<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(For the Quarterly Period ended June 30, 1996)
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from to
---------------- ---------------
Commission File Number: 0-24286
EAGLE FINANCE CORP.
-------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 36-2464365
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1425 TRI-STATE PARKWAY, GURNEE, ILLINOIS 60031-4060
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(847) 855-7150
-------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock as of the latest practicable date:
10,000,000 shares of common stock, $0.01 par value per share, were authorized
and 4,189,100 shares were issued and outstanding as of June 30, 1996.
<PAGE>
EAGLE FINANCE CORP.
FORM 10-Q
------------------------
TABLE OF CONTENTS
------------------------
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets.................................................. 3
Statements of Income............................................ 4
Statements of Changes in Stockholders' Equity................... 5
Statements of Cash Flows........................................ 6
Notes to Financial Statements................................... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 8
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.......................................... 17
Item 2. CHANGES IN SECURITIES...................................... 17
Item 3. DEFAULTS UPON SENIOR SECURITIES............................ 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................................... 17
Item 5. OTHER INFORMATION.......................................... 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 18
SIGNATURES........................................................... S-1
2
<PAGE>
EAGLE FINANCE CORP.
BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Finance receivables, net........................................ $119,473,972 $127,928,453 $145,718,866
Nonrefundable acquisition discount.............................. (5,378,439) (15,649,127) (9,428,152)
Allowance for credit losses..................................... (8,892,423) (1,242,762) (10,807,835)
------------ ------------ ------------
105,203,110 111,036,564 125,482,879
Cash............................................................ 1,654,451 1,306,140 2,069,217
Money market investments........................................ 554,155 -- 545,000
Prepaid expenses and debt issuance costs........................ 1,030,745 1,083,947 1,142,925
Repossessed or titled assets.................................... 4,761,981 1,357,594 4,429,140
Deferred income tax............................................. 4,908,341 359,042 4,136,270
Other assets.................................................... 1,282,148 1,057,779 1,253,046
------------ ------------ ------------
$119,394,931 $116,201,066 $139,058,477
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt..................................................... $ 81,902,675 $75,714,718 $100,651,557
Subordinated debt............................................... 17,970,114 17,995,765 18,045,298
Accrued interest................................................ 367,353 303,543 502,834
Accrued income tax.............................................. -- -- 683,144
Accounts payable and accrued liabilities........................ 2,986,945 4,252,183 3,180,328
Unearned insurance commissions.................................. 30,252 98,598 46,115
Dealer reserves................................................. 270,701 72,911 292,864
------------ ------------ ------------
Total liabilities............................................... 103,528,040 98,437,718 123,402,140
Stockholders' equity:
Preferred Stock, authorized 3,000,000 shares;
none issued................................................ -- -- --
Common Stock: $.01 par value, authorized
10,000,000 shares, issued and outstanding 4,189,100
shares at June 30, 1996 and December 31, 1995 and
4,180,000 shares at June 30, 1995.......................... 41,891 41,800 41,891
Additional paid-in capital...................................... 13,514,422 13,392,437 13,514,422
Retained earnings............................................... 2,310,578 4,329,111 2,100,024
------------ ------------ ------------
Total stockholders' equity...................................... 15,866,891 17,763,348 15,656,337
------------ ------------ ------------
$119,394,931 $116,201,066 $139,058,477
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
EAGLE FINANCE CORP.
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- ---------------------------
1996 1995 1996 1995
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fee income....................... $ 7,279,401 $ 5,892,900 $ 15,359,907 $ 10,741,133
Interest expense.............................. (2,483,799) (1,811,162) (4,872,722) (3,230,891)
------------ ------------ ------------ ------------
Net interest income.............................. 4,795,602 4,081,738 10,487,185 7,510,242
Provision for credit losses...................... (2,200,000) 40,167 (4,896,000) 52,890
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses........................... 2,595,602 4,121,905 5,591,185 7,563,132
Other income:
Servicing income.............................. 1,676,033 811,923 2,353,410 1,358,159
Insurance commissions......................... 13,850 85,133 35,085 167,025
------------ ------------ ------------ ------------
Total other income............................... 1,689,883 897,056 2,388,495 1,525,184
Income before operating expenses................. 4,285,485 5,018,961 7,979,680 9,088,316
Operating expenses:
Salaries and related costs.................... 2,138,417 1,490,360 3,882,362 2,570,248
Other operating expenses...................... 1,995,982 1,372,733 3,807,780 2,336,116
------------ ------------ ------------ ------------
Total operating expenses......................... 4,134,399 2,863,093 7,690,142 4,906,364
------------ ------------ ------------ ------------
Income before income taxes....................... 151,086 2,155,868 289,538 4,181,952
Applicable income taxes.......................... 26,784 841,299 78,984 1,627,420
Net income....................................... $. 124,302 $ 1,314,569 $ 210,554 $ 2,554,532
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Per share data:
Net income per common share
(primary).................................. $0.03 $0.31 $0.05 $0.61
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share
(fully diluted)............................ $0.03 $0.30 $0.05 $0.59
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Average number of common shares
outstanding (primary)....................... 4,189,100 4,180,000 4,189,100 4,180,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Average number of common shares
outstanding (fully diluted)................. 4,189,100 4,310,400 4,192,400 4,302,200
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
EAGLE FINANCE CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock:
Balance at beginning of period................ $ 41,891 $ 41,800 $ 41,891 $ 41,800
Stock options exercised....................... -- -- -- --
------------ ------------ ------------ ------------
41,891 41,800 41,891 41,800
------------ ------------ ------------ ------------
Additional paid-in capital:
Balance at beginning and end of period........ 13,514,422 13,392,437 13,514,422 13,392,437
Retained earnings:
Balance at beginning of period................ 2,186,276 3,014,542 2,100,024 1,774,579
Net income.................................... 124,302 1,314,569 210,544 12,554,533
------------ ------------ ------------ ------------
2,310,578 4,329,111 2,310,578 4,329,112
------------ ------------ ------------ ------------
Total stockholders' equity $ 15,866,891 $ 17,763,348 $ 15,866,891 $ 17,763,349
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EAGLE FINANCE CORP.
STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 124,302 $ 1,314,569 $ 210,554 $ 2,554,532
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for credit losses................. 2,200,000 40,167 4,896,000 52,890
Net finance receivable (charge-offs)
recoveries against allowance................ (5,315,282) (46,205) (6,811,412) (58,928)
Decrease (increase) in:
Prepaid expenses.......................... 217,443 14,138 172,738 77,805
Repossessed or titled assets.............. (314,795) (531,844) (332,841) (691,169)
Other assets.............................. 103,323 (545,672) (29,102) (757,795)
Deferred tax................................ (772,071) -- (772,071) --
Increase (decrease) in:
Accrued interest.......................... (364,988) (235,027) (135,481) 184,114
Accrued income tax........................ (710,644) (796,276) (683,144) (240,305)
Accounts payable and accrued
liabilities............................. (125,671) 360,727 (193,382) 1,281,579
Unearned insurance commissions............ (11,968) 4,915 (15,863) (5,299)
Dealer reserves........................... (24,451) 60,707 (22,163) (1,017)
Nonrefundable acquisition discount........ (444,363) 4,735,720 (4,049,713) 6,978,007
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities..................................... (5,439,165) 4,375,919 (7,765,880) 9,374,414
------------ ------------ ------------ ------------
Cash flows from investing activities:
Investments................................. (9,155) -- (9,155) --
Proceeds from bulk sale of vehicle retail
installment notes........................ 21,470,402 18,993,924 34,282,274 18,993,924
Principal collected on finance receivables.. 12,300,627 12,080,892 27,139,870 19,633,598
Finance receivables originated or
acquired (net of write-offs).............. (17,382,429) (67,923,052) (35,177,250) (87,691,932)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities..................................... 16,379,445 (36,848,236) 26,235,739 (49,064,410)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from draws on bank lines........... 12,700,000 174,879,532 29,280,583 324,329,532
Repayments of borrowings.................... (23,950,000) (157,625,000) (48,480,583) (300,069,532)
Proceeds from issuance of other debt........ 14,320 17,048,901 55,728 17,086,079
Repayment of other debt..................... (130,913) (399,999) (130,913) (382,921)
Debt issuance cost.......................... (102,432) (952,570) (60,558) (1,041,313)
Debt issued to an affiliate................. 489,774 (536,863) 451,118 218,906
Dividends paid.............................. -- -- -- --
Deferred tax credit to additional paid-in
capital................................... -- -- -- --
------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities..................................... (10,979,251) 32,414,001 (18,884,625) 40,140,751
------------ ------------ ------------ ------------
Cash, net change................................. (38,971) (58,316) (414,766) 450,755
Cash at beginning of period...................... 1,693,422 1,364,456 2,069,217 855,385
------------ ------------ ------------ ------------
Cash at end of period............................ $ 1,654,451 $ 1,306,140 $ 1,654,451 $ 1,306,140
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental cash flow disclosures - cash paid
during the period for:
Interest.................................... $ 1,828,772 $ 2,046,189 $ 3,931,756 $ 3,046,776
Income taxes and Illinois replacement tax... $ 1,509,500 $ 1,570,443 $ 1,534,200 $ 1,800,593
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
EAGLE FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
1. The financial statements of Eagle Finance Corp., a Delaware corporation
(the "Company"), are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a fair
presentation of results as of the dates and for the periods covered by the
financial statements. The results for the interim periods are not necessarily
indicative of the results of operations that may be expected for the fiscal
year. Management suggests that the unaudited interim financial statements
contained herein be read in conjunction with the financial statements and the
accompanying notes to the financial statements included in the Company's 1995
Annual Report on Form 10-K, as amended.
2. Net income per common share amounts are based on the weighted average
number of common shares and common stock equivalents outstanding as reflected on
Exhibit 11 to this Quarterly Report on Form 10-Q.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a specialized financial services company engaged primarily
in acquiring and servicing automobile retail installment sales contracts
("Installment Contracts") for purchases of late model used automobiles by "non-
prime" consumers, who typically have limited access to traditional sources of
consumer credit. To a lesser extent, the Company also makes direct consumer
loans and finance leases and purchases other retail installment sale contracts
(collectively "Other Loans") and offers, as agent, insurance and other products
related to consumer finance transactions (collectively "Insurance Products").
The Company maintains its corporate headquarters and a regional office near
Chicago in Gurnee, Illinois, and operates two other regional offices in Tampa
and Orlando, Florida.
As of June 30, 1996, the Company had active relationships (I.E., the
Company purchased Installment Contracts from such dealers during the preceding
90 days) with approximately 450 dealers located primarily in Illinois, Florida,
Georgia, and South Carolina, and, to a lesser extent, in Arizona, Colorado,
Idaho, Indiana, Kentucky, Nevada, New Mexico, Ohio, Tennessee, Texas, Utah,
Wisconsin and Wyoming.
The following is management's discussion and analysis of the financial
condition of the Company at June 30, 1996 (unaudited) as compared to June 30,
1995 (unaudited) and December 31, 1995, and the results of operations for the
three and six months ended June 30, 1996 and 1995 (unaudited). This discussion
should be read in conjunction with the Company's financial statements and notes
thereto appearing elsewhere in this quarterly report. Data for the three and
six months ended June 30, 1996 are not necessarily indicative of results
expected for the full fiscal year. The ratios and percentages provided below
are calculated using the detailed financial information contained in the
Company's financial statements and the financial data included elsewhere in this
Form 10-Q. References to "net" finance receivables or Installment Contracts
shall mean finance receivables or Installment Contracts, as appropriate, net
of unearned finance charges.
RECENT DEVELOPMENTS
On June 5, 1996 the Company announced the appointment of Robert J. Braasch
as president of the Company, effective July 1, 1996, succeeding Ronald B.
Clonts, who assumed the position of Vice Chairman of the Board.
On June 25, 1996 the Company sold approximately $21.5 million (net) of
Installment Contracts to General Electric Capital Corporation ("GECC") under an
Asset Purchase Agreement dated as of June 25, 1996, between the Company and GECC
(the "GECC Agreement"). After giving effect to this sale, as of June 30, 1996,
the Company serviced approximately $56.5 million (net) of Installment Contracts
sold to GECC pursuant to an Amended and Restated Servicing Agreement dated as of
June 25, 1996 between the Company and GECC. SEE "Liquidity and Capital
Resources."
On August 6, 1996 the Company announced the appointment of Sam M. Keith as
chief operating officer of the Company.
GENERAL
Installment Contracts represented approximately 99.7% of the Company's net
finance receivables at June 30, 1996. Installment Contracts are purchased on a
non-recourse basis from automobile dealers and are typically secured by medium-
priced used automobiles. The automobiles are purchased by non-prime consumers
at retail prices typically ranging from approximately $6,000 to $15,000.
Installment Contracts financing such purchases typically have annual percentage
rates of interest ("APRs") ranging from 14% to 28% and repayment terms ranging
from 12 to 60 months. The average original principal amount financed under
Installment Contracts outstanding at June 30, 1996 was approximately $8,330, at
an average APR of approximately 27%, with an average original term of
approximately 40 months. The Company's experience has shown, however, that the
average life of the Company's Installment Contracts is substantially less than
40 months due to the amount of payoffs and repossessions that occur prior to
contract maturity.
8
<PAGE>
The Company's portfolio of managed (owned or serviced) finance receivables,
net of unearned finance charges, declined to $176.0 million at June 30, 1996
from $184.9 million at December 31, 1995 and increased from $158.9 million at
June 30, 1995. The Company's income before income taxes declined to $211,000
for the six months ended June 30, 1996 from $2.6 million for the six months
ended June 30, 1995. SEE "Accounting Matters."
Interest and servicing income on managed Installment Contracts accounts
for most of the Company's revenue. The net amount of Installment Contracts
purchased declined to $57.5 million during the six months ended June 30, 1996
from $96.7 million during the six months ended June 30, 1995. As reflected
in the following table, the finance receivables (purchased or originated) by
the Company during the periods presented below consist primarily of
Installment Contracts.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------- ---------------------------------------
1996 1995 1996 1995
------------------- ------------------- ------------------ -------------------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- -------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net Installment
Contracts
purchased (1).............. $28,722 99% $56,124 100% $57,477 99% $96,698 91%
Net Other
Loans originated (1)....... 102 1% 101 0% 175 1% 190 9%
-------- -------- -------- ------- -------- -------- -------- --------
Total........................... $28,824 100% $56,225 100% $57,652 100% $96,888 100%
-------- -------- -------- ------- -------- -------- -------- --------
-------- -------- -------- ------- -------- -------- -------- --------
- ----------------------
(1) Net of unearned finance charges
</TABLE>
As part of its funding strategy, the Company sold $34.3 million (net) of
Installment Contracts to GECC during the six-month period ended June 30, 1996,
including $21.5 million (net) during the three-month period ended June 30, 1996.
No gains or losses were recorded at the time the Installment Contracts were
sold, and the Company did not capitalize any servicing fees in connection with
the sales. The Company retained servicing rights on the Installment Contracts
sold. The Company recognizes servicing income over the life of the related
receivables as a percentage of receivables outstanding. The Company is also
eligible to receive bonus servicing fees based on portfolio performance. Bonus
servicing fees are recognized as income when earned. The net amount of
Installment Contracts serviced by the Company for third parties was $56.5
million and $31.0 million at June 30, 1996 and 1995, respectively.
ACCOUNTING MATTERS
Historically, the Company recorded, at the time it purchased Installment
Contracts, a portion of contract interest (which would otherwise have been
recorded as unearned finance charges) as nonrefundable acquisition discount when
the credit risk and potential for future losses warranted such an allocation.
For the three- and six-month periods ended June 30, 1996, however, the Company
did not allocate any portion of contract interest from Installment Contracts
purchased during the period to nonrefundable acquisition discount. Instead, the
Company established reserves for credit losses on its portfolio of Installment
Contracts through the recognition of a provision for credit losses that
supplemented the balance of nonrefundable acquisition discount. SEE "Credit
Loss Experience."
PROFITABILITY
The following table sets forth certain data relating to the Company's net
income for the three and six months ended June 30, 1996 and 1995 and for the
year ended December 31, 1995:
9
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, FOR THE YEAR
------------------------- ------------------------- ENDED DECEMBER
1996 1995 1996 1995 31, 1995
---------- ---------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average net finance
receivables (1). . . . . . . . . . . $133,892 $109,294 $136,859 $100,388 $120,830
Average interest bearing
liabilities. . . . . . . . . . . . . 110,586 76,868 112,689 69,863 88,276
Total interest and fee income. . . . . . 7,279 5,893 15,360 10,741 27,100
Total interest expense . . . . . . . . . 2,484 1,811 4,873 3,231 8,093
-------- -------- -------- -------- --------
Net interest income before
provision for credit losses. . . . . $ 4,796 $ 4,082 $ 10,487 $ 7,510 $ 19,007
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average interest rate earned on
net finance receivables(2) . . . . . 21.75% 21.57% 22.45% 21.40% 22.43%
Average interest rate on interest
bearing liabilities. . . . . . . . . 8.98% 9.42% 8.65% 9.25% 9.17%
-------- -------- -------- -------- --------
Net interest spread. . . . . . . . . . . 12.76% 12.15% 13.80% 12.15% 13.26%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net interest margin (3). . . . . . . . . 14.33% 14.94% 15.33% 14.96% 15.73%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- ----------------------------
</TABLE>
(1) Excludes average net finance receivables serviced for third parties of
$44.6 million and $33.9 million for the three months ended June 30,
1996 and 1995, respectively; and $42.9 million and $28.2 million for
the six months ended June 30, 1996 and 1995, respectively. Average
net finance receivables serviced for third parties were $33.1 million
for the year ended December 31, 1995.
(2) Average interest rates earned typically are less than average APRs
charged to consumers due to the Company's historical policy of
allocating to nonrefundable acquisition discount, at the time
Installment Contracts are purchased, a portion of contract interest
(which would otherwise have been recorded as unearned finance charges)
when the credit risk and potential for losses warrant such allocation.
During 1995, the Company made such allocations, which had the effect
of reducing the interest rate earned on Installment Contracts. With
respect to Installment Contracts purchased during 1996, the Company
did not allocate to nonrefundable acquisition discount any contract
interest that would otherwise have been recorded as unearned finance
charges. SEE "Accounting Matters."
(3) Net interest margin represents net interest income on an annualized
basis divided by average net finance receivables.
The principal component of the Company's net income is its net interest
spread. Net interest spread represents the difference between interest earned
on finance receivables and interest paid for borrowed funds. The laws of
certain states establish the maximum interest rates, and prescribe the types and
maximum amounts of fees, insurance premiums and other amounts that consumers may
be charged. As is common in its market segment, the Company's Installment
Contracts generally bear the maximum allowable interest rates, fees, premiums
and other charges permitted under state law.
The Company's liabilities are generally more interest-rate sensitive than
its finance receivables. Since the second quarter of 1995, interest rates
have generally declined, thereby reducing the Company's cost of funds on its
primary source of funding, which is the Amended and Restated Revolving Credit
Agreement with a group of commercial banks with CoreStates Bank, N.A. as
agent (as amended, the "Revolving Credit Agreement"). The maximum credit
facility under the Revolving Credit Agreement is $100 million, which is
subject to reduction pursuant to the terms of the Revolving Credit Agreement.
Under the Revolving Credit Agreement, the Company has the option of borrowing
funds at an interest rate equal to either the prime rate of the agent bank or
the LIBOR rate plus 2.0%. The prime rate was 8.25% on June 30, 1996 and the
three-month LIBOR rate was 5.625% on such date.
10
<PAGE>
FINANCIAL CONDITION
Total assets decreased $19.7 million (14.2%) to $119.4 million at June
30, 1996 from $139.1 million at December 31, 1995 primarily due to a decline
in net finance receivables (net of dealer reserves, nonrefundable acquisition
discount and allowance for credit losses) to $105.2 million at June 30, 1996
from $125.5 million at December 31, 1995. The decline in assets and finance
receivables is, in part, attributable to the sale of approximately $34.3
million (net) of Installment Contracts during the first half of 1996. Total
assets were $116.2 million at June 30, 1995 and net finance receivables (net
of dealer reserves, nonrefundable acquisition discount and allowance for
credit losses) were $111.0 million at such date. The net amount of managed
Installment Contracts decreased to $175.6 million at June 30, 1996 from
$184.4 million at December 31, 1995. The net amount of managed Installment
Contracts was $158.3 million at June 30, 1995.
Total liabilities decreased $19.9 million (16.1%) to $103.5 million at June
30, 1996 from $123.4 million at December 31, 1995, primarily due to a decrease
in total debt to $99.9 million at June 30, 1996 from $118.7 million at December
31, 1995. The decrease in total debt was primarily the result of reduced
borrowings under the Revolving Credit Agreement to $80.5 million at June 30,
1996 from $99.7 million at December 31, 1995. SEE "Liquidity and Capital
Resources." Total liabilities were $98.4 million at June 30, 1995, which
included total debt of $93.7 million primarily comprised of borrowings under the
Revolving Credit Agreement of $75.1 million.
RESULTS OF OPERATIONS
The following table sets forth certain data relating to the Company's
results of operations for the three and six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
1995 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Automobile portfolio interest and fee
income. . . . . . . . . . . . . . . . . . . . . $ 7,205 $ 5,787 $ 15,222 $ 10,533
---------- ---------- ---------- ----------
Total interest and fee income. . . . . . . . . . $ 7,279 $ 5,893 $ 15,360 $ 10,741
Total interest expense . . . . . . . . . . . . . 2,484 1,811 4,873 3,231
---------- ---------- ---------- ----------
Net interest income before provision for
credit losses. . . . . . . . . . . . . . . . 4,796 4,082 10,487 7,510
Provision for credit losses . . . . . . . . . . 2,200 (40) 4,896 (53)
---------- ---------- ---------- ----------
Net interest income after provision for
credit losses. . . . . . . . . . . . . . . . 2,596 4,122 5,591 7,563
---------- ---------- ---------- ----------
Other Income:
Servicing income (from Installment
Contracts). . . . . . . . . . . . . . . 1,676 812 2,353 1,358
Insurance products commissions . . . . . . . 14 85 35 167
---------- ---------- ---------- ----------
Total other income. . . . . . . . . . . . . . . 1,690 897 2,388 1,525
---------- ---------- ---------- ----------
Salaries and related costs. . . . . . . . . . . 2,138 1,490 3,882 2,570
Other operating expenses. . . . . . . . . . . . 1,996 1,373 3,808 2,336
---------- ---------- ---------- ----------
Total operating expenses. . . . . . . . . . . . 4,134 2,863 7,690 4,906
---------- ---------- ---------- ----------
Income before taxes . . . . . . . . . . . . . . 151 2,156 290 4,182
Taxes . . . . . . . . . . . . . . . . . . . . 27 841 79 1,627
---------- ---------- ---------- ----------
Net income. . . . . . . . . . . . . . . . . . . $ 124 $ 1,315 $ 211 $ 2,555
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30,
1995. Net income decreased by 91.8% to $211,000 for the six months ended June
30, 1996 from $2.6 million for the comparable 1995 period, primarily due to the
difference in the manner in which the Company established reserves for credit
losses during the two periods and the resulting increase in the provision for
credit losses for the six months ended June 30, 1996 as well as increases in
credit losses during the 1996 period. SEE "Accounting Matters."
11
<PAGE>
Net interest income before the provision for credit losses increased 40.0%
to $10.5 million for the six months ended June 30, 1996 from $7.5 million for
the comparable 1995 period, primarily as a result of increased income from the
Installment Contracts portfolio. The average interest rate earned on net
finance receivables and net interest spread for the six months ended June 30,
1996, as compared to the corresponding figures for the six months ended June 30,
1995, improved slightly as a result of the manner in which the Company
established its reserves for credit losses. SEE "Accounting Matters." During
the six months ended June 30, 1996, the Company sold (net) Installment Contracts
totaling $34.3 million, compared to sales of $17.1 million during the six months
ended June 30, 1995. The Company's periodic sales of finance receivables have a
negative effect on interest and fee income; however, these sales result in
increased servicing income.
Total interest expense increased to $4.9 million for the six months ended
June 30, 1996 from $3.2 million for the six months ended June 30, 1995. The
increase resulted from an increase in the amount of borrowed funds, partially
offset by a decline in interest rates paid on borrowed funds. The total debt
outstanding at June 30, 1996 increased to $99.9 million from $93.7 million at
June 30, 1995, and the weighted average interest rate paid for borrowed funds
declined to 8.65% as of June 30, 1996 from 9.25% as of June 30, 1995.
The provision for credit losses was $4.9 million for the six months ended
June 30, 1996 as compared to ($53,000) for the six months ended June 30, 1995.
This significant increase was due to the manner in which the Company established
its reserves for credit losses during the two periods and higher losses
experienced on Installment Contracts during the six months ended June 30, 1996
than during the corresponding period in 1995. SEE "Accounting Matters," and
"Credit Loss Experience."
Other income, including servicing income and commissions from the sale of
Insurance Products, increased 60.0% to $2.4 million for the six months ended
June 30, 1996 from $1.5 million for the six months ended June 30, 1995,
primarily due to an increase in servicing income to $2.4 million (71.4%) for the
six months ended June 30, 1996 from $1.4 million for the six months ended June
30, 1995. The increase in servicing income corresponds to the increased average
amount of finance receivables serviced by the Company for third parties during
the six months ended June 30, 1996 as compared to the comparable 1995 period.
