DEFAULT OR TERMINATION
If an MBIA Default or Termination occurs and is continuing, MBIA's right
to consent hereunder and under any other Transaction Document and to direct
the Trustee shall be suspended until remedied and, in such event, in all
provisions of this Agreement wherein MBIA's consent or direction is required
or permitted, the consent or direction of the Controlling Holders shall be
required or permitted during such period of suspension; provided, however,
notwithstanding anything else to the contrary, MBIA's consent shall be
required for any amendment to this Agreement which materially and adversely
affects MBIA's interests.
SECTION 13.14. NOTIFICATIONS
Notwithstanding any provision to the contrary contained in this Trust and
Security Agreement, all reports, notices, consents and communications which
are required, by the terms of this Trust and Security Agreement, to be
delivered by MBIA, the Certificateholders or the Controlling Holders to the
Trustee, as the context requires, shall be required to be delivered to the
Trustee in writing.
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IN WITNESS WHEREOF, the Transferor, the Servicer, the Back-up Servicer and
the Trustee have caused this Trust and Security Agreement to be duly executed
by their respective officers thereunto duly authorized as of the date and year
first above written.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee and Back-up Servicer
By: /s/ Eileen R. Stelzner
--------------------------------
Name: Eileen R. Stelzner
Title: Corporate Trust Officer
MONACO FINANCE, INC., as Servicer
By: /s/ Morris Ginsburg
-----------------------
Name: Morris Ginsburg
Title:President
MF RECEIVABLES CORP. II, as Transferor
By: /s/ Morris Ginsburg
-----------------------
Name: Morris Ginsburg
Title:President
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EXHIBIT
10.54
EXHIBIT A
FORM OF CLASS A CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS AND
CONDITIONS SET FORTH IN THE TRUST AND SECURITY AGREEMENT UNDER WHICH THIS
CERTIFICATE IS ISSUED (A COPY OF WHICH IS AVAILABLE FROM THE TRUSTEE UPON
REQUEST).
DUE TO THE PROVISIONS FOR THE AMORTIZATION OF PRINCIPAL CONTAINED HEREIN, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE ON ANY PARTICULAR DATE MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANYONE PURCHASING THIS
CERTIFICATE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY
OF THE TRUSTEE. EACH HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF ITS
CERTIFICATE, AGREES THAT UNTIL THE CLASS A CERTIFICATES ARE PAID IN FULL AND
FOR ONE YEAR AND ONE DAY THEREAFTER, OR UNTIL AN MBIA DEFAULT OR TERMINATION
HAS OCCURRED, SUCH HOLDER OR ANY AFFILIATE THEREOF WILL NOT FILE ANY
INVOLUNTARY PETITION OR OTHERWISE INSTITUTE ANY BANKRUPTCY, REORGANIZATION,
ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDING OR OTHER PROCEEDING UNDER
ANY FEDERAL OR STATE BANKRUPTCY OR SIMILAR LAW AGAINST THE TRANSFEROR.
No. $[ ]
MF RECEIVABLES AUTO LOAN TRUST 1997-1
6.71% CLASS A AUTO LOAN BACKED CERTIFICATE
Evidencing an undivided fractional interest in the Trust Estate, the property
of which includes, among other things, certain Loan Assets and monies on
deposit in the Collection Account.
Registered Owner: [Class A Certificate Purchaser]
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CLOSING DATE: June 26, 1997 STATED MATURITY: December 14, 2002
THIS CERTIFIES THAT the registered owner specified above is the owner of
an undivided fractional interest in the Trust Estate, created by MF
Receivables Corp. II (the "Transferor"), pursuant to the Trust and Security
Agreement, dated as of June 1, 1997, among the Transferor, Monaco Finance,
Inc. and Norwest Bank Minnesota, National Association, as Trustee and Back-up
Servicer, a summary of certain of the pertinent provisions of which is set
forth herein. To the extent not otherwise defined herein, capitalized terms
used herein have the meanings assigned to them in the Trust and Security
Agreement. This Class A Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust and Security Agreement, to which
the Holder of this Certificate by virtue of the acceptance hereof assents and
by which such Holder is bound.
The Class A Certificates shall bear interest on the Class A Certificate
Balance thereof for each applicable Accrual Period at the Class A Interest
Rate (calculated on the basis of a 360-day year consisting of 12 months of 30
days each), until the last day of the Accrual Period preceding the Final
Payment Date and (to the extent that the payment of such interest shall be
legally enforceable) on any overdue installment of interest from the date such
interest became due and payable (giving effect to any applicable grace
periods) until fully paid. Interest shall be due and payable in arrears on
each Payment Date, with each payment of interest calculated as described above
on the Class A Certificate Balance as of the close of business on the
preceding Payment Date.
The principal of the Class A Certificates shall be payable in
installments on each Payment Date ending no later than the Stated Maturity
unless such Certificates become due and payable at an earlier date by
declaration of acceleration, call for redemption or otherwise. All reductions
in the principal amount of a Class A Certificate effected by payments of
installments of principal made on any Payment Date shall be binding upon all
future Holders of such Certificate and of any Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Certificate. Each installment of
principal payable on the Class A Certificates shall be in an amount equal to
the Class A Principal Distribution Amount and the Additional Principal Amount,
if any, available to be paid in accordance with the priorities of Sections
12.02(d) of the Trust and Security Agreement. The principal payable on the
Class A Certificates shall be paid on each Payment Date beginning on the
Initial Payment Date and ending on the Final Payment Date on a pro rata basis
based upon the relative face amount of each Certificate of such Class.
The principal of and interest on the Class A Certificates are payable by
check mailed by first-class mail to the Person whose name appears as the
Registered Holder of such Certificate on the Certificate Register at the
address of such Person as it appears on the Certificate Register or by wire
transfer in immediately available funds to the account specified in writing to
the Trustee by such Registered Holder at least five Business Days prior to the
Record Date for the Payment Date on which wire transfers will commence, in
such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts. Except
as set forth in the final sentence of this paragraph, all payments on the
Certificates shall be paid without any requirement of presentment. The
Transferor shall notify MBIA, the Rating Agencies and the Person in whose name
a Certificate is registered at the close of business on the Record Date next
preceding the Payment Date on which the Transferor expects that the final
installment of principal of such Certificate will be paid that the Transferor
expects that such final installment will be paid on such Payment Date. Such
notice shall be mailed no later than the tenth day prior to such Payment Date
and shall specify the place where such Certificate may be surrendered. Funds
representing any such checks returned undeliverable shall be held in
accordance with Section 7.16 of the Trust and Security Agreement. Each
Certificateholder shall surrender its Certificate to the Trustee prior to
payment of the final installment of principal of such Certificate.
This Certificate is one of a duly authorized issue of Certificates
designated as the $42,646,534 Class A Auto Loan Backed Certificates, Due
December 14, 2002 (herein called the "Class A Certificates") issued and to be
issued under the Trust and Security Agreement (the "Trust and Security
Agreement"), dated as of June 1, 1997, among the Transferor, Monaco Finance,
Inc., as Servicer, and Norwest Bank Minnesota, National Association, as
Trustee (the "Trustee") and Back-up Servicer (the "Back-up Servicer").
Reference is made to the Trust and Security Agreement for a statement of the
respective rights thereunder of the Transferor, the Trustee and the Holders of
the Certificates, and the terms upon which the Class A Certificates are, and
are to be, authenticated and delivered.
The Transferor has structured the Trust and Security Agreement and the
Certificates with the intention that (i) the Class A Certificates and Class B
Certificates be treated as nonrecourse debt of the Transferor secured by the
Trust Estate and (ii) the Trust be disregarded as an entity separate from the
Transferor; provided that if and to the extent any Class of Certificates is
determined not to constitute debt by an applicable taxing authority, the
Transferor and the Certificateholders further intend that the Trust formed
thereby be treated as a partnership, with the assets of the partnership
including all of the assets comprising the Trust Estate and the partners of
the partnership being the Certificateholders of such Class and the Transferor.
