United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission File Number: 0-26412
UNION ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1908796
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
250 N. Shadeland Avenue, Indianapolis, IN 46219
(Address of principal executive office) (Zip Code)
(317) 231-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether 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
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:
Class Outstanding at May 14, 1996
Class A Common Stock, without par value 4,011,358 Shares
Class B Common Stock, without par value 9,200,000 Shares
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) :
Consolidated Condensed Balance Sheets as of
March 31, 1996 and June 30, 1995 3
Consolidated Condensed Statements of Earnings
for the Three Months and Nine Months Ended
March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. OTHER INFORMATION 15
Signatures 16
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
Dollars in thousands, except share data
March 31, June 30,
1996 1995
Assets ---------- ------------
(Unaudited)
Cash $ 12,196 $ 9,483
Restricted cash 67,472 52,511
Loans, net 187,662 201,022
Accrued interest receivable 10,709 7,715
Furniture and equipment, net 2,071 1,347
Excess servicing 58,215 47,934
Spread accounts 60,737 57,414
Other assets 25,519 16,724
-------- --------
Total Assets $424,581 $394,150
-------- --------
Liabilities
Revolving credit facilities 159,435 --
Senior notes, due 2002 110,000 --
Due to Union Federal -- 338,958
Accrued interest payable 2,342 --
Principal and interest due investors 63,703 50,768
Accrued dealer premiums 3,203 3,255
Other payables and accrued expenses 2,642 1,167
Income taxes payable 2,508 --
Deferred income taxes payable 7,591 --
-------- -------
Total Liabilities 351,424 394,148
-------- -------
Shareholders' Equity
Preferred Stock, without par value,
authorized 10,000,000 shares; none issued
and outstanding -- --
Class A Common Stock, without par value,
authorized 30,000,000 shares; 4,011,358
and 1 share(s) issued and outstanding
at March 31, 1996, and June 30, 1995,
respectively 58,180 1
Class B Common Stock, without par value,
authorized 20,000,000 shares; 9,200,000
and 1 share(s) issued and outstanding
at March 31, 1996, and June 30, 1995,
respectively -- 1
Retained earnings 14,977 --
-------- --------
Total Shareholders' Equity 73,157 2
-------- --------
Total Liabilities and Shareholders' Equity $424,581 $394,150
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Earnings
Dollars in thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- --------------------------------
1996 1995 1996 1995
------------- --------- -------------- -------------
Revenues
<S> <C> <C> <C> <C>
Interest on loans $ 6,732 4,072 $ 20,910 $ 9,018
Interest on spread accounts and
restricted cash 1,317 1,068 4,073 2,668
Gain on sales of loans, net 7,760 1,181 24,467 3,724
Servicing fees, net 4,796 4,288 11,346 10,850
Other 798 768 2,271 2,060
------------ ----------- ----------- ----------
Total revenues 21,403 11,377 63,067 28,320
------------ ----------- ----------- ----------
Expenses
Interest 5,359 3,733 16,204 8,622
Provisions for credit losses 600 304 3,550 464
Salaries and benefits 3,232 1,805 8,611 4,676
------------ ----------- ----------- ----------
Other 3,426 1,698 8,368 5,516
------------ ----------- ----------- ----------
Total expenses 12,617 7,540 36,733 19,278
------------ ----------- ----------- ----------
Earnings before provision for
income taxes 8,786 3,837 26,334 9,042
Provision for income taxes 3,473 1,553 10,659 3,664
------------ ----------- ----------- ----------
Net earnings $ 5,313 $ 2,284 $ 15,675 $ 5,378
============ ========== ========== ==========
Earnings per share $ 0.40 $ N/A $ 1.19 $ N/A
============ =========== ========== ==========
Weighted average common
<S> <C> <C> <C> <C>
shares outstanding $ 13,211,358 N/A 13,208,718 N/A
============ =========== =========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------------------
1996 1995
---------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 15,675 $ 5,378
Adjustments to reconcile net
earnings to net cash provided
(used) by operating activities:
Gain on sales of loans (33,788) (5,978)
Dealer premiums paid in excess
of dealer premium
rebates received (28,139) (19,635)
Amortization of excess servicing and
prepaid dealer premiums 25,806 16,553
Provisions for credit losses 3,550 464
Spread accounts (3,323) (10,850)
Amortization and depreciation 1,955 297
Restricted cash (14,961) (5,929)
Other assets and accrued
interest receivable (9,510) (3,800)
Principal and interest due investors 12,935 11,430
Other payables and accrued expenses 11,861 1,523
Loan originations in excess of liquidations (667,103) (531,441)
Securitization of loans held for sale 679,496 438,277
Proceeds on sale of interest only strip 19,383 -
---------------- --------------
Net cash provided (used) by
operating activities 13,837 (103,711)
---------------- --------------
Cash flows from investing activities:
Purchase of fixed assets (1,136) (608)
-------------- --------------
Cash flows from financing activities:
Net change in Due to Union Federal,
including regulatory equity distribution (337,423) 111,371
Net change in revolving credit facilities 159,435 -
Proceeds from senior notes 110,000 -
Stock issuance 58,000 -
--------------- --------------
Net cash provided (used)
by financing activities (9,988) 111,371
--------------- ---------------
Change in cash 2,713 7,052
Cash, beginning of period 9,483 -
---------------- ---------------
Cash, end of period $ 12,196 $ 7,052
================ ===============
Supplemental disclosures of cash flow information:
Income taxes paid $ 5,540 $ 3,664
=============== ===============
Interest paid $ 13,862 $ 8,622
=============== ===============
</TABLE>
<PAGE>
See accompanying notes to consolidated condensed financial statements.
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
For the Three Months and Nine Months Ended March 31, 1996 and March 31, 1995
Note 1- Basis of Presentation
The forgoing consolidated condensed financial statements are unaudited.
However, in the opinion of management, all adjustments necessary for a fair
presentation of the results of the interim period presented have been included.
All adjustments are of a normal and recurring nature. Results for any interim
period are not necessarily indicative of results to be expected for the year.
The consolidated condensed financial statements include the accounts of Union
Acceptance Corporation and its subsidiaries (formerly the "Union Division"). On
August 7, 1995, UAC issued 4 million shares of Class A Common Stock at $16.00
per share with net proceeds of $58.0 million simultaneously with a private
placement of $110.0 million of Senior Notes with net proceeds of $108.6 million.
These proceeds and fundings under a $350.0 million Prime Warehouse Facility and
a $50.0 million Non-prime Warehouse Facility were used to eliminate amounts due
to Union Federal, and to capitalize UAC's business and fund ongoing operations.
The Business Transfer was completed at this time. The Company's business is
conducted solely by UAC and its subsidiaries. A summary of the Corporation's
significant accounting policies is set forth in "Note 1" of the "Notes to
Combined Financial Statements" in the Corporation's Annual Report on Form 10-K
for the year ended June 30, 1995.
The consolidated condensed interim financial statements have been prepared
in accordance with Form 10-Q specifications, and, therefore, do not include all
information and footnotes normally shown in full annual financial statements.
Note 2- Earnings Per Share
The initial public offering was completed on August 7, 1995. Earnings per
share for the three months and nine months ended March 31, 1996, were computed
by dividing net earnings by the average common shares outstanding during the
period. Shares outstanding from August 7, 1995, through September 30, 1995, were
assumed to be outstanding for the entire three months ended September 30, 1995.
The effect of unexercised stock options on earnings per share is not dilutive
and has not been included in the calculation.
Note 3- Reclassifications
Certain amounts in the fiscal 1995 Combined Financial Statements have been
reclassified to conform with the presentation of the fiscal 1996 interim
Consolidated Condensed Financial Statements.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company derives substantially all of its earnings from the purchase,
securitization and servicing of automobile loans originated by dealerships
affiliated with major domestic and foreign manufacturers. To fund the purchase
of loans prior to securitization, the Company utilizes revolving credit
facilities, discussed in "Liquidity and Capital Resources." Through
securitizations, the Company periodically pools and sells loans to a trust which
issues Certificates to investors representing pro-rata interests in the loans
sold. When the Company sells loans in a securitization, it records a gain (or
loss) on sale of loans and establishes excess servicing as an asset. Excess
servicing is amortized against servicing income over the life of the related
securitization.
Acquisition Volume. The Company currently acquires loans in 43 major
metropolitan areas in 23 states from nearly 2,200 manufacturer-franchised auto
dealerships. The Company acquires loans on automobiles made to borrowers who
exhibit a favorable credit profile ("Prime lending") and, since October 1994, to
borrowers with adequate credit quality who would not qualify for a loan under
the Company's Prime lending program ("Non-prime lending"). Loan acquisitions
continue to be stronger than in corresponding periods of prior fiscal years. The
Company expanded its operations into several more cities during the quarter
ended March 31, 1996, including: Savannah, GA; Baltimore, MD; Bethesda, MD;
Chattanooga, TN; Knoxville, TN; Memphis, TN; and Nashville, TN. Loan acquisition
volume had remained relatively level since the third quarter of fiscal 1995, but
experienced a small increase in the current quarter. Although the Company
continued its market expansion during the last several quarters, it has also
made some strategic changes with respect to pricing and underwriting, including
an increase in cut-off scores in several of its existing markets. This strategy
was employed in order to improve the average quality of the contracts being
purchased. Management continues to focus on controlled growth, recognizing that
the underlying credit quality of the portfolio is one of the most important
factors associated with long-term profitability.
Gross and Net Spreads. Market interest rates have seen continued decreases
over the last year, but began to rebound in March 1996. Because changes in loan
rates on automobile loans tend to lag behind fluctuations in market rates of
interest, this decrease in market rates during fiscal 1996 has resulted in
improved gross and net spreads on the prime securitizations compared to the same
periods of fiscal 1995. Gross spread is defined as the difference between the
weighted average loan rate and the Certificate rate. Net spread is defined as
gross spread less servicing fees, ongoing credit enhancement fees and trustee
fees, and hedging gains or losses. Prime loan rates also decreased steadily over
the first three quarters. Despite decreasing prime loan rates, the gross spreads
have been stronger than in corresponding periods of fiscal 1995 due to the
downward-moving market rates. Net spreads have experienced a slight compression
since the first quarter. Net spread on the most recent prime securitization was
5.98% compared to 6.31% in the second quarter and 6.32% in the first quarter.
Although there were slight compressions in net spreads during fiscal 1996, the
net spreads are significantly higher than those in fiscal 1995. The Company
realized a net spread of 9.80% on its first non-prime securitization effected in
March 1996.
Looking ahead, management is currently targeting net spreads of 5.25% to
5.75% on prime securitizations (assuming a pricing spread for asset-backed
certificates over the two-year treasury note of 50 basis points) for the last
quarter of fiscal 1996 and the first quarter of fiscal 1997. Although management
believes these spreads can be achieved, material factors affecting the net
spreads are difficult to predict. These include current market conditions with
respect to market interest rates and demand for asset-backed securities
generally, and for Certificates representing interests in securitizations
sponsored by the Company.
<PAGE>
Gain on Sales of Loans. Gain on Sales of Loans continues to be a
significant element of the Company's net earnings. The gain on sales of loans is
affected by several factors, but is primarily affected by the amount of loans
securitized and the net spread. The Company adjusts its pricing frequently and
employs a hedging strategy to help ensure an adequate net spread in the ensuing
securitization, while mitigating the risks of increasing interest rates and the
volatility in net spreads.
Growth in Servicing Portfolio. The Company has maintained growth in its
servicing portfolio. Such growth will result in corresponding increases in its
servicing-related revenues, which includes its standard servicing fee of 1% per
annum on outstanding prime securitizations, as well as Future Servicing Cash
Flows from Spread Accounts.