Income from the sale of Insurance Products was $35,000 during the six months
ended June 30, 1996 as compared to $167,000 during the six months ended June 30,
1995.
Total operating expenses increased to $7.7 million for the six months ended
June 30, 1996 compared to the six months ended June 30, 1995. Salaries and
related costs increased from the corresponding period in 1995 to $3.9 million
for the six months ended June 30, 1996, due primarily to the substantial
increase in the number of employees, normal pay increases and increased benefits
costs. The Company's other operating expenses increased to $3.8 million for the
six months ended June 30, 1996 compared to the six months ended June 30, 1995,
also due to the growth of the Company and higher professional fees. Total
operating expenses (annualized) as a percentage of average net finance
receivables owned or serviced increased to 8.56% for the six months ended June
30, 1996 as compared to 7.63% for the six months ended June 30, 1995.
Income tax expense decreased 95.1% to $79,000 for the six months ended June
30, 1996 from $1.6 million for the six months ended June 30, 1995. The decrease
resulted from a lower level of pretax income and a lower effective tax rate
during the six months ended June 30, 1996 versus the corresponding period in
1995.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS ENDED JUNE
30, 1995. Net income decreased by 90.5% to $124,000 for the three months
ended June 30, 1996 from $1.3 million for the comparable 1995 period,
primarily due to the difference in the manner in which the Company
established reserves for credit losses during the two periods and the
resulting increase in the provision for credit losses for the three months
ended June 30, 1996 as well as increases in credit losses during the 1996
period. SEE "Accounting Matters."
Net interest income before the provision for credit losses increased 17.1%
to $4.8 million for the three months ended June 30, 1996 from $4.1 million for
the comparable 1995 period, primarily as a result of increased
12
<PAGE>
income from the Installment Contracts portfolio. The average interest rate
earned on net finance receivables and net interest spread for the three months
ended June 30, 1996, as compared to the corresponding figures for the three
months ended June 30, 1995, improved slightly as a result of the manner in which
the Company established its reserves for credit losses. SEE "Accounting
Matters." During the three months ended June 30, 1996, the Company sold (net)
Installment Contracts totaling $21.5 million, compared to no sales during the
three months ended June 30, 1995. The Company's periodic sales of finance
receivables have a negative effect on interest and fee income; however, these
sales result in increased servicing income.
Total interest expense increased to $2.5 million for the three months
ended June 30, 1996 from $1.8 million for the three months ended June 30,
1995. The increase resulted from an increase in the amount of borrowed
funds, partially offset by a decline in interest rates paid on borrowed
funds. The total debt outstanding at June 30, 1996 increased to $99.9
million from $93.7 million at June 30, 1995, and the weighted average
interest rate paid for borrowed funds declined to 8.98% as of June 30, 1996
from 9.42% as of June 30, 1995.
The provision for credit losses was $2.2 million for the three months ended
June 30, 1996 as compared to ($40,000) for the three months ended June 30, 1995.
This significant increase was due to the manner in which the Company established
its reserves for credit losses during the two periods and higher losses
experienced on Installment Contracts during the three months ended June 30, 1996
than during the corresponding period in 1995. SEE "Accounting Matters" and
"Credit Loss Experience."
Other income, including servicing income and commissions from the sale of
Insurance Products, increased 88.4% to $1.7 million for the three months ended
June 30, 1996 from $897,000 for the three months ended June 30, 1995, primarily
due to an increase in servicing income to $1.7 million (106.4%) for the three
months ended June 30, 1996 from $812,000 for the three months ended June 30,
1995. The increase in servicing income corresponds to the increased average
amount of finance receivables serviced by the Company for third parties during
the three months ended June 30, 1996 as compared to the comparable 1995 period.
Income from the sale of Insurance Products was $14,000 during the three months
ended June 30, 1996 as compared to $85,000 during the three months ended June
30, 1995.
Total operating expenses increased to $4.1 million for the three months
ended June 30, 1996 compared to the three months ended June 30, 1995. Salaries
and related costs increased from the corresponding period in 1995 to $2.1
million for the three months ended June 30, 1996, due primarily to the
substantial increase in the number of employees, normal pay increases and
increased benefits costs. The Company's other operating expenses increased to
$2.0 million for the three months ended June 30, 1996 compared to the three
months ended June 30, 1995, also due to the growth of the Company and higher
professional fees. Total operating expenses (annualized) as a percentage of
average net finance receivables owned or serviced increased to 9.20% for the
three months ended June 30, 1996 as compared to 8.91% for the three months ended
June 30, 1995.
Income tax expense decreased 96.8% to $27,000 for the three months ended
June 30, 1996 from $841,000 for the three months ended June 30, 1995. The
decrease resulted from a lower level of pretax income and a lower effective tax
rate during the three months ended June 30, 1996 versus the corresponding period
in 1995.
CREDIT LOSS EXPERIENCE
The Company's credit loss reserves are comprised of three components:
nonrefundable acquisition discount; an allowance for credit losses; and, for
non-Installment Contract finance receivables, refundable dealer reserves.
The total of allowance for credit losses, nonrefundable acquisition discount
and dealer reserves equaled 12.17% and 13.26% of net owned finance
receivables at June 30, 1996 and 1995, respectively. The following
discussion reflects the Company's increased emphasis on the allowance for
credit losses and its reduced emphasis on nonrefundable acquisition discount
to establish credit loss reserves for the Company's Installment Contracts
portfolio. SEE "Accounting Matters."
13
<PAGE>
NONREFUNDABLE ACQUISITION DISCOUNT AND DEALER RESERVES. In order to
achieve an acceptable rate of return and appropriately reflect credit risks
generally associated with the Company's automobile finance business, the Company
purchases Installment Contracts from dealers at a discount from their principal
amount. Eagle negotiates the amount of the discounts with dealers based upon
various criteria, one of which is the credit risk associated with the contracts
being purchased. The discount is nonrefundable and is allocated to the
nonrefundable acquisition discount account. As part of the Company's financing
of retail installment sale contracts (other than Installment Contracts),
refundable dealer reserves may be established to protect the Company from losses
associated with such contracts.
The following table presents a reconciliation of the changes in
nonrefundable acquisition discount and dealer reserves for the three and six
months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
1995 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period. . . . . . . . . $6,118 $10,926 $9,721 $ 8,746
Additions applicable to new volume. . . . . . . 2,897 9,575 5,382 17,637
Reductions applicable to accounts sold. . . . . (2,701) -- (3,982) (2,018)
Losses charged, net of recoveries . . . . . . . (665) (4,779) (5,472) (8,643)
---------- ---------- ---------- ----------
Balance at end of period. . . . . . . . . . . . $5,649 $15,722 $5,649 $ 15,722
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
ALLOWANCE AND PROVISION FOR CREDIT LOSSES/CHARGE-OFFS. The Company
maintains an allowance for credit losses at a level management believes adequate
to absorb potential losses in its finance receivables portfolio. Management
evaluates the adequacy of the allowance for credit losses by reviewing credit
loss experience and delinquency trends using static pool analysis, the value of
the underlying collateral and general economic conditions and trends. A
provision for losses is charged to earnings in an amount sufficient to maintain
the allowance for credit losses at the level believed adequate by management.
The Company's general policy is to charge off delinquent accounts when they are
deemed uncollectible, and in any event prior to their becoming 90 days
contractually delinquent. The Company has experienced higher charge-off rates
during the three and six months ended June 30, 1996 than during the
corresponding periods of 1995.
The following table reflects the Company's allowance for credit losses and
provision for credit losses for the three and six months ended June 30, 1996 and
1995:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
1995 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period. . . . . . . . . $ 12,008 $1,249 $10,807 $1,249
Provision charged to expense. . . . . . . . . . 2,200 (46) 4,896 (59)
Finance receivables charged off . . . . . . . . (5,336) -- (6,855) (28)
Recoveries. . . . . . . . . . . . . . . . . . . 20 40 44 81
---------- ---------- ---------- ----------
Balance at end of period. . . . . . . . . . . . $ 8,892 $1,243 $ 8,892 $1,243
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Allowance as a percentage of net
finance receivables (owned) at
end of period. . . . . . . . . . . . . . . . 7.44% 0.97%
</TABLE>
14
<PAGE>
DELINQUENCIES
Managed finance receivables that were 60 days and greater contractually
delinquent (net of unearned finance charges) were $2.7 million, $3.5 million and
$2.5 million, representing 1.5%, 1.9% and 1.6% of net managed finance
receivables, as of June 30, 1996, December 31, 1995 and June 30, 1995,
respectively. Owned finance receivables that were 60 days and greater
contractually delinquent (net of unearned finance charges) were $2.0 million,
$3.0 million and $2.1 million, representing 1.7%, 2.1% and 1.6% of net owned
finance receivables, as of June 30, 1996, December 31, 1995 and June 30, 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through cash flow from operations,
borrowings under the Revolving Credit Agreement, borrowings from certain
companies and partnerships in which either or both of Charles F. Wonderlic or
Ronald B. Clonts and members of their immediate families own a direct or
indirect controlling interest (each, a "Commonly Controlled Company"),
subordinated indebtedness and from the periodic sale of Installment Contracts
and other finance receivables.
Net cash provided by (used in) operating activities totaled ($5.4)
million and $4.4 million during the three months ended June 30, 1996 and
1995, respectively. For the six months ended June 30, 1996 and 1995, net
cash provided by (used in) operating activities totaled ($7.8) million and
$9.3 million, respectively. During these periods, the primary source of net
cash provided by (used in) operating activities has been net income and the
net changes in the allowance for credit losses and the nonrefundable
acquisition discount accounts. Net cash used in operating activities for the
three and six months ended June 30, 1996 was affected by the significant
decline in the nonrefundable acquisition discount account and by the net
change in the allowance for credit losses. Net cash provided by operating
activities for the three and six months ended June 30, 1995 was affected by
the level of net income and the increase in the nonrefundable acquisition
discount account.
Net cash provided by (used in) investing activities represents the net
investment in, or liquidation of, finance receivables, which for the
three-month period ended June 30, 1996 and 1995 was $16.4 million and ($36.8)
million, respectively. For the six months ended June 30, 1996 and 1995, net
cash provided by (used in) investing activities was $26.2 million and ($49.1)
million, respectively. During the three and six months ended June 30, 1996,
cash provided from the bulk sale of retail installment contracts was $21.5
and $34.3 million, respectively.
Net cash provided by (used in) financing activities for the three and six
months ended June 30, 1996 and the comparable 1995 periods largely result from
borrowings and repayments under the Revolving Credit Agreement. Net cash
provided by (used in) financing activities for the three months ended June 30,
1996 was ($11.0) million and net cash provided by financing activities for the
three months ended June 30, 1995 was $32.4 million. For the six months ended
June 30, 1996 and 1995, net cash provided by (used in) financing activities was
($18.9) million and $40.1 million, respectively.
The self-liquidating nature of Installment Contracts and Other Loans
enables the Company to assume a higher debt-to-equity ratio than in most
other businesses. The amount of debt the Company incurs from time to time
depends on the Company's need for cash and its ability to borrow under the
terms of the Revolving Credit Agreement. The Company intends to meet its
short- and long-term liquidity needs with cash flow from operations,
borrowings under the Revolving Credit Agreement, the sale or securitization
of finance receivables and the proceeds from the issuance of securities in
the capital markets.
While the Company must comply with customary financial and other covenants
under the Revolving Credit Agreement, the Company believes they will not
materially limit its business strategy. During June 1996 the Company entered
into an amendment of the Revolving Credit Agreement that, among other things,
reduced the maximum amount of the facility to $100 million, modified the terms
of the facility and extended the maturity date to September 27, 1996. The
Company is presently in discussions with its lenders to attempt to obtain
modifications to the Revolving Credit Agreement that may, among other things,
adjust the amount of the facility, modify certain financial covenants to be more
consistent with the Company's current manner of establishing reserves for credit
15
<PAGE>
losses and extend the term of the Revolving Credit Agreement beyond September
27, 1996. If the Revolving Credit Agreement is not extended, the Company
would be required to repay the outstanding balance under the Revolving Credit
Agreement on its September 27, 1996 maturity date and seek alternative
funding sources. The Company is also pursuing, and currently anticipates
relying more heavily upon, alternative funding sources such as securitization
financing. No assurance can be given that these pursuits will be successful,
that the Company will be able to extend the Revolving Credit Agreement on
terms acceptable to the Company or that the Company will be able to secure
alternative funding if the Revolving Credit Agreement is not extended.
At June 30, 1996, the Company had total debt of $99.9 million as compared
to $118.7 million at December 31, 1995 and $93.7 million at June 30, 1995. At
June 30, 1996, $10.6 million was available under the Revolving Credit Agreement
from committed financial institutions. The following table presents the
Company's debt instruments and the weighted average interest rates on such
instruments at the dates indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- DECEMBER 31,
1996 1995 1995
---------------------- ---------------------- ----------------------
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SENIOR:
Revolving Credit Agreement. . . . $80,450 8.25% $75,050 8.93% $ 99,650 7.89%
Loan from Commonly Controlled
Company. . . . . . . . . . . 1,453 6.75% 665 5.81% 1,002 6.75%
SUBORDINATED:
Notes payable . . . . . . . . . . 17,970 12.14% 17,996 12.44% $ 18,045 12.14%
------- ------- ------- ------- ------- -------
Total debt. . . . . . . . . . . . . . $99,873 8.65% $93,710 9.25% $118,697 8.52%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
The following table sets forth information with respect to maturities of
senior and subordinated debt at June 30, 1996:
<TABLE>
<CAPTION>
LOANS FROM
COMMONLY
SENIOR BANK CONTROLLED SUBORDINATED
YEAR LINES OF CREDIT COMPANY NOTES PAYABLE TOTAL
- ---- --------------- ---------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1996 . . . . . $80,450 $1,453 $ 38 $81,941
1997 . . . . . 111 111
1998 . . . . . 39 39
1999 . . . . . 853 853
2000 . . . . . 802 802
Thereafter . . 16,127 16,127
------- ------- ------- -------
Total. . . $80,450 $ 1,453 $17,970 $99,873
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The Company has purchased interest rate caps and interest rate collars in
an aggregate notional amount of $65 million. The interest rate cap purchased by
the Company in an aggregate notional amount of $15 million protects the Company
against increases in the interest rate of a portion of its revolving debt if the
three-month LIBOR rate exceeds 10.5%. The interest rate cap expires in July
1998.
The interest rate collars purchased by the Company in an aggregate notional
amount of $50 million protect the Company against increases in the interest rate
of its revolving debt when the three-month LIBOR rate exceeds 8%. The Company
must make payments to the counterparties to the interest rate collars if three-
month LIBOR falls below 5%. The interest rate collars expire in September 2000.
The GECC Agreement provides for the purchase by GECC of Installment
Contracts from the Company on a revolving basis of up to a maximum principal
amount of $80 million outstanding at any time
16
<PAGE>
through June 25, 1997 with an automatic one-year extension through June 25,
1998.
Total stockholders' equity at June 30, 1996 was $15.9 million as compared
to $15.7 million at December 31, 1995 and $17.8 million at June 30, 1995. The
Company's ability to pay dividends is limited by the Revolving Credit Agreement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in the following described
lawsuits: (i) BLAKE V. EAGLE FINANCE CORP., ET AL. -- on April 25, 1996, the
Company and Charles F. Wonderlic, Ronald B. Clonts, Robert J. Braasch and
Richard E. Wonderlic were named as defendants in a class action complaint filed
by David M. Blake in the United States District Court for the Eastern District
of Missouri, Case Number 96 CV 00788 LOD (the "Blake Complaint"). The Blake
Complaint alleges common law fraud, breach of fiduciary duty, negligence and
violations of the federal Racketeer Influenced and Corrupt Organizations Act (18
U.S.C. '1962 ET SEQ.) based on the filing by the Company of allegedly inaccurate
quarterly reports with the Securities and Exchange Commission during 1995 and
the subsequent restatement of earnings by the Company that occurred during April
1996; and (ii) REHM V. EAGLE FINANCE CORP., ET AL. -- on April 29, 1996, the
Company and Charles F. Wonderlic, Ronald B. Clonts and Robert J. Braasch were
named as defendants in a class action complaint filed by Alfred Rehm in the
United States District Court for the Northern District of Illinois, Case Number
96 C 2455 (the "Rehm Complaint"). The Rehm Complaint alleges violations of
Sections 10b and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5
promulgated under Section 10b, based on allegedly inaccurate press releases and
the filing by the Company of allegedly inaccurate quarterly reports with the
Securities and Exchange Commission during 1995 and the subsequent restatement of
earnings by the Company that occurred during April 1996. The defendants have
moved to dismiss both the Blake Complaint and the Rehm Complaint in their
entirety. Blake has not responded to defendants' motion although, according to
the court's local rules, as of the date of this filing his time to respond has
expired. Rehm has responded to defendants' motion to dismiss, and that motion
is now fully briefed. The Company and the individually named defendants are
awaiting the courts' rulings on their motions.
In accordance with applicable law and certain indemnification agreements
entered into with each of the individually named defendants, the Company is
required to indemnify each of the individually named defendants to the
maximum extent allowed with respect to the above-described lawsuits.
The Company intends to contest the above described lawsuits vigorously.
Although the Company believes that the above-described lawsuits are without
merit, it is not possible at this time to estimate the likelihood of a favorable
or adverse result to the Company or the individually named defendants.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The Annual Meeting of Stockholders was held on May 14, 1996.
B. At the meeting, Robert H. Arnold, Ronald H. Arnold, Ronald B. Clonts, and
Walter J. O'Brien were elected to serve as Class II directors (term expires
in 1999). Continuing as Class III directors (term expires in 1997) are
Anne Hamblin Schiave and Charles F. Wonderlic. Continuing as Class I
directors (term expires in 1998) are Richard E. Wonderlic and Edward J.
Noha. The stockholders ratified the selection of KPMG Peat Marwick LLP as
the Company's auditors for the year ending December 31, 1996.
C. The following individuals were elected to serve as directors of the Company
for a term of three years at the Annual Meeting. The votes for and against
such individuals are set forth below.
17
<PAGE>
FOR AGAINST WITHHELD
--- ------- --------
1. Robert H. Arnold 4,015,473 0 10,965
2. Ronald B. Clonts 4,015,473 0 10,965
3. Walter J. O'Brien 4,015,473 0 10,965
D. Ratification of KPMG Peat Marwick LLP as the Company's independent
auditors.
FOR AGAINST WITHHELD
--- ------- --------
3,303,353 33,453 689,632
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Amended and Restated Revolving Credit
Agreement dated September 1, 1995
10.2 Second Amendment to Amended and Restated Revolving Credit
Agreement dated June 30, 1996
10.3 Asset Purchase Agreement dated as of June 25, 1996 between
General Electric Capital Capital Corporation and Eagle Finance
Corp.
10.4 Amended and Restated Servicing Agreement dated as of June 25,
1996 between General Electric Capital Corporation and Eagle
Finance Corp.
11 Statement re computation of per share earnings
27 Financial Data Schedule
99.1 Press release issued by the Company announcing earnings for the
three and six months ended June 30, 1996
99.2 Statements of Income for the twelve months ended June 30, 1996
(b) Reports on Form 8-K - The Company filed reports on Form 8-K (i) dated
April 15, 1996 announcing restated earnings for the year ended
December 31, 1995, and (ii) dated June 5, 1996 announcing the
appointment of Robert J. Braasch as President of the Company and
Ronald B. Clonts as Vice Chairman of the Board, effective July 1,
1996.
18
<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.
EAGLE FINANCE CORP.
Date: August 13, 1996 ROBERT J. BRAASCH
----------------------------------------
Robert J. Braasch
President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 First Amendment to Amended and Restated Revolving Credit Agreement
dated September 1, 1995
10.2 Second Amendment to Amended and Restated Revolving Credit Agreement
dated June 30, 1996
10.3 Asset Purchase Agreement dated as of June 25, 1996 between General
Electric Capital Corporation and Eagle Finance Corp.
10.4 Amended and Restated Servicing Agreement dated as of June 25, 1996
between General Electric Capital Corporation and Eagle Finance Corp.
11 Statement re computation of per share earnings
27 Financial Data Schedule
99.1 Press release issued by the Company announcing earnings for the three
and six months ended June 30, 1996
99.2 Statements of Income for the twelve months ended June 30, 1996
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This First Amendment to Amended and Restated Revolving Credit Agreement
("First Amendment") dated as of September 1, 1995 by and among Eagle Finance
Corp., a Delaware corporation ("Borrower"), CORESTATES BANK, N.A., a
national banking association ("CoreStates"), HARRIS TRUST AND SAVINGS BANK,
an Illinois banking corporation ("Harris"), BANK ONE, CHICAGO, N.A., a
national banking association ("Bank One"), COLE TAYLOR BANK, an Illinois
banking corporation ("Cole Taylor"), NATWEST BANK N.A., a national banking
association ("Natwest"), NBD BANK, a Michigan banking association ("NBD"),
LASALLE NATIONAL BANK, a national banking association ("LaSalle"), THE
DAIWA BANK, LIMITED, a Japanese banking corporation ("Daiwa") (each
individually a "Bank" and collectively the "Banks") and CORESTATES BANK,
N.A., as agent for the Banks hereunder (in such capacity as the "Agent").
BACKGROUND
A. Borrower, Banks and Agent are parties to a certain Amended and
Restated Revolving Credit Agreement dated as of June 30, 1995 (the "Credit
Agreement").
<PAGE>
B. Banks are willing to amend the Credit Agreement to permit Borrower to
enter into certain interest rate hedging agreements with any or all of the Banks
on the terms and conditions set forth herein.
C. Capitalized terms used but not otherwise defined in this First
Amendment shall have the meanings respectively ascribed to them in the Credit
Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
promise and agree as follow:
1. AMENDMENTS.
A. A new Section 3.06 is added to the Credit Agreement as follows:
Section 3.06. SECURITY FOR PERMITTED INTEREST RATE HEDGING
AGREEMENTS.
(1) Agent shall not be agent for any Bank(s) in connection with
Permitted Interest Rate Hedging Agreements or in connection with the creation,
perfection, retention or enforcement of any liens on any collateral securing the
obligations thereunder.
(2) No Bank which enters a Permitted Interest Rate Hedging Agreement
shall be permitted (so long as there is in existence any obligation, liability
or indebtedness whatsoever from Borrower to the Banks and/or Agent hereunder or
otherwise) to (i) institute against Borrower any proceeding at law or in
equity, or otherwise to collect payment of any obligation, liability or
indebtedness of Borrower to such Bank on account of such Permitted Interest rate
Hedging Agreement or (ii) foreclose or proceed in any manner against any of
the Collateral pledged to such Permitted Interest Rate Hedging Agreement.
(3) All of the Banks obtaining collateral in connection with
Permitted Interest Rate Hedging Agreements shall share PARI PASU in the
proceeds from the liquidation, disposition or collection of any of such
collateral (after prior payment in full of all existing and future indebtedness
and obligations owing to banks hereunder), not withstanding the timing or order
of creation and /or perfection of the security interests.
<PAGE>
B. A new Subsection 7.01(8) is added to the Credit Agreement as
follows:
(8) Subordinate liens on the Collateral (on terms and conditions
acceptable to Agent) securing Permitted Interest Rate Hedging Agreements, which
shall be subject to the provisions of Section 3.06 above.
C. The Credit Agreement is amended by deleting subsection 7.02(8)
in its entirety and replacing such subsection with the following:
(8) Indebtedness arising from interest rate hedging agreements
between Borrower and any of the Bank(s) so long as the total principal amount to
which all of such hedging agreements relate does not exceed $75,000,000.00 in
the aggregate at any one time ("Permitted Interest Rate Hedging Agreements").
2. MISCELLANEOUS.
2.1 Borrower represents and warrants to the Banks and Agent that it has
taken all necessary corporate action to authorize the execution, delivery and
performance of this First Amendment. This First Amendment is, or when
executed by the Borrower and delivered to the Agent, will be, duly executed
and constitute valid and legally binding obligations of the Borrower,
enforceable against the Borrower in accordance with its terms. Borrower
hereby ratifies and restates each of the representations and warranties of
the Borrower set forth in Article V of the Credit Agreement as being true
and correct on the date hereof.
2.2 This First Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
<PAGE>
2.3 This First Amendment shall amend and is incorporated into the Credit
Agreement. To the extent of any express inconsistency between the terms hereof
and the terms of the Credit Agreement, the terms and conditions of the Credit
Agreement remain in full force and effect.
2.4 Borrower acknowledges and confirms that as of the date hereof, it is
indebted to Banks, without defense, setoff or counterclaim, in the aggregate
principal amount of $93,550,000 for Revolving Credit Loans made pursuant to the
Credit Agreement.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed by their respective duly authorized officers as of the date first above
written.
EAGLE FINANCE CORP.
By:
-----------------------------------
-----------------------------------
(print name and title)
HARRIS TRUST AND SAVINGS BANK
By:
-----------------------------------
-----------------------------------
(print name and title)
signatures continued on next page
<PAGE>
CORESTATES BANK, N.A.
By:
-----------------------------------
-----------------------------------
(print name and title)
BANK ONE, CHICAGO, N.A.
By:
-----------------------------------
-----------------------------------
(Print name and title)
COLE TAYLOR BANK
By:
-----------------------------------
-----------------------------------
(print name and title)
FLEET BANK, N.A.