The Transferor, the Trustee, the Servicer, MBIA and each Certificateholder,
by acceptance of its Certificate (and any Person that is a beneficial owner of
any interest in a Certificate, by virtue of such Person's acquisition of a
beneficial interest therein) agree to report the transactions contemplated
thereby in accordance with such stated intentions unless and until determined
to the contrary by an applicable taxing authority. In connection therewith
the Transferor shall, and shall be authorized to the extent necessary to (i)
be designated as the "tax matters partner" of the Trust, (ii) maintain capital
accounts and make partnership allocations in accordance with section 704 of
the Code and (iii) file Form 8832 with the Internal Revenue Service and make
the election provided for to have the Trust be classified as a partnership for
federal income tax purposes.
The property of the Trust Estate includes certain Loan Assets and certain
other assets described in the Trust and Security Agreement. The Class A
Certificates are payable out of the Trust Estate pari passu among such Class A
Certificateholders equally and ratably without prejudice, priority or
distinction between any Class A Certificate by reason of time of issue or
otherwise. The Class A Certificates are payable only out of the Trust Estate
and do not represent recourse obligations of the Transferor, Monaco Finance,
Inc. or any affiliate thereof or any successor thereto. The Trust and
Security Agreement pursuant to which this Class A Certificate is issued also
provides for the issuance of Class B Certificates. Payments of principal and
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interest on the Class A Certificates and the Class B Certificates are
prioritized pursuant to Section 12.02(d) of the Trust and Security Agreement.
Unless earlier declared due and payable by reason of an Event of Default,
the Certificates are payable only at the time and in the manner provided in
the Trust and Security Agreement and are not redeemable or prepayable at the
option of the Transferor before such time, except that the Class A
Certificates shall be redeemable at the option of the Transferor, and in the
absence of the exercise thereof, by MBIA in whole but not in part, at a
redemption price equal to the Class A Certificate Balance plus accrued
interest thereon to the date of redemption, at any time after the Class A
Certificate Balance declines to 20% or less of the Initial Class A Certificate
Balance. If an Event of Default as defined in the Trust and Security
Agreement shall occur and be continuing, the principal of all the Certificates
may become or be declared due and payable in the manner and with the effect
provided in the Trust and Security Agreement.
As provided in the Trust and Security Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate may be
registered on the Certificate Register of the Transferor upon surrender of
this Certificate for registration of transfer at the office or agency of the
Transferor in the United States of America maintained for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Transferor and the Trustee and duly executed by the holder
hereof or his attorney duly authorized in writing, and thereupon one or more
new Class A Certificates of the same Stated Maturity of authorized
denominations and for the same initial aggregate principal amount will be
issued to the designated transferees.
Prior to due presentment for registration of transfer of this
Certificate, the Transferor, the Trustee and any agent of the Transferor or
the Trustee shall treat the Person in whose name this Certificate is
registered as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes whether or not this Certificate be
overdue, and neither the Transferor, the Trustee, nor any such agent shall be
affected by notice to the contrary.
Each Holder of this Certificate, by acceptance of its Certificate, agrees
that until the Class A Certificates are paid in full and for one year and one
day thereafter, or until an MBIA Default or Termination has occurred, such
holder or any Affiliate thereof will not file any involuntary petition or
otherwise institute any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other proceeding under any federal or state
bankruptcy or similar law against the Transferor.
The Trust and Security Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Holders of the Certificates under the Trust and Security
Agreement at any time by the Transferor, the Trustee, the Back-up Servicer,
the Servicer and MBIA without the consent of the Holders of the Certificates.
The Trust and Security Agreement also contains provisions permitting MBIA, on
behalf of the Holders of all Certificates, to waive compliance by the
Transferor with certain provisions of the Trust and Security Agreement and
certain past defaults under the Trust and Security Agreement and their
consequences. Any such consent or waiver shall be conclusive and binding upon
the Holder of this Class A Certificate and upon all future Holders of this
Class A Certificate and of any Class A Certificate issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Class A
Certificate.
The Certificates are issuable only in registered form without coupons in
such authorized denominations as provided in the Trust and Security Agreement
and subject to certain limitations therein set forth.
This Class A Certificate and the Trust and Security Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without regard to conflicts of laws principles.
No reference herein to the Trust and Security Agreement and no provision
of this Class A Certificate or of the Trust and Security Agreement shall alter
or impair the obligation of the Trust Estate to pay the principal of and
interest on this Class A Certificate, but solely from the assets of the Trust
Estate and the Certificate Insurance Policy at the times, place and rate, and
in the coin or currency, herein prescribed.
STATEMENT OF INSURANCE
MBIA has issued the certificate guaranty insurance policy (the "Policy")
containing the following provisions, such Policy being on file at the offices
of the Trustee at 6th Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070.
MBIA Insurance Corporation (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of the Policy, thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal
to each full and complete Insured Payment will be received by Norwest Bank
Minnesota, National Association, or its successor, as trustee for the Owners
(the "Trustee"), on behalf of the Owners from the Insurer, for distribution by
the Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Insurer's obligations under the Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Trustee, whether or not
such funds are properly applied by the Trustee. Insured Payments shall be
made only at the time set forth in the Policy, and no accelerated Insured
Payments shall be made regardless of any acceleration of the Obligations,
unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Transferor, the Trust
or the Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
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The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
such preference payment, (ii) an opinion of counsel satisfactory to the
Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Insurer, irrevocably
assigning to the Insurer all rights and claims of the Owner relating to or
arising under the Obligations against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon, New York City time, on such Business
Day, they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named in
the final order of the court exercising jurisdiction on behalf of the Owner
and not to any Owner directly unless such Owner has returned principal or
interest paid on the Obligations to such receiver or trustee in bankruptcy, in
which case such payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable under the Policy no later
than 12:00 noon, New York City time, on the later of the Payment Date on which
the related Deficiency Amount is due or the second Business Day following
receipt in New York, New York on a Business Day by State Street Bank and Trust
Company, N.A., as Fiscal Agent for the Insurer or any successor fiscal agent
appointed by the Insurer (the "Fiscal Agent") of a Notice (as described
below); provided that if such Notice is received after 12:00 noon, New York
City time, on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent is
not in proper form or is otherwise insufficient for the purpose of making
claim under the Policy, it shall be deemed not to have been received by the
Fiscal Agent for purposes of this paragraph, and the Insurer or the Fiscal
Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice.
Insured Payments due under the Policy, unless otherwise stated therein,
will be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners
by wire transfer of immediately available funds in the amount of the Insured
Payment less, in respect of Insured Payments related to Preference Amounts,
any amount held by the Trustee for the payment of such Insured Payment and
legally available therefor.
The Fiscal Agent is the agent of the Insurer only, and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds
to make payments due under the Policy.
Subject to the terms of the Agreement, the Insurer shall be subrogated to
the rights of each Owner to receive payments under the Obligations to the
extent of any payment by the Insurer under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Trust and Security Agreement dated as of June 1,
1997, among MF Receivables Corp. II, as Transferor, Monaco Finance, Inc., as
Servicer, Norwest Bank Minnesota, National Association, as Back-up Servicer
and as Trustee, without regard to any amendment or supplement thereto.
"Business Day" means any day other than (i) a Saturday, (ii) a Sunday,
(iii) a day on which banking institutions in New York City or in the city in
which the principal place of business of the Transferor, the Servicer or the
corporate trust office of the Trustee under the Agreement is located are
authorized or obligated by law or executive order to close, or (iv) any day on
which the Insurer is closed.