Portfolio Performance. Current delinquency rates showed continued
improvement at March 31, 1996. Delinquency rates based on outstanding loan
balances of accounts 30 days past due and over were 2.34% at March 31, 1996,
compared to 2.55% at December 31, 1995; 3.06% at September 30, 1995, and 1.40%
at June 30, 1995, for the prime servicing portfolio. Delinquency based on the
number of receivables 30 days past due and over was 2.10% at March 31, 1996,
compared to 2.32% at December 31, 1995; 2.89% at September 30, 1995, and 1.31%
at June 30, 1995.
<PAGE>
Increases in the delinquency rates since June 30, 1995, are attributable,
largely, to the changes the Company made with respect to the way delinquencies
are measured and reported. These policies were changed during the first quarter
of fiscal 1996. If the Company had used its historical methods of measuring and
reporting delinquencies, it is estimated that the delinquency rate would have
been approximately 1.73% (based on the number of delinquent accounts) at March
31, 1996. While the magnitude of the change in the reported delinquency measure
appears to be significant, it is not indicative of a material change in the
underlying credit quality of the portfolio. Furthermore, the Company has
implemented a number of policy and procedural changes which are designed to
improve the credit quality of the portfolio.
The primary reason for the increase in delinquencies from June 30, 1995,
was that beginning with the quarter ended September 30, 1995, UAC began to
include in the delinquency statistics the accounts of customers who had filed
for bankruptcy, but whose cases had not been resolved. At March 31, 1996, 517
accounts were pending bankruptcy resolution and were included in the delinquency
numbers. Previously, these accounts were not included in delinquency figures.
The Company believes the risk of loss on these accounts is low relative to other
delinquent accounts. The courts generally reaffirm these loans, or they allow
repossession of the vehicle.
Non-prime portfolio delinquency was 2.57% based on outstanding loan
balances of accounts 30 days past due and over at March 31, 1996, compared to
2.75% at December 31, 1995; 4.79% at September 30, 1995, and 1.21% at June 30,
1995. Delinquency based on the number of receivables 30 days past due and over
was 2.55%, 2.69%, 4.49% and 1.23% at March 31, 1996, December 31, 1995,
September 30, 1995, and June 30, 1995, respectively. The Company began acquiring
Non-prime loans in October 1994. Management expects fluctuations in delinquency
rates on the Non-prime portfolio as it becomes more seasoned.
Quarterly net charge-offs totaled approximately $4.3 million on the Prime
servicing portfolio. Annualized net charge-offs were 1.39% of the average prime
servicing portfolio for the nine months ended March 31, 1996, compared to 1.45%
for the six months ended December 31, 1995; 1.73% for the three months ended
September 30, 1995, and 1.32% for the nine months ended March 31, 1995.
Non-prime net charge-offs totaled approximately $192,000 for the quarter
compared to $208,000 for the previous quarter. Annualized net charge-offs were
2.19% of the average Non-prime servicing portfolio for the nine months ended
March 31, 1996, compared to 2.22% for the six months ended December 31, 1995,
and 1.49% for the three months ended September 30, 1995. Management is closely
monitoring the performance of the Non-prime portfolio as it matures, and is
comfortable with the level of risk in relation to its earning potential.
The primary reason for the elevated credit losses during the year, and a
contributing factor in the increase in delinquencies is, loans UAC acquired
during 1994 and early 1995 which have proven to be of lower credit quality than
loans UAC acquired prior to 1994 and after the first quarter of 1995. The
Company has determined that many of these lower quality loans resulted from "low
side overrides" which are loans made to customers whose credit scores were below
the Company's minimums, but which were made as a result of the credit analysts'
judgment that the loans were acceptable. These loans have had higher rates of
delinquency and loss than those that met UAC's requirements. Credit analyst
discretion for making "low side override loans" has been reduced and low side
overrides have dropped from a high of 14.32% of the UACSC 1995-A Auto Trust to
3.31% of the UACSC 1996-A Auto Trust. The Company believes that the difference
in the performance of the low side override loans resulted from continuing the
existing override policy despite the implementation of a new credit scoring
system in December 1993. Management also believes that the actual mix of loans
purchased in 1994 may have been of somewhat lower average credit quality as a
result of competitive pricing pressures which permitted higher quality borrowers
to obtain lower cost loans from others. Loans made during 1994 are currently
towards the end of the peak period for delinquencies and credit losses which UAC
believes to be 9 to 16 months from the date of closing.
The Company has taken a number of steps to improve its collection efforts
over the last several quarters. It has increased the staffing level in its
collection department by more than 115% since June 30, 1995. It has installed an
improved version of its collection system in its new headquarters which will
allow its collectors to be much more productive. For example, the number of
outbound credit collection stations at its headquarters has been increased from
14 to 50. In addition, UAC has reverted back to its original policy of
repossessing collateral no later than 120 days after payments are past due,
rather than after 60 days. UAC found that when it switched it policy, in April
1995, to begin repossessions after 60 days, losses increased because some cars
were repossessed from customers that otherwise had the ability to make payments.
Other credit quality changes include the reduction in low side overrides
previously mentioned, and a recent change to increase cutoff scores in any
individual state where net credit losses were running at a rate greater than
2.50% over the life of the loans.
Provisions are made for expected loan losses in conjunction with each loan
sale. The allowance for loan loss is inherent in the excess servicing asset
recorded upon sale. Management believes that the allowance for losses on
securitized loans represents a conservative estimate of potential losses. The
allowance for loan loss as a percentage of outstanding securitized loans was
3.00% and 10.09% at March 31, 1996, for the prime and non-prime securitized
loans, respectively.
<PAGE>
Results of Operations
The Company's loan acquisitions increased to $256.5 million for the three
months ended March 31, 1996, from $251.6 million for the corresponding quarter
of fiscal 1995. Year to date loan acquisitions have increased 27.2% to $702.0
million for the nine months ended March 31, 1996, from $551.7 million for the
corresponding period of fiscal 1995. The increases resulted primarily from
improved market penetration in many markets as well as the Company's geographic
expansion. Additionally, the Company began acquiring Non-prime receivables
during October 1994. Non-prime loan acquisitions totaled $24.3 million for the
nine months ended March 31, 1996, compared to $12.1 million for the nine months
ended March 31, 1995. The Company's servicing portfolio increased 33.6% to over
$1.4 billion at March 31, 1996, compared to $1.1 billion at March 31, 1995.
Market penetration in the prime sector accounted for approximately 57.0% of the
increase in overall loan acquisition volume, while expansion of the prime sector
contributed 34.9% of the increase, and the growth in the non-prime program added
8.1% of the increase. Growth due to market penetration includes all major
metropolitan markets that were present both at March 1995 and March 1996. Some
markets may not have had nine full months of acquisitions at March 1995.
Serviced loans increased as a result of the increased loan acquisition volume in
excess of loan repayments. The volume of loans sold in securitizations increased
to $237.5 million for the quarter ended March 31, 1996, from $173.5 million for
the same quarter of the prior year. Year to date securitizations totaled $679.5
million through March 31, 1996, compared to $438.3 million for the same period
of the previous year.
Interest on loans increased 65.3% to $6.7 million for the three months
ended March 31, 1996, compared to $4.1 million for the corresponding quarter of
last year. Year to date interest on loans totaled $20.9 million through March
31, 1996, compared to $9.0 million for the same period of the prior year. The
increase in interest income resulted, in part, from an increase in the average
monthly balance of loans held for sale to $182.5 million for the quarter ended
March 31, 1996, from $153.8 million for the corresponding period ended March 31,
1995, which was a result of increased loan acquisitions in the quarter ended
March 31, 1996, relative to the quarter ended March 31, 1995. The Non-prime
portfolio also contributed to the increase in interest income. The Company
carried an average of over $24.6 million in Non-prime receivables held for sale
during the quarter which produced over $1.1 million in interest income. Further,
the current securitization structure has increased the amount of interest income
recognized relative to prior quarters. The change in the securitization
structure has significantly impacted both interest income and servicing fees,
net. All of the fiscal 1996 prime securitizations were structured such that the
Company continued to earn interest income from the cut-off date through the
closing date (approximately 18-22 days), and therefore, earned servicing fees
only after the closing date. In all previous securitizations, the Company began
earning servicing fees beginning on the cut-off date. As a result, the Company
reports more interest income and less servicing fee income, and records a lower
gain on sale. An additional $4.3 million in interest on loans was recognized
during the nine months ended March 31, 1996, due to the new securitization
structure. The structure was altered in accordance with provisions of the
Warehouse Facility Agreements which require that the Company collect and remit
interest on loans from cut-off date to closing of a securitization transaction
to the warehouse provider. The Company continues to pay interest on the amount
financed with respect to warehoused loans until closing.
Gain on Sales of Loans. Gain on Sales of Loans increased 557.1% to $7.8
million for the three months ended March 31, 1996, from $1.2 million for the
corresponding period ended March 31, 1995. The increase in gain was mainly due
to increased volume of prime loans securitized as well as improved net spreads.
The "UACSC 1996-A Auto Trust" (consummated in February 1996) securitized over
$203.0 million in prime auto receivables compared to $173.5 million for the
corresponding period of last year. The weighted average loan rate on the
portfolio was 13.13% while the weighted average certificate rate was 5.40%. The
gross and net spreads on the sale were 7.73% and 5.98%, respectively, compared
to 5.45% and 3.88% for the comparable quarter of last year. These spreads earned
the Company a $6.9 million gain after a hedging loss of approximately $2.3
million. Gains were also increased as a result of an additional securitization
during the quarter. The Company effected its first Non-prime securitization
during March of 1996. Approximately $34.5 million in Non-prime automobile
receivables were securitized in a private placement that earned the Company
nearly $850,000 after a $112,000 hedging loss. The weighted average loan rate on
the portfolio was 19.87% while the weighted average certificate rate was 6.87%.
The gross and net spreads on the sale were 13.00% and 9.80%, respectively. Gain
on sales on loans for the nine months ended March 31, 1996 and 1995, were $24.5
million and $3.7 million, respectively.
Servicing Fees, Net. Servicing fees increased 11.8% to $4.8 million for the
three months ended March 31, 1996, compared to $4.3 million for the three months
ended March 31, 1995. Servicing fees for the nine months ended March 31, 1996,
totaled $11.3 million compared to $10.9 million in the prior year. Although the
average securitized portfolio has increased significantly, servicing fees have
not. The decrease in servicing fees relative to the average securitized
portfolio resulted primarily from the modified securitization structure, as
discussed above. Servicing fees on all fiscal 1996 securitizations were not
earned until after the closing date of the securitization transaction. The net
effect is that interest on loans was earned for an additional 18-22 days, and
servicing fee income was not earned for 18-22 days for each of the fiscal 1996
securitizations. Additionally, the Company recognized somewhat smaller gains
under this structure. Because additional interest income was earned on the loans
to be securitized, those loans will generate lower future excess servicing cash
flows after the securitization. The net present value of these future cash flows
is recorded as an excess servicing asset as a component of the gain calculation.
<PAGE>
The Company's ratio of servicing fees, net to operating expenses was 72.0%
and 122.4% for the quarters ending March 31, 1996, and 1995, respectively.
Although the securitization structure impacted this ratio, the growth of the
Non-prime program has also impacted this ratio. Because the Non-prime
receivables had not been securitized until recently (March 1996), the Company
earned no servicing fees on this portfolio. The impact of the additional costs
to originate and service these loans were offset by increased interest spreads
earned on the Non-prime portfolio. Increased salaries and benefits also affected
this ratio. The Company has added significantly to its collections staff over
the past several quarters in response to and in anticipation of continued growth
in the servicing portfolio. Additional support staff in systems and accounting
have also been added, as well as additional levels of management needed to
support the Company's growth.