By:
-----------------------------------
-----------------------------------
(print name and title)
NBD BANK
By:
-----------------------------------
-----------------------------------
(print name and title)
signatures continued on next page
<PAGE>
LASALLE NATIONAL BANK
By:
-----------------------------------
-----------------------------------
(print name and title)
THE SUMITOMO BANK, LTD.,
Chicago Branch
By:
-----------------------------------
-----------------------------------
(print name and title)
THE NORTHERN TRUST COMPANY
By:
-----------------------------------
-----------------------------------
(print name and title)
CORESTATES BANK, N.S. (as Agent)
By:
-----------------------------------
-----------------------------------
(print name and title)
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This Second Amendment to Amended and Restated Revolving Credit Agreement
("Second Amendment") dated as of June ____, 1996 by and among EAGLE FINANCE
CORP., a Delaware corporation ("Borrower"), CORESTATES BANK, N.A., a national
banking association, HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation, BANK ONE, CHICAGO, N.A., a national banking association, COLE
TAYLOR BANK, an Illinois banking corporation, FLEET BANK, N.A. (successor in
interest to Natwest Bank N.A.), NBD BANK, a Michigan banking association,
LASALLE NATIONAL BANK, a national banking association, THE SUMITOMO BANK, LTD.,
Chicago branch, a bank organized under the laws of Japan (successor in interest
to The Daiwa Bank, Limited), THE NORTHERN TRUST COMPANY (successor in interest
to Northern Trust Bank\O'Hare, N.A. ) (each individually a "Bank" and
collectively the "Banks" and CORESTATES BANK, N.A., as agent for the Banks
hereunder (in such capacity as "Agent").
BACKGROUND
A. Borrower, Banks and Agent are parties to a certain Amended and
Restated Revolving Credit Agreement dated as of June 30, 1995, as amended on the
terms and conditions set forth herein.
B. Capitalized terms used but not otherwise defined in this Second Amend-
ment shall have the meanings respectively ascribed to them in the Credit
Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
promise and agree as follows:
<PAGE>
1. AMENDMENTS.
A. The Credit Agreement is amended by deleting the definitions of
"Termination Date" and "Borrowing Base" contained in Sections 1.01 of the Credit
Agreement in their entirety and replacing such definitions with the following
respective definitions:
"Termination Date" means the earlier of (1) September 27, 1996
or (2) the date of termination of the Commitments pursuant to Section
2.02 or Section 9.01.
"Borrowing Base" means eighty-five percent (85%) of Eligible
Receivables, PROVIDED, HOWEVER, that the rate of advance shall be
seventy percent (70%) for Eligible Receivables for which there has
been a Modification (other than a Pre-Approved Modification) during
the six (6) month period immediately preceding the applicable date of
calculation of the Borrowing Base and, PROVIDED, FURTHER, HOWEVER, that
the rate of advance shall be fifty percent (50%) for Eligible
Receivables rated as D Paper. Aggregate outstanding advances on
Eligible Receivables rated as D Paper shall not exceed $3,000,000 at
any one time.
B. The Credit Agreement is amended by adding the following
definitions to Section 1.01 of the Credit Agreement as follows:
"351 Report" means a written report prepared by Borrower setting forth
the underwriting guideline exceptions to the receivables during the
period covered by such report, in substantially the form of Exhibit
"1" attached hereto and incorporated herein by reference.
"Extension" means, with respect to a receivable, a time extension
or deferment accorded to the receivable obligor to make payment of
principal and/or interest more than thirty-one (31) days beyond the
due date for payment set forth in the initial writing underlying the
receivable.
"Modification" means, with respect to a receivable, a change in
payment terms, including interest rate and maturity date, by reason of
an amendment, change, waiver or other deviation from the initial terms
and conditions in the writing underlying the receivable.
"Pre-Approved Modification" means a Modification contemplated at
the time of the initial writing underlying the receivable and the
2
<PAGE>
implementation of which is conditioned upon performance standards
thereafter being met by the receivable obligor.
"EAC "Program" means a special program to purchase receivables
from automotive dealers which are designated I Borrower portfolios
07005740 and 07005741.
"Towerview Program" means a special program to purchase
receivables from automotive dealers which are designated in Borrower
portfolios 02405740 and 08405740.
"D-Paper" means, with respect to a receivable, the initial
writing with a receivable obligor entered into through special finance
programs including those commonly called the EAC Program, Towerview
Program, Weekly Pay Program or the Bi-Weekly Pay Program or which is
otherwise rated as "D" Paper by Agent in its sole discretion.
"Weekly Pay Program" means a special program in which receivable
obligors are required to make weekly payments with respect to their
obligations to Borrower and are designated in Borrower portfolio
designation 02401752.
"Bi-Weekly Pay program" means a special program in which
receivable obligors are required to make bi-weekly payments with
respect to their obligations to Borrower and are designated in
Borrower portfolio 02401726.
C. The Credit Agreement is amended by modifying the definition of
"Eligible Receivable" by deleting the word "and" at the end of Subsection "(xi)"
thereof, changing the numbering of Subsection "(xii)" thereof to "(xvii)" and
inserting the following new Subsections as follows:
(xii) there have been no more than two (2) Extensions with respect
to the receivable during the six (6) month period immediately preceding the
applicable Borrowing Base calculations;
(xiii) there has been no more than one (1) Modification with
respect to the receivable during the six (6) month period immediately
preceding the applicable Borrowing Base calculations;
(xiv) there has been no Extension with respect to the receivable
following a Modification of such receivable which occurred during the six
3
<PAGE>
(6) month period immediately preceding the applicable Borrowing Base
calculations;
(xv) the receivable has not been repurchased by Borrower after
June 30, 1996;
(xvi) as to any receivable rated as D Paper, the receivable was
created, originated or purchased prior to July 1, 1996; and
D. The Credit Agreement is amended by deleting the number "$125,000,000"
contained in the 29th line of Section 2.01 of the Credit Agreement and replacing
it with the number "$100,000,000". In connection with this reduction in the
aggregate Commitments of all of the Banks, each Bank's Commitment is reduced pro
rata to the amount set forth next to each Bank's name on the signature pages
hereto.
E. The Credit Agreement is amended by deleting the percentage "two and
one-quarter percent (2 1/4%) contained in the last line of Section 2.05 and
replacing such percentage with "four percent (4%) ("Default Rate")".
F. The Credit Agreement is amended by deleting Section 2.11 thereof I its
entirety and replacing such Section with the following:
SECTION 2.11 Term. The term of the Commitments and the Credit
Facility under which Revolving Credit Loans shall be made available to
Borrower under the terms of this Agreement shall expire on September 27,
1996, as of which date no further Loans shall be made available by Banks to
Borrower and on which date all of Borrower's obligations of every kind and
nature shall, unless sooner becoming due under the terms of this Agreement,
become due and payable in full.
G. The Credit Agreement is amended by deleting Section 6.10 in its
entirety and replacing such Section with the following.
SECTION 6.10 Management. Continue to be actively managed by
Charles F. Wonderlic and Robert J. Braasch in substantially similar or
greater capacities as on the date hereof. If Charles F. Wonderlic and
Robert J. Braasch cease to actively participate in the management of
4
<PAGE>
Borrower in such capacities, their successor or successors
satisfactory to the Majority Banks shall be promptly appointed.
H. The Credit Agreement is amended by deleting the last sentence of
Section 6.14 and replacing it with the following:
In addition to the foregoing examinations, Borrower shall cause BDO
Seidman to perform additional examinations requested by Agent and to cause
a written report of examination to be submitted to Banks by September 15,
1996 the cost and expenses of which shall be the sole responsibility of
Borrower. The failure of Borrower to cause the report to be delivered as
required herein shall be an event of Default hereunder, the sole remedy for
which shall be application of the Default Rate for calculating interest on
the Revolving Credit Loans retroactive to July 1, 1996.
I. The Credit Agreement is amended by deleting the first paragraph of
Section 7.04 in its entirety and replacing such paragraph with the following:
Sell, transfer or otherwise dispose of all or any substantial part (as
herein-defined) of its assets to , or consolidate with, or merge into, any
other person, firm or corporation, or permit any other person, firm or
corporation to merge into Borrower, except that Borrower may sell, transfer
or otherwise dispose of a portion of its properties if such properties are
sold, transferred, or otherwise disposed of other than through a merger or
consolidation and for a consideration and upon terms deemed by the Board of
Directors of Borrower to be adequate and satisfactory, and the Board shall
have determined that such sale or other disposition of such properties is
in the best interest of Borrower and the holders of the Notes; provided,
however, (x) that the consideration for any such sale or other disposition
shall be paid in cash or cash equivalents, (y) such sale or other
disposition will not involve a substantial part of the assets of Borrower,
and (z) all consideration from the sale, transfer or other disposition of
receivables or any property constituting proceeds of receivables (including
without limitation, any insurance proceeds or any returned or repossessed
inventory) ("Receivable Sales") shall be paid to Agent for crediting
against the outstanding balance of the Revolving Credit Loans.
Furthermore, the Commitments of the Banks shall be permanently reduced by
an amount equal to eighty-five (85%) percent of the amount of consideration
from Receivable Sales. Such reduction (s) shall occur immediately upon
payment of the consideration of Receivable Sales to Borrower or Agent.
Each Bank's Commitment shall be reduced based on the pro rata percentage
decrease in the aggregate Commitments of the Banks.
5
<PAGE>
J. The Credit Agreement is amended by deleting the percentage "twenty-
five percent(25%) in the fifth line of the second paragraph of Section 7.04
therein and replacing such percentage with "thirty-five percent (35%)".
K. The Credit Agreement is amended by deleting Section 8.05 in its
entirety and replacing such Section with the following:
SECTION 8.05. Interest Coverage Ratio. borrower will at all times
maintain a ratio of (I) the sum of Net Earnings plus Interest Expense to (ii)
Interest Expense of at least 1.0 to 1.
L. The Credit Agreement is amended by deleting Subsection 8.06 (4) and
replacing such Subsection with the following:
(4) Twelve and one-half percent (12.5%) of automobile sales finance
loans (net of unearned income).
M. The Credit Agreement is amended by renumbering Subsection 6.11 (16) to
Subsection 6.11 (18) and by inserting new Subsections 6.11 (16) and 6.11(17) as
follows:
(16) Within thirty (30) days after each month end, and on any other
basis as Agent may request, a certified copy of Borrower's 351 Report.
(17) No later than August 15, 1996 and September 15,1996, a written
update of the status of Borrower's efforts to reorganize its capital
structure including, without limitation, a detailed report of the
timetable, amounts, specific parties, types of financing vehicles and the
current status of negotiations. The failure of Borrower to deliver the
updates to Agent by the dates provided above shall be an Event of Default
hereunder, the sole remedy for which shall be application of the Default
Rate for calculating interest on the Revolving Credit Loans retroactive to
July 1, 1996.
2. EXTENSION FEE.
Borrower shall, contemporaneously with the execution hereof, pay to Agent
in good funds, for the benefit of, and to be distributed to Banks based on their
respective Pro Rata Percentages, an extension fee of $225,000.
6
<PAGE>
3. MISCELLANEOUS.
3.1 Borrower represents and warrants to the Banks and Agent that if
it has taken all necessary corporate action to authorize the execution,
delivery and perform-ance of this Second Amendment. This Second Amendment is,
or when executed by the Borrower and delivered to the Agent, will be, duly
executed and constitute valid and legally binding obligations of the Borrower,
enforceable against the Borrower in accordance with its terms. Borrower hereby
ratifies and restates each of the representations and warranties of the Borrower
set forth in Article V of the Credit Agreement as being true and correct on the
date hereof.
3.2 This Second Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
3.3 This Second Amendment shall amend and is incorporated into the Credit
Agreement. To the extent of any express inconsistency between the terms hereof
and the terms of the Credit Agreement, the terms hereof shall control. Except
as expressly amended by this Second Amendment, all of the terms and conditions
of the Credit Agreement remain in full force and effect.
3.4. Borrower acknowledges, confirms, represents and covenants that as of
the date hereof, (a) it is indebted to Banks, without defense, setoff
counterclaim or recoupment of any nature, in the aggregate principal amount of
$80,450,000 for Revolving Credit Loans made pursuant to the Credit Agreement and
(b) all security interest and liens in the Collateral granted to Agent (for the
benefit of Agent and Banks) under the Credit Agreement continue to be first
priority perfected security interest and continue to secure all obligations and
indebtedness of every kind owing from Borrower to the Banks and/or Agent.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed by their respective duly authorized officers as of the date first above
written.
EAGLE FINANCE CORP.
By:
--------------------------------
--------------------------------
(print name and title)
Commitment Amount:
$10,000,000 HARRIS TRUST AND SAVINGS BANK
By:
--------------------------------
--------------------------------
(print name and title)
$16,250,000 CORESTATES BANK, N.A.
By:
--------------------------------
--------------------------------
(print name and title)
$12,500,000 BANK ONE, CHICAGO, N.A.
By:
--------------------------------
--------------------------------
(print name and title)
$7,083,333.33 COLE TAYLOR BANK
By:
--------------------------------
--------------------------------
(print name and title)
(Signatures continued on next page)
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<PAGE>
$12,500,000 FLEET BANK, N.A.
By:
--------------------------------
--------------------------------
(print name and title)
$12,500,000 NBD BANK
By:
--------------------------------
--------------------------------
(print name and title)
$12,500,000 LASALLE NATIONAL BANK
By:
--------------------------------
--------------------------------
(print name and title)
$8,333,333.33 THE SUMITOMO BANK, LTD.,
Chicago Branch
By:
--------------------------------
--------------------------------
(print name and title)
$8,333,333.33 THE NORTHERN TRUST COMPANY
By:
--------------------------------
--------------------------------
(print name and title)
CORESTATES BANK, N.A. (as Agent)
By:
--------------------------------
--------------------------------
(print name and title)
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<PAGE>
Exhibit 10.3
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into by and between
Eagle Finance Corp., a Delaware corporation, (hereinafter referred to as
"Seller"), and General Electric Capital Corporation (hereinafter referred to
as "Purchaser").
RECITALS
WHEREAS, Seller is a financial organization primarily engaged in the
business of acquiring retail installment sales contracts for new and used motor
vehicles;
WHEREAS, Seller desires to sell and Purchaser desires to purchase certain
of these retail installment sales contracts under the terms and conditions set
forth in this Agreement; and
WHEREAS, Seller has agreed to provide certain services in managing and
administering such retail installment sales contracts pursuant to a separate
Amended and Restated Servicing Agreement entered into by and between Seller and
Purchaser of even date herewith (the "Servicing Agreement").
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Seller and the Purchaser agree as follows:
ARTICLE I
DEFINITIONS
Section 1.0 DEFINED TERMS. Whenever used in this Agreement, the following
capitalized words and phrases shall have the respective meanings set forth
below. The definitions of such terms are applicable to the singular as well as
to the plural forms of such terms.
ASSETS. Contracts and the associated Contract Rights and Borrower Records.
BILL OF SALE. The Bill of Sale in the form attached as Exhibit A which
evidences each sale of a Portfolio of Contracts pursuant to this Agreement.
BORROWER. The person(s) or entity(ies) that have executed a Contract,
including any guarantor, co-signer or other person or entity obligated to make
payments under the Contract.
BORROWER DOCUMENTS. With respect to each Contract, (i) the original
Certificate of Title; (ii) the original executed Contract with original
signatures and bearing on its front or back surface an assignment to Purchaser;
(iii) a copy of the Dealer Invoice and invoices for any additional equipment
included in the Contract; (iv) a copy of the original signed Credit Application;
(v) verification for the Required Borrower Insurance (including policy number)
that Seller was the loss payee, additional insured, or lienholder at the time of
Seller's purchase of
<PAGE>
the Contract; (vi) copies of: (a) the credit bureau reports, (b) the completed
credit investigation form, (c) the completed verification of employment and
income forms, (d) Borrower references, and (e) the credit scoring sheet; (vii)
Seller's funds disbursement invoice or listing; (viii) a certificate for each
type of Optional Borrower Insurance purchased by Borrower; (ix) Seller's loan
process or "deal structure" sheet; (x) a "fact sheet" from the dealer; and (xi)
other documents that may be reasonably required in the ordinary course of
business with respect to the enforceability of the Borrower's obligations.
BORROWER RECORDS. With respect to each Purchased Contract, and whether
existing before or after the date of this Agreement (i) the Borrower Documents;
and (ii) all other records, files, and documents, whether consisting of paper or
computerized or in some other form, which relate specifically to the Contract,
Borrower, Financed Vehicle or associated Contract Right. Except with respect to
the time period when owned by Purchaser, Borrower Records shall not include
Reacquired Borrower Records.
BORROWER'S OUTSTANDING PRINCIPAL BALANCE. The outstanding principal
balance on a Purchased Contract, or a Contract being purchased, which is
calculated by subtracting the unearned finance charge on the Contract from the
unpaid Scheduled Payments due under the Contract, and which shall be determined
as of such time period stated in any applicable provision of this Agreement.
BULK PURCHASE. Contracts purchased by Seller from a third-party, excluding
Contracts relating to Point Of Sale origination.
BUSINESS DAY. Any day other than (i) a Saturday or Sunday, or (ii) another
day on which banking institutions in the State of Illinois are authorized or
obligated by law to be closed.
CERTIFICATE OF TITLE. With respect to any Financed Vehicle, the
Certificate of Title (or other evidence of ownership) issued by the department
of motor vehicles, or other appropriate governmental body, of the state in which
the Financed Vehicle is to be registered, showing the Borrower as owner with
either notation of the Seller's first lien or such other status indicated
thereon which is necessary to perfect Seller's security interest in the Financed
Vehicle as a first priority interest, and showing no other actual or possible
ownership or lien interests.
CHARGE-OFF CONTRACT. A Purchased Contract: (i) which is a Defaulted
Contract, (ii) in connection with which Insurance Proceeds or Liquidation
Proceeds have been received, or (iii) for which the Borrower has made what
purports to be the final payment or a prepayment in full but the amount paid
results in a failure to satisfy Borrower's Outstanding Principal Balance.
CHARGE-OFF DEFICIENCY. With respect to each Charge-Off Contract, the
amount by which the Borrower's Outstanding Principal Balance exceeds the
Liquidation Proceeds and Insurance Proceeds, to the extent that such amount has
not been included in a previous calculation and report of Charge-Off Deficiency.
CLOSING DATE. With respect to each Portfolio of Contracts conveyed by
Seller to Purchaser, the date of execution of the Bill of Sale evidencing such
conveyance.
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<PAGE>
CONTRACT. A motor vehicle installment or conditional sale contract, with
any amendments, pursuant to which a Borrower has: (i) purchased a new or used
motor vehicle, (ii) granted a security interest in the motor vehicle to secure
the Borrower's payment obligations, and (iii) agreed to pay the unpaid purchase
price and a finance charge in monthly installments.
CONTRACT RIGHTS. With respect to Purchased Contracts, (i) Seller's
interest in the Financed Vehicle; (ii) all rights of Seller with respect to the
Contract and Financed Vehicle under all dealer agreements pursuant to which the
Contract was acquired by Seller excluding any rights or obligations of Seller to
any dealer reserve accounts; (iii) all rights of Seller with respect to Required
Borrower Insurance and Optional Borrower Insurance; (iv) all rights of Seller,
if any, to prepaid dealer rate participation in connection with the Contract;
(v) all rights of Seller with respect to Borrower Records and Remittances.
Except with respect to the time period when owned by Purchaser, Contract Rights
shall not include any Retained/Reacquired Contract Rights.
CREDIT APPLICATION. The credit application completed by the Borrower in
order to request financing for the Borrower's purchase of the Financed Vehicle.
DEALER INVOICE. As to new Financed Vehicles, the invoice prepared by the
manufacturer showing the net cost; and means, as to used Financed Vehicles, the
determination of Black Book wholesale value adjusted for mileage and hard adds.
DEBT RATIO. The debt-to-equity ratio of Seller, calculated in accordance
with generally accepted accounting principles, by comparing the Senior Debt and
Subordinated Debt of the Seller to Tangible Net Worth.
DEFAULTED CONTRACT. For any Due Period, a Purchased Contract for which (i)
any Scheduled Payment is more than 90 days past due as of the end of the Due
Period; (ii) a petition requesting relief under the Bankruptcy Code or a similar
law was filed by or against the Borrower during the Due Period, and by the end
of the Due Period the bankruptcy petition was not dismissed; (iii) as of the end
of the Due Period, the Financed Vehicle is missing or has been damaged beyond
ordinary means of repair or has been leased or has been disposed of by sale or
other transfer of title; (iv) Seller or Purchaser shall have reasonably
determined that by reason of a claim, lien, charge, pledge or encumbrance
regarding the Contract or the Financed Vehicle, or otherwise, payments under the
Contract will not be made as of the last date of the Due Period; or (v) a Skip
Loss Investigation was initiated and not satisfactorily resolved within 60 days
provided a Scheduled Payment is delinquent (not paid by the due date) more than
60 days as of the end of the Due Period.
DEPOSITORY ACCOUNT. The trust account in the name of Purchaser at a bank
designated by Purchaser for the purpose of receiving Remittances.
DUE PERIOD. A calendar month during the period beginning with the calendar
month during which the first Closing Date occurs and ending with the calendar
month when all of Seller's obligations to Purchaser under this Agreement and the
Servicing Agreement are fully paid and performed.
3
<PAGE>
ELIGIBLE CONTRACT. On average the quality of these contracts must be
consistent with previously purchased Contracts. A Contract which, as of the
time the Contract is sold to Purchaser under this Agreement (i) is for a
Financed Vehicle, (ii) has been entered into in the ordinary course of business
of the selling dealer, (iii) has been fully and properly executed by the parties
thereto and contains the original signature of the Borrower, (iv) creates a
valid, subsisting and enforceable first priority security interest in the
Financed Vehicle in favor of the Seller, which interest is assignable by Seller
to Purchaser, (v) is the only unsatisfied original executed Contract for the
purchase of the Financed Vehicle, (vi) accurately reflects all of the actual
terms and conditions of the Borrower's purchase of the Financed Vehicle with
installment payments, (vii) has been validly sold and assigned by such dealer to
Seller free and clear from all claims and liens, (viii) has been purchased from
the selling dealer by Seller in the ordinary course of Seller's business, (ix)
is a Contract with respect to which Seller has paid the selling dealer the
entire amount owed by Seller to the selling dealer for the Contract, (x) is
"chattel paper" as that term is used in the Uniform Commercial Code of the state
in which the Contract is originated, (xi) contains customary and enforceable
provisions such that the rights and remedies of the holder thereof are adequate
for enforcement of Borrower's obligation to pay the amounts due thereunder, and
are adequate for realization of the security interest against the Financed
Vehicle in the event of a default; (xii) is in the form attached as Exhibit B
hereto or in a form approved in writing by Purchaser, (xiii) is not, nor are any
of the other Assets associated with the Contract, in breach of any of the
representations and warranties contained in Section 7.1 (other than Section 7.1
(a)) of this Agreement, (xiv) has not been extended or the subject of other
forbearance activity during the 120 days before the Closing Date on which such
Contract is sold to Purchaser, (xv) is a full payout obligation, (xvi) is less
than 20 days delinquent, (xvii) has a Borrower who is not a debtor in a
proceeding under a state or federal receivership or bankruptcy law, (xviii) is
for a Financed Vehicle which has not been repossessed or designated for
repossession from the Borrower, (xix) is not in the process of being closed out
or otherwise liquidated except in accordance with the Schedule of Payments, (xx)
has no insurance claim, litigation, or dispute pending relating in any way to
the Contract, Borrower or Financed Vehicle, (xxi) meets the credit and advance
standards set forth in Exhibit C as determined by Purchaser exercising its
reasonable discretion, (xxii) is not the subject of or designated for a Skip
Loss Investigation, (xxiii) had the first two Scheduled Payments paid by their
respective due date, (xxiv) is properly documented according to Purchaser's
standards in effect at the time of purchase, (xxv) does not present a credit or
collateral risk unacceptable to Purchaser according to Purchaser's standards in
effect at the time of purchase; (xxvi) has an "Annual Percentage Rate" which
does not exceed the applicable state maximum, (xxvii) was not part of a Bulk
Purchase, and (xxviii) for which the Seller has prepared and maintained complete
and accurate Borrower Documents.
EVENT OF DEFAULT. This term has the meaning provided in Article XI of this
Agreement.
FINANCED VEHICLE. The new or used passenger or light duty truck motor
vehicle purchased by a Borrower pursuant to a Contract.
INTANGIBLE ASSETS. Assets of Seller which would be classified in
accordance with GAAP (defined below) as intangible assets, including, without
limitation, (a) all franchises, license permits, patents, applications,
copyrights, trademarks, tradenames, goodwill, experimental or
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organizational expenses and other like intangibles, (b) the excess paid for
assets acquired over their respective book values and (c) unamortized stock
discounts and expenses.
INSURANCE PROCEEDS. With respect to a Purchased Contract, amounts,
including rebates and refunds, recovered under any warranty, Required Borrower
Insurance, or Optional Borrower Insurance, net of any amounts required by law to
be remitted to the Borrower.
INTEREST COVERAGE. For any given quarter in 1996, the sum of Seller's
quarterly pretax income plus Seller's quarterly interest expense, compared to
Seller's quarterly interest expense. After 1996, the sum of Seller's year-to-
date pre-tax income plus Seller's year-to-date interest expense, compared to
Seller's year-to-date interest expense.
INTEREST COVERAGE. For any given quarter the sum of Seller's quarterly
pre-tax income plus Seller's quarterly interest expense, compared to Seller's
quarterly interest expense.