"Deficiency Amount" means (a) for any Payment Date, any shortfall in
amounts available in the Collection Account (after payment of all amounts
payable pursuant to Sections 12.02(d)(i) through (iii) of the Agreement) to
pay the interest due on the Obligations under Section 12.02(d)(iv) of the
Agreement, (b) on the Stated Maturity, any shortfall in amounts available in
the Collection Account (after the payment of all amounts payable pursuant to
Section 12.02(d)(i) through (vi) of the Agreement) to pay the Class A
Certificate Balance, plus (c) at the option of the Insurer in its sole
discretion, for any Payment Date, any shortfall in amounts available in the
Collection Account (after the payment of all amounts payable pursuant to
Sections 12.02(d)(i) through (vi) of the Agreement) to pay the Class A
Principal Distribution Amount under Section 12.02(d)(vii) of the Agreement but
only if and to the extent that the Class A Certificate Balance on such Payment
Date (after giving effect to payments of principal on such Payment Date)
exceeds the Aggregate Loan Balance on the immediately preceding Calculation
Date.
"Insured Payment" means (i) as of any Payment Date, any Deficiency Amount
and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by fax substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Payment Date.
"Owner" means each Holder (as defined in the Agreement) of the
Obligations who, on the applicable Payment Date, is entitled under the terms
of such Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Obligations that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with
a final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
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date of execution of the Policy, without giving effect to any subsequent
amendment or modification of the Agreement unless such amendment or
modification has been approved in writing by the Insurer.
Any notice under the Policy or service of process on the Fiscal Agent may
be made at the address listed below for the Fiscal Agent or such other address
as the Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency, or
such other address as the Fiscal Agent shall specify to the Trustee in
writing.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made
for payment, prior to maturity of the Obligations.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class A Certificate shall not be entitled to
any benefit under the Trust and Security Agreement or be valid or obligatory
for any purpose.
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IN WITNESS WHEREOF, MF Receivables Corp. II has caused this instrument to
be signed, manually, by its President or a Vice President.
MF RECEIVABLES CORP. II
By:_____________________________
Name:___________________________
Title:____________________________
This is one of the Class A Certificates described in the within-mentioned
Trust and Security Agreement.
Dated: June 26, 1997
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:______________________________
Authorized Signatory
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EXHIBIT
10.55
EXHIBIT B
FORM OF CLASS B CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS AND
CONDITIONS SET FORTH IN THE TRUST AND SECURITY AGREEMENT UNDER WHICH THIS
CERTIFICATE IS ISSUED (A COPY OF WHICH IS AVAILABLE FROM THE TRUSTEE UPON
REQUEST).
DUE TO THE PROVISIONS FOR THE AMORTIZATION OF PRINCIPAL CONTAINED HEREIN, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE ON ANY PARTICULAR DATE MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANYONE PURCHASING THIS
CERTIFICATE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY
OF THE TRUSTEE.
THE RIGHTS OF THE HOLDER OF THIS CERTIFICATE TO RECEIVE PAYMENTS OF PRINCIPAL
AND INTEREST AND ANY OTHER AMOUNTS ON EACH PAYMENT DATE ARE SUBORDINATED TO
THE EXTENT SET FORTH IN THE TRUST AND SECURITY AGREEMENT. EACH HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF ITS CERTIFICATE, AGREES THAT UNTIL THE CLASS A
CERTIFICATES ARE PAID IN FULL AND FOR ONE YEAR AND ONE DAY THEREAFTER, SUCH
HOLDER OR ANY AFFILIATE THEREOF WILL NOT FILE ANY INVOLUNTARY PETITION OR
OTHERWISE INSTITUTE ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR
LIQUIDATION PROCEEDING OR OTHER PROCEEDING UNDER ANY FEDERAL OR STATE
BANKRUPTCY OR SIMILAR LAW AGAINST THE TRANSFEROR.
No. 1 [ ]
MF RECEIVABLES CORP. II AUTO LOAN TRUST 1997-1
CLASS B AUTO LOAN BACKED CERTIFICATE
Evidencing an undivided fractional interest in the Trust Estate, the property
of which includes, among other things, certain Loan Assets and monies on
deposit in the Collection Account.
Registered Owner: [Class B Certificate Purchaser]
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CLOSING DATE: June 26, 1997 EXPECTED MATURITY: December 14, 2002
THIS CERTIFIES THAT the registered owner specified above is the owner of
an undivided fractional interest in the Trust Estate, created by MF
Receivables Corp. II (the "Transferor"), pursuant to the Trust and Security
Agreement, dated as of June 1, 1997, among the Transferor, Monaco Finance,
Inc. and Norwest Bank Minnesota, National Association, as Trustee and Back-up
Servicer, a summary of certain of the pertinent provisions of which is set
forth herein. To the extent not otherwise defined herein, capitalized terms
used herein have the meanings assigned to them in the Trust and Security
Agreement. This Class B Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust and Security Agreement, to which
the Holder of this Certificate by virtue of the acceptance hereof assents and
by which such Holder is bound.
The Trust and Security Agreement pursuant to which this Class B
Certificate is issued also provides for the issuance of Class A Certificates.
Payments on this Class B Certificate are subordinated to the extent set forth
in the Trust and Security Agreement.
The Class B Certificates shall bear interest on the Class B Certificate
Balance thereof for each applicable Accrual Period at the Class B Interest
Rate (calculated on the basis of a 360-day year consisting of 12 months of 30
days each) until the last day of the Accrual Period preceding the Final
Payment Date and (to the extent that the payment of such interest shall be
legally enforceable) on any overdue installment of interest from the date such
interest became due and payable (giving effect to any applicable grace
periods) until fully paid. Interest shall be due and payable in arrears on
each Payment Date, with each payment of interest calculated as described above
on the Class B Certificate Balance as of the close of business on the
preceding Payment Date; provided that the payment of interest on the Class B
Certificates is subordinate to the payment of interest on the Class A
Certificates and to certain other payments in accordance with Section 12.02(d)
of the Trust and Security Agreement.
The principal of the Class B Certificates shall be payable in
installments on each Payment Date ending no later than the Expected Maturity
thereof unless such Certificate becomes due and payable at an earlier date by
declaration of acceleration, call for redemption or otherwise. All reductions
in the principal amount of a Class B Certificate effected by payments of
installments of principal made on any Payment Date shall be binding upon all
future Holders of such Certificate and of any Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Certificate. Each installment of
principal payable on the Class B Certificates shall be in an amount equal to
the Class B Principal Distribution Amount; provided that the payment of the
Class B Principal Distribution Amount shall be subordinate to the payments of
principal and interest on the Class A Certificates and to certain other
payments in accordance with Section 12.02(d) of the Trust and Security
Agreement. The principal payable on the Class B Certificates shall be paid on
each Payment Date beginning on the Initial Payment Date and ending on the
Final Payment Date on a pro rata basis based upon the relative face amount of
each Class B Certificate.
The principal of and interest on the Class B Certificates are payable by
check mailed by first-class mail to the Person whose name appears as the
Registered Holder of such Class B Certificate on the Certificate Register at
the address of such Person as it appears on the Certificate Register or by
wire transfer in immediately available funds to the account specified in
writing to the Trustee by such Registered Holder at least five Business Days
prior to the Record Date for the Payment Date on which wire transfers will
commence, in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts.
Except as set forth in the final sentence of this paragraph, all payments on
the Class B Certificates shall be paid without any requirement of presentment.