Other Revenues. Other revenues increased slightly to $798,000 for the three
months ended March 31, 1996, from $768,000 for the three months ended March 31,
1995. Other revenues for the nine months ended March 31, 1996, totaled $2.3
million compared to $2.1 million for the comparable period of last year. The
increase for the nine months ended March 31, 1996, resulted primarily from
increases in late charge fee income.
Interest Expense. Interest expense increased 43.6% to $5.4 million for the
three months ended March 31, 1996, from $3.7 million for the same period ended
March 31, 1995. The increase was a result of increased average cost of funds,
and increased average outstanding borrowings. The average cost of funds
increased to 6.87% for the three months ended March 31, 1996, from 5.67% for the
three months ended March 31, 1995. The increase in cost of funds is a result of
the Company obtaining alternative financing sources after its Spin-off from its
parent in August of 1995. Average outstanding borrowings increased to $269.6
million for the three months ended March 31, 1996, from $263.1 million for the
three months ended March 31, 1995. Interest expense for the nine months ended
March 31, 1996, was $16.2 million compared to $8.6 million for the corresponding
nine months of fiscal 1995.
<PAGE>
Provision for credit losses. Provisions for losses increased to $600,000
for the three months ended March 31, 1996, compared to $304,000 for the three
months ended March 31, 1995. A large portion, $300,000, of that provision was
related to the new Non-prime portfolio. Year to date provisions totaled $3.6
million compared to $464,000 for the same period of last year. Of the $3.6
million in provisions for the nine months ending March 31, 1996, $1.5 million
related to a provision for the valuation of excess servicing. This provision was
made in response to current delinquency experience and loss trends on the
securitized loan pools. Management believes these provisions represent
conservative estimates of potential losses on loans held for sale and excess
servicing on the securitized loan pools.
Salaries and Benefits Expense. Salaries and benefits increased to $3.2
million for the three months ended March 31, 1996, from $1.8 million for the
corresponding period ended March 31, 1995. This increase resulted primarily from
increased full-time equivalent ("FTE") employees. Average FTE's for the three
months ended March 31, 1996, were 283 compared to 175 for the comparable period
ended March 31, 1995. Salaries and benefits were $8.6 million and $4.7 million
for the nine months ended March 31, 1996 and 1995, respectively. The Company has
experienced growth in credit, sales and operations, collections, and support.
These increases are in response to, and in anticipation of continued expansion
and loan acquisition growth, as well as a growing servicing portfolio.
Additional levels of management and support staff have been added to ensure
efficiency in operations as the Company's acquisition volume and servicing
portfolio continues to grow. Increases in salary and benefit expense were also
due to increased profitability-based incentives during the nine months ended
March 31, 1996.
Other Expense. Other expense increased 101.8% to $3.4 million for the three
months ended March 31, 1996, from $1.7 million for the three months ended March
31, 1995. Other expense was $8.4 million and $5.5 million for the nine months
ended March 31, 1996 and 1995, respectively. Other operating expenses include
occupancy and equipment costs, outside and professional services, loan expenses,
promotional expenses, travel, office supplies and other. Many of these expenses
vary directly with increased loan acquisition volume and the increased size of
the servicing portfolio. Both loan acquisition volume and the servicing
portfolio were increased during the three months ended March 31, 1996, compared
to the three months ended March 31, 1995. Occupancy and equipment costs were
increased as a result of the Company's move to its new headquarters in fiscal
1996. The employee growth experienced by the Company required both additional
square footage and furniture and equipment. The Company updated its phone system
in conjunction with the move to its new headquarters. The Company obtained new
equipment through an operating lease, and implemented a voice messaging system.
The Company also replaced its "old" collections system resulting in a loss on
the disposal. Additionally, increased telephone usage resulting from an increase
in collections staff and collection hours contributed to increased office
expense. Although there were increased expenses related to the collections
department as a whole (salaries and benefits, equipment, telephone, etc.), there
were notable improvements in both credit loss and delinquency, as described
above.
<PAGE>
Financial Condition
Loans, Net and Servicing Portfolio. Loans, net includes the principal
balance of loans held for sale, net of unearned discount and allowance for
credit losses, loans in process, and dealer premiums. The Company's portfolio of
loans, net decreased to $187.7 million at March 31, 1996, from $201.0 million at
June 30, 1995. Although loan acquisition volume was higher in the three months
ended March 31, 1996, than in the three months ended June 30, 1995, there was
still a decrease in loans held for sale. This decrease was due primarily to the
securitization of the non-prime portfolio. Additionally, allowance for credit
losses increased over $700,000 from June 30, 1995. The Company had one prime
securitization in the quarter ended March 31, 1996, and the quarter ended June
30, 1995, for $203.0 million and $220.4 million of loans, respectively. In
addition, the Company had one non-prime securitization in the quarter ended
March 31, 1996, for $34.5 million. The Company serviced $1.3 billion and $998.0
million in securitized loans and the total servicing portfolio was $1.4 billion
and $1.2 billion as of March 31, 1996, and June 30, 1995, respectively.
Excess Servicing. Excess Servicing increased to $58.2 million as of March
31, 1996, from $47.9 million as of June 30, 1995. This balance increased by the
amount capitalized upon consummation of the various prime and non-prime
securitizations. Structuring of the fiscal 1996 prime securitizations included
the sale of "interest only strips" which generated more cash from the sale, but
served to reduce the excess servicing recorded. The amounts capitalized were
offset by amortization against servicing fees over the nine months ended March
31, 1996. Additionally, the Company made a $1.5 million dollar provision related
to the valuation of excess servicing during the first quarter, as discussed
above. Allowance for losses on securitized loans is included as a component of
the excess servicing asset. At March 31, 1996, the allowances related to both
prime and non-prime securitized loans totaled $40.3 million or 3.19% of the
total securitized loan portfolio.
Spread Accounts. Spread Accounts increased to $60.7 million at March 31,
1996, from $57.4 million at June 30, 1995. This balance was increased by the
initial deposit made upon securitization of the UACSC 1995-C Auto Trust and PSC
1996-1 Grantor Trust, and subsequent deposits of excess servicing fees, and has
been reduced by any withdrawal of funds from the Spread Accounts. Withdrawals of
spread account funds are made when the balance of the Spread Accounts are in
excess of the requirements stipulated in the servicing agreement. No initial
spread account deposits were made in connection with the last two prime
transactions as a result of the structuring which utilized alternative credit
enhancements in lieu of initial spread account deposits.
<PAGE>
Revolving Credit Facilities and Senior Notes. Amounts "Due to Union
Federal" represented the Company's share of borrowings from Union Federal prior
to consummation of the Company's initial public offering on August 7, 1995. The
Revolving Credit Facilities and Senior Notes constitute the Company's primary
funding facilities beginning in August of 1995. The balance of the Revolving
Credit Facilities and Senior Notes was $269.4 million at March 31, 1996,
compared to $339.0 million "Due to Union Federal" at June 30, 1995. The decrease
in total borrowings was directly related to the Spin-off and initial public
offering. The amount "Due to Union Federal" was paid or otherwise eliminated
upon consummation of the Company's initial public offering. See "Liquidity and
Capital Resources."
Liquidity and Capital Resources
Sources and Uses of Cash in Operations. The Company's business requires
significant amounts of cash to support operations. Its primary uses of cash
include (i) purchases and financing of loans, (ii) payment of Dealer Premiums,
(iii) securitization costs including cash held in Spread Accounts and similar
cash collateral accounts under Credit Facilities, (iv) servicer advances of
payments on securitized loans pursuant to securitization trusts, (v) losses on
hedging transactions realized in connection with the closing of securitization
transactions where interest rates have declined during the period covered by the
hedge, (vi) operating expenses and (vii) interest expense. The Company's sources
of cash from operations include (i) standard servicing fees, generally 1.0% per
annum of the prime securitized portfolio, (ii) Excess Servicing Cash Flows,
(iii) Dealer Premium rebates, (iv) gains on hedging transactions realized in
connection with the closing of securitization transactions where interest rates
have increased during the periods covered by the hedge, (v) interest income and
(vi) sales of loans in securitization transactions. Net cash provided by
operating activities increased to $13.8 million for the nine months ended March
31, 1996, from a use of $103.7 million for the nine months ended March 31, 1995,
which was primarily attributable to an increase in loan sales relative to loans
acquired. Additional sources of cash were provided by the structuring of the
securitization transactions during fiscal 1996. The Company sold "interest only
strips" as a part of each of their prime securitization transactions. This
strategy provided $19.4 million in cash during the nine months ended March 31,
1996.
Dealer premium rebates received in excess of the original estimates are
recorded as servicing fees when received. Excess rebates received for the nine
months ended March 31, 1996, were approximately $2.0 million compared to $2.4
million for the nine months ended March 31, 1995.
Hedging. Hedging transactions may represent a source or a use of cash
during a given period depending on the change in interest rates. In the first
three quarters of fiscal 1996, hedging transactions have required a use of cash
of $5.2 million.
Financing Activities and Credit Facilities. Cash flows from financing
activities historically (until August 1995) related entirely to changes in the
level of borrowing from Union Federal. The decrease in cash provided by
financing activities for the nine months ended March 31, 1996, corresponds to
the decrease in borrowings as a result of the Company's Spin-off and initial
public offering whereby the Company paid, or otherwise eliminated, all
outstanding amounts due to its parent, Union Federal. The offering generated
$58.0 million in proceeds to the Company. Prior to the Company's initial public
offering, the Company was dependent upon financing from Union Federal, which, as
a savings bank, has multiple sources of funds, including federally insured
deposits and Federal Home Loan Bank advances. Such financing is no longer
available to the Company, which has substantial capital requirements to support
its ongoing operations and anticipated growth. The Company's sources of
liquidity are currently funds from operations, securitizations and external
financing not related to Union Federal. Historically, the Company has used the
securitization of loan pools as its primary source of long-term funding, and
intends to continue to do so. Securitization transactions enable the Company to
improve its liquidity, to recognize gains from the sales of the loan pools while
maintaining the servicing rights to the loans, and to control interest rate risk
by matching the repayment of amounts due to investors in the securitizations
with the actual cash flows from the securitized assets.
The Company has borrowing arrangements with an independent financial
institution for the Prime Warehouse Facility of up to $350.0 million and a
similar Non-prime Facility of up to $50.0 million. The Prime Warehouse Facility
provides funding for loan acquisitions at a purchase price of 98.0% of the
outstanding principal balance of eligible loans at the time of purchase to the
extent allocable to loans which, upon origination, provided for 72 monthly
payments or less. Additional funding is provided for eligible loans with greater
than 72 monthly payments at a purchase price of 96.0% of the outstanding
principal balance. The advance rate may be reduced to as low as 92.0% (72
monthly payments and less) and 90.0% (greater than 72 monthly payments) if
certain financial tests are not met, and/or if a securitization has not been
effected in the preceding sixteen weeks. The Non-prime Warehouse Facility
provides funding for loan acquisitions at a purchase price of 80.0% of the
outstanding principal balance of eligible loans at the time of purchase. The
Company also issued $110.0 million in Senior Notes in connection with the
spin-off of the Company by Union Federal and the Company's initial public
offering, and completed a private placement of $46.0 million in Senior
Subordinated Notes in April 1996. Between securitization transactions, the
Company relies primarily on these Warehouse Facilities to fund ongoing loan
acquisitions (not including Dealer Premiums). In addition to loan acquisition
funding, the Company also requires substantial capital on an ongoing basis to
fund the advances of Dealer Premiums, securitization costs, servicing
obligations and other cash requirements described above. The Company's ability
to borrow under the Credit Facilities is dependent upon its compliance with the
terms and conditions thereof. The Company's ability to obtain successor
facilities or similar financing will depend on, among other things, the
willingness of financial institutions to participate in funding automobile
financing businesses and the Company's financial condition and results of
operations. Moreover, the Company's growth may be inhibited, at least
temporarily, if the Company is not able to obtain additional funding through
these or other facilities or if it is unable to satisfy the conditions to
borrowing under the Credit Facilities.