LIQUIDATION PROCEEDS. With respect to a Purchased Contract and a Due
Period, all amounts other than Insurance Proceeds received during any Due Period
from the sale or other disposition of the Financed Vehicle, net of any amounts
required by law to be remitted to the Borrower.
LIST OF CONTRACTS. The list delivered to Purchaser by Seller with the Bill
of Sale on each Closing Date, and which: (i) identifies each Contract conveyed
on the Closing Date by account number, the name of the Borrower, the Borrower's
Outstanding Principal Balance, and the year, make, model, and Vehicle
Identification Number of the Financed Vehicle, and (ii) shows the total number
of the Contracts and the total of the Borrower's Outstanding Principal Balances
for the Contracts.
MAXIMUM PURCHASE AMOUNT. Not more than Eighty Million Dollars
($80,000,000) outstanding at any time in the aggregate.
MONTHLY YIELD. The Borrower's Outstanding Principal Balance as of the
first day of a Due Period times 1/365th of the Required Yield for the Contract
times the number of days in the Due Period.
MONTHLY CHARGE-OFF. The total Charge-Off Deficiencies for the month
divided by the end of month Borrower's Outstanding Principal Balance of
Contracts which are not Charge-Off Contracts, expressed as a percentage.
MONTHLY DELINQUENCY. The total Borrower's Outstanding Principal Balance
for Contracts which as of the end of the month are two (2) or more payments
delinquent divided by the end-of-the-month Borrower's Outstanding Principal
Balance of Contracts which have not been paid in full (as determined in
accordance with the internal accounting standards of Seller) as of such month-
end, expressed as a percentage.
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MONTHLY PRINCIPAL. With respect to a Due Period and a Contract, the
Borrower's Outstanding Principal Balance as of the last day of the preceding Due
Period minus the Borrower's Outstanding Principal Balance as of the last day of
the Due Period.
NOTICE EMPLOYEE. An employee of Purchaser who, at the time the employee
acquires knowledge of a breach of a representation and warranty in Section 7.1
is (i) an Account Executive (or position of similar responsibility) with primary
responsibility for handling Purchaser's relationship with Seller, or (ii) the
employee to whom such Account Executive (or position of similar responsibility)
directly reports.
OPTIONAL BORROWER INSURANCE. Any insurance which insures a Financed
Vehicle or a Borrower's obligations under a Contract, including but not limited
to credit life, credit health, credit disability, unemployment insurance; and
any service contract, mechanical breakdown coverage, warranty, or extended
warranty for a Financed Vehicle.
POINT OF SALE. Contracts purchased by Seller one at a time pursuant to an
approval issued by Seller at the request of dealer before or within 30 days
after the Financed Vehicle has been sold to the Borrower.
PORTFOLIO OF CONTRACTS. The aggregate of individual Contracts which are
identified on the List of Contracts attached to a Bill of Sale.
PURCHASE TERM. The period of seven hundred thirty (730) consecutive days
beginning with the date of this Agreement or as terminated earlier pursuant to
Section 2.0.
PURCHASE PRICE. The aggregate Borrower's Outstanding Principal Balance of
the Contracts being purchased determined as of the Closing Date on which the
Contracts are purchased.
PURCHASED CONTRACT. A Contract purchased by Purchaser from Seller. Except
with respect to the time period when owned by Purchaser, a Contract shall cease
to be a Purchased Contract at the time it is repurchased by the Seller in
accordance with the terms of this Agreement.
REACQUIRED BORROWER RECORDS. With respect to any Contract repurchased by
Seller in accordance with the terms and subject to the conditions set forth in
this Agreement, (i) if received by Purchaser from Seller, the executed Contract
and the Certificate of Title, and (ii) all Borrower Records originally
transferred to Purchaser which are in Purchaser's possession at the time of
repurchase.
REGION. Any geographic area defined as a state or a portion of a state.
REMITTANCES. Any amounts received with respect to the Purchased Contracts
and associated Contract Rights, including, but not limited to, Scheduled
Payments, prepayments, payoffs, Liquidation Proceeds, Insurance Proceeds, late
charges and fees (including not-sufficient-funds fees, and extension and
modification fees).
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REQUIRED BORROWER INSURANCE. Any casualty insurance the Borrower is
required to obtain pursuant to the terms of the Purchased Contract.
REQUIRED MONTHLY RETURN. For any Due Period, the Servicing Fee plus the
Monthly Yield plus the Monthly Principal plus the Charge-Off Deficiency.
REQUIRED RESERVE LEVEL. As to the Reserve Account, such percentage of the
total of the aggregate Borrower's Outstanding Principal Balance for all
Purchased Contracts as of the last day of a Due Period in accordance with
Section 6.0 of this Agreement and the Servicing Agreement.
REQUIRED YIELD. With respect to a Purchased Contract, 3.85% plus 90% of
the Two-Year Treasury Rate as of the Closing Date. The Required Yield for each
Purchased Contract will be established at the time of purchase and will remain
constant for the Contract.
RESERVE ACCOUNT. The account established pursuant to Section 6.0 of this
Agreement and maintained in accordance with the Servicing Agreement.
RETAINED/REACQUIRED CONTRACT RIGHTS. Retained/Reacquired Contract rights
shall mean (i) with respect to any Contract repurchased by Seller in accordance
with the terms and subject to the conditions set forth in this Agreement, the
Contract Rights originally transferred to Purchaser; and (ii) the right and
remedies of Seller arising under this Agreement, the Servicing Agreement or any
document or instrument Seller enters into to carry out the terms of this
Agreement.
ROLLING AVERAGE CHARGE-OFF. The monthly average, for any six (6)
consecutive calendar months, of Charge-Off Deficiencies for the month divided by
the end-of-month aggregate Borrower's Outstanding Principal Balance of Contracts
which are not Charge-Off Contracts, expressed as a percentage.
ROLLING AVERAGE DELINQUENCY. The monthly average, for any six (6)
consecutive calendar months, of the aggregate Borrower's Outstanding Principal
Balance for Contracts which as of the end of the month are two (2) or more
payments delinquent divided by the end-of-month aggregate Borrower's Outstanding
Principal Balance of Contracts which have not been paid in full (in accordance
with the internal accounting standards of Seller) as of such month-end,
expressed as a percentage.
SCHEDULE OF PAYMENTS. The schedule of regular payments disclosed on a
Contract.
SCHEDULED PAYMENT. The regularly scheduled payment amount indicated on the
Schedule of Payments.
SENIOR DEBT. The notes and all other debt not expressed to be subordinate
and junior to any other debt.
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SERVICING FEE. The Servicing Fee as defined in the Servicing Agreement or,
if Seller is not servicing the Purchased Contracts, the amounts paid to a
successor servicer or the Purchaser's cost to service the Purchased Contracts if
the Purchaser services the Purchased Contracts.
SKIP LOSS INVESTIGATION. An investigation of the whereabouts of a Financed
Vehicle or a Borrower initiated by Seller or pursuant to the Servicing
Agreement.
SUBORDINATED DEBT. Debt which is subordinate and junior in right with
respect to the general assets of Seller to Senior Debt by provisions
satisfactory to the Company, including without limitation, obligations to
holders of the securities plus interest, fees and expenses payable by Seller
under the indenture.
TANGIBLE NET WORTH. The amount of the capital stock of Seller on a
consolidated basis plus (or minus in the case of a deficit) (i) the capital
surplus and earned surplus of Seller and (ii) subordinated debt of the Seller
minus the sum of (i) the cost of Treasury shares, (ii) Intangible Assets, and
(iii) investments in and loans to shareholders, directors, employees and
affiliated entities.
THREE MONTH ROLLING AVERAGE CHARGE-OFF. The monthly average, for any three
(3) consecutive calendar months, of Charge-Off Deficiencies for the month
divided by the end-ofmonth aggregate Borrower's Outstanding Principal Balance of
Contracts which are not Charge-Off Contracts, expressed as a percentage.
THREE MONTH ROLLING AVERAGE DELINQUENCY. The monthly average, for any
three (3) consecutive calendar months, of the aggregate Borrower's Outstanding
Principal Balance for Contracts which as of the end of the month are two (2) or
more payments delinquent divided by the end-of-month aggregate Borrower's
Outstanding Principal Balance of Contracts which have not been paid in full (in
accordance with the internal accounting standards of Seller) as of such month-
end, expressed as a percentage.
TWO-YEAR TREASURY RATE. The "ask yield" published as of any Closing Date
in the Wall Street Journal (or other publication designated by Purchaser if the
Wall Street Journal stops publishing the "ask yields") for U.S. Treasury Bonds,
Bills and Notes having a maturity in the same month two years later.
Section 1.1 ACCOUNTING TERMS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
accounting determinations under this Agreement shall be made, and all financial
statements required to be delivered by any person or entity pursuant to this
Agreement shall be prepared, in accordance with generally accepted accounting
principles as in effect from time to time applied on a consistent basis. To the
extent generally accepted accounting practices ("GAAP") do not apply to certain
reports or accounting practices of Servicer, the parties will mutually agree on
the accounting practices.
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ARTICLE II
TERM
Section 2.0. TERM; RIGHT TO TERMINATE. Unless sooner terminated as
hereinafter provided, this Agreement shall have a term of one (1) year and shall
automatically renew for one (1) subsequent one (1) year term thereafter. Both
Purchaser and Seller have the right to terminate this Agreement as of the end of
the initial term by giving the other party at least ninety (90) days prior
written notice of termination.
ARTICLE III
PURCHASE OF CONTRACTS
Section 3.0 PURCHASE OF CONTRACTS. Subject to the terms and conditions
of this Agreement, during the Purchase Term Purchaser agrees to purchase from
Seller (i) Eligible Contracts having an aggregate Borrower's Outstanding
Principal Balance of no more than the Maximum Purchase Amount as provided in
Sections 3.2(b) and (c), and (ii) the associated Contract Rights and Borrower
Documents. Each time Seller sells and Purchaser purchases Contracts, the sale
and purchase shall be deemed to include a sale and purchase of the Contract
Rights and Borrower Documents associated with the Contract being sold and
purchased. Seller is under no obligation to sell any Contracts to Purchaser
beyond the initial Closing Date hereunder and Purchaser shall have no obligation
to purchase any Contracts from Seller hereunder at anytime following an Event of
Default by Seller under the terms of any agreement between Seller and Purchaser.
Section 3.1 PURCHASE PRICE. The purchase price for purchased Assets
shall be an amount equal to the Purchase Price. To avoid the inconvenience of
both parties making payments at the time of purchase, Purchaser shall disburse
at the time of purchase to Seller 90% of the Purchase Price and shall add the
remaining 10% to the Reserve Account. Purchaser shall pay the 90% amount to
Seller by wire transfer. The Borrower's Outstanding Principal Balance used for
the Purchase Price shall initially be determined from the records maintained by
Seller. The Purchase Price with respect to any Portfolio of Contracts shall be
subject to adjustment to the extent that Purchaser subsequently reasonably
determines that the actual Borrower's Outstanding Principal Balance is different
than shown on Seller's records. Seller shall cause to be paid to Purchaser any
Remittances for Purchased Contracts which were not applied prior to the posting
of the Borrower's Outstanding Principal Balance used in the calculation of the
purchase price.
Section 3.2 CLOSINGS. (a) ALL CLOSINGS. At least 20 Business Days
before each expected Closing Date, Seller shall notify Purchaser of the expected
Closing Date and the Eligible Contracts Seller intends to sell to Purchaser on
the Closing Date. Each notice shall be accompanied by a schedule containing the
information required to be in a List of Contracts and by whatever other
documents are reasonably requested by Purchaser in order to determine if the
Contracts are eligible for purchase.
(b) FIRST CLOSING. On or before July 1, 1996, Seller shall make available
to Purchaser for purchase Eligible Contracts which have an aggregate Borrower's
Outstanding Principal
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Balance of at least Seven Million Dollars ($7,000,000) but no more than the
Maximum Purchase Amount.
(c) SUBSEQUENT CLOSINGS. During the remainder of the Purchase Term
following the first Closing Date Seller may make available to Purchaser for
purchase Eligible Contracts having an aggregate Borrower's Outstanding Principal
Balance of at least the lesser of (i) Two Million Dollars ($2,000,000) or (ii)
the amount by which the Maximum Purchase Amount exceeds,
as of the Closing Date for the purchase, the aggregate Borrower's Outstanding
Principal Balance of all Contracts purchased by Purchaser from Seller on a prior
Closing Date.
Section 3.3 DETERMINATION OF ELIGIBILITY. Purchaser may refrain from
completing its determination of whether (at the time of Purchase) a Purchased
Contract is an Eligible Contract prior to purchasing a Contract. Purchaser may
rely on Seller's records and representations and warranties when deciding
whether or not to treat a Contract as an Eligible Contract. Regardless of how
complete Seller's determination of eligibility is at the time of purchase and
regardless of what method Purchaser used to determine eligibility, Purchaser's
purchase of a Contract, or treatment of a Contract as an Eligible Contract, is
not a binding determination by Purchaser that the purchased Contract is an
Eligible Contract. Purchaser reserves the right to change its determination or
treatment of eligibility if it later determines that the Contract is not an
Eligible Contract. A determination or treatment by Purchaser that a Contract is
an Eligible Contract is not a waiver by Purchaser of, or an admission by
Purchaser of the truth of, any of Seller's representations and warranties to
Purchaser in this Agreement; provided, however, if Purchaser fails to challenge
the determination or treatment of a Contract as an Eligible Contract based on
items (xxiv) or (xxv) of the definition of Eligible Contract within ninety (90)
days of the Closing Date on which such Contract was sold to Purchaser, Purchaser
cannot subsequently change its determination or treatment of the Contract as an
Eligible Contract based solely on such items (xxiv) or (xxv).
ARTICLE IV
CONDITIONS TO PURCHASER'S OBLIGATIONS
Section 4.0 CONDITIONS PRECEDENT. Notwithstanding any other provision
of this Agreement, Purchaser is not obligated to purchase any Assets unless each
of the following conditions is satisfied:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Seller in this Agreement shall be true at the time of purchase and
as of each Closing Date. All of the representations and warranties of Seller m
Section 7.1 of this Agreement shall be true as of the Closing Date with respect
to the Portfolio of Contracts that is sold to Purchaser on such Closing Date.
(b) PERFORMANCE. Seller shall perform in a timely manner all of its
obligations in this Agreement required to be performed prior to or at the
purchase and all events required by this Agreement to occur prior to or at the
purchase shall have occurred.
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(c) SELLER'S CERTIFICATE. Seller shall prior to or at the purchase
provide Purchaser with a certificate in the form of Exhibit E attached hereto
executed by an officer of Seller.
(d) LEGAL OPINION. Seller shall prior to or at the first purchase provide
Purchaser with an opinion of Seller's counsel in the form of Exhibit F attached
hereto. Prior to or at each subsequent purchase, Seller shall provide Purchaser
with a confirmation by the counsel that no facts have come to the counsel's
attention which would cause the counsel to change the opinion if the counsel
were to issue the same opinion on the date of the confirmation.
(e) THIRD PARTY CONSENTS. Seller shall obtain and deliver to Purchaser
prior to or at the purchase all government and private consents required to
permit Seller to perform this Agreement.
(f) FINANCING STATEMENT. Seller shall deliver to Purchaser an executed
UCC financing statement containing the language in Exhibit G attached hereto
sufficiently far in advance of the Closing Date to be filed and file-searched by
Purchaser prior to purchase.
(g) RELEASES. Seller shall cause to be delivered to Purchaser prior to
the purchase UCC release or termination statements and other release documents,
if any, Purchaser may deem appropriate to release any interest not held by
Seller in the Assets being purchased.
(h) RESOLUTION. Seller shall prior to or at the first purchase provide
Purchaser with a copy of resolutions in the form of Exhibit H attached hereto
from Seller's Board of Directors.
(i) BORROWER DOCUMENTS. Seller shall deliver to Purchaser the Contract
and Certificate of Title; provided that, if a Certificate of Title was applied
for and it was not yet issued solely because of the processing time by the
Department of Motor Vehicles, Purchaser shall accept a copy of the filed
application and fees in lieu of the Certificate of Title subject to Section
10.9, if less than 90 days has elapsed after Seller purchased the Contract from
the dealer. In addition, if requested by Purchaser, Seller shall deliver to
Purchaser the other Borrower Documents.
(j) DEFAULT. Purchaser shall not prior to the time of purchase have
notified Seller of a default of Seller's obligations to Purchaser under this
Agreement or otherwise.
(k) FINANCIAL CONDITION. There shall have been no material adverse change
in Seller's financial condition after May 31, 1996.
(l) LIMITED POWERS OF ATTORNEY. Prior to or at the purchase Seller shall
deliver to Purchaser a limited power of attorney in the form of Exhibit I
attached hereto.
(m) LIST OF CONTRACTS. Prior to or at the purchase, Seller shall deliver
to Purchaser a List of Contracts for the Contracts being purchased.
(n) BILL OF SALE. Prior to or at the purchase, Seller shall deliver to
Purchaser an executed Bill of Sale for the Assets being purchased in the form of
Exhibit A attached hereto.
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(o) INSURANCE ASSIGNMENT. Prior to or at the purchase, Seller shall
deliver to Purchaser an executed Insurance Assignment in the form of Exhibit D
attached hereto.
(p) SERVICING AGREEMENT. Prior to or at the first purchase Seller shall
execute and deliver to Purchaser the Servicing Agreement.
(q) REVIEW. Prior to the purchase Seller has, to the extent requested by
Purchaser, allowed Purchaser to review the Borrower Records for the Contracts
being purchased.
(r) GOOD STANDING. Prior to or at the first purchase Seller shall provide
Purchaser with a certificate of good standing issued by the Secretary of State
of Delaware dated within five days before the first Closing Date. Within five
days before or at each subsequent purchase, Purchaser shall have received
either, at Purchaser's option, a verbal confirmation of good standing from the
Secretary of State's office or another certificate of good standing.
(s) PORTFOLIO PERFORMANCE. The Purchased Contracts in total as a group,
and the Contracts owned or serviced by Seller in total as a separate group shall
not have, (i) a Rolling Average Delinquency greater than ten percent (10%), (ii)
a Rolling Average Charge-Off greater than two percent (2%), (iii) a Monthly
Delinquency greater than ten percent (10%) for any three (3) consecutive months,
or (iv) a Monthly Charge-Off greater than two percent (2%) for any three (3)
consecutive months.
(t) CREDIT REFERENCES. Purchaser has not received an unsatisfactory
credit reference or report concerning Seller.
(u) SERVICING PERFORMANCE. Before the first Closing Date Purchaser has
conducted a review of Seller's Contract Servicing with results satisfactory to
Purchaser.
(v) DEBT RATIO. Seller's Debt Ratio does not exceed 8.0:1.
(w) INTEREST COVERAGE. Seller's Interest Coverage is not less than 1.0
for the quarter ending 6/30/96, 1.05 for the quarter ending 9/30/96, 1.1 for the
quarter ending 12/31/96, and 1.15 thereafter.
(x) COMMITMENT FEE. Seller has paid to Purchaser a fee in the sum of
Three Hundred and Seventy-Five Thousand Dollars ($375,000); provided however
that Purchaser agrees to, immediately following each purchase of Contracts
hereunder, including the initial purchase of Contracts by Purchaser hereunder,
pay to Seller by draft, an amount equal to ninety-three and seventy-five
hundredths basis points (.9375%) times the Purchase Price for any such Purchased
Contracts, up to a maximum of Three Hundred and Seventy-Five Thousand Dollars
($375,000) in the aggregate during the first three hundred and sixty-five days
(365) of this Agreement.
(y) REGION PERFORMANCE. If any Region's Three Month Rolling Average
Delinquency or Three Month Rolling Average Charge-Off exceeds ten percent (10%)
or two percent (2%) respectively Company reserves the right to amend the
Eligible Contract criteria for that Region.
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ARTICLE V
LIABILITIES
Section 5.0 LIABILITIES. Purchaser does not by virtue of entering into
or carrying out the terms of this Agreement or purchasing Assets assume any
obligations of Seller or any other person or entity, except those obligations of
Seller to Borrowers expressly set fort in the Purchased Contracts which first
arise subsequent to the Closing Date, which obligations Purchaser expressly
assumes, subject to Seller's warranty that all other obligations of Seller and
prior holders related to the Purchased Contracts have been performed. Without
limiting the generality of the foregoing, Purchaser specifically does not assume
any obligations relating to any of the following:
(a) TAXES. Any liability of Seller for any tax of any kind, accrued
or accruing, with respect to the purchased Assets, including without
limitation any liability for income, sales, use or personal property taxes,
whether or not due and payable and whether or not collected from Borrowers
relating to any period prior to the Closing Date;
(b) CONTINGENT LIABILITIES. Any liability of Seller arising at any
time as a result of any claim pertaining to any act or omission by Seller,
or any of its agents or representatives;
(c) TRANSACTION EXPENSE. Any liability of Seller to make any payment
or pay any tax incurred in connection with this Agreement or the
transactions contemplated herein except as specifically provided herein;
(d) WARRANTY CLAIMS. Any liability resulting from any actual or
threatened product liability or warranty claim or Borrower claim with
respect to any Financed Vehicle; and
(e) INSURANCE. Any liability in connection with any Required
Borrower Insurance or Optional Borrower Insurance purchased by a Borrower
in connection with a Contract.
All obligations, duties and liabilities of Seller not specifically assumed
by Purchaser pursuant to this Section shall be the sole responsibility of
Seller, and Seller shall indemnify Purchaser pursuant to Article IX hereof from
all claims and liabilities arising from such obligations, duties and liabilities
not assumed by Purchaser.
ARTICLE VI
RESERVE ACCOUNT
Section 6.0 CREATION OF RESERVE ACCOUNT. Purchaser has agreed to
purchase Eligible Contracts based on the assumption that most of the Scheduled
Payments will be paid within a certain period of their due dates. Because the
Purchased Contracts may not perform well enough to meet Purchaser's assumptions,
Seller has agreed to fund the Reserve Account to allow Purchaser a way to
recover, to the extent of the Reserve Account, shortfalls from the assumed
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performance. The Reserve Account shall be established on the first Closing
Date. The initial amount of the Reserve Account shall be ten percent (10%) of
the Purchase Price of the Contracts purchased on the first Closing Date. The
Reserve Account shall be maintained for the remainder of the term of the
Agreement as set forth in the Servicing Agreement. Seller hereby grants to
Purchaser a security interest in Seller's interest in the Reserve Account to
secure Seller's obligations to Purchaser under this Agreement and the Servicing
Agreement. Seller hereby agrees that the Reserve Account shall be cross-
collateralized with any other reserve account created by the Asset Purchase
Agreement dated February 26, 1993 (the "1993 Agreement") and the Asset Purchase
Agreement dated September 27, 1994, as amended, (the "1994 Agreement").
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 7.0 REPRESENTATIONS OF SELLER. Seller makes the following
representations and warranties. The representations and warranties are made
hereby as of the execution and delivery of the Agreement, and each time Seller
sells Contracts to Purchaser the representations and warranties are made hereby
again as of that time. The representations and warranties shall survive the
sale of the Contracts to Purchaser. Purchaser's knowledge of any breach of the
representations and warranties contained herein shall not void or waive any of
the representations or warranties.
(a) ORGANIZATION AND GOOD STANDING. Seller is duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority to own its properties and to conduct its
business, and, at all relevant times, has the power, authority and legal right
to acquire, own, and sell the Assets being purchased.
(b) DUE QUALIFICATION. Seller has, and is in good standing under, all
licenses, permits, and approvals in all jurisdictions which are required for
Seller's acquisition and sale of the Assets being purchased and for Seller's
performance of this Agreement.
(c) POWER AND AUTHORITY. Seller has the power and authority to execute
this Agreement and carry out its terms, and the execution and performance of the
Agreement have been duly authorized by all necessary corporation action; and the
execution, delivery and performance of the Agreement has been duly authorized by
Seller by all necessary corporation action.
(d) VALID SALE; BINDING OBLIGATIONS. The Agreement constitutes a valid
sale, transfer and assignment to Purchaser of the Assets being purchased, and is
a legal, valid and binding obligation of Seller enforceable in accordance with
its terms.
(e) NO VIOLATION. Neither Seller's execution or performance of this
Agreement conflicts with, or will result in any breach of, or constitutes a
default under, the certificate of incorporation or bylaws of Seller, or any
indenture, instrument, agreement, law, or court order by which it is bound; nor
will they result in the creation or imposition of any lien upon any of Seller's
properties. Seller has obtained all consents, approvals, waivers and
notifications of
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creditors, lessors and other nongovernmental persons and entities necessary for
the execution and performance of this Agreement.
(f) NO PROCEEDINGS. There are no proceedings or investigations pending,
or threatened, before any court, regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over Seller or its
properties, which (i) assert the invalidity of the Agreement, (ii) seek to
prevent the consummation of any of the transactions contemplated by the
Agreement, or (iii) seek any determination or ruling that, if determined
adversely to Seller, would materially and adversely affect the performance by
Seller of its obligations under, or the validity or enforceability of, the
Agreement.
(g) ASSETS. Seller has good, indefeasible and marketable title to the
Assets being purchased, free and clear of all liens, claims, charges, defenses,
counterclaims, offsets, encumbrances and security interests of any kind or
nature whatsoever, and upon execution and delivery of the Bill of Sale,
Purchaser will be the sole owner of, and have good and marketable title to, such
Assets free from all liens and claims created by Seller or resulting from
Seller's conduct.