The Transferor shall notify MBIA, the Rating Agencies and the Person in whose
name a Class B Certificate is registered at the close of business on the
Record Date next preceding the Payment Date on which the Transferor expects
that the final installment of principal of such Class B Certificate will be
paid that the Transferor expects that such final installment will be paid on
such Payment Date. Such notice shall be mailed no later than the tenth day
prior to such Payment Date and shall specify the place where such Class B
Certificate may be surrendered. Funds representing any such checks returned
undeliverable shall be held in accordance with Section 7.16 of the Trust and
Security Agreement. Each Class B Certificateholder shall surrender its Class
B Certificate to the Trustee prior to payment of the final installment of
principal of such Class B Certificate.
This Certificate is one of a duly authorized issue of Certificates
designated as the $2,569,068 Class B Auto Loan Backed Certificates, Due
December 14, 2002 (herein called the "Class B Certificates") issued and to be
issued under the Trust and Security Agreement (the "Trust and Security
Agreement"), dated as of June 1, 1997, among the Transferor, Monaco Finance,
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Inc., as Servicer, and Norwest Bank Minnesota, National Association, as
Trustee (the "Trustee") and Back-up Servicer. Reference is made to the Trust
and Security Agreement for a statement of the respective rights thereunder of
the Transferor, the Trustee and the Holders of the Certificates, and the terms
upon which the Certificates are, and are to be, authenticated and delivered.
The Transferor has structured the Trust and Security Agreement and the
Certificates with the intention that (i) the Class A Certificates and Class B
Certificates be treated as nonrecourse debt of the Transferor secured by the
Trust Estate and (ii) the Trust be disregarded as an entity separate from the
Transferor; provided that if and to the extent any Class of Certificates is
determined not to constitute debt by an applicable taxing authority, the
Transferor and the Certificateholders further intend that the Trust formed
thereby be treated as a partnership, with the assets of the partnership
including all of the assets comprising the Trust Estate and the partners of
the partnership being the Certificateholders of such Class and the Transferor.
The Transferor, the Trustee, the Servicer, MBIA and each Certificateholder,
by acceptance of its Certificate (and any Person that is a beneficial owner of
any interest in a Certificate, by virtue of such Person's acquisition of a
beneficial interest therein) agree to report the transactions contemplated
thereby in accordance with such stated intentions unless and until determined
to the contrary by an applicable taxing authority. In connection therewith
the Transferor shall, and shall be authorized to the extent necessary to (i)
be designated as the "tax matters partner" of the Trust, (ii) maintain capital
accounts and make partnership allocations in accordance with section 704 of
the Code and (iii) file Form 8832 with the Internal Revenue Service and make
the election provided for to have the Trust be classified as a partnership for
federal income tax purposes.
The property of the Trust Estate includes certain Loan Assets and certain
other assets described in the Trust and Security Agreement; provided that the
Holders of the Class B Certificates are not entitled to any interest in or
benefit of the Certificate Insurance Policy issued by MBIA in respect of the
Class A Certificates. The Class B Certificates issued under the Trust and
Security Agreement are payable out of the Trust Estate pari passu among such
Class B Certificateholders equally and ratably without prejudice, priority or
distinction between any Class B Certificate by reason of time of issue or
otherwise. The Class B Certificates are payable only out of the Trust Estate
and do not represent recourse obligations of the Transferor, Monaco Finance,
Inc. or any affiliate or successor thereof.
Unless earlier declared due and payable by reason of an Event of Default,
the Class B Certificates are payable only at the time and in the manner
provided in the Trust and Security Agreement and are not redeemable or
prepayable at the option of the Transferor before such time, except that the
Certificates shall be redeemable at the option of the Transferor in whole but
not in part, at a redemption price equal to the outstanding principal amount
thereof plus accrued interest thereon to the date of redemption, at any time
after the Class A Certificates have been redeemed or the Class A Certificate
Balance has been reduced to zero. If an Event of Default as defined in the
Trust and Security Agreement shall occur and be continuing, the principal of
all the Class B Certificates may become or be declared due and payable in the
manner and with the effect provided in the Trust and Security Agreement.
As provided in the Trust and Security Agreement and subject to certain
limitations therein set forth, the transfer of this Class B Certificate may be
registered on the Certificate Register of the Transferor upon surrender of
this Certificate for registration of transfer at the office or agency of the
Transferor in the United States of America maintained for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Transferor and the Trustee and duly executed by the holder
hereof or his attorney duly authorized in writing, and thereupon one or more
new Class B Certificates of the same Expected Maturity of authorized
denominations and for the same initial aggregate principal amount will be
issued to the designated transferees.
Each Holder of this Certificate, by acceptance of its Certificate, agrees
that until the Class A Certificates are paid in full and for one year and one
day thereafter, such holder or any Affiliate thereof will not file any
involuntary petition or otherwise institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under
any federal or state bankruptcy or similar law against the Transferor.
Prior to due presentment for registration of transfer of this Class B
Certificate, the Transferor, the Trustee and any agent of the Transferor or
the Trustee shall treat the Person in whose name this Certificate is
registered as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes whether or not this Certificate be
overdue, and neither the Transferor, the Trustee, nor any such agent shall be
affected by notice to the contrary.
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The Trust and Security Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Transferor and the rights of the Holders of the
Certificates under the Trust and Security Agreement at any time by the
Transferor, the Trustee, the Back-up Servicer, the Servicer and MBIA without
the consent of the Holders of the Certificates. The Trust and Security
Agreement also contains provisions permitting MBIA, on behalf of the Holders
of all Certificates, to waive compliance by the Transferor with certain
provisions of the Trust and Security Agreement and certain past defaults under
the Trust and Security Agreement and their consequences. Any such consent or
waiver shall be conclusive and binding upon the Holder of this Class B
Certificate and upon all future Holders of this Class B Certificate and of any
Class B Certificate issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Class B Certificate. In addition, upon the
occurrence of an Event of Default, unless and until the Class A Certificate
Balance has been reduced to zero and MBIA has been reimbursed for all amount
due and owing under the Trust and Security Agreement, the Class B
Certificateholders will have no right to control or direct the actions of the
Trustee in connection with such Event of Default.
The Certificates are issuable only in registered form without coupons in
such authorized denominations as provided in the Trust and Security Agreement
and subject to certain limitations therein set forth.
This Class B Certificate and the Trust and Security Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without regard to conflicts of laws principles.
No reference herein to the Trust and Security Agreement and no provision
of this Class B Certificate or of the Trust and Security Agreement shall alter
or impair the obligation of the Trust Estate to pay the principal of and
interest on this Class B Certificate, but solely from the assets of the Trust
Estate at the times, place and rate, and in the coin or currency, herein
prescribed.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class B Certificate shall not be entitled to
any benefit under the Trust and Security Agreement or be valid or obligatory
for any purpose.
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IN WITNESS WHEREOF, MF Receivables Corp. II has caused this instrument to
be signed, manually, by its President or a Vice President.
MF RECEIVABLES CORP. II
By:_____________________________
Name:___________________________
Title:____________________________
This is one of the Class B Certificates described in the within-mentioned
Trust and Security Agreement.
Dated: June 26, 1997
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:______________________________
Authorized Signatory
95
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EXHIBIT
10.56
EXECUTION COPY
- ------------------------------------------------------------------------------
MONACO FUNDING CORP.
$2,525,000
LOAN AGREEMENT
dated as of June 26, 1997
HEARTLAND BANK
as Lender
- ------------------------------------------------------------------------------
96
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LOAN AGREEMENT, dated as of June 26, 1997, between MONACO FUNDING
CORP., a Delaware corporation (the "Borrower") and HEARTLAND BANK, a
federally chartered savings association (the "Lender") (the "Agreement").