<PAGE>
To accommodate its anticipated cash and liquidity requirements for the near
term, the Company determined during the third quarter to seek additional
capital. The Company completed a private placement of $46.0 million of 9.99%
Senior Subordinated Notes in April 1996. The securities carry a seven-year
bullet maturity and were rated BBB- by Fitch Investors Service L.P. The
additional debt will affect the Company's weighted average cost of funds as well
as the interest expense recognized in future periods. The proceeds of the sale
of the securities will be used to enhance liquidity and fund the Company's
continued nationwide expansion. Management believes that the proceeds from the
Company's initial public offering, the Senior Notes, the Senior Subordinated
Notes, the other Credit Facilities described above, future earnings, and
periodic securitization of loans should provide the necessary capital and
liquidity for its operations during the remainder of calendar 1996.
The period during which its existing capital resources will continue to be
sufficient will, however, be affected by the factors described above affecting
the Company's cash requirements. A number of these factors are difficult to
predict, including particularly the cash-effect of hedging transactions, the
availability of outside credit enhancement in securitizations or other financing
transactions and other factors affecting the net cash provided by
securitizations. Depending on the Company's ongoing cash and liquidity
requirements, market conditions and investor interest, the Company may seek to
issue additional debt or equity securities in the near term. The sale of
additional equity, including Class A Common Stock or preferred stock, would
dilute the interests of current shareholders.
Other Matters. The Company completed it move to its new headquarters at 250
North Shadeland Avenue, Indianapolis, Indiana 46219. It is leasing the building
of approximately 115,000 square feet from Waterfield Mortgage Company,
Incorporated, which is controlled by Richard D. Waterfield, a Company director
and its controlling shareholder. The Company is also subleasing a portion of the
building to Union Federal Savings Bank of Indianapolis on terms substantially
equivalent to those made available to an unaffiliated tenant.
As a part of its ongoing development of its business plan, the Company is
researching the possibilities of engaging in other finance-related businesses
such as leasing, other non-auto consumer lending, and dealer servicing. Based on
this research, the Company may expand its current operations to include some or
all of the above finance-related businesses. It is management's philosophy to
continually search for new products and markets to grow and expand the Company
in order to maximize profits and shareholder value.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits- Exhibits Index appears on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
<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.
Union Acceptance Corporation
May 14, 1996 By: /S/ John M. Stainbrook
--------------------------
John M. Stainbrook
President
May 14, 1996 By: /S/ Rick A. Brown
--------------------------
Rick A. Brown
Treasurer and Chief
Financial Officer
EXHIBIT INDEX
Ex 4.1 Note Purchase Agreement dated as of April 3, 1996 among Registrant and
several purchasers of Senior Subordinated Notes due 2003.
Ex 10.1 Purchase Agreement between Registrant and Union Federal Savings Bank
of Indianapolis dated January 18, 1996
Ex 27 Financial Data Schedule
- - --------------------------------------------------------------------------------
UNION ACCEPTANCE CORPORATION
----------------------------------
NOTE PURCHASE AGREEMENT
Senior Subordinated Notes due 2003
----------------------------------
Dated as of April 3, 1996
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINED TERMS........................................................1
2. DESCRIPTION OF SENIOR SUBORDINATED NOTES.............................1
3. PURCHASE AND SALE OF SENIOR SUBORDINATED NOTES.......................1
4. CLOSING OF SALE OF SENIOR SUBORDINATED NOTES.........................2
5. CONDITIONS TO CLOSING................................................2
5A. Compliance With Securities Laws.............................2
5B. Purchase Permitted By Applicable Laws; Legal Investment.....2
5C. No Adverse Legislation, Action or Decision..................3
5D. Approvals and Consents......................................3
5E. Corporate Proceedings.......................................3
5F. Representations and Warranties; No Default..................3
5G. Other Debt..................................................3
5H. Senior Subordinated Notes and Other Credit
Documents; Other Documents, Agreements and Instruments......4
5I. Opinions of Counsel.........................................5
5J. Payment of Costs and Expenses...............................5
5K. Purchases of Senior Subordinated Notes......................5
5L. Agent for Service of Process................................5
5M. No Material Adverse Change..................................5
5N. CUSIP Number................................................6
5O. Rating......................................................6
6. OPTIONAL PREPAYMENTS.................................................6
6A. Optional Prepayments........................................6
6B. Notice of Prepayments.......................................6
6C. Partial Prepayments Pro Rata................................6
6D. Acquisition of Senior Subordinated Notes....................6
6.1 PRIORITY OF PAYMENT OF SENIOR SUBORDINATED NOTES.....................7
6.1A. Subordination of Senior Subordinated Notes..................7
6.1B. Payments on Senior Subordinated Notes upon
Default under Senior Debt...................................7
6.1C. Dissolution, Liquidation or Reorganization
of the Company..............................................9
6.1D. Subrogation................................................10
6.1E. Obligations of the Company Unconditional...................11
6.1F Notice.....................................................11
-i-
<PAGE>
6.1G Holders Entitled to Assume Payments
Not Prohibited in Absence of Notice.........................11
6.1H Section 6.1 Not to Prevent Events of Default................12
7. AFFIRMATIVE COVENANTS................................................12
7A. Accounting Systems; Financial Statements
and Other Reports...........................................12
7A(i) Quarterly Financial Statements...................12
7A(ii) Annual Financial Statements......................12
7A(iii) Officer's Certificate; Portfolio Schedules.......13
7A(iv) Auditors' Review.................................13
7A(v) Auditors' Management Letters.....................14
7A(vi) Reports to Shareholders and Commission;
Press Releases...................................14
7A(vii) Events of Default, Etc...........................14
7A(viii) Litigation, Governmental Investigations..........15
7A(ix) ERISA............................................15
7A(x) Taxes, Etc.......................................16
7A(xi) Other Information................................16
7B. Corporate Existence; Maintenance of Properties..............16
7C. Payment Of Taxes And Claims.................................16
7D. Conduct of Business; Insurance..............................17
7D(i) Conduct of Business..............................17
7D(ii) Insurance........................................17
7E. Books and Records; Inspection of Property...................17
7F. Compliance With Laws, Etc...................................17
7G. Satisfaction of Obligations.................................18
7H. Hazardous Materials.........................................18
7I. Proceeds of Financing.......................................18
7J. Warehouse and Securitization Subsidiaries...................18
8. NEGATIVE COVENANTS...................................................18
8A. Debt Incurrence; Financial Maintenance Tests................19
8B. Liens.......................................................20
8C. Investments.................................................21
8D. Restricted Junior Payments..................................22
8E. Merger or Sale of Assets....................................22
8F. Securitizations.............................................23
8G. Reporting Company Status....................................24
8H. Restriction on Transactions with Affiliates.................24
8I. No Tax Consolidation........................................24
8J. Amendments and Waivers of Certain Documents.................24
8J(i) Charter Documents................................24
8J(ii) Debt Documents...................................24
8K. Margin Regulations..........................................24
8L. Maintenance of Consolidated Tangible Net Worth..............25
-ii-
<PAGE>
8M. No Public Offering of Senior Subordinated Notes.............25
8N. Foreign Assets Control Regulations, Etc.....................25
8O. Amendment of Senior Notes Note Purchase Agreement...........25
8P. Amendment of Section 6.1....................................25
9. EVENTS OF DEFAULT....................................................25
9A. Default; Acceleration.......................................25
9B. Recession of Acceleration...................................28
9C. Other Remedies .............................................29
9D. Subordinated Debt Notices ..................................29
9E. Default Rate................................................29
9F. Payments on Subordinated Debt...............................29
10. REPRESENTATIONS AND WARRANTIES.......................................29
10A. Organization, Powers, Good Standing, Business
and Subsidiaries............................................30
10A(i) Organization and Powers..........................30
10A(ii) Good Standing....................................30
10A(iii) Conduct of Business..............................30
10A(iv) Subsidiaries; Capital Stock......................30
10B. Authorization of Financing, Etc.............................30
10B(i) Authorization of Financing.......................30
10B(ii) No Conflict......................................30
10B(iii) Governmental Consents............................31
10B(iv) Due Execution and Delivery;
Binding Obligations..............................31
10B(v) Securities Law Exemption.........................31
10B(vi) Other Debt, Etc..................................31
10C. Financial Condition.........................................32
10D. No Material Adverse Change..................................32
10E. Title to Properties; Liens..................................32
10F. Litigation; Adverse Facts...................................33
10G. Payment of Taxes............................................33
10H. Materially Adverse Agreements; Performance;
Absence of Material Contracts...............................33
10I. Governmental Regulation.....................................34
10J. Certain Fees................................................34
10K. Disclosure..................................................34
10L. Facilities..................................................34
10M. Licenses, Permits and Authorizations........................34
10N. Hazardous Materials.........................................35
10O. Offering of Securities......................................35
10P. Existing Debt; Securitizations..............................35
10Q. ERISA.......................................................35
10R. Agreements with Affiliates..................................36
-iii-
<PAGE>
10S. Patents, Etc................................................36
10T. Regulation G, Etc...........................................36
10U. Warehouse and Securitization Subsidiaries...................37
11. REPRESENTATIONS OF THE PURCHASERS....................................37
12. DEFINITIONS..........................................................39
12A. Definitions.................................................39
12B. Accounting Terms............................................51
13. JUDICIAL PROCEEDINGS.................................................51
13A. Consent To Jurisdiction.....................................51
13B. Enforcement Of Judgments....................................52
13C. Service Of Process..........................................52
13D. Waiver of Jury Trial........................................52
13E. No Limitation On Service Or Suit............................53
13F. Limitation of Liability.....................................53
14. MISCELLANEOUS........................................................53
14A. Payments....................................................53
14B. Expenses; Indemnification ..................................53
14B(i) Fees and Expenses ...............................53
14B(ii) Indemnification .................................54
14B(iii) Survival.........................................55
14C. Amendments; Waivers.........................................55
14D. Form, Registration, Transfer and Exchange of Senior
Subordinated Notes; Lost Senior Subordinated Notes..........55
14E. Rule 144A Mechanics.........................................56
14F. Persons Deemed Owners; Participants;
Identity of Holders.........................................56
14G. Solicitation; Payment.......................................57
14H. Survival of Representations and Warranties;
Entire Agreement............................................57
14I. Successors and Assigns......................................58
14J. Disclosure to Other Persons ................................58
14K. Notices.....................................................58
14L. Descriptive Headings........................................59
14M. Satisfaction Requirement....................................59
14N. Independence of Covenants...................................59
140. Severability................................................59
14P. Governing Law...............................................59
14Q. Counterparts................................................59
14R. Dating......................................................59
PURCHASER SCHEDULE
-iv-
<PAGE>
EXHIBITS
Exhibit A - Form of Senior Subordinated Note
Exhibit B - Form of Solvency Certificate
Exhibit C - Opinion of Barnes & Thornburg
Exhibit D - Opinion of Cadwalader, Wickersham & Taft
Exhibit E - Form of Portfolio Analysis of Loans
SCHEDULES
Schedule I - Jurisdictions of Incorporation
Schedule II - Existing Debt; Securitizations
Schedule III - Existing Liens
Schedule IV - Existing Investments
Schedule V - Existing Subsidiaries and Restricted Subsidiaries
Schedule VI - Existing Obligations Not in the
Ordinary Course of Business
Schedule VII - Existing Obligations
Schedule VIII - Facilities
-v-
<PAGE>
This NOTE PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") dated as of April 3, 1996, is
among UNION ACCEPTANCE CORPORATION, an Indiana corporation (the "Company"), and
the institutions executing this Agreement as NOTE PURCHASERS on the signature
pages hereof (such institutions in their capacity as purchasers of Senior
Subordinated Notes as more fully set forth in this Agreement, the "Purchasers").