(h) TAX RETURNS. All required federal, state and local tax returns of
Seller have been accurately prepared and duly and timely filed (within the
initial or extended time period allowed therefor) and all federal, state and
local taxes required to be paid with respect to the periods covered by such
returns have been paid. Seller has not been delinquent in the payment of any
tax, assessment or other governmental charge which could adversely affect in any
way the Assets being purchased.
(i) BROKERS. To Seller's knowledge, no person or entity has, or as a
result of the transactions contemplated hereby will have, any right, interest or
claim against Purchaser or the Assets being purchased for any commission, fee or
other compensation as a finder or broker or in any similar capacity.
(j) FINANCIAL CONDITION. Seller is in stable financial condition with a
positive net worth and is able to and does, except for liabilities being
disputed in good faith, pay its liabilities as they mature. Seller is not in
default under any obligation to pay money to any person or entity except for
matters being disputed in good faith which do not involve an obligation of
Seller on a promissory note. Seller will not use the proceeds from the
transactions contemplated by the Agreement to give any preference to any
creditor or class of creditors, and this transaction will not leave Seller with
remaining assets which are unreasonably small compared to its ongoing
operations.
(k) DISCLOSURE. There is no material fact known to Seller which Seller
has not disclosed to Purchaser in writing with respect to the Assets being
purchased or the assets, liabilities, financial condition or activities of
Seller or its affiliates which would or may be likely to have a material adverse
effect upon such Assets or Seller's ability to perform its obligations under the
Agreement. All information and documents prepared by Seller and provided to
Purchaser at any time are true and accurate in all material respects.
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Section 7.1 REPRESENTATIONS AND WARRANTIES OF SELLER AS TO THE ASSETS.
Seller makes the following representations and warranties as to the Assets
purchased by Purchaser. The following representations and warranties as to the
Assets being purchased are made hereby as of the time Seller sells the Assets to
Purchaser. The representations and warranties shall survive the sale of the
Contracts to Purchaser. Purchaser's knowledge of any breach of the
representations or warranties contained herein shall not void any of the
representations or warranties. References in the following representations and
warranties as to Purchased Contracts refer to the Contracts being purchased at
the time the representations and warranties are made.
(a) CHARACTERISTICS OF CONTRACTS. Each Purchased Contract is an Eligible
Contract.
(b) LIST OF CONTRACTS. The information set forth in the List of Contracts
attached to each Bill of Sale is true and accurate in all respects as of the
Closing Date or other date indicated thereon, and no selection procedures
adverse to Purchaser have been utilized in selecting the Eligible Contracts
offered to Purchaser.
(c) COMPLIANCE WITH LAW. Each Purchased Contract, and to Seller's
knowledge the sale of the Financed Vehicle, complied at the time it was made,
and each Contract complies at the time it is purchased by Purchaser, with all
requirements of applicable federal, state and local laws and regulations,
including, without limitation, usury laws, the Federal Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations "B" and "Z", and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code, and other applicable consumer credit laws
and equal credit opportunity and disclosure laws.
(d) ACCOUNT HISTORY. Seller has maintained accurate records of all
financial transactions, documents, and material conversations regarding the
Purchased Contracts, Financed Vehicles and Borrowers, and such records are
included in the purchased Assets, and such records are computerized regarding
financial transactions and Borrower contacts.
(e) BINDING OBLIGATION. Each Purchased Contract and associated Contract
Right is a genuine, legal, valid and binding obligation of the Borrowers,
enforceable by the holder thereof in accordance with its terms, except as the
enforcement thereunder may be affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or laws affecting fraudulent conveyances or (ii) the
availability of certain remedies may be subject to equitable principles and to
the discretion of the court before which any proceeding therefor may be brought.
(f) SECURITY INTEREST IN FINANCED VEHICLE. The Borrower's obligations
with respect to each Purchased Contract are secured by a validly perfected first
priority security interest in the Financed Vehicle in favor of Seller as secured
party and the sale to Purchaser conveys to Purchaser the validly perfected first
priority security interest in the Financed Vehicle.
(g) ENFORCEABLE OBLIGATIONS. There are no facts, events or occurrences
which would in any way impair the validity, collectibility or enforcement of any
Purchased Contract or
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associated Contract Right or tend to reduce the amount payable by the Borrower
on any Purchased Contract or the obligated party for any Contract Right.
(h) CONTRACT IN FORCE. No Purchased Contract has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released from the
security interest granted by the Contract in whole or in part, and all of the
Seller's and prior holder's obligations under the Contract have been performed
except those which first arise subsequent to the Closing Date.
(i) NO WAIVER. No provision of a Purchased Contract has been waived,
altered or modified in any respect except for routine extensions done in
accordance with Seller's customary extension routines more than 120 days before
the Closing Date which do not increase the number of installment payments or the
amount financed.
(j) NO DEFENSES. No claims of rescission, setoff, counterclaim or defense
have been asserted or threatened with respect to any Purchased Contract or
associated Contract Rights.
(k) NO LIENS. There are no liens for work, labor or materials relating to
a Financed Vehicle that are liens prior to or equal with the lien granted by the
Purchased Contract, and no Financed Vehicle has been materially damaged and not
repaired.
(l) NO DEFAULT. Except for payment defaults continuing for a period of
not more than twenty (20) days as of the Closing Date, no default, breach,
violation or event permitting acceleration under the terms of any Purchased
Contract has occurred; and no continuing condition that with notice or the lapse
of time would constitute a default, breach, violation or event permitting
acceleration under the terms of any Purchased Contract exists and Seller has not
waived any of the foregoing.
(m) INSURANCE. The Required Borrower Insurance is in effect, Seller is
noted as an additional insured, loss payee, or lienholder on the insurance
policy. To Seller's knowledge, there is no claim pending with respect to
Required Borrower Insurance or Optional Borrower Insurance.
(n) NO REDUCTIONS. No arrangements have been made with any Borrower or
Contract Rights obligor for the reduction of any amounts due under a Purchased
Contract or Contract Rights.
(o) ALL FILINGS MADE. All filings (including, without limitation, UCC
filings) necessary in any applicable jurisdiction, including but not limited to
Florida, Delaware and Illinois, to give Purchaser the paramount interest in the
Purchased Contracts have been made.
(p) SERVICING COMPLIANCE. Seller has conducted its business with respect
to the purchased Assets, including but not limited to the collection and
administration of the Purchased Contracts, in accordance with all applicable
laws, rules and regulations, and has made collections on the Purchased Contracts
with reasonable care using that degree of skill and attention that is customary
in the collection of motor vehicle retail installment contracts.
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(q) REGISTRATION OF VEHICLES. Each Financed Vehicle has been registered
with the appropriate Department of Motor Vehicles or corresponding agency in the
state in which the Financed Vehicle is located and all fees and taxes due in
connection with the registration and Borrower's purchase have been paid in full.
(r) REGISTERED OWNER. A Certificate of Title has been issued, or, subject
to Section 4.0(i), applied for, for each Financed Vehicle. All fees and taxes
due in connection with the titling of the Financed Vehicles have been paid in
full.
(s) CAPACITY AND SOLVENCY. To the best of Seller's knowledge, each of the
Borrowers for the Purchased Contracts (i) had the capacity to contract at the
time the Contract was executed and (ii) is solvent.
(t) NO SETOFFS. There are no disputes existing or asserted with respect
to any Purchased Contracts or associated Contract Rights.
(u) BONA FIDE TRANSACTIONS. The Purchased Contracts represent undisputed,
bona fide transactions being carried out in accordance with the terms and
provisions contained in the Purchased Contracts.
Section 7.2 WITHOUT RECOURSE. The representations and warranties
contained in this Agreement shall not be construed as a warranty or guaranty by
the Seller as to future payments by any Borrower. The sale of these Receivables
pursuant to this Agreement shall be "without recourse" except for the
representations, warranties and covenants made by Seller in this Agreement and
the Servicing Agreement.
Section 7.3 NOTICE OF BREACH. Within thirty (30) days after a Notice
Employee has actual knowledge of a breach of a representation and warranty in
Section 7.1, Purchaser shall notify Seller of the breach.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 8.0 REPRESENTATIONS OF PURCHASER. The Purchaser hereby makes
the following representations and warranties:
(a) DUE ORGANIZATION. The Purchaser is a corporation, duly organized,
validly existing and in good standing under the laws of the State of New York,
and has the power to own its assets and to transact the business in which it is
presently engaged with regard to this Agreement.
(b) REQUISITE POWER. The Purchaser has the power to execute, deliver and
perform this Agreement, and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement.
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(c) BINDING AGREEMENT. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable in accordance with its terms.
ARTICLE IX
INDEMNIFICATION
Section 9.0 INDEMNITY. Seller shall indemnify and hold Purchaser
harmless from any and all losses, damages (exclusive of damages assessed on the
basis of the conduct of Purchaser), costs, good faith settlements, expenses,
taxes, attorneys' fees and other liabilities including, without limitation,
costs of investigation, fees and expenses at trial and on appeal, and costs in
successfully asserting the right to indemnification hereunder (all of the
foregoing are referred to in this Section as "Losses") actually incurred by
Purchaser at any time as the result of a claim asserted against Purchaser (by a
person or entity other than Seller) arising out of (i) facts which are, or
allegations which if true would be, a breach of any representation, warranty,
agreement or covenant of Seller contained in this Agreement or the Servicing
Agreement, (ii) a default of Seller's obligations under this Agreement or
otherwise, or (iii) activities, operations or conduct of Seller. If legal
action is commenced against Purchaser regarding a matter for which Purchaser is
entitled to indemnification under this Section, Purchaser shall give notice to
Seller of the action within 30 days following Purchaser's knowledge thereof the
failure to notify shall not relieve Seller from any liability which it may have
to Purchaser hereunder or otherwise except to the extent that Seller is
prejudiced by such failure. With respect to each such notice, Seller shall, at
Purchaser's option, immediately take all action necessary to minimize any risk
or loss to Purchaser including retaining counsel satisfactory to Purchaser and
take such other actions as are necessary and appropriate to defend Purchaser or
to discharge the indemnity obligations hereunder. Purchaser may, at its option,
conduct such defense at the expense of Seller. Seller shall pay on demand any
indemnified Losses incurred by Purchaser. Purchaser and Seller shall fully
cooperate with each other in fulfilling the intent of this Section of this
Agreement. Neither Purchaser nor Seller shall settle any claim asserted against
the other by a third party without the prior written consent of the other, which
shall not be unreasonably withheld.
ARTICLE X
COVENANTS
Section 10.0 FINANCING STATEMENTS. At the request of Purchaser, Seller
shall execute such financing statements as Purchaser determines may be required
by law to perfect, maintain and protect the interest of Purchaser in the
purchased Assets and in the proceeds thereof and in Seller's interest in the
Reserve Account.
Section 10.1 NAME CHANGE. Seller shall not change its name, identity or
corporate structure unless it shall have given Purchaser at least sixty (60)
days' prior written notice thereof and shall have executed whatever additional,
or amendments to, financing statements Purchaser requires as a result of the
change.
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Section 10.2 RELOCATION OF OFFICES. Seller shall give Purchaser at least
sixty (60) days' prior written notice of any closing or opening of offices
involved with Contracts and of the relocation of its principal executive office
and shall execute whatever additional, or amendments to, financing statements
Purchaser requires as a result of this change. Seller shall, at all times,
maintain its principal executive office within the United States of America.
Section 10.3 NOTICE OF SALE. Seller shall indicate on its books and
records related to or including the purchased Assets that the purchased Assets
are owned by Purchaser. At the request of Purchaser, Seller shall notify
Borrowers, issuers of Certificates of Titles, UCC offices, insurance companies
and other impacted persons and entities, of Purchaser's purchase of the
purchased Assets.
Section 10.4 CONTINUITY OF BUSINESS. Seller shall continue in business
in a lawful manner with all necessary licenses, permits, and qualifications
necessary to perform this Agreement, and shall keep its books and records in
accordance with generally accepted accounting principles.
Section 10.5 FINANCIAL STATEMENTS AND ACCESS TO RECORDS. Seller shall
provide Purchaser with access to its books and records relating to the purchased
Assets and Seller's performance of this Agreement. During the term of this
Agreement, Seller shall provide Purchaser with quarterly financial statements
within sixty (60) days of the end of each of Seller's fiscal quarters, and with
annual audited financial statements within one hundred and twenty (120) days of
the fiscal year-end. The annual financial statements shall be audited by a
public accounting firm reasonably acceptable to Purchaser. Along with the
financial statements, Seller shall also provide Purchaser with a certificate in
the form of Exhibit J attached hereto.
Section 10.6 POWER OF ATTORNEY. Seller hereby grants Purchaser a power
of attorney to act in its name and stead to the extent necessary to enable
Purchaser to receive and maintain first priority perfected interest in the
purchased Assets and the proceeds thereof and to exercise its rights in the
purchased Assets.
Section 10.7 TRANSFER OF DOCUMENTS AND INFORMATION. Except to the extent
the Servicing Agreement requires a different procedure, Seller shall deliver to
Purchaser all Remittances, Purchased Contracts, Borrower Records, correspondence
and other documents related to the Purchased Contracts and shall inform
Purchaser of any potentially materially adverse information it receives
concerning the purchased Assets or Purchaser's rights in the purchased Assets.
Seller shall allow Purchaser access to all such records and information until
delivery to Purchaser. In the event that Purchaser accepted an application in
lieu of a Certificate of Title pursuant to Section 4.0(i), Seller shall deliver
to Purchaser the Certificate of Title promptly following receipt.
Section 10.8 SUBSEQUENT ACTIONS. Both Purchaser and Seller agree to
execute and deliver to the other party at the request of the other party such
documents or take such action as the other party reasonably deems necessary to
carry out the Agreement.
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Section 10.9 REPURCHASE OF ACCOUNTS. In the event that a Purchased
Contract is determined by Purchaser in accordance with the terms of this
Agreement to not be an Eligible Contract, at the sole option of Purchaser,
Seller shall repurchase the Contract for the amount of the Borrower's
Outstanding Principal Balance and any accrued and unrecovered Required Yield
thereon; provided, however, Seller shall not be obligated to repurchase any
Contract unless the Purchaser has provided the Seller with respect to such
Contract a written notice providing the reasons that the Purchased Contract is
not an Eligible Contract and agrees that upon repurchase of such Contract by
Seller, Purchaser will deliver to Seller the Reacquired Borrower Records
relating to such Contract; provided, further, that Purchaser shall not have the
right to cause Seller to repurchase any Contract if the reason that the Contract
is not an Eligible Contract is because of a breach of Section 7.1 which affects
only that Contract, other than the representation and warranty that the Contract
is an Eligible Contract, and the Seller cures the breach within thirty (30) days
after notice from Purchaser; provided further that, Seller is not obligated to
repurchase a Purchased Contract which is not an Eligible Contract solely because
it does not comply with items (xxiv) or (xxv) in the definition of Eligible
Contract unless Purchaser makes the repurchase request within ninety (90) days
of the Closing Date. In the event that Purchaser accepted an application in
lieu of a Certificate of Title pursuant to Section 4.0(i) and the original
Certificate of Title is not issued within ninety (90) days from Seller's
purchase of the Contract from the dealer, then Seller shall repurchase the
Purchased Contract for the amount of the Borrower's Outstanding Principal
Balance and any accrued and unrecovered Required Yield thereon.
Section 10.10 BEST EFFORTS. Seller shall exercise its best efforts to
satisfy the conditions in Article IV.
ARTICLE XI
EVENTS OF DEFAULT
Section 11.0 EVENTS OF DEFAULT. An Event of Default means the occurrence
or existence of one or more of the following events:
(a) A default or breach of any provision of this Agreement or any document
delivered pursuant hereto which is not cured within ten (10) days after the
receipt of notice of default or breach from the other party; provided that, if
the event is Seller's default regarding the handling of Remittances or the
payment of an amount owed to Purchaser and the same type of event has occurred
during the 360 days before such event, then such event will be an Event of
Default whether or not Purchaser sends a notice of default or allows an
opportunity to cure unless following the event Purchaser sends a notice to
Seller which specifically states that the event will not be treated as an Event
of Default if it is cured within a time period specified in the notice.
(b) If any of the following types of orders are not dismissed within 30
days of being entered: (i) an order for relief against either party in an
involuntary case under a federal or state bankruptcy, insolvency or similar law;
(ii) an order appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of either party or of any substantial
part of its property; or (iii) an order ordering the winding up or liquidation
of the affairs of either party.
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(c) The commencement by either party of a voluntary case under any federal
or state bankruptcy, insolvency or similar law; or the consent by either party
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of either party or of
any substantial part of its property; or the making by either party of an
assignment for the benefit of creditors; or the failure by either party
generally to pay its debts as such debts become due; or the taking of action by
Servicer in furtherance of any of the foregoing.
(d) An Event of Default under the Servicing Agreement or any other
agreement between Seller and Purchaser.
Section 11.1 REMEDIES UPON DEFAULT.
(a) SELLER'S DEFAULT. Upon the occurrence of any Event of Default by
Seller, then, in conjunction with, or in addition to any other rights and
remedies of the Purchaser, Purchaser shall have the right to:
(i) deduct from the Reserve Account any amount due to Purchaser;
(ii) require Seller, to the extent it has not already done so, to
assemble the Borrower Records and all records (including electronic data)
related to the Contracts and deliver such items to Purchaser as instructed by
Purchaser; and
(iii) protect and enforce its rights and remedies under this
Agreement, foreclose or otherwise realize on the security for Seller's
obligations under this Agreement or the Servicing Agreement and subject to
Section 12.12, exercise any of the rights and remedies available to it at law or
equity.
(b) PURCHASER'S DEFAULT. If there is an Event of Default by Purchaser,
then in conjunction with or in addition to any other rights and remedies of
Seller, Seller shall have the right to: (i) terminate its obligation to make
further sales of Contracts pursuant to this Agreement; (ii) protect and enforce
its rights and remedies under this Agreement and subject to Section 12.12,
exercise any of the rights and remedies available to it at law or equity; and
(iii) exercise its right in the Servicing Agreement to terminate the Servicing
Agreement upon at least 90 days prior written notice.
(c) LIMITATION OF DAMAGES. If there is an Event of Default or any claim
or dispute between the parties arising out of or related to this Agreement or
transaction, except to the extent the facts constituting the Event of Default,
claim or dispute also constitute fraud, the sole and exclusive remedy shall be a
claim for breach of contract. To the extent the facts also constitute fraud, a
claim can also be asserted for fraud. Regardless of whether the claim is for
breach of contract or fraud or both, damages shall be limited to actual and
direct damages, and both parties waive any claim for consequential, punitive, or
incidental damages, and any claim for lost profits or loss of goodwill.
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ARTICLE XII
GENERAL TERMS AND CONDITIONS
Section 12.0 NATURE OF TRANSACTION. It is the intent of the Purchaser
and the Seller that this transaction is a sale of the purchased Assets from
Seller to Purchaser. In the event, however, this conveyance is determined to be
a loan made by Purchaser to Seller, rather than a purchase, then Seller shall be
deemed to have granted to Purchaser a first priority perfected security interest
in the purchased Assets and all proceeds thereof to secure repayment of the
Purchase Price to Purchaser.
Section 12.1 ENTIRE AGREEMENT. This Agreement and the documents
incorporated by reference herein, express the entire agreement of the parties
hereto, and supersede all prior promises, representations, understandings,
arrangements and agreements between the parties with respect to the subject
matter contained herein. The parties hereto further acknowledge and agree that
neither of them has made any representations to induce the execution and
delivery of this Agreement except those expressly set forth herein. This
Agreement may not be amended or modified except in a writing signed by Seller
and Purchaser.
Section 12.2 APPLICABLE LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Illinois.
Section 12.3 NOTICES. Any notice, request, demand, instruction or other
communication to be given any party hereto in writing shall be effective upon
delivery during regular business hours at the offices of Seller and Purchaser
hereinafter set forth. Such communications shall be given by telecopy,
commercial delivery service, or sent by certified mail, postage prepaid and
return receipt requested, as follows:
If to-Seller:
Eagle Finance Corp.
1425 Tri-State Parkway, Suite 140
Gurnee, Illinois 60031-4060
Electronic Fax 847-855-7225
ATTN: President
with a copy to:
Barack, Ferrazzano, Kirschbaum & Perlman
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Electronic Fax 312-984-3150
ATTN: Edwin S. del Hierro, Esq.
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If to Purchaser:
General Electric Capital Corporation
1000 Hart Road, Suite 300
Barrington, IL 60010
Electronic Fax (847) 304-3456
ATTN: Manager, Asset Based Financing
Section 12.4 HEADINGS. Paragraph headings have been inserted in this
Agreement as a matter of convenience for reference only. The paragraph headings
shall not be used in the interpretation of this Agreement.
Section 12.5 ATTORNEY'S FEES. In the event of any action at law or suit
in equity or claim in bankruptcy or other proceeding to enforce this Agreement,
the prevailing party shall be entitled to receive in addition to any other sums
which it is awarded, all costs and expenses of such action or suit, including
actual attorneys' fees incurred.
Section 12.6 SEVERABILITY. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision or
provision in every other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.
Section 12.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Seller may not assign this Agreement or any right or
obligation hereunder without Purchaser's prior written consent and any
prohibited assignment shall be void ab initio. Before Purchaser can assign this
Agreement or any right or obligation hereunder, Purchaser shall give Seller a
sixty (60) day period in which, if Seller so elects, to repurchase all Purchased
Contracts and to terminate its obligations to sell more Contracts pursuant to
this Agreement. The repurchase price shall be the same as for a repurchase
pursuant to Section 10.9. Upon repurchase, Purchaser shall deliver to Seller the
Reacquired Borrower Records relating to such Contracts.
Section 12.8 WAIVER. The failure or delay of either party to strictly
enforce the terms of this Agreement shall not be a waiver of the party's right
to do so. A party can only waive a right under this Agreement if the waiver is
in writing, identifies the right being waived, and is signed by the party
waiving the right. Any purchase of a Contract or approval of a document by
Purchaser shall not be a waiver of Purchaser's rights regarding any breach of
this Agreement arising from the Contract or document.
Section 12.9 OFFSET. Purchaser has the right to offset, apply, or recoup
any obligation of Seller to Purchaser against any obligations or payments
Purchaser owes to Seller, or against any property of Seller held by Purchaser.
Seller waives any right to offset, apply, counterclaim or recoup against any
obligation it owes to Purchaser.
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Section 12.10 INDEPENDENT CONTRACTOR. Seller is an independent contractor
in all matters relating to this Agreement and the Assets and is not an agent or
representative of Purchaser. Seller has no authority to act on behalf of or
bind Purchaser.
Section 12.11 EXPENSES. Each party shall bear the expenses of its own
performance of this Agreement.
Section 12.12 WAIVER OF JURY TRIAL. Purchaser and Seller hereby WAIVE ANY
RIGHT TO A TRIAL BY JURY in any action based upon an event of default or
otherwise arising from or related to this Agreement.
Section 12.12 WAIVER OF JURY TRIAL AND ARBITRATION. Purchaser and Seller
hereby WAIVE ANY RIGHT TO A TRIAL BY JURY in any action arising out of or
related to this Agreement. The parties will attempt in good faith to resolve
any claim, dispute or disagreement arising out of or relating to this Agreement
promptly by negotiations between representatives of the parties who have
authority to settle the controversy. In the event that such negotiations do not
result in the resolution of the claim, dispute or disagreement between the
parties, either party may serve upon the other a written notice stating that
such party desires to have such controversy reviewed by a board of three (3)
arbitrators and naming the person whom such party has designated as an
arbitrator. Within thirty (30) days after receipt of such notice, the other
party shall designate a person to act as arbitrator and shall notify the party
requesting arbitration of such designation and the name of the person so
designated. The two (2) arbitrators designated by the parties shall promptly
select a third arbitrator, and if they are not able to agree on a third
arbitrator, then either arbitrator, on five (5) days notice in writing to the
other, shall apply to the American Arbitration Association to designate and
appoint such third arbitrator. If the party upon whom such written request for
arbitration is served shall fail to designate its arbitrator within thirty (30)
days after receipt of such notice, then the arbitrator designated by the party
requesting arbitration shall act as the sole arbitrator and shall be deemed to
be the single, mutually approved arbitrator to resolve the controversy. The
arbitration shall be conducted in the greater Chicago area in accordance with
the rules of the local chapter of the American Arbitration Association in which
such arbitration is being conducted. The decision and award of a majority of
the arbitrators or of such sole arbitrator shall be binding upon both parties
and shall be enforceable in any court of competent jurisdiction. Such decision
and award may allocate the costs of arbitration to one of the parties or equally
or disproportionately between the parties. Any arbitrator appointed by the
parties hereto, or by their respective designated arbitrator, shall be an
uninterested person having not less than ten (10) years experience in the
financial services industry. The procedures specified herein shall be the sole
and exclusive procedures for the resolution of disputes between the parties
arising out of or relating to this Agreement; provided, however that (i) a party
may seek a preliminary injunction or other preliminary judicial relief if in its
judgment such action is necessary to avoid irreparable damage, and (ii)
Purchaser may exercise its rights as a secured creditor if in its judgment such
action is necessary to avoid irreparable damage. Despite such action the
parties will continue to participate in good faith in the procedures specified
herein. All applicable statutes of limitation shall be tolled while the
specified procedures are pending. The parties will take such action, if any,
required to effectuate such tolling.