WITNESSETH:
WHEREAS, the Borrower has requested that the Lender make a loan to it in
the amount of $2,525,000 upon the terms, and subject to the conditions, set
forth herein;
WHEREAS, the Lender is willing to made such a loan to the Borrower only upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 5% or more of the
securities having ordinary voting power for the election of directors of such
Person or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Agreement": this Loan Agreement, as amended, supplemented or
otherwise modified from time to time.
"Assignee": as defined in subsection 9.6(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which banking institutions in New York City or in the city in which the
principal place of business of the Transferor, the Servicer or the corporate
trust office of the Trustee is located or the Federal Reserve are authorized
or required by law to close.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Class B Certificate": the $2,569,068 Class B Auto Loan Backed
Certificate issued by MF Receivables Corp. II Auto Loan Trust 1997-1.
"Closing Date": the date on which the conditions precedent set forth
in subsection 5.1 shall be satisfied.
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"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": the assets of the Borrower upon which a Lien is
purported to be created by the Pledge Agreement.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default": any of the events specified in Section 8;
provided that, any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any Payment Date, the excess of (i) all
amounts paid to the Borrower pursuant to Section 12.02 or 6.08, as the case
may be, of the Trust and Security Agreement over (ii) the amount of interest
paid on the Loan on such Payment Date.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counter indemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
(the "primary obligations") of any other third Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of the guaranteeing person incurred for the purpose
of providing credit support, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof, provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of business.
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"Initial Payment Date": July 14, 1997.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Period": with respect to each Payment Date, the period
commencing on and including the preceding Payment Date and ending on and
including the day prior to the applicable Payment Date; except, however, with
respect to the Initial Payment date, the period commencing on and including
the Closing Date and ending on and including the day prior to the Initial
Payment Date.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement).
"Loan": the Loan as set forth in subsection 2.1 hereof.
"Loan Documents": this Agreement, the Note and the Pledge Agreement.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower, (b) the validity or enforceability of this or any
of the other Loan Documents or (c) the rights or remedies of the Lender
hereunder or under any of the other Loan Documents.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Note": the promissory note as defined in subsection 3.1(c).
"Participants": as defined in subsection 9.6(a).
"Payment Date": the fourteenth day of each calendar month (or if such
day is not a Business Day, the next succeeding Business Day) commencing on the
Initial Payment Date.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement": the Borrower Certificate Pledge Agreement, dated
June 26, 1997 between the Borrower and the Lender, as amended, supplemented or
otherwise modified from time to time.
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"Regulation G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation X": Regulation X of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of
ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty (30) day notice period
is waived under subsections .22, .25, .27 or .28 of PBGC Reg. 4043.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"Responsible Officer": the chief executive officer, the president, any
executive vice president, the chief financial officer, controller and the
treasurer of the Borrower.
"Restricted Payment": as defined in subsection 7.6.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person.
"Termination Date": December 14, 2002.
"Transaction Documents": the Trust and Security Agreement, the
Servicing Agreement, dated as of June 1, 1997 among the MF Receivables Corp.
II, as transferor (the "Transferor"), Monaco Finance, Inc., as servicer (the
"Servicer") and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee") and back-up servicer (the "Back-up Servicer"), the Loan
Acquisition Agreement, dated as of June 1, 1997 between the Transferor and
Monaco Finance, Inc. (the "Company"), the Purchase Agreement, dated as of
June 1, 1997 between MF Receivables Corp. I and the Transferor, the Class A
Certificate Purchase Agreement, dated as of June 26, 1997 between the
Transferor and the Class A Certificate Purchaser (as defined therein) and the
Class B Certificate Purchase Agreement, dated as of June 26, 1997 between the
Transferor and the Borrower.
"Transferee": as defined in subsection 9.6(c).
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"Trust and Security Agreement": the trust and security agreement dated
as of June 1, 1997 among the Transferor, the Servicer, the Trustee and the
Back-up Servicer relating to the MF Receivables Auto Loan Trust 1997-1.
1.2 Other Definitional Provision:
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Note or any
certificate or other document made or delivered pursuant hereto.
(b)As used herein and in the Note, and any certificate or other document made
or delivered pursuant hereto, accounting terms relating to the Borrower not
defined in subsection 1.1 and accounting terms partly defined in subsection
1.1, to the extent not defined, shall have the respective meanings given to
them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement, and Section, subsection, and
Exhibit references are to this Agreement unless otherwise specified.
(d) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding". Periods of days referred to in this
Agreement shall be counted in calendar days unless Business Days are expressly
prescribed. Any period determined hereunder by reference to a month or months
or year or years shall end on the day in the relevant calendar month in the
relevant year, if applicable, immediately preceding the date numerically
corresponding to the first day of such period, provided that, if such
period commences on the last day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month during which
such period is to end), such period shall, unless otherwise expressly required
by the other provisions of this Agreement, end on the last day of the calendar
month.
(e) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF THE LOAN
2.1 Loan. Subject to the terms and conditions hereof, the Lender agrees
to make a loan (the "Loan") to the Borrower on the Closing Date in the
amount of $2,525,000.
2.2 Use of Proceeds of the Loan. The proceeds of the Loan shall be utilized
by the Borrower to purchase the Class B Certificate and for general working
capital purposes.
SECTION 3. PROVISIONS RELATING TO THE LOAN;
FEES AND PAYMENTS
3.1 Repayment of the Loan; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the Lender the
unpaid principal amount of the Loan on the Termination Date or such earlier
date that the Loan becomes due and payable pursuant to Section 8.
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(b) The Borrower shall execute and deliver to the Lender a promissory note of
the Borrower evidencing the Loan of the Lender, substantially in the form of
Exhibit A with appropriate insertions as to date and principal amount (the
"Note").
3.2 Mandatory Prepayments. The Borrower shall on each Payment Date,
repay the Loan in an amount equal to 100% of Excess Cash Flow for each Payment
Date. The Borrower shall not be permitted to make any optional prepayment of
the Loan.
3.3 Interest Rates and Payment Dates.
(a) The Loan shall bear interest at a rate per annum equal to 16%.
(b) If all or a portion of any interest payable on the Loan shall not be paid
when due (whether at the stated maturity, by acceleration or otherwise), such
overdue interest shall bear interest at the rate described in paragraph (a) of
this subsection from the date of such non-payment until such overdue interest
is paid in full (as well after as before judgment).
(c) Interest shall be payable in arrears on each Payment Date.
(d) Notwithstanding anything to the contrary contained herein, in no event
shall the Borrower be obligated to pay interest in excess of the maximum
amount which is chargeable under applicable law.
3.4 Computation of Interest and Fees. Interest shall be calculated on
the basis of a 360 day calendar year (consisting of 12 months of 30 days
each).
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan
the Borrower hereby represents and warrants to the Lender that:
4.1 Financial Condition. The unaudited balance sheet of the Borrower
as at June 26, 1997, copies of which have heretofore been furnished to the
Lender, are complete and correct and present fairly in all material respects
the financial condition of the Borrower as at such date. The financial
statement has been prepared in accordance with GAAP. The Borrower does not
have, at the date of the most recent balance sheet referred to above, any
Guarantee Obligation, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the foregoing statements or in the
notes thereto. Except to the extent permitted under this Agreement or
separately disclosed to the Lender in writing prior to the date hereof, there
has been no sale, transfer or other disposition by the Borrower of any
material part of its business or property, and no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the financial condition of the Borrower
at June 26, 1997.
4.2 RESERVED.
4.3 Disclosure. No information, schedule, exhibit or report or other
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document furnished by the Borrower to the Lender in connection with the
negotiation of this Agreement or any other Loan Document (or pursuant to the
terms hereof or thereof), as such information, schedule, exhibit or report or
other document has been amended, supplemented or superseded by any other
information, schedule, exhibit or report or other document later delivered to
the same parties receiving such information, schedule, exhibit or report or
other document, contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the statements contained
therein, in light of the circumstances when made, not materially misleading.