WHEREAS, in order to refinance certain existing Debt provided to the
Company under the Warehouse Facilities and for general corporate purposes of the
Company, the Company desires to issue and sell certain senior subordinated
promissory notes; and
WHEREAS, the Purchasers desire to purchase such senior subordinated
promissory notes, in such amounts as are set forth on the Purchaser Schedule
attached hereto, on the terms and conditions more fully set forth herein and in
such senior subordinated promissory notes;
NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the parties hereto agree as follows:
1. DEFINED TERMS. Certain capitalized terms used in this Agreement are defined
in Section 12.
2. DESCRIPTION OF SENIOR SUBORDINATED NOTES.
The Company will authorize the issuance and sale of its 9.99% senior
subordinated promissory notes due March 30, 2003 in substantially the form of
Exhibit A hereto (such notes, together with any notes that may be issued
hereunder in substitution or exchange therefor, are collectively referred to
herein as the "Senior Subordinated Notes" and each such note is individually
referred to herein as a "Senior Subordinated Note"), in the original aggregate
principal amount of $46,000,000, bearing interest from the date of issuance
thereof at the rate of 9.99% per annum, payable in arrears quarterly on the
thirtieth day of each March, June, September and December commencing June 30,
1996 and at maturity, calculated on the basis of a 360-day year of twelve
thirty-day months. The Senior Subordinated Notes are not subject to prepayment
or redemption at the option of the Company prior to their stated maturity dates
except on the terms and conditions and with the premium, if any, set forth in
Section 6. Principal and premium not paid when due (whether at maturity, by
optional prepayment, upon acceleration, pursuant to a permitted demand, upon
commencement of bankruptcy or insolvency proceedings or otherwise) and any
overdue installment of interest shall bear interest at the Default Rate.
-1-
<PAGE>
3. PURCHASE AND SALE OF SENIOR SUBORDINATED NOTES.
The Company hereby agrees to sell to the Purchasers and, subject to the
terms and conditions set forth herein, each Purchaser, severally and not
jointly, agrees to purchase from the Company the Senior Subordinated Notes, in
the form of one or more Senior Subordinated Notes registered in the name of such
Purchaser (or that of its nominee, as such Purchaser shall request), in such
principal amounts and in such denomination as is set forth on the Purchaser
Schedule for a purchase price equal to 100% of the principal amount thereof.
4. CLOSING OF SALE OF SENIOR SUBORDINATED NOTES.
The purchase and delivery of the Senior Subordinated Notes shall take place
at a closing (the "Closing") at the offices of Cadwalader, Wickersham and Taft
in New York City (or at such other location as the Company and the Purchasers
may agree), at such time as the Purchasers and the Company may agree, but in no
event later than April 10, 1996 (the date of such Closing is referred to herein
as the "Closing Date"). The Company shall give each Purchaser at least 3
Business Days' notice of the proposed time of Closing or of any proposed change
in the time of Closing. At such Closing, the Company shall deliver to each
Purchaser the Senior Subordinated Notes, dated the date of the Closing, to be
purchased by such Purchaser, against payment to the Company by such Purchaser of
the purchase price therefor by transfer of immediately available funds to such
account as the Company shall have designated to each Purchaser in writing at
least two Business Days prior to the Closing Date. If, at such Closing, the
Company shall fail to tender to the Purchasers any of the Senior Subordinated
Notes to be purchased by them as provided above in his Section 4, or any of the
conditions specified in Section 5 shall not have been satisfied or waived by the
Purchasers, each Purchaser shall, at its election, be relieved of any further
obligations under this Agreement, without thereby waiving any rights it may have
by reason of such failure or such non-fulfillment.
5. CONDITIONS TO CLOSING.
The obligation of each Purchaser to purchase and pay for the Senior
Subordinated Notes to be purchased by it at the Closing is subject to the
satisfaction of the following conditions precedent:
5A. Compliance With Securities Laws. The offering, issuance and sale of the
Senior Subordinated Notes under this Agreement shall be in compliance with all
applicable requirements of federal and state securities laws on the Closing
Date.
5B. Purchase Permitted By Applicable Laws; Legal Investment. As of the
Closing Date, the issuance and sale of the Senior Subordinated Notes by the
Company and the purchase of and payment for the Senior Subordinated Notes to be
purchased hereunder by each Purchaser shall (i) not be prohibited by any
applicable law or governmental rule or regulation (including, without
limitation, Section 5 of the Securities Act or Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System), (ii) not subject any
Purchaser to any tax, penalty, liability, or other onerous condition under or
-2-
<PAGE>
pursuant to any applicable or proposed law or governmental rule or regulation,
and (iii) be a legal investment for each Purchaser under all laws and
governmental rules and regulations applicable to such Purchaser (including those
relating to eligible investments without giving effect to any "basket"
provisions thereof), and the Purchasers shall have received such evidence as
they may request to establish compliance with this condition.
5C. No Adverse Legislation, Action or Decision. On or after the date hereof
no legislation, order, rule, ruling or regulation shall have been enacted or
made by or on behalf of any governmental body, department or agency of the
United States, nor shall any legislation have been introduced and favorably
reported for passage to either House of Congress by any committee of either such
House to which such legislation has been referred for consideration, nor shall
any decision of any court of competent jurisdiction within the United States
have been rendered that, in the reasonable judgment of any Purchaser, would
materially and adversely affect the Senior Subordinated Notes as an investment.
As of the Closing Date, there shall be no action, suit, investigation or
proceeding pending, or, to the best of the Purchasers' and the Company's
knowledge, threatened, against or affecting the Purchasers or the Company, any
of their respective Properties or rights, or any of their respective Affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, or
prevent the consummation of, or otherwise affect, the transactions contemplated
hereby, or (ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with any such
transactions and, to the best of the Purchasers' and the Company's knowledge,
there shall be no valid basis for any such action, proceeding or investigation.
5D. Approvals and Consents. The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises, permits and
certificates, if any, by or of all federal, state and local governmental
authorities necessary for the issuance and sale of the Senior Subordinated Notes
on the Closing Date, all of which shall be in full force and effect on the
Closing Date, and shall have delivered to each Purchaser certified copies
thereof.
5E. Corporate Proceedings. All corporate proceedings taken by all Persons
other than the Purchasers in connection with the transactions contemplated
hereby shall have been consummated (or shall be consummated simultaneously with
the issuance of the Senior Subordinated Notes), and all documents and agreements
incidental thereto shall be reasonably satisfactory in form and substance to the
Purchasers and their counsel, and the Purchasers and their counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
5F. Representations and Warranties; No Default. The representations and
warranties of the Company contained in this Agreement and each other Credit
Document shall be true when made and on the Closing Date (as if made on such
date), the Company shall have performed such obligations hereunder as it is
required to perform on or before the Closing Date, and there shall exist on the
Closing Date, prior to and after giving effect to the transactions contemplated
to occur on the Closing Date hereunder and under the other Credit Documents, no
Default or Event of Default.
-3-
<PAGE>
5G. Other Debt. Each Purchaser, if requested by such Purchaser, shall have
received a list of, and certified copies as amended through the Closing Date, of
the prospectus (and other documentation any Purchaser may request) for, each
completed and outstanding Securitization, the agreement documenting each Senior
Note, the agreement documenting each Warehouse Facility, any agreement governing
Subordinated Debt, if any, and documents and instruments granting collateral
security for, or guaranteeing payment of, obligations of the Company and the
Subsidiaries in connection therewith, in each case including all amendments
thereto, all of which such agreements, documents, instruments and amendments
shall be reasonably acceptable in form and substance to such Purchaser, and
shall be in full force and effect, and there shall exist no breach or default
thereunder, and the Purchasers shall have received an Officer's Certificate
dated as of the Closing Date certifying the same and that such Debt agreements
and Securitizations are the only Debt agreements and Securitizations of the
Company and the Subsidiaries.
5H. Senior Subordinated Notes and Other Credit Documents; Other Documents,
Agreements and Instruments. On or before the Closing Date, each Purchaser shall
have received originals (or, if acceptable to such Purchaser, copies) duly
executed by each Person identified therein as a party thereto (where relevant)
of the following documents, each in form and substance satisfactory in all
respects to such Purchaser:
(i) the Senior Subordinated Notes;
(ii) copies of the bylaws of the Company, each Restricted Subsidiary and
each other Subsidiary, certified as of the Closing Date by such
entity's corporate secretary or an assistant secretary;
(iii)certified copies of the Articles of Incorporation of the Company,
each Restricted Subsidiary and each other Subsidiary, together with
good standing certificates from its jurisdiction of incorporation and
the jurisdiction in which it maintains its principal place of business
and each other jurisdiction in which it has material assets or
operations and is required to be qualified to do business, all of
which are set forth on Schedule I, each to be dated a recent date
prior to the Closing Date;
(iv) copies of resolutions of the board of directors of the Company
approving and authorizing the execution, delivery and performance by
the Company of each Credit Document and approving and authorizing the
transactions contemplated hereby and thereby, certified as of the
Closing Date by the corporate secretary or an assistant secretary of
such entity as being in full force and effect without modification or
amendment;
(v) signature and incumbency certificates of the officers of the Company;
-4-
<PAGE>
(vi) written wire transfer instructions satisfactory to the Purchasers
relating to the disbursement of the proceeds of the sale of the Senior
Subordinated Notes;
(vii)a solvency certificate substantially in the form of Exhibit B in
favor of the Purchasers;
(viii) an Officer's Certificate from the Company certifying that (a) the
representations and warranties of the Company contained in this
Agreement and each other Credit Document are true, correct and
complete in all material respects on the Closing Date, (b) no Default
or Event of Default exists on the Closing Date or will exist after
giving effect to the transactions contemplated to occur on the Closing
Date hereunder and under the other Credit Documents, and (c) all
conditions precedent listed in Section 5 of this Agreement (other than
under Section 5B(iii), which each Purchaser shall determine for
itself) have been fulfilled and satisfied and all agreements,
documents, certificates and opinions shall have been delivered
pursuant to Section 5, all on or before or as of the purchase of the
Senior Subordinated Notes, in accordance with Section 5;
(ix) the results of such UCC searches as the Purchasers may reasonably
request;
(x) certificates evidencing the insurance required by Section 7; and
(xi) such other evidence, documents, agreements, opinions, consents or
certificates as any Purchaser may reasonably request.
5I. Opinions of Counsel. Each Purchaser shall have received from Barnes &
Thornburg, counsel to the Company and Cadwalader, Wickersham & Taft, special New
York counsel to the Purchasers, favorable legal opinion letters, dated the
Closing Date, substantially in the form of Exhibit D and Exhibit E,
respectively, and covering such other matters incident to the transactions
contemplated hereby as the Purchasers may reasonably request and otherwise
satisfactory in form and substance to the Purchasers.
5J. Payment of Costs and Expenses. The Company shall have paid to
Cadwalader, Wickersham and Taft, special counsel to the Purchasers, an amount
equal to the fees and expenses of such counsel in connection herewith to the
extent billed by the Closing Date, and any other fees and expenses incurred by
the Purchasers, to and including the Closing Date, in connection with the
transactions contemplated hereby as provided in Section 14B(i).
5K. Purchases of Senior Subordinated Notes. At the Closing, the Company
shall have issued and sold to each Purchaser, and each Purchaser shall have
purchased from the Company, the Senior Subordinated Notes to be issued and sold
to each such Purchaser in accordance with the provisions hereof.
-5-
<PAGE>
5L. Agent for Service of Process. Each Purchaser shall have received a copy
of a written instrument or instruments pursuant to which CT Corporation System
shall have duly and effectively accepted its appointment as the Company's agent
to accept service of process in the State of New York, as provided in and in
accordance with Section 13C.