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Section 12.13 NO THIRD-PARTY BENEFICIARIES. This Agreement is not
intended to, and shall not, create any rights in or confer any benefits on any
person or entity other than the parties hereto.
Section 12.14 PUBLICITY. Seller shall not (i) issue any press release or
make any public announcement or otherwise publicize the consummation of this
Agreement with Purchaser, or (ii) make a public disclosure of any kind regarding
the subject matter hereof, or (iii) make use of Purchaser's name, tradename,
logo or trademark without the express written consent of Purchaser, except that
Seller may publicly disclose information relating to this Agreement that is
required, in the reasonable judgment of Seller, by law or in connection with its
registration of securities or the filing of a periodic report with the U.S.
Securities and Exchange Commission or any state securities commission, or in
connection with a filing pursuant to Seller's listing with a national securities
exchange (including the NASDAQ National Market) or governmental entity if Seller
gives Purchaser advance written notice prior to releasing or making any such
disclosure.
Section 12.15 FAXED DOCUMENTS. In order to expedite the acceptance and
execution of this Agreement, each of the parties hereto agrees that a faxed copy
of any original executed document shall have the same binding effect on the
party so executing the faxed document as an original handwritten executed copy
thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers and representatives as indicated below as of
the day and year written below.
Entered into as of EAGLE FINANCE CORP.
June 25, 1996 By: ROBERT J. BRAASCH
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Title: SENIOR VICE PRESIDENT/CFO
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GENERAL ELECTRIC CAPITAL CORPORATION
By: JODY FILUT
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Title: ACCOUNT EXECUTIVE
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Exhibit 10.4
AMENDED AND RESTATED SERVICING AGREEMENT
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This Amended and Restated Servicing Agreement ("Agreement") is entered into
by and between EAGLE FINANCE CORP., a Delaware corporation (hereinafter referred
to as "Service"), and General Electric Capital Corporation, a New York
corporation (hereinafter referred to as "Company"). For good and valuable
consideration, receipt of which is acknowledged, and in consideration of the
mutual promises, covenants, representations and warranties hereinafter set
forth, the parties hereto agree as follows:
RECITALS
A. Servicer and Company are parties to certain Servicing Agreements dated as
of February 26, 1993 and September 27, 1994 as amended (the "Original
Agreements") pursuant to which Servicer has agreed to provide certain services
in managing retail installment sales contracts purchased by Company;
B. Servicer and Company have agreed to enter into this Agreement in order to
amend and restate the Original Agreements in their entirety; and
C. It is the intent of Servicer and Company that the execution and delivery of
this amendment and restatement of the Original Agreements shall not effectuate a
novation of the obligations outstanding under the Original Agreements, but shall
constitute a substitution of certain of the terms governing the obligation and
performance of Servicer and Company under the Original Agreements.
ARTICLE I
DEFINITIONS
Section 1.0 DEFINED TERMS. Whenever used in this Agreement, the following
terms shall have the respective meanings set forth below. The definitions of
such terms are applicable to the singular as well as to the plural forms of such
terms.
ASSET PURCHASE AGREEMENT. That certain agreement of even date herewith
entered into between Servicer and Company which provides for the sale of motor
vehicle installment contracts by Servicer to Company.
ASSET PURCHASE AGREEMENTS. Those certain Agreements dated of even date
herewith, February 26, 1993 (the "1993 Agreement"), and September 27, 1994, as
amended, (the "1994 Agreement").
BONUS SERVICING FEE. The sum of (i) the amount, if any, by which the
Remittances received during a Due Period, net of Remittances dishonored or
returned during the Due Period, exceed, for the Due Period, the sum of the
Required Monthly Return plus the amount required
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to restore the Reserve Account to the Required Reserve Level; plus (ii) the
amount, if any, by which the Reserve Account exceeds the Required Reserve Level.
BORROWER. The person(s) or entity(ies) that have executed a Contract,
including any guarantor, co-signer, or other person or entity obligated to make
payments under the Contract.
BORROWER DOCUMENTS. With respect to each Contract, (i) the original
Certificate of Title; (ii) the original executed Contract with original
signatures and bearing on its front or back surface an assignment to Company;
(iii) a copy of the Dealer Invoice and invoices for any additional equipment
included in the Contract; (iv) a copy of the original signed Credit Application;
(v) verification for the Required Borrower Insurance (including policy number)
that Servicer was the loss payee, additional insured, or lienholder at the time
of Servicer's purchase of the Contract; (vi) copies of (a) the credit bureau
reports, (b) the completed credit form, (c) the completed verification of
employment and income forms, (d) Borrower references, and (e) the credit scoring
sheet; (vii) Servicer's funds disbursement invoice or listing; (viii) a
certificate for each type of Optional Borrower Insurance purchased by Borrower;
(ix) Servicer's loan process or "deal structure" sheet; (x) a "fact sheet" from
the dealer; and (xi) other documents that may be reasonably required in the
ordinary course of business with respect to the enforceability of the Borrower's
obligations.
BORROWER RECORDS. With respect to each Purchased Contract, and whether
existing before or after the date of this Agreement (i) the Borrower Documents;
and (ii) all other records, files, and documents, whether consisting of paper or
computerized or in some other form, which relate specifically to the Contract,
Borrower, Financed Vehicle or associated Contract Right. Except with respect to
the time period when owned by Company, Borrower Records shall not include
Reacquired Borrower Records.
BORROWER'S OUTSTANDING PRINCIPAL BALANCE. The outstanding principal
balance on a Purchased Contract, or a Contract being purchased, which is
calculated by subtracting the unearned finance charge on the Contract from the
unpaid Scheduled Payments due under the Contract, which is determined as of such
time period stated in any applicable provision of this Agreement.
BUSINESS DAY. Any day other than (i) a Saturday or Sunday or (ii) another
day on which banking institutions in the State of Illinois are authorized or
obligated by law, executive order, or governmental decree to be closed.
CASH FLOW CREDIT. With respect to a Due Period, an amount equal to (i)
1/365th of the annual interest rate of the 30-day commercial paper last issued
by Company before the Due Period, times (ii) the number of days in the Due
Period, times (iii) 1/2 of the Bonus Servicing Fee. Unless Company notifies
Servicer of a different method for determining the Company's 30-day commercial
paper rate for the calculation of the Cash Flow Credit, for the purpose of
calculating the Cash Flow Credit the rate last published in THE WALL STREET
JOURNAL before the Due Period for 30 to 59 day commercial paper placed directly
by Company shall be deemed to be the 30-day commercial paper last issued by
Company before the Due Period.
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CERTIFICATE OF TITLE. With respect to any Financed Vehicle, the
Certificate of Title (or other evidence of ownership) issued by the department
of motor vehicles, or other appropriate governmental body, of the state in which
the Financed Vehicle is registered or is to be registered, showing the Borrower
as owner with either notation of the Servicer's first lien or such other status
indicated thereon which is necessary to perfect Servicer's security interest in
the Financed Vehicle as a first priority interest, and showing no other actual
or possible ownership or lien interests.
CHARGE-OFF CONTRACT. A Purchased Contract: (i) which is a Defaulted
Contract; (ii) in connection with which Insurance Proceeds or Liquidation
Proceeds have been received, or (iii) for which the Borrower has made what
purports to be the final payment or a prepayment in full but the amount paid
results in a failure to satisfy the Borrower's Outstanding Principal Balance.
CHARGE-OFF DEFICIENCY. With respect to each Charge-Off Contract, the
amount by which the Borrower's Outstanding Principal Balance exceeds the
Liquidation Proceeds and Insurance Proceeds, to the extent that such amount has
not been included in a previous calculation and report of Charge-Off Deficiency.
CLOSING DATE. With respect to each Portfolio of Purchased Contracts
conveyed by Servicer to Company pursuant to the Asset Purchase Agreement, shall
mean the date of execution of the Bill of Sale evidencing such conveyance.
CREDIT APPLICATION. The credit application completed by the Borrower in
order to request financing for the Borrower's purchase of the Financed Vehicle.
CONTRACT. A motor vehicle installment or conditional sale contract, with
any amendments, pursuant to which a Borrower has: (i) purchased a new or used
motor vehicle, (ii) granted a security interest in the motor vehicle to secure
the Borrower's payment obligations, and (iii) agreed to pay the unpaid purchase
price and a finance charge in monthly installments.
DEALER INVOICE. As to new Financed Vehicles, the invoice prepared by the
manufacturer; and means, as to used Financed Vehicles, the Black Book wholesale
value adjusted for mileage and hard adds.
DEBT RATIO. The debt-to-equity ratio of Servicer, calculated in accordance
with generally accepted accounting principles, by comparing the Senior Debt and
Subordinated Debt of the Servicer to Tangible Net Worth.
DEFAULTED CONTRACT. For any Due Period, a Purchased Contract for which (i)
any Scheduled Payment is delinquent (not paid by the due date) more than 90 days
(4 payments due) as of the end of the Due Period; (ii) a petition requesting
relief under the Bankruptcy Code or a similar law was filed by or against the
Borrower during the Due Period, and by the end of the Due Period the petition
was not dismissed; (iii) as of the end of the Due Period, the Financed Vehicle
is missing or has been damaged beyond ordinary means of repair or has been
leased or has been disposed of by sale or other transfer of title; (iv) Servicer
or Company shall have reasonably determined that by reason of a claim, lien,
charge, pledge or encumbrance regarding
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the Contract or the Financed Vehicle, or otherwise, payments under the Contract
will not be made as of the last date of the Due Period; or (v) a Skip Loss
Investigation was initiated and not satisfactorily resolved within 60 days
provided a Scheduled Payment is delinquent (not paid by the due date) more than
60 days as of the end of the Due Period.
DEPOSITORY ACCOUNT. That trust account in the name of Company at a bank
designated by Company for the purpose of receiving Remittances.
DISCHARGE DATE. The first date by which all of the Purchased Contracts
have been paid in full or forgiven by Company (except with respect to Section
10.0 hereof) and all of Servicer's obligations under the Asset Purchase
Agreement and this Agreement have been performed.
DUE PERIOD. A calendar month during the period beginning with the calendar
month during which the first Closing Date occurs and ending with the calendar
month when all of the Servicer's obligations to Company under this Agreement and
the Asset Purchase Agreement are fully paid and performed.
EVENT OF DEFAULT. This term has the meaning provided in Article VIII of
this Agreement.
FINANCED VEHICLE. The new or used passenger or light duty truck motor
vehicle purchased by a Borrower pursuant to a Contract.
GOVERNMENTAL RULE. Any law, rule, regulation, ordinance, order, code,
interpretation, judgment, decree, policy, decision or guideline issued by any
branch of government.
INSURANCE PROCEEDS. With respect to a Purchased Contract and a Due Period,
amounts (including rebates) recovered under any warranty or insurance policy
with respect to such Purchased Contract, Borrower or the Financed Vehicle during
such Due Period, and shall include, without limitation, amounts recovered during
such Due Period under any credit life, credit health or disability insurance,
Borrower's physical damage insurance.
INTANGIBLE ASSETS. Assets of Servicer which would be classified in
accordance with GAAP (defined below) as intangible assets, including, without
limitation, (a) all franchises, license permits, patents, applications,
copyrights, trademarks, tradenames, goodwill, experimental or organizational
expenses and other like intangibles, (b) the excess paid for assets acquired
over their respective book values and (c) unamortized stock discounts and
expenses.
INTEREST COVERAGE. For any given quarter in 1996, the sum of Servicer's
quarterly pre-tax income plus Servicer's quarterly interest expense, compared to
Servicer's quarterly interest expense. After 1996, the sum of Servicer's year-
to-date pre-tax income plus Servicer's year-to-date interest expense, compared
to Servicer's year-to-date interest expense.
LIQUIDATION EXPENSES. The out-of-pocket expenses incurred in connection
with the collection and enforcement of a Purchased Contract (including the
attempted liquidation of a Purchased Contract which is brought current and is no
longer in default during such attempted
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liquidation), the repossession and sale of a Financed Vehicle, and the
collection and enforcement of Contract Rights.
LIQUIDATION PROCEEDS. With respect to a Purchased Contract and a Due
Period, all amounts (other in Insurance Proceeds) received from the sale or
other disposition of the Financed Vehicle, during any Due Period, net of any
amounts required by law to be remitted to the Borrower.
MONTHLY CHARGE-OFF. The total Charge-Off Deficiencies for the month
divided by the end of month Borrower's Outstanding Principal Balance of
Contracts which are not Charge-Off Contracts, expressed as a percentage.
MONTHLY DELINQUENCY. The total Borrower's Outstanding Principal Balance
for Contracts which as of the end of the month are two (2) or more payments
delinquent divided by the end-of the month Borrower's Outstanding Principal
Balance of Contracts which have not been paid in full as determined (in
accordance with the internal accounting standards of Servicer) as of such month-
end, expressed as a percentage.
MONTHLY PRINCIPAL. Means, with respect to a Due Period and a Purchased
Contract, the Borrower's Outstanding Principal Balance as of the last day of the
preceding Due Period minus the Borrower's Outstanding Principal Balance as of
the last day of the Due Period.
MONTHLY YIELD. Means the Borrower's Outstanding Principal Balance as of
the first day of a Due Period times 1/365th of the Required Yield for the
Purchased Contract times the number of days in the Due Period.
OPTIONAL BORROWER INSURANCE. Any insurance which insures a Financed
Vehicle or a Borrower's obligations under a Contract, including but not limited
to credit life, credit health, credit disability, unemployment insurance; and
any service contract, mechanical breakdown coverage, warranty, or extended
warranty for a Financed Vehicle.
PAYMENT DATE. With respect to a Due Period, the fifteenth day of the
calendar month following such Due Period or, if such day is not a Business Day,
the next succeeding Business Day.
PERFORMANCE CERTIFICATE. A certificate signed by the President, Senior
Vice President or the Chief Financial Officer of the Servicer in the form of
Exhibit J attached hereto.
PORTFOLIO OF PURCHASED CONTRACTS. The aggregate of individual Contracts
which are identified on the List of Contracts attached to a Bill of Sale.
POST OFFICE BOX. The post office box owned by the Company into which
Servicer shall receive Remittances.
PURCHASED CONTRACT. A Contract purchased by Company from Servicer pursuant
to the Asset Purchase Agreement.
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PURCHASED CONTRACT RIGHTS. With respect to Purchased Contracts, (i)
Servicer's interest in the Financed Vehicle; (ii) all rights of Servicer with
respect to the Contract and Financed Vehicle under all dealer agreements
pursuant to which the Contract was acquired by Servicer excluding any rights or
obligations of Servicer to any dealer reserve accounts; (iii) all rights of
Servicer with respect to Required Borrower Insurance and Optional Borrower
Insurance; (iv) all rights of Servicer, if any, to prepaid dealer rate
participation in connection with the Contract; (v) all rights of Servicer with
respect to Borrower Records and Remittances.
REMITTANCES. Any amounts received with respect to the Purchased Contracts
and associated Contract Rights, including, but not limited to, Scheduled
Payments, prepayments, payoffs, Liquidation Proceeds, Insurance Proceeds, late
charges and fees (including not-sufficient-funds fees, and extension and
modification fees).
REQUIRED BORROWER INSURANCE. Any casualty insurance the Borrower is
required to obtain pursuant to the terms of the Purchased Contract.
REQUIRED MONTHLY RETURN. For any Due Period, the Servicing Fee plus the
Monthly Yield plus the Monthly Principal plus the Charge-Off Deficiency.
REQUIRED RESERVE LEVEL. As to the Reserve Account, such percentage of the
total of the aggregate Borrower's Outstanding Principal Balance for all
Purchased Contracts as of the last day of a Due Period in accordance with
Section 6.0 of the Asset Purchase Agreement and Section 6.1 of this Agreement.
REQUIRED RESERVE LEVELS. As to the Reserve Accounts, such percentage of
the total of the aggregate Borrower's Outstanding Principal Balance for all
Purchased Contracts as of the last day of a Due Period in accordance with the
Asset Purchase Agreements and Section 6.1 of this Agreement.
REQUIRED YIELD. With respect to a Purchased Contract, 3.85% plus 90% of
the Two-Year Treasury Rate as of the Closing Date. The Required Yield for each
Purchased Contract will be established at the time of purchase and will remain
constant for the Contract.
RESERVE ACCOUNT. The account established in accordance with Article VI,
RESERVE ACCOUNT of the Asset Purchase Agreement.
RESERVE ACCOUNTS. The accounts established by the Asset Purchase
Agreements.
ROLLING AVERAGE CHARGE-OFF. The monthly average, for any six (6)
consecutive calendar months, of Charge-Off Deficiencies for the month divided by
the end-of-month aggregate Borrower's Outstanding Principal Balance of Contracts
which are not Charge-Off Contracts, expressed as a percentage.
ROLLING AVERAGE DELINQUENCY. The monthly average, for any six (6)
consecutive calendar months, of the aggregate Borrower's Outstanding Principal
Balance for Contracts which as of the end of the month are two (2) or more
payments delinquent divided by the end-of-month
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aggregate Borrower's Outstanding Principal Balance of Contracts which have not
been paid in full (in accordance with the internal accounting standards of
Servicer) as of such month-end, expressed as a percentage.
SCHEDULE OF PAYMENTS. The schedule of monthly payments disclosed on a
Purchased Contract.
SCHEDULED PAYMENT. The monthly payment amount indicated on the Schedule of
Payments.
SENIOR DEBT. The notes and all other debt not expressed to be subordinate
and junior to any other debt.
SERVICING FEE. With respect to each Purchased Contract outstanding as of
the last day of a Due Period, a fee of one-quarter of one percent (.25%) of the
Borrower's Outstanding Principal Balance of the Portfolios of Purchased
Contracts as of the first day of the Due Period; provided that, for the first
Due Period for each Purchased Contract, the fee shall be one-quarter of one
percent (.25%) of the Borrower's Outstanding Principal Balance on the date of
purchase for that Purchased Contract; and, provided that, when Company does not
own a Purchased Contract for the entire Due Period or a Borrower's Outstanding
Principal Balance is not outstanding for the entire Due Period, then the
Servicing Fee shall be prorated.
SKIP LOSS INVESTIGATION. An investigation of the whereabouts of a Financed
Vehicle or Borrower which has been initiated by Servicer.
SUBORDINATED DEBT. Debt which is subordinate and junior in right with
respect to the general assets of Servicer to Senior Debt by provisions
satisfactory to the Company, including without limitation, obligations to
holders of the securities plus interest, fees and expenses payable by Servicer
under the indenture.
TANGIBLE NET WORTH. The amount of the capital stock of Servicer on a
consolidated basis plus (or minus in the case of a deficit) (i) the capital
surplus and earned surplus of Servicer and (ii) subordinated debt of the
Servicer minus the sum of (i) the cost of Treasury shares, (ii) Intangible
Assets, and (iii) investments in and loans to shareholders, directors, employees
and affiliated entities.
THREE MONTH ROLLING AVERAGE CHARGE-OFF. The monthly average, for any three
(3) consecutive calendar months, of Charge-Off Deficiencies for the month
divided by the end-of-month aggregate Borrower's Outstanding Principal Balance
of Contracts which are not Charge-Off Contracts, expressed as a percentage.
THREE MONTH ROLLING AVERAGE DELINQUENCY. The monthly average, for any
three (3) consecutive calendar months, of the aggregate Borrower's Outstanding
Principal Balance for Contracts which as of the end of the month are two (2) or
more payments delinquent divided by the end-of-month aggregate Borrower's
Outstanding Principal Balance of Contracts which have
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not been paid in full (in accordance with the internal accounting standards of
Servicer) as of such month-end, expressed as a percentage.
TWO-YEAR TREASURY RATE. The "ask yield" published as of any Closing Date
in the Wall Street Journal (or other publication designated by Company if the
Wall Street Journal stops publishing the "ask yields") for U.S. Treasury Bonds
and Notes having a maturity in the same month two years later.
Section 1.1. TERMS DEFINED IN THE ASSET PURCHASE AGREEMENT. All
capitalized terms which are used in this Agreement but not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Asset
Purchase Agreement or the Asset Purchase Agreements.
Section 1.2. ACCOUNTING TERMS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
accounting determinations under this Agreement shall be made, and all financial
statements required to be delivered by any person or entity pursuant to this
Agreement shall be prepared, in accordance with generally accepted accounting
principles ("GAAP") as in effect from time to time applied on a consistent
basis. To the extent generally accepted accounting practices do not apply to
certain reports or accounting practices of Servicer, the parties will mutually
agree on the accounting practices.
ARTICLE II
APPOINTMENT AND GENERAL RESPONSIBILITIES OF SERVICER
Section 2.0 APPOINTMENT OF SERVICER. Company hereby appoints Servicer to
service the Purchased Contracts according to the terms of this Agreement.
Section 2.1 INDEPENDENT CONTRACTOR. In the performance its duties
hereunder, Servicer shall be an independent contractor acting on its own behalf
in its own name and for its own account. It shall have no authority, express or
implied, to act in any manner or by any means for or on behalf of Company in any
capacity other than independent contractor. Servicer and Company are not
partners, joint venturers, agents or assignees of each other. Servicer shall
perform all of its obligations under this Agreement at its own expense,
including but not limited to the payment of the Liquidation Expenses.
Section 2.2 GENERAL SERVICING STANDARDS. Servicer shall service and
administer the Purchased Contracts and associated Contract Rights and Borrower
Records with due care and in accordance with the terms of this Agreement and
shall have full power and authority, acting alone and subject only to the
provisions of this Agreement to do any and all things in connection with the
servicing and administration that it may in good faith deem necessary or
desirable. Servicer shall service the Purchased Contracts and associated
Contract Rights and Borrower Records in accordance with customary and usual
procedures employed by financial institutions servicing installment contracts
secured by motor vehicles and, to the extent more exacting, in accordance with
the procedures used by it to service and administer similar motor vehicle
installment contracts owned by Servicer; PROVIDED, HOWEVER, that Servicer shall
not release or
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waive, without the prior written consent of Company, any obligation of any
Borrower except to the extent allowed in Article IV.
Section 2.3 LISTING OF OFFICERS AND LOCATIONS. Contemporaneously with the
execution and delivery of this Agreement, Servicer shall deliver to Company a
list of officers and locations of Servicer involved in, or responsible for, the
administration and servicing of the Purchased Contracts, which list shall be
updated by the Servicer as changes are made. Servicer shall not change a
location where it administers or services the Purchased Contracts unless it
first gives Company sixty (60) days written notice and takes what action Company
requests in order to protect Company's interest in the Purchased Contracts and
related Contract Rights and Borrower Records at the new location.
Section 2.4 PERFECTION OF OWNERSHIP INTEREST. Servicer shall take all
actions that are necessary, and all reasonable actions requested by Company, to
maintain continuous perfection and priority of Company's right, title and
interest in the Purchased Contracts and associated Contract Rights, Borrower
Records and Financed Vehicles, including, but not limited to, obtaining the
execution and the recording, filing, and refiling of all security agreements,
Certificates of Title, cautionary financing statements, continuation statements
or other instruments as are necessary to maintain the security interests granted
by the Borrowers under the respective Purchased Contracts.
Section 2.5 SERVICER COMPLIANCE. Servicer shall, at all times while
performing its duties and obligations hereunder, comply with all applicable
Governmental Rules, including, but not limited to, state and federal
Governmental Rules pertaining to financing, licensing, sales, debt collection,
consumer protection, credit reporting, usury, the Uniform Commercial Code,
foreclosure, record retention and financial privacy. Servicer shall regularly
train its collection employees to comply with applicable Governmental Rules.
ARTICLE III
MAINTENANCE OF FILES AND RECORDS
Section 3.0 MAINTENANCE OF FILES. Servicer shall establish and maintain
Purchased Contract files and records in a safe, up-to-date manner, segregated
from its own account files. All Purchased Contract files and records shall be
stored and maintained at one or more of the locations identified pursuant to
Section 2.3. Servicer shall keep in each Purchased Contract file all Borrower
Records that are not computerized including but not limited to all
correspondence received regarding the Purchased Contract, Borrower, Financed
Vehicle, or Contract Rights and copies of all correspondence and documents sent
by Servicer regarding the Purchased Contract, Financed Vehicle, Borrower or
Contract Rights.
Section 3.1 RECORDS. The Servicer shall maintain records (including,
without limitation, computerized records) reflecting its activities servicing
the Purchased Contracts, which records shall be clearly marked to indicate that
the Purchased Contracts and associated Contract Rights and Borrower Records are
owned by Company. Servicer shall exercise the same degree of care in handling
and delivering the original documents and the other documents in the Customer
files
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and records as it exercises in handling such items or Contracts owned by it.
Servicer shall not grant or allow any person or entity other than Company an
interest in original documents or rights thereunder, and all original documents
in the possession of Servicer shall be deemed to be in the possession of Company
Section 3.2 ORIGINAL DOCUMENTS. Company will retain possession of the
original Purchased Contract and Certificate of Title. Subject to the provisions
of this Agreement and the Asset Purchase Agreement, Servicer shall, until
Company requests their return, maintain possession of other original documents,
subject to Company's right of ownership. To the extent necessary for
enforcement, lien release, or correction, Company shall deliver the Purchased
Contract or Certificate of Title to Servicer. Whenever Servicer obtains any
original Purchased Contract or Certificate of Title, it will hold it in trust
for Company and will immediately deliver it to Company unless this Agreement
provides otherwise.