4.4 Corporate Existence; Compliance with Law. The Borrower (i) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has the corporate power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently
engaged, (iii) is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except to
the extent that all failures to be so qualified could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect and (iv) is in
compliance with all Requirements of Law except to the extent that all failures
to comply therewith could not, in the aggregate, reasonably be expected to
have a Material Adverse Effect.
4.5 Corporate Power, Authorization, Enforceable Obligations. The Borrower
has the corporate power and authority, and the legal right, to make, deliver
and perform the Loan Documents and to borrow hereunder and has taken all
necessary corporate action to authorize the borrowing on the terms and
conditions of this Agreement and the Note and to authorize the execution,
delivery and performance of the Loan Documents. No consent or authorization
of, filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the borrowing
hereunder or with the execution, delivery, performance, validity or
enforceability of the Loan Documents. This Agreement has been, and each other
Loan Document will be, duly executed and delivered on behalf of the Borrower.
This Agreement constitutes, and each other Loan Document when executed and
delivered will constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
4.6 No Legal Bar. The execution, delivery and performance of the Loan
Documents, the borrowing hereunder and the use of the proceeds thereof will
not violate any material Requirement of Law or material Contractual Obligation
of the Borrower and will not result in, or require, the creation or imposition
of any Lien on any of its or their respective properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation.
4.7 No Material Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or threatened by
or against the Borrower or against any of its or their respective properties
or revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
4.8 No Default. The Borrower is not in default under or with respect to any
of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default
has occurred and is continuing.
4.9 Ownership of Property; Liens. The Borrower has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by subsection 7.2.
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4.10 Taxes. The Borrower has filed or caused to be filed all tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the Borrower); no tax Lien has been filed, and,
to the knowledge of the Borrower, no claim is being asserted, with respect to
any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of the Loan will be used
in any manner which would violate, or result in the violation of, Regulation G
or Regulation U of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect. If requested by the Lender, the
Borrower will furnish to the Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.12 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which
this representation is made or deemed made with respect to any Plan, and each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan,
and neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as
of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial
and other assumptions which are reasonable in respect of the benefits provided
and the employees participating) of the liability of the Borrower and each
Commonly Controlled Entity for post retirement benefits to be provided to
their current and former employees under Plans which are welfare benefit plans
(as defined in Section 3(l) of ERISA) does not, in the aggregate, exceed the
assets under all such Plans allocable to such benefits by an amount in excess
of $100,000.
4.13 Investment Company Act; Other Regulations. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
4.14 Pledge Agreement.
(a) The Pledge Agreement constitutes a legal, valid and binding
obligation of the Borrower enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(b) Upon delivery to the Lender of the certificate evidencing the pledged
certificate, the security interests granted pursuant to the Pledge Agreement
will constitute a valid, perfected first priority security interest on such
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pledged certificate, enforceable as such against all creditors of the Borrower
and any Persons purporting to purchase any such pledged certificate from the
Borrower.
4.15 Solvency. The aggregate value of all of the assets of the
Borrower, at a fair valuation, equals or exceeds the total liabilities of the
Borrower (including contingent, subordinated, unmatured and unliquidated
liabilities). The Borrower has the ability to pay its respective debts as
they mature and does not have unreasonably small capital with which to conduct
its respective businesses. For purposes of this subsection 4.16, the "fair
valuation" of such assets shall be determined on the basis of that amount
which may be realized within a reasonable time, in any manner through
realization of the value of or dispositions of such assets at the regular
market value, conceiving the latter as the amount which could be obtained for
the properties in question within such period by a capable and diligent
business person from an interested buyer who is willing to purchase under
ordinary selling conditions.
4.16 No Subsidiaries. The Borrower has no Subsidiaries.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to the Loan. The agreement of the Lender to make the
Loan requested to be made by it hereunder is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan on the
Closing Date, of the following conditions precedent:
(a) Loan Documents. The Lender shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower, (ii) the
Pledge Agreement, executed and delivered by a duly authorized officer of the
party thereto, (iii) the Note to the order of the Lender executed on behalf of
the Borrower, and (iv) copies of the Transaction Documents, executed and
delivered by a duly authorized officer of the parties thereto.
(b)Agreements. The Lender shall have received true and correct copies,
certified as to authenticity by the Borrower, of such documents or instruments
as may be reasonably requested by the Lender.
(c) Closing Certificate of Borrower. The Lender shall have received a
certificate of the President or any Vice President and the Secretary or an
Assistant Secretary of the Borrower, dated the Closing Date, (i) attaching the
Certificate of Incorporation and By-laws (of the Borrower), (ii) attaching the
resolutions of the Board of Directors of the Borrower with respect to the
transactions contemplated hereby, (iii) certifying that such resolutions have
not been amended, modified, revoked or rescinded as of the date of such
certificate and (iv) certifying as to the incumbency and signature of the
officers of the Borrower executing any Loan Document; such certificate (and
the attachments thereto) shall be in form and substance satisfactory to the
Lender.
(d) Corporate Structure. The Lender shall be satisfied with the corporate
and legal structure and capitalization of the Borrower, including the terms
and conditions of the charter, bylaws and each class of capital stock of the
Borrower and of each agreement or instrument relating to such structure or
capitalization.
(e) Fees and Expenses. The Lender shall have received all accrued fees and
expenses owing hereunder or in connection herewith (including, without
limitation, accrued fees and disbursements of counsel to the Lender), to the
extent that such fees and expenses have been presented for payment a
reasonable time prior to the Closing Date.
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(f) Legal Opinions. The Lender shall have received an executed legal
opinion of Giancarlo & Gnazzo, a professional corporation, counsel to the
Borrower, covering such matters incident to the transactions contemplated by
this Agreement as the Lender may reasonably require.
(g) Pledged Certificate. The Lender shall have received the Class B
Certificate pledged pursuant to the Pledge Agreement.
(h) Actions to Perfect Liens. The Lender shall have received evidence in
form and substance reasonably satisfactory to it that all filings, recordings,
registrations and other actions, including, without limitation, the filing of
duly executed financing statements on form UCC-1, necessary or, in the
reasonable opinion of the Lender, desirable to perfect the Liens created by
the Pledge Agreement shall have been completed.
(i) Additional Information. The Lender shall have received such additional
agreements, opinions, certifications, instruments, documents, orders,
consents, financing statements, reports, studies, audits and other information
in form and substance satisfactory to the Lender, as the Lender may reasonably
request.
(j) Representations and Warranties. Each of the representations and
warranties made by the Borrower in or pursuant to the Loan Documents and the
Transaction Documents shall be true and correct in all material respects.
(k) No Default. No Default or Event of Default shall have occurred and be
continuing.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any amount is owing to
the Lender hereunder or under any other Loan Document, the Borrower shall:
6.1 Financial Statements. Furnish to the Lender within 60 days after
the end of each quarter of each fiscal year, a copy of the unaudited balance
sheet of the Borrower as at the end of such quarter and the related statements
of income and retained earnings and of cash flows for the portion of such
year, such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by a Responsible Officer and disclosed
therein).
6.2 Certificates; Other Information. Furnish to the Lender:
(a) concurrently with the delivery of the financial statements referred
to in subsection 6.1, a certificate of a Responsible Officer reporting on such
financial statements stating that such officer has no knowledge of any Default
or Event of Default, except as specified in such certificate;
(b) promptly, copies of any information or document received by the Borrower
in its capacity as holder of the Class B Certificate; and
(c) promptly, such additional financial and other information as the Lender
may from time to time reasonably request.