5M. No Material Adverse Change. Since June 30, 1995, there shall have been
no material adverse change in the financial condition, liquidity, operations,
assets, prospects or business of the Company and the Subsidiaries, taken as a
whole, in the judgment of the Purchasers, other than as may be disclosed in the
June 30, 1995 audited year-end, or the December 31, 1995 interim quarterly,
consolidated financial statements of the Company which have been provided to the
Purchasers prior to the date hereof.
5N. CUSIP Number. The Company shall have obtained a CUSIP number, or if not
available a Private Placement Number (PPN), with respect to the initial
offering, issuance and sale of the Senior Subordinated Notes.
5O. Rating. The Senior Subordinated Notes shall have been assigned an
unqualified rating obtained at the Company's expense from Fitch of at least
"BBB-" and each Purchaser shall have received a copy of a letter from Fitch
confirming such rating.
6. OPTIONAL PREPAYMENTS.
6A. Optional Prepayments. The Company may prepay the Senior Subordinated
Notes at any time in whole or ratably in part, at a price (the "Make-Whole
Prepayment Price") equal to 100% of the principal amount being so prepaid plus
(i) accrued and unpaid interest on such amount to and including the date of
prepayment, and (ii) the Yield-Maintenance Premium, if any, with respect to the
Senior Subordinated Notes so prepaid; provided, however, that any such
prepayment (a) may be made only in accordance with the provisions of Sections 6B
and 6C, and (b) shall be in a principal amount of not less than $1,000,000 and
in an integral multiple of $100,000.
6B. Notice of Prepayments. The Company shall give each Holder written
notice of each optional prepayment of Senior Subordinated Notes pursuant to
Section 6A not less than 30 days and not more than 60 days prior to the
Settlement Date, which notice shall (i) specify the Settlement Date (which shall
be a Business Day), (ii) state the aggregate principal amount of the Senior
Subordinated Notes to be prepaid on such date and the amount of accrued and
unpaid interest thereon to and including such date, and (iii) set forth in
reasonable detail calculations specifying the Make-Whole Prepayment Price that
would apply to the Senior Subordinated Notes if the date of such notice were the
Settlement Date. Upon the giving of any such prepayment notice, such principal
amount, together with accrued and unpaid interest thereon to and including the
Settlement Date plus the Yield-Maintenance Premium, if any, with respect
thereto, shall become due and payable on such Settlement Date.
-6-
<PAGE>
6C. Partial Prepayments Pro Rata. No optional partial prepayment of Senior
Subordinated Notes may be made unless, in the case of each such prepayment, the
aggregate principal amount of such prepayment is allocated ratably among all
Senior Subordinated Notes then outstanding in proportion to the respective
unpaid principal amount of each such Senior Subordinated Note.
6D. Acquisition of Senior Subordinated Notes. The Company shall not, and
shall not permit any of its Affiliates to, purchase, prepay, redeem or otherwise
acquire any Senior Subordinated Note from any Holder, except pursuant to a
payment or prepayment in accordance with the specific terms of this Agreement.
Any Senior Subordinated Note purchased, redeemed or otherwise acquired by the
Company or any Subsidiary shall immediately be retired and discharged, and may
not be reissued.
6.1. PRIORITY OF PAYMENT OF SENIOR SUBORDINATED NOTES.
6.1A. Subordination of Senior Subordinated Notes. The Company, for itself
and its successors, and each Holder, by its acceptance of the Senior
Subordinated Notes, agrees that the payment of the principal of, and interest
and premium due on, the Senior Subordinated Notes is hereby expressly
subordinate, and junior in right of payment, to the extent and in the manner
provided in this Section 6.1, to the prior payment in full in cash of the
principal, premium, if any, and interest on any Senior Debt. The expressions
"prior payment in full", "payment in full" and "paid in full" and any other
similar term or phrase when used in this Section 6.1 with respect to Senior Debt
shall mean the payment in full of such Senior Debt in cash or provision for
payment in full in cash or otherwise in a manner in strict conformity with the
terms of the Senior Debt. The provisions of this Section 6.1 are made for the
benefit of the holders of Senior Debt.
6.1B. Payments on Senior Subordinated Notes Upon Default under Senior Debt.
(i) No direct or indirect payment (in cash, property, securities, by set-off or
otherwise) shall be made or agreed to be made on account of the principal of, or
interest or premium on, the Senior Subordinated Notes, or in respect of any
redemption, retirement, purchase or other acquisition of any of the Senior
Subordinated Notes, and no Holder shall be entitled to receive any such payment
(any of the foregoing payments or actions, a "Payment"), if a default or event
of default resulting from failure by the Company to pay any principal or
interest on Senior Debt shall have occurred and is continuing with respect to
such Senior Debt, provided, that notwithstanding this Section 6.1B(i), the
Company may make Payments if (1) the default or event of default that was the
basis for such blockage (a) shall have been cured or waived or (b) shall
continue to exist for more than 165 days after the date on which such default
occurred and the holders of the Senior Debt subject to such default shall fail,
prior to the expiration of such period of 165 days, to accelerate the maturity
of such Senior Debt and to commence and diligently pursue formal judicial
proceedings for the enforcement of such holders' rights with respect thereto,
and (2) this Section 6.1 otherwise permits a Payment at that time.
-7-
<PAGE>
(ii) No Payment shall be made if:
(A) an event of default shall have occurred and is continuing which
event of default results from the failure of the Company to meet
the covenants set forth in the Senior Notes Note Purchase
Agreement as currently in effect with respect to debt incurrence
and financial maintenance tests, liens, investments, restricted
junior payments, merger or sale of assets, or maintenance of
consolidated tangible net worth, provided, that if the provisions
of any such covenants set forth in the Senior Notes Note Purchase
Agreement are amended so as to be more favorable to the Company,
then for the purposes of this Section 6.1B(ii) the provisions as
so amended will be substituted for the provisions thereof as
currently in effect, and
(B) the Holders receive notice of such event of default from a
Blockage Notice Provider which notice (i) relates to an event of
default which did not exist on the date of any earlier notice
issued pursuant to Section 6.1B(i) or this Section 6.1B(ii), and
(ii) states that such holder of Senior Debt is invoking a payment
blockage under this Section 6.1B(ii), provided, that
notwithstanding this Section 6.1B(ii), the Company may make
Payments if (1) the event of default that was the basis for such
blockage (a) shall have been cured or waived or (b) shall
continue to exist for more than 90 days after the date of the
notice issued pursuant to Section 6.1B(ii)(B) relating to such
event of default and the holders of the Senior Debt subject to
such event of default shall fail, prior to the expiration of such
period of 90 days, to accelerate the maturity of such Senior Debt
and to commence and diligently pursue formal judicial proceedings
for the enforcement of such holders' rights with respect thereto,
and (2) this Section 6.1 otherwise permits a Payment at that
time.
(iii)Notwithstanding any provisions in this Section 6.1B to the contrary,
in any consecutive 365 day period, there shall be (a) not more than
two Blockage Periods invoked pursuant to Section 6.1B(i), (b) not more
than three Blockage Periods invoked pursuant to Section 6.1B(ii), and
(c) at least 35 days during which no Blockage Period is in effect. Any
Blockage Period which would be in effect but for clauses (a) or (b)
hereof shall be of no force and effect. Subject to clauses (a) and (b)
hereof, any Blockage Period or portion thereof which would be in
effect but for clause (c) hereof shall be of no force and effect
during and only during the period required to satisfy the requirements
of such clause (c).
(iv) In the event that notwithstanding the provisions of this Section 6.1B
the Company shall make any Payment to any Holder on account of the principal of
or interest or premium on the Senior Subordinated Notes during a Blockage
Period, such payment shall be held by such Holder, in trust for the benefit of,
and, shall be paid forthwith over and delivered to, the holders of Senior Debt
(pro rata as to each of such holders on the basis of the respective amounts of
Senior Debt then in default held by them) or their representative, if any, as
their respective interests may appear, for application to the payment of all
Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt in
full in accordance with the terms thereof, after giving effect to any concurrent
-8-
<PAGE>
payment or distribution to or for the holders of Senior Debt, provided, however,
that no such payment by any Holder shall be required in the event the holders of
Senior Debt shall have received property in respect of such Senior Debt and the
fair market value of such property, when added to the payment in cash and
provision for payment in cash in respect of such Senior Debt, shall constitute
full payment of such Senior Debt unless the Holders (pro rata as to the
respective amounts paid over and delivered to the holders of Senior Debt or
their representative) shall receive such property with a fair market value equal
to the amount so paid in excess of such full payment to the holders of Senior
Debt.
(v) The Company shall give prompt written notice to the Holders of any
default or event of default (a) in the payment of principal of or
interest on any Senior Debt, (b) which results in the acceleration of
such Senior Debt under any Senior Debt or under any agreement pursuant
to which Senior Debt has been issued, or (c) which arises from the
failure of the Company to meet any of the covenants set forth in the
Senior Notes Note Purchase Agreement as currently in effect with
respect to debt incurrence and financial maintenance tests, liens,
investments, restricted junior payments, merger or sale of assets, or
maintenance of consolidated tangible net worth, provided, that if the
provisions of any such covenants set forth in the Senior Notes Note
Purchase Agreement are amended so as to be more favorable to the
Company, then for the purposes of this Section 6.1B(ii) the provisions
as so amended will be substituted for the provisions thereof as
currently in effect.
6.1C. Dissolution, Liquidation or Reorganization of the Company. Upon any
distribution or payment of assets or securities of the Company upon any
dissolution, winding up, total or partial liquidation, or reorganization of the
Company of any kind or character (whether voluntary or involuntary, in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the
benefit of creditors or otherwise) (any such event, an "Event of Bankruptcy"):
(a) the holders of all Senior Debt shall first be entitled to receive
payment in full in cash (or to have such payment provided for) of the
principal, interest and other amounts due (including premiums) on the
Senior Debt before the Holders are entitled to receive any payment or
distribution of any assets on account of the principal, interest,
premium or any other amounts owed with respect to the Senior
Subordinated Notes, except that Holders shall be entitled to receive
securities that are subordinated to Senior Debt to at least the same
extent as the Senior Subordinated Notes;
(b) the Holders shall be entitled to receive payment in full in cash (or
to have such payment duly provided for) of the principal, interest and
other amounts due (including premiums) on the Senior Subordinated
Notes before the holders of any Subordinated Debt are entitled to
receive any payment or distribution of any assets on account of the
principal, interest, premium or any other amounts owed with respect to
such Subordinated Debt ;
-9-
<PAGE>
(c) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the
Holders would be entitled except for the provisions of this Section
6.1, including any such payment or distribution which may be payable
or deliverable by reason of the payment of any other indebtedness of
the Company being subordinated to the payment of the Senior
Subordinated Notes, shall be paid by the liquidating trustee or agent
or other person making such payment or distribution directly to the
holders of Senior Debt or their representative, if any, (pro rata as
to each such holder or representative on the basis of the respective
amounts of unpaid Senior Debt held or represented by each), to the
extent necessary to make payment in full in cash of all Senior Debt
remaining unpaid except that Holders of the Senior Subordinated Notes
shall be entitled to receive securities that are subordinated to
Senior Debt to at least the same degree as the Senior Subordinated
Notes, provided, however, that no such payment by any such person
shall be required in the event the holders of Senior Debt shall have
received property in respect of such Senior Debt and the fair market
value of such property, when added to the payment in cash and
provision for payment in cash in respect of such Senior Debt, shall
constitute full payment of such Senior Debt unless the Holders (pro
rata as to the payments or distributions made to the holders of Senior
Debt or their representative) shall receive such property with a fair
market value equal to the amount so paid in excess of such full
payment to the holders of Senior Debt;
(d) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character (other
than securities that are subordinated to Senior Debt to at least the
same extent as the Senior Subordinated Notes), whether in cash,
property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of
the Senior Subordinated Notes, shall be received by the Holders on
account of principal of or interest on the Senior Subordinated Notes
before all Senior Debt is paid in full, such payment or distribution
shall be received and held in trust for the benefit of and shall be
paid forthwith over and delivered to the holders of Senior Debt
remaining unpaid or unprovided for or their representatives, if any
(pro rata as to each of such holders on the basis of the respective
amounts of Senior Debt held or represented by each), for application
to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment
or distribution or provision therefor to or for the holders of such
Senior Debt, provided, however, that no such payment by any Holder
shall be required in the event the holders of Senior Debt shall have
received property in respect of such Senior Debt and the fair market
value of such property, when added to the payment in cash and
provision for payment in cash in respect of such Senior Debt, shall
constitute full payment of such Senior Debt unless the Holders (pro
rata as to the respective amounts paid over and delivered to the
holders of Senior Debt or their representatives) shall receive such
property with a fair market value equal to the amount so paid in
excess of such full payment to the holders of Senior Debt.;
(e) the Company shall give prompt written notice to the Holders of any
Event of Bankruptcy; and
-10-
<PAGE>
(f) upon any payment or distribution of assets of the Company referred to
in this Section 6.1, each Holder shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which
any proceeding (which proceeding relates to the Event of Bankruptcy)
is pending, or a certificate of the debtor, custodian, liquidating
trustee, agent or other Person making any payment or distribution to
such holders, for the purpose of ascertaining the Persons entitled to
participate therein, the holders of Senior Debt, the then outstanding
principal amount of the Senior Debt and any and all amounts payable
thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 6.1, provided, that
each Holder shall also be entitled to rely upon a certificate of a
holder of Senior Notes for the purpose of ascertaining the then
outstanding principal amount of the Senior Note held by such holder
and any and all amounts payable thereon.