Section 3.3 EXAMINATION OF RECORDS. At any time during Servicer's normal
business hours Company and its agents and representatives and may (i) physically
inspect the Borrower Records and any other documents, files or other records
described in Article III, including records relating to the performance and
servicing of the Purchased Contracts, and (ii) discuss the same with Servicer's
officers and employees. Servicer shall supply Company with copies of any such
documents, files, or other records upon request.
Section 3.4 RETENTION OF FILES. Unless otherwise requested by Company, or
unless otherwise required by law, Servicer shall retain, with respect to each
Purchased Contract, until six (6) months after Servicer closes its file for the
Purchased Contract, the Borrower Records and all other records, files and
documents related to the Purchased Contract. At the end of such six (6) month
period, Servicer shall transfer all such items to Company. Servicer may retain
copies of any such documents for its own files.
ARTICLE IV
SPECIFIC SERVICING DUTIES
Section 4.0 DEPOSITORY ACCOUNT. Promptly following execution of this
Agreement, Company shall establish the Depository Account at its designated
bank. All amounts deposited in the Depository Account by Servicer shall be
gross amounts, without deduction for amounts owed by Company. Company can
withdraw funds at any time from the Depository Account. Company shall be
entitled to all interest and credits issued by the bank for the Depository
Account.
Section 4.1 POST OFFICE BOX. Promptly following execution of this
Agreement, Company shall enter into an agreement with the United States Postal
Service to establish the Post Office Box. So long as no Event of Default has
occurred, Servicer shall be permitted access to the Post Office Box for purposes
of depositing all Remittances received therein into Servicer's local bank
accounts as have been identified by Servicer to Company, which local bank
account balances shall be swept daily to the Depository Account.
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Section 4.2 SERVICER TO ACT AS CUSTODIAN FOR COMPANY. Servicer shall
direct Borrowers and others making payments with respect to Contracts to remit
payments to the P.O. Box. Company recognizes that from time to time Remittances
may come into Servicer's possession and it hereby appoints Servicer as custodian
of Company to receive such Remittances, but Company shall be deemed to have
possession of the Remittances. Notwithstanding this appointment, or any other
provision in this Agreement, Company shall remain the sole and absolute owner of
the Remittances, Purchased Contracts and associated Contract Rights. Servicer
shall maintain any Remittances received by it separate and apart from other
funds and shall clearly denominate the funds so as to indicate the paramount
interest of Company therein. If any Remittance is received by Servicer,
Servicer shall deposit the Remittance in the Depository Account as soon as
possible, but in no event later than the next Business Day after receipt, and
until so deposited shall be held in trust by Servicer for Company.
Section 4.3 CUSTOMER SERVICE. Servicer shall provide sufficient staffing
and telephone lines to: (1) quote payoffs to requesting Borrowers verbally and
in writing, (2) record changes in garaging and billing addresses for Borrowers,
(3) record name changes, (4) answer billing questions and (5) respond to any
other written or telephonic inquiries relating to the Purchased Contracts.
Section 4.4 INSURANCE. Servicer shall track the expiration date of
Required Borrower Insurance and require Borrowers, to maintain the Required
Borrower Insurance. Servicer shall collect refunds and benefits payable to
Company with respect to Required Borrower Insurance and Optional Borrower
Insurance.
Section 4.5 PAYOFFS. In the event a Purchased Contract is paid in full
with good funds or released as provided in Section 4.9, Servicer shall, if
requested by the Borrower, (i) stamp the Purchased Contract "Paid" and return it
to the Borrower, and (ii) release the lien on the Certificate of Title and
return it to the Borrower.
Section 4.6 DELINQUENT PAYMENTS AND DEFAULTS. If a payment is not received
from a Borrower within 3 days after the date it is due under the Purchased
Contract, Servicer shall begin contacting (by phone and/or mail as Servicer
deems appropriate) the Borrower to effect collection and to encourage timely
payment. If Servicer is unable to make contact with a delinquent Borrower in a
timely manner, Servicer shall initiate a Skip Loss Investigation. Servicer
shall file proofs of claim in bankruptcy, receivership and probate proceedings
of which Servicer receives the actual notice.
Section 4.7 PURCHASED CONTRACT MODIFICATIONS. Based on Borrower's reasons
for delinquency, Servicer may grant short extensions (monthly payment deferrals)
to those Borrowers having temporary cash flow problems. Servicer may also
modify Purchased Contract terms to allow collateral substitutions or
assumptions. Servicer will exercise care in offering extensions and
modifications so as not to defer losses likely to occur. During the life of a
Purchased Contract, extensions and modifications shall not have the effect of
extending the original Purchased Contract term more than six (6) months or
reducing the Borrower's Principal Outstanding Balance.
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Section 4.8 REALIZATION UPON DELINQUENT PURCHASED CONTRACTS. If no
satisfactory arrangements can be made for collection of delinquent payments
after giving the Borrower all required notices and opportunities to cure,
Servicer shall, to the extent permitted by law, accelerate the Purchased
Contract and pursue foreclosure of Company's security interest in the Financed
Vehicle. In connection with the foreclosure of Company's security interest in a
Financed Vehicle, Servicer may commence and prosecute legal proceedings in
respect of such Purchased Contract in its own name or, if Servicer's counsel
determines it is necessary, in the name and on behalf of Company. Servicer
shall foreclose on Company's security interest in a commercially reasonable
manner following the procedures necessary to preserve the right to pursue
collection of any deficiency. Neither Servicer nor its employees or their
relatives shall be allowed to purchase Financed Vehicles being foreclosed.
Liquidation Proceeds and Insurance Proceeds shall be applied as a credit to the
Borrower's Outstanding Principal Balance. Servicer will use its best efforts to
sell Financed Vehicles within ninety (90) days of repossession.
Section 4.9 CONTRACT RIGHTS AND COLLECTION OF DEFICIENCIES. Servicer shall
collect and enforce Contract Rights in a timely manner. If there is a
deficiency balance after all Insurance Proceeds and Liquidation Proceeds have
been received, Servicer shall pursue collection of the deficiency, except to the
extent that such pursuit is not economically practical pursuant to the standards
in Exhibit C attached hereto. After Company has received the Borrower's
Outstanding Principal Balance (other than Liquidation Expenses) and all accrued
Monthly Yield for a Purchased Contract with a deficiency balance, Servicer may
release the Borrower from further liability in exchange for a payment less than
the deficiency based on the Borrower's likely ability to pay.
Section 4.10 LIQUIDATION EXPENSES. All Liquidation Expenses legally
recoverable from the Borrower shall be applied as a debit to the Borrower's
Outstanding Principal Balance.
Section 4.11 CHARGE-OFF CONTRACTS. After a Purchased Contract becomes a
Charge-Off Contract, Servicer shall keep a record of the Charge-Off Deficiency
and reduce the Borrower's Outstanding Principal Balance to zero as necessary for
the reports provided to Company pursuant to Section 5.0(a) and for purposes of
calculating the Servicing Fee and the Bonus Servicing Fee. However Servicer
shall continue to keep track of the actual Borrower's Outstanding Principal
Balance until the file and such information is transferred to Company.
ARTICLE V
STATEMENTS AND REPORTS
Section 5.0 REPORTS AND MONTHLY BACK-UP TAPE. (a) Servicer shall furnish
to Company the following reports in a form reasonably acceptable to Company.
Servicer shall furnish such additional reports in such form the Servicer
determines are necessary for it to track and monitor (i) Servicer's performance
of this Agreement, and (ii) the Purchased Contracts, Remittances, Financed
Vehicles, Contract Rights, Required Borrower Insurance and Optional Borrower
Insurance; provided that Company shall reimburse Servicer for reasonable out-of-
pocket expenses that Servicer incurs in developing the capabilities to prepare
and in otherwise furnishing such additional reports, including, but not limited
to, reasonable computer
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programming and software expenses, to the extent the expenses do not exceed an
amount approved in advance by Company.
Report Frequency
Cash Report Daily
Transaction Report Daily
Trial Balance of Contracts Monthly
Contract Delinquency Report Monthly
Paid Off Contract Report Monthly
Charge-Off Contract Report Monthly
Recovery Report Monthly
Repossession Report Monthly
Title Tracking Report Monthly
Insurance Tracking Report Monthly
Vehicle Inventory Report Monthly
Servicing Fee Report Monthly
The monthly reports shall be provided to Company by the Servicer by the tenth of
the following month. The daily reports shall be provided to Company no later
than four (4) Business Days after the day covered by the report. Along with the
monthly reports Servicer shall deliver to Company an executed Performance
Certificate.
(b) Servicer shall furnish to Company no later than when the monthly
reports are due, an up-to-date back-up tape of all information related to
Purchased Contracts which Servicer has placed on electronic media, including but
not limited to, payment histories, customer service notes, the Borrower's
Outstanding Principal Balance, collection histories and customer names and
addresses; provided that, until Servicer has the system to do so, which it shall
make a good faith effort to acquire, in lieu of the monthly tape, Servicer can
instead provide Company with (i) a disk which has such information on it other
than payment histories and collection histories, and (ii) a trial balance which
shows the Borrower's Outstanding Principal Balance, the last payment date and
amount, the unearned finance charge, and the next payment date and amount.
Section 5.1 NOTICE OF CLAIMS. Within five (5) Business Days of receipt,
Servicer shall provide Company with copies of all correspondence, notices, and
legal and administrative documents which allege that Servicer committed a
wrongful act with regard to a Purchased Contract, Borrower, Contract Rights
obligor, Optional Borrower Insurance, Required Borrower Insurance or Financed
Vehicle (collectively, the "Notice Items"). Within three (3) Business Days of
receipt, Servicer shall inform Company in writing of the following:
(i) the receipt of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation regarding the Notice
Items involving an uninsured amount in excess of fifty thousand dollars
($50,000) in any one instance or one hundred thousand dollars ($100,000) in the
aggregate;
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(ii) the receipt of a notice from any agency or governmental body
having authority over the conduct of its business that (A) it is being placed
under regulatory supervision, (B) any license, permit, charter, membership or
registration needed to perform this Agreement or material to the conduct of
its business is to be suspended or revoked, or (C) it is to cease and desist
any practice, procedure or policy employed by it in the conduct of its
business, and such cessation will materially adversely affect the conduct of
its business or materially adversely affect its financial affairs or
adversely affect its ability to perform this Agreement; or
(iii) the receipt of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation against it involving
an uninsured amount in excess of one million dollars ($1,000,000) in any one
instance or two million dollars ($2,000,000) in the aggregate.
ARTICLE VI
RESERVE ACCOUNT
Section 6.0 CREATION OF RESERVE ACCOUNT. The Reserve Account shall be
maintained as a ledger account and shall not consist of segregated funds or an
interest in cash. Company may commingle and use as its own funds any funds
which are accounted for as an addition to the Reserve Account. The Reserve
Account shall not bear or earn interest, provided, however, that earnings credit
with respect to the Reserve Account shall be payable as provided in Section 6.5
below. Servicer's only right, title, and interest with respect to the Reserve
Account shall be the right to receive any remaining balance provided in Section
6.4 after the deduction of all charges to the Reserve Account that Servicer has
a right to make pursuant to this Agreement or the Asset Purchase Agreement.
Servicer hereby agrees that the Reserve Account shall be cross-collateralized
with any other reserve account created by the Asset Purchase Agreement dated
February 26, 1993 (the "1993 Agreement") and the Asset Purchase Agreement dated
September 27, 1994 (the "1994 Agreement") and Servicer hereby grants to Company
a security interest in Servicer's interest in the Reserve Account and the
Reserve Accounts created by the 1993 Agreement and the 1994 Agreement.
Section 6. 1 RESERVE LEVELS. With respect to the reserve account for
Purchased Contracts purchased before March 31, 1995 (the "1993/1994 Reserve
Account"), the 1993/1994 Reserve Account shall be maintained at such ten percent
(10%) level for the remainder of the term of this Agreement.
With respect to the reserve account for Purchased Contracts purchased on or
after March 31, 1995, but before the date of this Agreement (the "1994
Reserve Account"), once the 1994 Reserve Account reaches twelve percent (12%)
of the Borrower's Outstanding Principal Balance of the Purchased Contracts on
any Closing Date, the 1994 Reserve Account shall be maintained at such twelve
percent (12%) level for the remainder of the term of this Agreement provided,
however, that if (i) the Monthly Delinquency of such Purchased Contracts for
each of the first twelve (12) full calendar months after the related Closing
Date, computed as of the end of each such month, is less than ten percent
(10%); and (ii) the Monthly Charge-Off of such Purchased Contracts for each
of the first twelve (12) full calendar months after the related Closing Date,
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computed as of the end of each such month, is less than one and seventy-five
hundredths percent (1.75%), Company shall refund to Servicer from the 1994
Reserve Account an amount sufficient to reduce the 1994 Reserve Account to
ten percent (10%) of the Borrower's Outstanding Principal Balance of such
Purchased Contracts as of the end of the first twelve (12) calendar months
after the related Closing Date, and the 1994 Reserve Account shall be
maintained for the remainder of the term of the Agreement at an amount equal
to ten percent (10%) of the Borrower's Outstanding Principal Balance of such
Purchased Contracts as of the end of each calendar month thereafter.
With respect to Contracts purchased by Company on or after the date of the
Agreement, the Reserve Account shall be maintained at the level required by the
Asset Purchase Agreement and shall be increased to twelve percent (12%) of the
Borrower's Outstanding Principal Balance of the Purchased Contracts, for twelve
(12) months if either of the following occurs: (i) the Three Month Rolling
Average Delinquency is eight percent (8%) or greater, or (ii) the Three Month
Rolling Average Charge-Off is one and seventy-five hundredths percent (1.75%) or
greater. If the Required Reserve Account level is increased from ten percent
(10%) to twelve percent (12%), the Servicer and Company agree that the Reserve
Account will only be increased up to a maximum of fifty percent (50%) of the
Bonus Servicing Fee for any Due Period. If in the event the Three Month Rolling
Average Delinquency and the Three Month Rolling Average Charge Off are less than
eight percent (8%) and one and seventy-five hundredths percent (1.75%),
respectively, for twelve (12) consecutive months, the Reserve Account balance
will be reduced to 10%. The Reserve Account shall be increased to twelve
percent (12%) of the Borrower's Outstanding Principal Balance of the Purchased
Contracts for an additional twelve (12) months if either of the following
occurs: (i) the Three Month Rolling Average Delinquency is eight percent (8.0%)
or greater, or (ii) the Three Month Rolling Average Charge-Off is one and
seventh-five hundredths percent (1.75%) or greater.
With respect to all Purchased Contracts, in no event shall the Reserve Accounts
be less than one hundred twenty-five thousand dollars ($125,000.00) or one
hundred percent (100%) of the Borrower's Outstanding Principal Balance of the
Purchased Contracts, whichever is less.
Section 6.2 MONTHLY ADJUSTMENTS. Within 10 Business Days following the end
of each Due Period, (i) the amount by which the Remittances for the Due Period,
net of Remittances dishonored or returned during the Due Period, exceed the
Required Monthly Return shall be added to the Reserve Account balances to the
extent necessary to restore it to the Required Reserve Levels as of the end of
the Due Period, and (ii) the amount by which the Remittances for the Due Period,
net of Remittances dishonored or returned during the Due Period, are less than
the Required Monthly Return shall be deducted from the Reserve Account balances.
Except as provided in this Agreement, Company shall have no obligation to pay
Servicer the amount by which Remittances exceed the Required Monthly Return and
the amount necessary to restore the Reserve Accounts to the Required Reserve
Levels.
Section 6.3 SHORTFALLS AND CHARGES. In the event that all Remittances ever
collected are not sufficient to restore the Reserve Accounts to the Required
Reserve Levels, Servicer has no liability to contribute to the Reserve Accounts
or otherwise reimburse Company for the shortfall except to the extent there were
charges to the Reserve Accounts for items for which Servicer
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was liable to Company. Company has no liability to pay to Servicer or add to
the Reserve Account balances any shortfall. In addition to other charges
allowed by the Asset Purchase Agreements, or this Agreement, Company may charge
the Reserve Accounts for (i) all amounts which Servicer owes to Company pursuant
to this Servicing Agreement or otherwise but fails to pay when due, and (ii) all
amounts which Company incurs to perform or enforce Servicer's obligations under
this Servicing Agreement or otherwise which Servicer fails to perform. In the
event that Servicer challenges a charge against the Reserve Accounts by Company
and Servicer prevails in its challenge, subject to Section 12.10, then Company
shall add the amount of challenged charge (to the extent Servicer prevails in
its challenge) to the Reserve Account balances.
Section 6.4 PAYMENT OF RESERVE ACCOUNT BALANCES. At such time as Company
shall have received through Remittances and/or the Reserve Accounts all of the
Required Monthly Returns for all of the Purchased Contracts and Servicer has
performed all of its obligations hereunder and under the Asset Purchase
Agreements, Company shall pay to Servicer the amount of the positive balance, if
any, of the Reserve Accounts; provided, however, Servicer shall be deemed to
have performed all of its obligations hereunder and under the Asset Purchase
Agreements within sixty (60) days following the later receipt by Company of (i)
all of the Required Monthly Returns (either through Remittances and/or the
Reserve Accounts) for all Purchased Contracts and (ii) a written request by
Servicer for the balance of the Reserve Accounts, unless during such sixty (60)
day period Company notifies Servicer in writing that Servicer has not performed
all such obligations. Any such notice to Servicer must set forth specifically
the obligations the Company alleges Servicer has not performed.
Section 6.5 EARNINGS CREDIT. The Reserve Accounts shall not bear interest
and Company shall not be obligated to pay interest on the Reserve Accounts.
However, as long as Servicer is servicing the Purchased Contracts, Company shall
credit to Servicer with respect to the Reserve Accounts as of the last day of
each calendar month commencing after the first Closing Date, an earnings credit
calculated for each Portfolio of Contracts purchased hereunder in an amount
equal to 1/365th of the applicable Required Yield quoted as of the respective
Closing Date for such purchased Portfolio of Contracts, times the amount
allocated for such purchased Portfolio of Contracts in the Reserve Account,
times the number of days from the last day of the prior calendar month. No
earnings credit shall be credited during any calendar month(s) during any part
of which an Event of Default has occurred under this Agreement, the Asset
Purchase Agreements, or any other agreement between Company and Servicer.
ARTICLE VII
SERVICING FEES AND DISBURSEMENTS
SECTION 7.0 CASH DISBURSEMENTS. Each month on the Payment Date the total
Remittances received and deposited in the Depository Account during the previous
Due Period will be disbursed in the order outlined below:
(1) Servicing Fee to Servicer for previous Due Period. If Servicer is in
default of this Agreement or the Asset Purchase Agreements, at the time any
Servicing Fee is payable by
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Company, Company may withhold the payment until the default is cured to
Company's satisfaction, if this Agreement or Company allows Servicer an
opportunity to cure, or, if an opportunity to cure is not allowed or a default
is not cured when allowed, Company may withhold payment until this Agreement is
terminated. When the default is cured to Company's satisfaction, the Servicing
Fee shall again be payable. No Servicing Fee shall be paid for any time period
during which Servicer does not Service the Contracts.
(2) Company's Monthly Principal.
(3) Company's Monthly Yield.
(4) Charge-off Deficiencies from the Due Period.
If the total Remittances less 1, 2, 3 and 4 above results in a shortfall, the
shortfall will be charged to the Reserve Accounts and no further disbursement
will be made for the current Due Period. If the total Remittances less 1, 2, 3
and 4 above results in a positive cash amount, the remaining cash will be
distributed as follows until all remaining available cash is distributed:
(1) The amount required (if any) to restore the Reserve Accounts to the
Required Reserve Levels.
(2) Cash Flow Credit.
(3) Bonus Servicing Fee
Section 7.1. RETENTION BY SERVICER. Servicer shall have no right to retain
Remittances or make withdrawals from the Depository Account for payment of the
Servicing Fee, Bonus Servicing Fee, or Cash Flow Credit.
ARTICLE VIII
REPRESENTATIONS AND COVENANTS
Section 8.0 REPRESENTATIONS AND WARRANTIES OF SERVICER. Servicer makes the
following representations and warranties. The representations and warranties
are made hereby as of the execution and delivery of the Agreement, and each time
Servicer delivers a Performance Certificate to Company the representations and
warranties are made hereby again as of that time. The representations and
warranties shall survive the sale of the Purchased Contracts to Company.
Company's knowledge of any breach of the representations and warranties
contained herein shall not void or waive any of the representations or
warranties.
(a) Servicer (i) is duly organized, validly existing and in good standing
as a Delaware corporation, (ii) is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties or the nature of its activities makes such qualification
necessary, and (iii) has full power, authority and legal right to own its
property,
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to carry on its business as presently conducted, and to enter into and perform
its obligations under this Servicing Agreement.
(b) The execution and delivery by Servicer of this Servicing Agreement are
within the corporate power of Servicer and have been duly authorized by all
necessary corporate action on the part of Servicer. Neither the execution or
performance of this Agreement by Servicer conflicts with or will result in a
breach of, or constitutes a default under, any of the provisions of any
Governmental Rule binding on Servicer, the certificate of incorporation or by-
laws of Servicer, or any of the provisions of any indenture, mortgage, contract
or other instrument to which Servicer is a party or by which it is bound; nor
will they result in the creation or imposition of any lien upon any of
Servicer's property.
(c) Servicer has all governmental permits, licenses, approvals and
registrations which are necessary for the execution, performance, validity and
enforceability of this Agreement.
(d) This Agreement has been duly executed and delivered by Servicer, and
constitutes a legal, valid and binding obligation of Servicer enforceable in
accordance with its terms.
(e) There are no actions, suits or proceedings pending or, to the
knowledge of Servicer threatened, against or affecting Servicer, before or by
any court, administrative agency, arbitrator or governmental body with respect
to any of the transactions contemplated by this Agreement, or which will, if
determined adversely to Servicer, materially and adversely affect it or its
business, assets, operations or condition, financial or otherwise, or adversely
affect Servicer's ability to perform its obligations under this Agreement.
Servicer is not in violation of any Governmental Rule.
(f) Servicer has obtained all consents, approvals, waivers and
notifications of creditors, lessors and other nongovernmental persons and
entities necessary for the execution and performance of this Agreement.
(g) There is no material fact known to Servicer which Servicer has not
disclosed to Company in writing with respect to the Purchased Contracts or the
assets, liabilities, financial condition or activities of Servicer or its
affiliates which would or may be likely to have a material adverse effect upon
the Purchased Contracts (or associated Borrower Records or Contract Rights) or
Servicer s ability to perform its obligations under the Agreement. All
information and documents prepared by Servicer and provided to Company at any
time are true and accurate in all material respects.
Section 8.1 COVENANTS OF SERVICER. (a) Servicer shall keep in full effect
its existence, rights and franchises as a corporation under the laws of the
State of Delaware. Servicer shall retain and preserve its right to do business
as a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to perform this Agreement, and shall hold all licenses in all
jurisdictions which are necessary to perform this Agreement.
(b) Servicer shall punctually perform and observe all of its obligations
and agreements contained in this Servicing Agreement.
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(c) Except as specifically allowed by this Agreement, Servicer shall not
take any action, or permit any action to be taken by others, which would
diminish or impair (i) the obligations of Borrowers and Contract Rights payors,
(ii) the Borrower Records, (iii) Company's rights under this Agreement or the
Asset Purchase Agreements, or (iv) Company's rights with respect to the
purchased Assets (as defined in the Asset Purchase Agreements).
(d) Servicer shall not resign from its obligations under this Agreement
unless (i) its Board of Directors determines that by reason of a change in
Governmental Rules the continued performance by Servicer of its obligations
under this Servicing Agreement is no longer legally permissible, (ii) said
determination is evidenced by a resolution of its Board of Directors to such
effect, and (iii) said determination is accompanied by a legal opinion,
satisfactory to Company, to such effect. No such resignation shall become
effective until Company appoints a successor servicer or undertakes to do the
servicing itself. Notwithstanding the foregoing, Servicer shall have the right
to terminate this Agreement in accordance with Section 10.1 hereof
(e) Servicer shall throughout the term of this Agreement maintain types
and amounts of insurance customary for its business, covering without
limitation, fire, theft, burglary, public liability, property damage, and
workers' compensation. Servicer shall pay all insurance premiums payable for
such coverage and shall upon request of Company deliver a copy of the policies
of such insurance to Company, together with evidence of payment of all premiums
therefor.
(f) Servicer shall take such additional action as is reasonably requested
by Company in order to carry out this Agreement.
(g) During the term of this Agreement, Servicer shall provide Company with
quarterly financial statements within sixty (60) days of the end of each of
Servicer's fiscal quarters, and with annual audited financial statements within
one hundred and twenty (120) days of the fiscal year-end. The annual financial
statements shall be audited by a public accounting firm acceptable to Company.
Along with the financial statements, Servicer shall also provide Company with a
certificate in the form of Exhibit J attached hereto.
(h) Servicer shall promptly notify Company whenever an Event of Default
occurs, or if an event occurs which with the passage of time or giving of notice
will be such type of an Event of Default if not cured.
ARTICLE IX
DEFAULT
Section 9.0 EVENTS OF DEFAULT. Any of the following events shall
constitute an Event of Default by Servicer under this Agreement:
(a) Any amounts required to be deposited in the Depository Account by
Servicer shall not have been deposited therein by Servicer within the time
required in this Agreement; provided that, if the same type of event has not
occurred during the three hundred sixty (360) days before
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such event, then such event will not be an Event of Default unless it is not
cured within one (1) Business Day after written notice thereof has been given to
Servicer by Company.