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6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity in accordance with customary terms in the industry or before
they become delinquent, as the case may be, all of its material obligations of
whatever nature, except where the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of
the Borrower.
6.4 Conduct of Business and Maintenance of Existence. Continue to engage in
business of the same general type as now conducted by it and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary
or (in the reasonable judgment of the Borrower) desirable in the normal
conduct of its business; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith
could not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
6.5 Inspection of Property; Books and Records; Discussions. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of the Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time (upon reasonable advance notice, when no Default or Event of Default has
occurred and is continuing) and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Borrower with officers and employees of the Borrower and with its
independent certified public accountants.
6.6 Notices. Promptly give notice to the Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation of
the Borrower or (ii) litigation, investigation or proceeding which may exist
at any time between the Borrower and any Governmental Authority, which in
either case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower in which the amount
involved is $100,000 or more and not covered by insurance or in which
injunctive or similar relief is sought which could have a Material Adverse
Effect;
(d) the occurrence of (i) any material adverse change in the business,
operations, property, condition (financial or otherwise) or prospects of the
Borrower taken as a whole or (ii) any development or event which could
reasonably be expected to have a Material Adverse Effect on the rights or
remedies of the Lender hereunder or under any of the other Loan Documents; and
(e) any (i) Lien (other than the Liens permitted in subsection 7.2) on any of
the Collateral or (ii) other event which could reasonably be expected to have
a Material Adverse Effect on the aggregate value of Collateral or on the
security interests created hereby.
(f) The following events, as soon as possible and in any event within
thirty (30) days after the Borrower knows or has reason to know thereof: (i)
the occurrence or expected occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the creation
of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii)
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the institution of proceedings or the taking of any other action by the PBGC
or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan;
(g) Each notice pursuant to this subsection 6.6 shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take with
respect thereto.
6.7 Further Assurances.
(a) Upon the request of the Lender, promptly perform or cause to be
performed any and all acts and execute or cause to be executed any and all
documents (including, without limitation, financing statements and
continuation statements) for filing under the provisions of the Uniform
Commercial Code or any other Requirement of Law which are necessary or
reasonably advisable to maintain in favor of the Lender, for the benefit of
the Lender, Liens on the Collateral that are duly perfected in accordance with
all applicable Requirements of Law.
(b) Upon request of the Lender, promptly provide such documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby as the Lender shall reasonably request.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any amount is owing to the
Lender hereunder or under any other Loan Document, the Borrower shall not
directly or indirectly:
7.1 Limitation on Indebtedness and Preferred Stock. Create, incur,
assume or suffer to exist any Indebtedness or preferred stock (other than
preferred stock which, by its terms, does not require the payment of any cash
dividends thereon or impose any cash penalties for the failure to declare cash
dividends thereon), except Indebtedness of the Borrower under this Agreement.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower in conformity with
GAAP; and
(b) Liens created pursuant to the Pledge Agreement.
7.3 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation.
7.4 Limitation on Fundamental Changes. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
7.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired.
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7.6 Limitation on Dividends. Declare or pay any dividend on, or make any
payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or
any warrants or options to purchase any such Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower (such declarations, payments, setting apart, purchases, redemptions,
defeasances, retirements, acquisitions and distributions being herein called
"Restricted Payments").
7.7 Limitation on Capital Expenditures. Make or commit to make any capital
expenditures.
7.8 Limitation on Investments, Loan and Advances. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in, any Person, except as permitted
hereunder.
7.9 Limitation on Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate unless such
transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's and (c) upon fair and reasonable terms no
less favorable to the Borrower, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
7.10 Limitation on Negative Pledge Clauses. Enter into with any Person any
agreement, other than this Agreement, purchase money mortgages, which
prohibits or limits the ability of the Borrower to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
7.11 Limitation on Lines of Business. Enter into any business except for
(a) the businesses in which the Borrower is engaged on the date hereof and
businesses of a similar type and (b) other activities relating thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of the Loan when due in
accordance with the terms thereof or hereof, or the Borrower shall fail to pay
any interest on the Loan, or any other amount payable hereunder, within five
(5) Business Days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower herein
or in any other Loan Document or which is contained in any certificate,
document or financial or other statement furnished by it at any time under or
in connection with this Agreement or any such other Loan Document shall prove
to have been incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Borrower shall default in the observance or performance of any
agreement or covenant contained herein or in any other Loan Document and such
default shall continue unremedied for a period of thirty (30) days; or
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(d) (i) The Borrower shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or the Borrower shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against the Borrower any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (iii) there shall
be commenced against the Borrower any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry
of an order for any such relief which shall not have been vacated, discharged,
or stayed or bonded pending appeal within sixty (60) days from the entry
thereof; or (iv) the Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the Borrower shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(e) One or more judgments or decrees shall be entered against the Borrower
involving in the aggregate a liability (not paid or fully covered by
insurance) of $100,000 or more, and all such judgments or decrees shall not
have been vacated, discharged, stayed or bonded pending appeal within sixty
(60) days from the entry thereof; or
(f) The Loan Documents shall cease, for any reason, to be in full force and
effect, or the Borrower shall so assert or the Lien created by the Pledge
Agreement shall cease to be enforceable and of the same effect and priority
purported to be created thereby; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, shall exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee
is, in the reasonable opinion of the Lender, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Lender is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan
or (vi) any other adverse event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to involve an aggregate amount of liability to the
Borrower in excess of $100,000.
Then, and in any such event, (A) if such event is an Event of
Default specified clause (i) or (ii) of paragraph (d) of this Section 8,
automatically the Loan hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement shall immediately become due and payable,
and (B) if such event is any other Event of Default, the Lender may, by
notice to the Borrower, declare the Loan hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement to be due and
payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section 8, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
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SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection 9.1. The
Lender may, from time to time, (a) enter into with the Borrower written
amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lender or of
the Borrower hereunder or thereunder or (b) waive, on such terms and
conditions as the Lender may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents or any Default or
Event of Default and its consequences. Any such waiver and any such
amendment, supplement or modification shall be binding upon the Borrower and
the Lender and all future holders of the Loan. In the case of any waiver, the
Borrower and the Lender shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by mail, three (3) days after being
deposited in the mails, postage prepaid, (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Lender, and (d) in the case of
overnight courier, when delivered, to the address as follows in the case of
the Borrower and the Lender, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Monaco Funding Corp.
370 17th Street
Denver, Colorado 80202
Attn: Craig Caukin
copy to: Giancarlo & Gnazzo
625 Market Street
San Francisco, California 94105
Attn: Dianne Giancarlo, Esq.
Phone: (415) 541-0500
Fax: (415) 541-0506
The Lender: Heartland Bank
212 South Central Avenue, Suite 201
St. Louis, Missouri 63105
Attention: John Wuest
Phone: (314) 512-8503
Fax: (314) 512-8501
copy to: Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: M. David Krohn, Esq.
Phone: (202) 663-8520
Fax: (202) 663-8007
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provided that any notice, request or demand to or upon the Lender pursuant
to subsection 3.3 shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising on the part of the Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of
the Loan hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Lender for all of its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Lender, (b) to pay or
reimburse the Lender for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the
other Loan Documents and any such other documents, including, without
limitation, the reasonable fees and disbursements of counsel to the Lender,
(c) to pay, indemnify, and hold the Lender harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and
hold the Lender harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use of the proceeds of the Loan and
any such other documents (all the foregoing in this clause (d), collectively,
the "indemnified liabilities"), provided that the Borrower shall have no
obligation hereunder to the Lender with respect to indemnified liabilities to
the extent arising from the gross negligence or willful misconduct of the
Lender. The agreements in this subsection 9.5 shall survive repayment of the
Loan and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Lender,
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Lender.