6.1D. Subrogation. Subject to the payment in full in cash of all Senior
Debt pursuant to this Section 6.1, the Holders shall be subrogated equally and
ratably to the rights of the holders of Senior Debt to receive payments or
distributions of assets of the Company applicable to the Senior Debt until all
amounts owing on the Senior Subordinated Notes shall be paid in full, and for
the purposes of such subrogation no such payments or distributions to the
holders of Senior Debt by or on behalf of the Company or by or on behalf of the
Holders by virtue of this Section 6.1 to which any Holder would be entitled but
for the provisions of this Section 6.1 shall, as among the Company, its
creditors other than the holders of Senior Debt and the Holders, be deemed to be
payment by the Company to or on account of the Senior Debt, it being understood
that the provisions of this Section 6.1 are and are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
holders of Senior Debt, on the other hand.
6.1E. Obligations of the Company Unconditional. Nothing contained in this
Section 6.1 or in any Credit Document is intended to or shall impair, as among
the Company, its creditors other than holders of Senior Debt, and the Holders,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders the principal and interest on, and all other amounts owing in
respect of (including premiums), the Senior Subordinated Notes, as and when the
same shall become due and payable in accordance with the terms thereof, or is
intended to or shall affect the relative rights of the Holders and creditors of
the Company other than the holders of Senior Debt, nor shall anything herein or
therein prevent any Holders from exercising all remedies otherwise permitted by
applicable law upon any Default or Event of Default, subject to the rights, if
any, under this Section 6.1 of the holders of Senior Debt in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
6.1F. Notice. In the event that any Senior Subordinated Note shall become
due and payable before its expressed maturity on demand of the Holder thereof as
the result of an occurrence of a Default or Event of Default, the Company will
give prompt notice in writing of such happening to each Holder.
-11-
<PAGE>
6.1G. Holders Entitled to Assume Payments Not Prohibited in Absence of
Notice. (i) No Holder shall at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to it,
unless and until such Holder (a) shall have received written notice thereof from
the Company or from the holders of Senior Debt or any agent or representative
thereof which expressly references this Section 6.1 and such prohibition, (b)
shall have actual knowledge of the occurrence of an Event of Bankruptcy or (c)
shall otherwise have actual knowledge of the existence of facts which would
prohibit the making of any payment to it thereunder; and prior to the receipt of
any such notice or acquisition of such actual knowledge each such Holder shall
be entitled to assume conclusively that no such facts exist, without, however,
limiting any right of any holder of Senior Debt to recover under this Section
6.1 from any Holder any payment made in contravention of this Section 6.1.
(ii) Each Holder shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of
Senior Debt or to be the agent or representative of any such holder to
establish that such notice has been given by any such Person. In the
event that such Holder determines in good faith that further evidence
is required with respect to the right of any such Person to
participate in any payment or distribution pursuant to this Section
6.1, such Holder may request such Person to furnish evidence to the
reasonable satisfaction of such Holder as to any fact pertinent to the
rights of such Person under this Section 6.1, and if such evidence is
not furnished, such Holder may defer any payment to such Person
pending judicial determination as to the right of such Person to
receive such payment.
6.1H. Section 6.1 Not to Prevent Events of Default. The failure to make a
payment on account of any amounts owed with respect to the Senior Subordinated
Notes by reason of any provision of this Article 6.1 shall not be construed as
preventing the occurrence of an Event of Default under Section 9.
7. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, until indefeasible payment in full
of all of the Senior Subordinated Notes and all other amounts payable under this
Agreement, it shall perform all covenants in this Section 7.
7A. Accounting Systems; Financial Statements and Other Reports. The Company
shall, and shall cause each of the Subsidiaries to, maintain a system of
accounting established and administered in accordance with sound business
practices and any applicable laws to permit preparation of financial statements
in conformity with GAAP. The Company shall deliver, in duplicate, to each
Holder:
7A(i) Quarterly Financial Statements. As soon as practicable and in any
event within 45 days after the end of each Fiscal Quarter (other than the last
Fiscal Quarter of a Fiscal Year) consolidated balance sheets of the Company and
the Subsidiaries as at the end of such Fiscal Quarter and the related
consolidated statement of income, shareholders' equity and cash flows of the
Company and the Subsidiaries for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal Quarter,
setting forth, in each case in comparative form, the consolidated figures for
the corresponding periods of the previous Fiscal Year, all in reasonable detail
and certified by the Chief Financial Officer or Chief Accounting Officer of the
Company as true and correct and fairly presenting the financial condition of the
Company and the Subsidiaries as at the dates indicated and the results of their
operations for the periods indicated, subject to changes resulting from audit
and normal year-end adjustments.
-12-
<PAGE>
7A(ii) Annual Financial Statements. As soon as practicable and in any event
within 90 days after the end of each Fiscal Year, consolidated balance sheets of
the Company and the Subsidiaries as at the end of such Fiscal Year and the
related consolidated statements of income, shareholders' equity and cash flows
of the Company and the Subsidiaries for such Fiscal Year, setting forth, in each
case in comparative form, the consolidated figures for the previous Fiscal Year,
all in reasonable detail and accompanied by a report thereon of KPMG Peat
Marwick LLP or any other "Big 6" independent certified public accounting firm of
recognized national standing, which report shall be unqualified as to scope of
audit and shall not make reference to uncertainties related to the Company's
ability to continue as a going concern and shall state that such consolidated
financial statements present fairly the financial position of the Company and
the Subsidiaries as at the dates indicated and the results of their operations
and cash flow for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except as otherwise stated therein) and that
the examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards.
7A(iii) Officer's Certificate; Portfolio Schedules. Together with each
delivery of financial statements of the Company and the Subsidiaries pursuant to
Sections 7A(i) and (ii), an Officer's Certificate in a form satisfactory to the
Required Holders (a) stating that the Executive Officer signing such Officer's
Certificate has reviewed the terms of this Agreement and the Senior Subordinated
Notes and has made, or caused to be made under his or her supervision, a review
in reasonable detail of the transactions and condition of the Company and the
Subsidiaries during the accounting period covered by such financial statements,
and that such review has not disclosed the existence, during or at the end of
such accounting period, and that such officer does not have knowledge of the
existence as at the date of such Officer's Certificate, of any condition or
event that constitutes a Default or an Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken, is taking and proposes
to take with respect thereto; (b) setting forth the aggregate principal amount
of the Senior Subordinated Notes outstanding as of the date of such Officer's
Certificate; (c) demonstrating in reasonable detail the calculation of all
financial tests required to be met by the Company in this Agreement and
certifying the Company's compliance during and at the end of such accounting
period with the covenants contained in Sections 8A, 8B, 8C, 8D, 8E and 8L; (d)
at the request of any Holder, attaching a schedule showing (y) a portfolio
analysis for all loans and other like assets owned or serviced by the Company
and each Subsidiary by geographical area and asset category, containing the
information set out on Exhibit E hereto, and (z) the reconciliation and detailed
breakdown of matters covered in (y) together with data as to the non-performing
and delinquent assets of the Company and each Subsidiary, including a schedule
of delinquencies and charge-offs for the relevant period and covering such other
information as the Required Holders may from time to time request.
-13-
<PAGE>
7A(iv) Auditors' Review. Together with each delivery of consolidated
financial statements of the Company and the Subsidiaries pursuant to Section
7A(ii), a written statement by the independent public accountants giving the
report thereon stating (a) that such accountants have read this Agreement
(including the form of Senior Subordinated Note attached hereto) as it relates
to accounting matters, (b) whether, in connection with their audit examination,
any condition or event that constitutes a Default or an Event of Default has
come to their attention, and if such a condition or event has come to their
attention, specifying the nature and period of existence thereof, and (c) that
based on their audit examination nothing has come to their attention that causes
them to believe that the information contained in the Officer's Certificate
delivered pursuant to Section 7A(iii) is not correct in all material respects or
that the information required by clause (c) of Section 7A(iii) as stated in the
Officer's Certificate delivered pursuant to Section 7A(iii) for the applicable
Fiscal Year is not stated in accordance with the terms of this Agreement.
7A(v) Auditors' Management Letters. Within 5 Business Days of receipt
thereof, copies of any comment letters submitted to the management or the board
of directors of the Company, any Restricted Subsidiary or any other Subsidiary
by the Company's independent public accountants in connection with their annual
audit and, unless restricted by applicable professional standards, copies of all
other reports submitted to the Company, any Restricted Subsidiary or any other
Subsidiary by independent public accountants in connection with each annual,
interim or special audit of the financial statements of the Company, such
Restricted Subsidiary and such other Subsidiary made by such accountants.
7A(vi) Reports to Shareholders and Commission; Press Releases. Within 10
Business Days of their becoming available, copies of (a) all financial
statements, reports, notices and proxy statements sent or made available by the
Company to its shareholders or by any Subsidiary to its shareholders (other than
the Company or another Subsidiary), (b) all regular periodic reports and all
registration statements and prospectuses, if any, filed by the Company, any
Restricted Subsidiary or any other Subsidiary with any securities exchange or
with the Commission, but if filed by a Subsidiary, only if requested by any
Holder, and for purposes of this Section 7A(vi) the same shall be provided to
such Holder, in any event, by the first full Business Day after the filing
thereof with such exchange or Commission, and (c) all press releases and other
statements made available by the Company, any Restricted Subsidiary or any other
Subsidiary to the public concerning material developments in the business of the
Company and the Subsidiaries. In addition, within 45 days after the end of any
fiscal quarter, the Company will provide upon the request of any Significant
Holder all monthly aging and collection reports and similar periodically
required reports in the form given by the Company, any Restricted Subsidiary or
any other Subsidiary to any trustee (or equivalent) or creditor (including
credit enhancement parties) in connection with Senior Notes, Warehouse
Facilities, Senior Secured Facilities and Securitizations.