(b) Servicer shall default or breach any other provision of this Agreement
or any document delivered pursuant hereto; provided that, if the same type of
event has not occurred during the three hundred sixty (360) days before such
event, then such event will not be an Event of Default, unless it is not cured
within ten (10) days after written notice thereof has been given to Servicer by
Company provided, however, that the foregoing cure period may be extended by a
period of up to thirty (30) days if (i) Servicer is proceeding with reasonable
diligence to cure such Event of Default and (ii) the default cannot by its
nature be cured within a ten (10) day period.
(c) If any of the following types of orders are not dismissed within 30
days of being entered: (i) an order for relief against Servicer in an
involuntary case under a federal or state bankruptcy, insolvency or similar law;
(ii) an order appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of Servicer or of any substantial part of
its property; or (iii) an order ordering the winding up or liquidation of the
affairs of Servicer.
(d) The commencement by Servicer of a voluntary case under any federal or
state bankruptcy, insolvency or similar law or the consent by Servicer to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of Servicer or of any
substantial part of its property; or the making by Servicer of an assignment for
the benefit of creditors; or the failure by Servicer generally to pay its debts
as such debts become due; or the taking of action by Servicer in furtherance of
any of the foregoing.
(e) Servicer's Debt Ratio exceeds 8:1.
(f) Minimum Tangible Net Worth is less than Fourteen Million Dollars
($14,000,000.00) plus an amount equal to fifty percent (50%) of the positive Net
Income of any of Servicer's quarters subsequent to March 31, 1995.
(g) Servicer's Interest Coverage is less than 1.0 for the quarter ending
6/30/96, 1.05 for the quarter ending 9/30/96, 1.1 for the quarter ending
12/31/96, and 1.15 thereafter.
(h) Company determines that a material adverse change has occurred in the
business, operations, servicing, or financial condition of Servicer or in its
ability to perform this Agreement.
(i) Any Event of Default as to Servicer under the Asset Purchase
Agreements as defined therein, or any default of Servicer under any other
agreements with Company.
Section 9.1 REMEDIES IN THE EVENT OF SERVICER DEFAULT. All rights and
remedies of Company are cumulative, and none is intended to be exclusive of
another or of any right or remedy which it may have at law or in equity. Upon
the occurrence of any Event of Default by Servicer, then in addition to any
other rights and remedies of Company, Company shall have
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the right to: (a) terminate this Agreement; (b) protect and enforce its rights
and remedies under this Agreement, and foreclose or otherwise realize on its
security for Servicer's obligations under this Agreement, and exercise, subject
to Section 11.10, any of the rights and remedies available to it at law or
equity.
Section 9.2 EVENTS OF DEFAULT. Any of the following events shall
constitute an Event of Default by Company under this Agreement: (a) Company
shall default or breach any provision of this Agreement or any document
delivered pursuant hereto and Company has not cured the default or breach within
thirty (30) days after receipt of a written notice of the default or breach from
Servicer.
Section 9.3 REMEDIES FOR COMPANY DEFAULT. All rights and remedies of
Servicer are cumulative, and none is intended to be exclusive of another or of
any right or remedy which it may have at law or in equity. Upon the occurrence
of any Event of Default by Company, then in addition to any other rights and
remedies of Servicer, Servicer shall have the right to: (a) terminate this
Agreement upon 90 days prior written notice; and (b) protect and enforce its
rights and remedies under this Agreement, and exercise, subject to Section
11.10, any of the rights and remedies available to it at law or equity.
Section 9.4 LIMITATION OF DAMAGES. If there is an Event of Default or any
claim or dispute between the parties arising out of or related to this Agreement
or transaction, except to the extent the facts constituting the Event of
Default, claim or dispute also constitute fraud, the sole and exclusive remedy
shall be a claim for breach of contract. To the extent the facts also
constitute fraud, a claim can also be asserted for fraud. Regardless of whether
the claim is for breach of contract or for fraud or both, damages shall be
limited to actual and direct damages, and both parties waive any claim for
consequential punitive, or incidental damages and any claim for lost profits or
loss of goodwill.
ARTICLE X
INDEMNIFICATION
Section 10.0 INDEMNITY. Servicer shall indemnify and hold Company harmless
from any and all losses, damages (exclusive of damages assessed on the basis of
the conduct of Company), costs, good faith settlements, expenses, taxes,
attorneys' fees and other liabilities including, without limitation, costs of
investigation, fees and expenses at trial and on appeal, and costs in
successfully asserting the right to indemnification hereunder (all of the
foregoing are referred to in this Section as "Losses") actually incurred by
Company at any time as the result of a claim asserted against Company (by a
person or entity other than Servicer) arising out of (i) a default of Servicer's
obligations under this Agreement or otherwise, or (ii) facts which are, or
allegations which if true would be, a breach of any representation, warranty,
agreement or covenant of Servicer contained in this Agreement or the Asset
Purchase Agreements, or (iii) activities, operations or conduct of Servicer. If
legal action is commenced against Company regarding a matter for which Company
is entitled to indemnification under this Section, Company will give notice to
Servicer of the action within 30 days following Company's knowledge thereof the
failure to notify will not relieve Servicer from any liability which it may
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have to Company hereunder or otherwise except to the extent that Servicer is
prejudiced by such failure. With respect to each such notice, Servicer shall,
at Company's option, immediately take all reasonable action necessary to
minimize any risk or loss to Company including retaining counsel satisfactory to
Company and take such other actions as are necessary and appropriate to defend
Company or to discharge the indemnity obligations hereunder. Company may, at
its option, conduct such defense at the expense of Servicer. Servicer shall pay
on demand any indemnified Losses incurred by Company. Company and Servicer
shall fully cooperate with each other in fulfilling the intent of this Section
of this Agreement. Neither Company nor Servicer shall settle any claim against
the other by a third party without the prior written consent of the other, which
shall not be unreasonably withheld.
ARTICLE XI
TERMINATION
Section 11.0 TERMINATION OF AGREEMENT. Unless sooner terminated, this
Agreement shall terminate on the Discharge Date. Company has the right to
terminate this Agreement prior to the Discharge Date following the occurrence of
any of the following events: (a) an Event of Default by Servicer; (b)
termination of the Asset Purchase Agreements; (c) the Purchased Contracts in
total as a group, or the motor vehicle installment contracts owned or serviced
by Servicer in total as a separate group, have a Rolling Average Delinquency
greater than ten percent (10%) or a Rolling Average Charge-Off greater than two
percent (2%); or (d) the Purchased Contracts in total as a group, or the motor
vehicle installment contracts owned or serviced by Servicer in total as a
separate group, have a Monthly Delinquency greater than ten percent (10%) for
any three (3) consecutive months or a Monthly Charge-Off greater than two
percent (2%) for any three (3) consecutive months.
Except for termination based on an Event of Default by Servicer, Company shall
provide Servicer with at least 30 days written notice prior to the effective
date of termination. During the notice period, Servicer shall have the right to
repurchase all Purchased Contracts and resign as Servicer.
Section 11.1 TERMINATION OF AGREEMENT - SERVICER. Servicer has the right
to terminate this Agreement prior to the Discharge Date as provided in Section
9.3.
Section 11.2 EFFECT OF TERMINATION OR RESIGNATION. Following the effective
date of determination of this Agreement or the effective date of the termination
or resignation of Servicer as servicer of the Purchased Contracts: (a) Servicer
at Company's request and at Servicer's expense shall deliver the Borrower
Records, and all records and files described in Article III, as instructed by
Company, and shall use its best efforts to effect the orderly and efficient
transfer of the servicing of the Purchased Contracts to the party which will be
assuming responsibility for such servicing including, without limitation,
directing Borrowers to remit all Remittances to an account or address designated
by Company; (b) Company is authorized on behalf of Servicer, and in Servicer's
name if Company so elects, to take such action as is necessary to transfer
servicing from Servicer; (c) Company's rights under this Agreement shall not be
affected by the termination; and (d) Company is no longer obligated to pay the
Servicing
22
<PAGE>
Fee, the Bonus Servicing Fee, or the Cash Flow Credit; provided that, Company is
obligated to pay such amounts, to the extent provided by this Agreement, for the
period of time that Servicer services the Purchased Contracts as provided in
this Agreement.
ARTICLE XII
GENERAL TERMS AND CONDITIONS
Section 12.0 OWNERSHIP AND POSSESSION. All Remittances, records and files
described in Article III, and Borrower Records and associated Contract Rights
are the sole and exclusive property of Company. Any possession of such items by
Servicer is temporary, in trust for the benefit of Company, and subject to the
superior ownership and possession rights of Company. Servicer has no interest
in, and shall not create or convey an interest in, Remittances or Borrower
Records and associated Contract Rights.
Section 12.1 ENTIRE Agreement. This Agreement and the Asset Purchase
Agreements and the documents incorporated by reference herein and therein,
express the entire agreement of the parties hereto, and supersede all prior
promises, representations, understandings, arrangements and agreements between
the parties with respect to the subject matter contained herein. The parties
hereto further acknowledge and agree that neither of them has made any
representations to induce the execution and delivery of this Agreement except
those expressly set forth herein. This Agreement may not be amended or modified
except in writing signed by Company and Servicer.
Section 12.2 APPLICABLE LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Illinois.
Section 12.3 NOTICES. Any notice, request, demand, instruction or other
communication to be given any party hereto in writing shall be effective upon
delivery during regular business hours at the offices of Servicer and Company
hereinafter set forth. Such communications shall be given by telecopy,
commercial delivery service, or sent by certified mail, postage prepaid and
return receipt requested, as follows:
If to Servicer: Eagle Finance Corp.
1425 Tri-State Parkway, Suite 140
Gurnee, Illinois 60031-4060
Electronic FAX: (847) 855-7225
Attn: President
with a copy to Barack, Ferrazzano, Kirschbaum & Perlman at such address noted in
the Asset Purchase Agreement
23
<PAGE>
If to Company:
General Electric Capital Corporation
1000 Hart Road
Barrington, IL 60010
Electronic FAX (847) 304-3456
Attention: Manager, Asset Based Financing
with a copy to:
General Electric Capital Corporation
600 Hart Road
Barrington, IL 60010
Electronic FAX (847)304-3444
Attention: Counsel
Section 12.4 HEADINGS. Paragraph headings have been inserted in this
Agreement as a matter of convenience for reference only. The paragraph headings
shall not be used in the interpretation of this Agreement.
Section 2.5 ATTORNEY'S FEES. In the event of any action at law or suit in
equity or a claim in bankruptcy or other proceeding to enforce this Agreement,
the prevailing party shall be entitled to receive in addition to any other sums
which it is awarded, all costs and expenses of such action or suit, including
actual attorneys' fees incurred.
Section 12.6 SEVERABILITY. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision or
provision in every other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.
Section 12.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Servicer may not assign this Agreement or any right or
obligation hereunder without Company's prior written consent and any prohibited
assignment shall be void AB INITIO. Company shall have the right, without the
consent of Servicer, to securitize or otherwise assign, or sell in whole or in
part, some or all of the Purchased Contracts, or its interest in and rights
under this Agreement and to designate any person or entity to exercise any
rights of Company hereunder, and the assignee or designee shall accede to the
rights and obligations hereunder of Company with respect to such Purchased
Contracts; provided that, (i) such an assignment by Company shall not release
Company of any obligations to the Servicer without Servicer's consent, which
shall not be unreasonably withheld, and (ii) before Company can make such an
assignment, Company shall give Servicer a sixty (60) day period in which to
repurchase all Purchased Contracts. All references in the Agreement to Company
shall be deemed to include its assignee or designee. The repurchase price shall
be the same as for a repurchase pursuant to Section 10.9 of the Asset Purchase
Agreement. Upon repurchase, Purchaser shall deliver to Seller the Reacquired
Borrower Records (as defined in the Asset Purchase Agreement) relating to such
Purchased Contracts.
24
<PAGE>
Section 12.8 WAIVER. The failure or delay of either party to strictly
enforce the terms of this Agreement shall not be a waiver of the party's right
to do so. A party can only waive a right under this Agreement if the waiver is
in writing, identifies the right being waived, and is signed by the party
waiving the right. Any approval of a document or procedure by Company shall not
be a waiver of Company's rights regarding any breach of this Agreement arising
from the procedure or document.
Section 12.9 OFFSET. Company has the right to offset, apply, or recoup any
obligation of Servicer to Company against any obligations or payments Company
owes to Servicer, or against any property of Servicer held by Company. Servicer
waives any right to offset, apply, counterclaim or recoup against any obligation
it owes to Company.
Section 12.10 WAIVER OF JULY TRIAL AND ARBITRATION. Company and Servicer
hereby WAIVE ANY RIGHT TO A TRIAL BY JURY in any action arising out of or
related to this Agreement. The parties will attempt in good faith to resolve
any claim, dispute or disagreement arising out of or relating to this Agreement
promptly by negotiations between representatives of the parties who have
authority to settle the controversy. In the event that such negotiations do not
result in the resolution of the claim, dispute or disagreement between the
parties, either party may serve upon the other a written notice stating that
such party desires to have such controversy reviewed by a board of three (3)
arbitrators and naming the person whom such party has designated as an
arbitrator. Within thirty (30) days after receipt of such notice, the other
party shall designate a person to act as arbitrator and shall notify the party
requesting arbitration of such designation and the name of the person so
designated. The two (2) arbitrators designated by the parties shall promptly
select a third arbitrator, and if they are not able to agree on a third
arbitrator, then either arbitrator, on five (5) days notice in writing to the
other, shall apply to the American Arbitration Association to designate and
appoint such third arbitrator. If the party upon whom such written request for
arbitration is served shall fail to designate its arbitrator within thirty (30)
days after receipt of such notice, then the arbitrator designated by the party
requesting arbitration shall act as the sole arbitrator and shall be deemed to
be the single, mutually approved arbitrator to resolve the controversy. The
arbitration shall be conducted in the greater Chicago area in accordance with
the rules of the local chapter of the American Arbitration Association in which
such arbitration is being conducted. The decision and award of a majority of
the arbitrators or of such sole arbitrator shall be binding upon both parties
and shall be enforceable in any court of competent jurisdiction. Such decision
and award may allocate the costs of arbitration to one of the parties or equally
or disproportionately between the parties. Any arbitrator appointed by the
parties hereto, or by their respective designated arbitrator, shall be an
uninterested person having not less than ten (10) years experience in the
financial services industry. The procedures specified herein shall be the sole
and exclusive procedures for the resolution of disputes between the parties
arising out of or relating to this Agreement; provided, however that (i) a party
may seek a preliminary injunction or other preliminary judicial relief if in its
judgment such action is necessary to avoid irreparable damage, and (ii) Company
may exercise its rights as a secured creditor if in its judgment such action is
necessary to avoid irreparable damage. Despite such action the parties will
continue to participate in good faith in the procedures specified herein. All
applicable statutes of limitation shall be tolled while the specified procedures
are pending. The parties will take such action, if any, required to effectuate
such tolling.
25
<PAGE>
Section 12.11 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to, and shall not, create any rights in or confer any benefits on any person or
entity other than the parties hereto.
Section 12.12 FAXED DOCUMENTS. In order to expedite the acceptance and
execution of this Agreement, each of the parties hereto agrees that a faxed copy
of any original executed document shall have the same binding effect on the
party so executing the faxed document as an original handwritten executed copy
thereof.
Section 12.13 REPURCHASE. At Servicer's election and upon not less than
five (5) days prior written notice to Company, Servicer can repurchase from
Company Purchased Contracts that pertain to (i) a specific Closing Date or (ii)
a specific closing date with respect to a portfolio of contracts purchased
pursuant to the Asset Purchase Agreements in the event the total Borrower's
Outstanding Principal Balance for such Purchased Contracts is less than one
hundred thousand dollars ($100,000).
In connection with any such repurchase of Purchased Contracts, Servicer shall
pay to Company the sum of Borrower's Outstanding Principal Balance for said
Purchased Contracts plus the Required Yield accrued to the date of repurchase.
26
<PAGE>
This Agreement is entered into as of June 25, 1996.
EAGLE FINANCE CORP.
By: Robert J. Braasch
---------------------------------
Title: Senior Vice President/CFO
------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By: Jody Filut
---------------------------------
Title: Account Executive
------------------------------
27
<PAGE>
EXHIBIT 11
EAGLE FINANCE CORP.
COMPUTATION OF NET INCOME PER SHARE
For the Three and Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- ------------------------
1996 1995 1996 1995
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income data:
1. Income before income taxes........................ $151 $2,156 $ 290 $4,182
2. Applicable income taxes........................... 27 841 79 1,627
---- ------ ------ ------
3. Net income $124 $1,315 $ 211 $2,555
---- ------ ------ ------
---- ------ ------ ------
Number of outstanding shares:
4. Weighted average common shares
outstanding, adjusted for stock splits.......... 4,189 4,180 4,189 4,180
5. Weighted average shares of treasury
stock outstanding, adjusted for stock splits.... -- -- ----
6. Weighted average shares reserved for stock
options (utilizing the treasury stock method)... -- 130 3 122
7. Common shares outstanding (Line 4-5+6)).......... 4,189 4,310 4,192 4,302
Net income per share:
8. Net income per common shares (Line 3/4).......... $0.03 $0.31 $0.05 $0.61
9. Fully diluted net income per common (Line 3/7)... $0.03 $0.30 $0.05 $0.59
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE INFORMATION INCLUDED IN THIS FINANCIAL DATA SCHEDULE SHALL NOT BE DEEMED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FINANCIAL AND OTHER INFORMATION INCLUDED ELSEWHERE
IN THIS QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,654,451
<SECURITIES> 554,155
<RECEIVABLES> 119,473,972
<ALLOWANCES> 14,270,862
<INVENTORY> 0
<CURRENT-ASSETS> 107,411,716
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,394,931
<CURRENT-LIABILITIES> 103,528,040
<BONDS> 0
0
0
<COMMON> 41,891
<OTHER-SE> 15,825,000
<TOTAL-LIABILITY-AND-EQUITY> 119,394,931
<SALES> 0
<TOTAL-REVENUES> 8,969,284
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,134,399
<LOSS-PROVISION> 2,200,000
<INTEREST-EXPENSE> 2,483,799
<INCOME-PRETAX> 151,086
<INCOME-TAX> 26,784
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,302
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
<PAGE>
[EAGLE LETTERHEAD] EXHIBIT 99.1
CONTACT:
ROBERT J. BRAASCH/HOWARD J. ADAMSKI JOHN P. KEHOE/VAN NEGRIS
EAGLE FINANCE CORP. KEHOE, WHITE, SAVAGE & CO., INC.
(847) 855-7150 (212) 888-1616
FOR IMMEDIATE RELEASE
EAGLE FINANCE CORP. REPORTS SECOND QUARTER/SIX MONTH OPERATING RESULTS
Gurnee, Illinois - August 8, 1996 - Eagle Finance Corp. (NASDAQ:EFCW) today
reported second quarter net income of $124,000, or $.03 per common share, on a
fully diluted basis compared to $1.3 million, or $.30 per common share, earned
in the second quarter of 1995.
For the six months ended June 30, 1996, net income on a fully diluted basis
declined to $211,000, or $.05 per common share, from $2.6 million or $0.59 per
common share for 1995.
The substantial decline in the second quarter and six month net income, from the
comparable periods last year, is primarily due to the difference in the manner
in which Eagle established reserves for credit losses during the comparable
periods. During the second quarter and six months ended June 30, 1996, Eagle
did not allocate to nonrefundable acquisition discount, any contract interest
that would otherwise have been recorded as unearned finance charges. Eagle made
such allocations of contract interest during the corresponding periods of 1995.
Net interest income for the second quarter totaled $4.8 million, representing
a 17% increase from the $4.1 million reported in the prior year period. For
the six months, net interest income increased 40% to $10.5 million from the
$7.5 million reported during 1995 in the comparable period. These increases
were due to higher earning asset levels and higher effective yields on
earning assets offset, in part, by higher borrowing costs due to increased
debt levels.
The provision for credit losses totaled $2.2 million and $4.9 million for the
respective three and six months ended June 30, 1996 as compared to a negative
provision of $40,000 and $53,000 for the comparable periods in 1995. The
significant increase was the result of the manner in which Eagle established its
reserves for credit losses during 1996 as compared to the corresponding periods
in 1995. The increase in the provision for credit losses replenished reserves
by increasing the allowance for credit losses.
Other income representing account servicing and insurance commissions,
increased to $1.7 million and $2.4 million for the respective three and six
months ended June 30, 1996 from $897,000 and $1.5 million in the comparable
1995 periods as a result of the increased amount of third-party finance
receivables serviced by the Company.
- MORE -
<PAGE>
EAGLE FINANCE CORP.
AUGUST 8, 1996
PAGE TWO
Total operating expenses increased to $7.7 million for the six months ended June
30, 1996 from $4.9 million incurred in the similar period a year ago. Salaries
and related costs increased to $3.9 million for the six months ended June 30,
1996 from $2.6 million in the prior period due primarily to the growth of the
Company, as evidenced by increases in the amount of managed (owned or serviced)
finance receivables, and a corresponding substantial increase in the number of
employees, normal pay increases and increased benefits costs. The Company's
other operating expenses increased to $3.8 million for the six months ended June
30, 1996, from $2.3 million in the comparable period, due to increases in the
amount of managed (owned or serviced) finance receivables and higher
professional fees. Total operating expenses as a percentage of average net
managed (owned or serviced) finance receivables increased to 8.6% for the six
months ended June 30, 1996, as compared to 7.6% for the six months ended June
30, 1995.
At June 30, 1996, Eagle's overall level of reserves for credit losses was $14.5
million or 12.2% of net owned finance receivables. Eagle's total managed
delinquencies at June 30, 1996, December 31, 1995, and June 30, 1995 were $14.6
million, $11.2 million and $15.2 million, respectively, or 8.3%, 7.0%, and 8.2%
respectively, of net managed (owned or serviced) finance receivables.
Net managed (owned or serviced) finance receivables at June 30, 1996 were $176.0
million; Company owned receivables were $119.5 million at June 30, 1996.
Eagle Finance Corp. is a specialized financial services company which purchases
and services installment contracts. Eagle finances the purchase of late model
used automobiles for consumers who have limited access to traditional sources of
consumer credit. Eagle is headquartered in Gurnee, Illinois and conducts its
operations through three regionally centralized offices. As of June 30, 1996,
Eagle had active relationships with approximately 450 automobile dealers located
in seventeen states.
- MORE -
- STATISTICAL TABLE FOLLOWS -
<PAGE>
EAGLE FINANCE CORP.
FINANCIAL SUMMARY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 8,969 $ 6,790 $17,748 $12,266
Income before taxes $ 151 $ 2,156 $ 290 $ 4,182
Tax expense $ 27 $ 841 $ 79 $ 1,627
Net income $ 124 $ 1,315 $ 211 $ 2,555
Earnings per common share (primary) $ 0.03 $ 0.31 $ 0.05 $ 0.61
Earnings per common share (fully diluted) $ 0.03 $ 0.30 $ 0.05 $ 0.59
Weighted average number of common
shares outstanding (primary) 4,189 4,180 4,189 4,180
Weighted average number of common 4,189 4,310 4,192 4,302
shares outstanding (fully diluted)
</TABLE>
# # #
<PAGE>
EXHIBIT 99.2
EAGLE FINANCE CORP.
Statements of Income for the twelve months ended June 30, 1996
<TABLE>
<CAPTION>
INCOME STATEMENT 1996 1996 1995 1995
TOTAL 2ND QTR 1ST QTR 4TH QTR 3RD QTR
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fee income $31,719,132 $7,279,401 $ 8,080,506 $9,192,240 $7,166,985
Interest expense 9,734,815 2,483,799 2,388,923 2,528,771 2,333,322
----------- ---------- ---------- ---------- ----------
Net interest income 21,984,317 4,795,602 5,691,583 6,663,469 4,833,663
----------- ---------- ---------- ---------- ----------
Provision for credit losses (14,486,839) (2,200,000) (2,696,000) (9,590,839) --
----------- ---------- ---------- ---------- ----------
Net interest income after
provision for credit losses 7,497,478 2,595,602 2,995,583 (2,927,370) 4,833,663
Other income:
Servicing income 3,114,625 1,676,033 677,377 452,696 308,519
Insurance commissions 122,913 13,850 21,235 25,019 62,809
----------- ---------- ---------- ---------- ----------
Total other income 3,237,538 1,689,883 698,612 477,715 371,328
----------- ---------- ---------- ---------- ----------
Income before operating expenses 10,735,016 4,285,485 3,694,195 (2,449,655) 5,204,991
----------- ---------- ---------- ---------- ----------
Operating expenses
Salaries and related costs 7,057,034 2,138,417 1,743,945 1,629,532 1,545,140
Other operating expenses 7,047,765 1,995,982 1,811,799 1,933,044 1,306,940
----------- ---------- ---------- ---------- ----------
Total operating expenses 14,104,799 4,134,399 3,555,744 3,562,576 2,852,080
----------- ---------- ---------- ---------- ----------
Income before income taxes (3,369,783) 151,086 138,451 (6,012,231) 2,352,911
Applicable income taxes (1,351,249) 26,784 52,200 (2,354,579) 924,346
----------- ---------- ---------- ---------- ----------
Net Income $(2,018,534) $ 124,302 $ 86,251 $(3,657,652) $1,428,565
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