(a) The Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or
more banks or other financial institutions ("Participants") participating
112
<PAGE>
interests in the Loan owing to the Lender or any other interest of the Lender
hereunder and under the other Loan Documents. In the event of any such sale
by the Lender of a participating interest to a Participant, the Lender's
obligations under this Agreement shall remain unchanged, the Lender shall
remain solely responsible for the performance thereof, the Lender shall remain
the holder of any such Loan for all purposes under this Agreement and the
other Loan Documents, and the Borrower shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and
obligations under this Agreement and the other Loan Documents. The Lender
shall not be entitled to create in favor of any Participant, in the
participation agreement pursuant to which such Participant's participating
interest shall be created or otherwise, any right to vote on, consent to or
approve any matter relating to this Agreement or any other Loan Document. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in
purchasing such participating interest, such Participant shall be deemed to
have agreed to share with the Lender the proceeds thereof as fully as if it
were a Lender hereunder; provided further that no Participant shall be
entitled to receive any greater amount pursuant to any such subsection than
the Lender would have been entitled to receive in respect of the amount of the
participation transferred by the Lender to such Participant had no such
transfer occurred.
(b) The Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time and from time to time
assign to any bank or financial institution (an "Assignee") all or any part
of its rights and obligations under this Agreement and the other Loan
Documents pursuant to an Assignment and Acceptance, in form and substance
acceptable to the Lender, executed by such Assignee, (and, in the case of an
Assignee that is not an affiliate thereof, by the Borrower). From and after
the effective date determined pursuant to such Assignment and Acceptance, (x)
the Assignee thereunder shall be a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of the Lender
hereunder, and (y) the Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of the Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
(c) Subject to Section 9.14 hereof, the Borrower authorizes the Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in the Lender's
possession concerning the Borrower and its Affiliates which has been delivered
to the Lender by or on behalf of the Borrower pursuant to this Agreement or
which has been delivered to the Lender by or on behalf of the Borrower in
connection with the Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(d) For avoidance of doubt, the parties to this Agreement acknowledge that the
provisions of this subsection 9.6 concerning assignment of the Loan and the
Note relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by the Lender of the Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
9.7 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
113
<PAGE>
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Lender.
9.8 Severability. Any provision of this Agreement which is prohibited 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 shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.9 Integration. This Agreement and the other Loan Documents represent the
agreement of the Borrower, and the Lender with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
9.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF MISSOURI.
9.11 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents, or for recognition
and enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the courts of the State of Missouri, the courts of the
United States of America for the District of Missouri, and appellate courts
from any thereof;
(b) consents that any such action or proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in subsection 9.2 or at such other address of which the
Lender shall have been notified pursuant thereto;
(d)agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, except in the case of extreme bad faith (and otherwise to the
maximum extent not prohibited by law), any right it may have to claim or
recover in any legal action or proceeding referred to in this subsection 9.11
any special, exemplary, punitive or consequential damages.
9.12 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
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<PAGE>
(b) the Lender has no fiduciary relationship with or duty to the Borrower
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between Lender and the Borrower, in connection
herewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Borrower and the Lender.
9.13 WAIVERS OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.14 Confidentiality. The Lender agrees that it will use reasonable efforts
not to disclose without the prior consent of the Borrower (other than to its
employees, auditors, counsel or other professional advisors, affiliates, if
the disclosing Person reasonably determines that such other Person is required
to have access to such information) any information with respect to the
Borrower which is furnished pursuant to this Agreement or any other Loan
Document that is identified by such Person as being confidential at the time
the same is delivered to the Lender; provided that the Lender may disclose
any such information (a) as has become generally available to the public, (b)
as may be required or appropriate in any report, statement or testimony
submitted to or in connection with any examination conducted by any
Governmental Authority having or claiming to have jurisdiction over such
Lender (including the Federal Reserve Board and the Federal Deposit Insurance
Corporation or any similar organization (whether in the United States or
elsewhere) and their respective successors), (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (d) to comply with any Requirement of Law applicable to it, (e) in
connection with any litigation to which the Lender is a party or in
connection with the enforcement of rights or remedies hereunder or under any
Loan Document, or (f) to any prospective Transferee, if such prospective
Transferee has agreed in writing to be bound by the provisions of this Section
9.14 to the same extent as the disclosing Person. The Borrower acknowledges
and agrees that the Lender may share with any of its affiliates any
information related to the Borrower (including, without limitation, nonpublic
information regarding the creditworthiness of Monaco Finance, Inc. or the
Borrower), so long as such affiliate is subject to the provisions of this
Section 9.14 to the same extent as the Lender.
115
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
HEARTLAND BANK,
as Lender
By: /s/ John J. Wuest
--------------------
Name: John J. Wuest
Title: President
MONACO FUNDING CORP.,
as Borrower
By: /s/ Morris Ginsburg
---------------------
Name: Morris Ginsburg
Title: President
116
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$2,525,000 June 26, 1997
FOR VALUE RECEIVED, the undersigned, MONACO FUNDING CORP., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of HEARTLAND BANK, a federally chartered savings association (the
"Lender") at the office located at 212 South Central Avenue, St. Louis,
Missouri 63105 in lawful money of the United States of America and in
immediately available funds, the principal amount of TWO MILLION FIVE HUNDRED
AND TWENTY FIVE THOUSAND DOLLARS AND NO/100 ($2,525,000). The principal
amount shall be paid in the amounts and on the dates specified in Section 3 of
the Loan Agreement . The Borrower further agrees to pay interest in like money
at such office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in subsection 3.3 of such
Loan Agreement.
This Note (a) is the Note referred to in the Loan Agreement dated as of June
26, 1997 (the "Loan Agreement") between the Borrower and the Lender and (b)
is subject to the provisions of the Loan Agreement. This Note is secured as
provided in the Loan Documents. Reference is hereby made to the Loan
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security, the terms
and conditions upon which the security interest was granted and the rights of
the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Loan Agreement.
All parties now and hereafter liable with respect to this Note, whether maker,
principal, surety, guarantor, endorser or otherwise, hereby waive presentment,
demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Loan Agreement and
used herein shall have the meanings given to them in the Loan Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF MISSOURI.
MONACO FUNDING CORP.,
as Borrower
By:____________________
Name:__________________
Title:_________________
117
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MONACO FINANCE, INC.
Date: August 13, 1997
By: /s/ Morris Ginsburg
---------------------
Morris Ginsburg
President,
By: /s/ Michael H. Feinstein
---------------------------
Michael H. Feinstein,
Chief Financial Officer
118
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and the Consolidated Statemens of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 5,924,878 5,924,878
<SECURITIES> 0 0
<RECEIVABLES> 82,528,764 82,528,764
<ALLOWANCES> (6,230,478) (6,230,478)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 3,995,881 3,995,881
<DEPRECIATION> 1,758,355 1,758,355
<TOTAL-ASSETS> 90,903,690 90,903,690
<CURRENT-LIABILITIES> 0 0
<BONDS> 73,800,117 73,800,117
0 0
0 0
<COMMON> 84,771 84,771
<OTHER-SE> 15,433,421 15,433,421
<TOTAL-LIABILITY-AND-EQUITY> 90,903,690 90,903,690
<SALES> 0 0
<TOTAL-REVENUES> 3,091,436 6,478,556
<CGS> 0 0
<TOTAL-COSTS> 2,708,709 5,887,984
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 77,270 194,249
<INTEREST-EXPENSE> 1,353,350 2,754,510
<INCOME-PRETAX> (1,047,893) (2,358,187)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,047,893) (2,358,187)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,047,893) (2,358,187)
<EPS-PRIMARY> (0.14) (0.32)
<EPS-DILUTED> (0.14) (0.32)
</TABLE>