-14-
<PAGE>
7A(vii) Events of Default, Etc. Promptly but in no event later than 5
Business Days after any Executive Officer obtains knowledge (a) of any condition
or event that constitutes a Default or an Event of Default, (b) that any Holder
has given any notice or taken any other action with respect to a claimed Default
or Event of Default, (c) that any Person has given any notice to the Company,
any Restricted Subsidiary or any other Subsidiary or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 9A(ii), 9A(v) or 9A(ix), (d) of any event or condition that would give
rise or could reasonably be expected to give rise to a Material Adverse Effect,
(e) of any default or any event of default or termination or suspension of or
reduction in availability of funding (other than as a result of normal full
utilization or voluntary reduction (other than voluntary reduction at the
request of a lender) of committed amounts available) in connection with any
Senior Note, Warehouse Facility or Senior Secured Facility, or any agreement
governing Senior Debt, or any of the agreements referred to in Section 5G, or of
any default or event of default or breach in connection with any Securitization
or any other contractual obligation of the Company or any Subsidiary the
subject, terms or conditions of which are material to the business or financial
condition of the Company and the Subsidiaries taken as a whole, or (f) of any
actual or proposed Change of Control, an Officer's Certificate specifying, as
applicable, the nature and period of existence of any such condition or event,
the notice given (and providing a copy thereof), action taken and the nature of
such claimed default, event of default, Default, Event of Default, event, breach
or condition, and what action the Company has taken, is taking and proposes to
take with respect thereto. Any notice given pursuant to clause (f) above shall
be given (1) at least 90 days in advance of any Change of Control proposed or
solicited by or with the acquiescence of the Board of Directors and/or
management of the Company and (2) as quickly as practicable in advance of any
other Change of Control.
7A(viii) Litigation, Governmental Investigations. Within 5 Business Days
after any Executive Officer obtains knowledge of (a) the institution, or
non-frivolous threat, of any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Company, any Restricted
Subsidiary or any other Subsidiary, (b) any material development in any such
action, suit, proceeding, governmental investigation or arbitration, that, in
the case of either (a) or (b), has not previously been disclosed by the Company
to the Holders and (1) if adversely determined, would have or could reasonably
be expected to have a Material Adverse Effect or (2) seeks to enjoin or
otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, this Agreement, the Senior Subordinated Notes, the Senior
Notes, any other Credit Document, or any agreement referred to in Section 5G or
any transaction contemplated by any of the foregoing, notice thereof and such
other information as may be reasonably available to it to enable the Holders and
their counsel to evaluate such matters, or (c) written notice of any and all
enforcement, material cleanup, material removal, reportable release or other
governmental or regulatory action, threatened, or instituted, completed, or
planned, pursuant to any Environmental Laws, and any claims made by any third
party against the Company, any Restricted Subsidiary or any other Subsidiary
with respect to any property now or formerly owned or leased by any of them,
relating to material damage, material contribution, material cost, material
recovery, material compensation, material loss or material injury resulting from
any Hazardous Material.
-15-
<PAGE>
7A(ix) ERISA. Promptly (and in any event within 30 days) after the Company
or any Subsidiary or any ERISA Affiliate knows or has reason to know that a
Reportable Event with respect to any Pension Plan has occurred, that any Pension
Plan is or may be terminated, that any Multiemployer Plan may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA or that
the Company or any Subsidiary or any ERISA Affiliate will or may incur any
liability to or on account of a Pension Plan under Section 4062, 4063 or 4064,
or a Multiemployer Plan under Section 4201 or 4204 of ERISA, a certificate of
the chief financial officer of the Company setting forth information as to such
occurrence and what action, if any, the Company, any Subsidiary or any ERISA
Affiliate is required or proposes to take with respect thereto, together with
any notices concerning such occurrences which are (a) required to be filed by
the Company, any Subsidiary or any ERISA Affiliate or the plan administrator of
any such Pension Plan with the PBGC or any other government agency or (b)
received by the Company, any Subsidiary or any ERISA Affiliate from any plan
administrator of a Multiemployer Plan. Each annual report and any notice
required to be delivered in connection with ERISA shall be delivered hereunder
no later than 10 days after the later of the date such report or notice is filed
with the Internal Revenue Service or the PBGC and the date such report or notice
is received by the Company, any Subsidiary or any ERISA Affiliate, as the case
may be.
7A(x) Taxes, Etc. Within 5 Business Days after the receipt or delivery
thereof, complete copies of all material notices and communications to or from
any of the Company, any Restricted Subsidiary or any other Subsidiary with
respect to any material deficiency, nonpayment, late payment, audit, contest or
inquiry regarding any income taxes, other taxes, assessments, fees or other
governmental charges upon any of the Company, any Restricted Subsidiary or any
other Subsidiary.
7A(xi) Other Information. With reasonable promptness, such Consolidated,
consolidating and other information and data with respect to the Company, any
Restricted Subsidiary or any other Subsidiary and their respective Properties,
assets and businesses as may be reasonably requested from time to time by any
Holder.
7B. Corporate Existence; Maintenance of Properties. The Company covenants
that it (a) will do or cause to be done all things necessary to preserve and
keep in full force and effect the corporate, trust, partnership or other entity
existence, rights, licenses, registrations and franchises of the Company and the
Subsidiaries (except as specifically permitted by Section 8E hereof and except
that the existence of any Subsidiary and any licenses or registrations of the
Company or any Subsidiary may be terminated if such termination is, in the
judgment of the Board of the Directors of the Company, in the best interest of
the Company, and, in any event, is not materially disadvantageous to the
Holders), (b) will cause its properties and the properties of the Subsidiaries
used or useful in the conduct of its business, other than properties which in
the aggregate are not material to the business and operations of the Company and
the Subsidiaries, taken as a whole, to be maintained and kept in good condition,
repair and working order (ordinary wear and tear excepted) and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereto, all as in the best judgment of the Company may be necessary so that the
operations of the Company and the Subsidiaries may be properly and
advantageously conducted and (c) will, and will cause each of the Subsidiaries
to, qualify and remain qualified to conduct business in each jurisdiction where
the nature of the business of or ownership of Property by the Company or such
Subsidiary, as the case may be, may require such qualification, except where the
failure to be so qualified would not, and could not, have a Material Adverse
Effect.
-16-
<PAGE>
7C. Payment Of Taxes And Claims. The Company shall, and shall cause each
Restricted Subsidiary and each other Subsidiary to, duly and timely file all tax
returns and reports required to be filed and pay all taxes, assessments and
other governmental charges imposed upon such entity or any Property of such
entity or in respect of any franchises, business, income or Property of the
Company, any Restricted Subsidiary or any other Subsidiary before any penalty or
interest in a material amount accrues thereon, and pay all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
material in the aggregate that have become due and payable and that by law have
or may become a Lien upon any of such Properties, prior to the time when any
penalty or fine shall be incurred with respect thereto unless, in each case, (i)
no Property (other than money for such charge or claim and the interest or
penalty accruing thereon) of the Company, any Restricted Subsidiary or any other
Subsidiary is in danger of being lost or forfeited as a result thereof, (ii)
such charge or claim is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, and (iii) such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.
7D. Conduct of Business; Insurance.
7D(i) Conduct of Business. The Company, the Restricted Subsidiaries, and
the Securitization Subsidiaries, on a consolidated basis, shall operate in the
consumer financing business and principally in the business of purchasing,
brokering and marketing, pooling, selling, securitizing and servicing Auto
Receivables and other related and incidental fee generating nonrisk products or
services relating to Auto Receivables and auto financing. Without limitation of
the foregoing, the Company shall ensure that not less than 80% of the revenues
of the Company, the Restricted Subsidiaries and the Securitization Subsidiaries
for each Fiscal Year shall be received from the conduct of consumer financing
businesses.
7D(ii) Insurance. Each of the Company, each Restricted Subsidiary and each
Securitization Subsidiary shall, at all times and at its own expense, maintain
or cause to be maintained in full force and effect with financially sound and
reputable insurers (a) property and liability insurance with respect to all of
their Material Property, and (b) such other property and liability insurance as
to its Property and business, and the Property and business of each Subsidiary,
against loss or damage (including commercial general liability insurance) of
such types, against such risks, in such amounts and with such deductibles as are
customarily carried by corporations of established reputation engaged in the
same or similar businesses and similarly situated.
-17-
<PAGE>
7E. Books and Records; Inspection of Property. The Company will keep, and
will cause each of the Subsidiaries to keep, proper books of record and account
in conformity with GAAP in which true and complete entries shall be made of all
dealings and transactions in relation to its business and activities. The
Company covenants that it will (i) deliver with reasonable promptness, financial
and/or operating data as any Holder may reasonably request, (ii) permit any
Person representing any Significant Holder and designated in writing by such
Holder, at such Holder's expense (but at the Company's expense when any Default
or Event of Default is continuing), to visit and inspect any of the Property of
the Company and the Subsidiaries, to examine the corporate, financial and
operating records of the Company and the Subsidiaries and make notes and copies
thereof and (iii) discuss the affairs, finances and accounts of any of the
Company and the Subsidiaries with the directors, officers and independent
accountants of the Company and the Subsidiaries, all at such reasonable times
and as often as any Significant Holder may reasonably request.
7F. Compliance With Laws, Etc. The Company will comply, and will cause each
of the Subsidiaries to comply, with all applicable laws (including all laws
applicable to its consumer finance business), rules, regulations and orders and
obtain and maintain in good standing all licenses, permits and approvals from
any and all governments, governmental commissions, board or agencies thereof or
of jurisdictions in which it or any Subsidiary carries on business required in
respect of the business and operations of the Company except for those laws,
rules, regulations, orders, licenses, permits and approvals which the failure to
comply with or to maintain would not have a Material Adverse Effect.
7G. Satisfaction of Obligations. Without limiting Section 7C, the Company
shall, and shall cause the Subsidiaries to, pay, discharge or otherwise satisfy
and perform as and when due, and at or before maturity or before they become
delinquent, as the case may be, all of their respective obligations of whatever
nature (including without limitation to perform all of their respective
servicing obligations as servicer and other obligations in connection with
Securitizations); except when, in the case of payment obligations, the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves required by GAAP with respect thereto have been
provided on the books of the Company or the Subsidiaries, as the case may be, or
except where the failure to pay, discharge or otherwise satisfy such obligations
would not have a Material Adverse Effect.
7H. Hazardous Materials. In addition to and without limiting the generality
of Section 7F, the Company shall, and shall cause each of the Subsidiaries to,
keep and maintain all property owned or leased by them in compliance with all,
and shall not cause or permit any such property to be in violation of any,
Environmental Laws and/or other federal, state or local laws, statutes, rules,
decrees, orders, guidelines, ordinances or regulations relating to industrial
hygiene or the environment, except for any non-compliance or violations that,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Effect.
7I. Proceeds of Financing. The proceeds of the issuance of the Senior
Subordinated Notes hereunder shall be used to refinance certain existing Debt
provided to the Company under the Warehouse Facilities and for general corporate
purposes.
-18-
<PAGE>
7J. Warehouse and Securitization Subsidiaries. The Company shall, and shall
cause each of the Subsidiaries, to (i) conduct its business in such a manner
which does not cause the existing Funding Corporations, and any Subsidiaries
existing as of the Closing Date which have been used to facilitate
Securitizations, to cease to be so-called special purpose "bankruptcy remote"
entities, and (ii) not enter into any agreement or otherwise suffer or permit
any restrictions on the ability of such Subsidiaries to pay, to the fullest
extent permitted by applicable law, dividends to the Company.
8. NEGATIVE COVENANTS.
The Company covenants and agrees that, until indefeasible payment in full
of all of the Senior Subordinated Notes and all other amounts payable under this
Agreement, it shall perform all covenants in this Section 8.
8A. Debt Incurrence; Financial Maintenance Tests.
(i) The Company shall not, and shall not permit any Restricted Subsidiary
or any Securitization Subsidiary to, directly or indirectly, create,
assume, incur, guarantee, permit or suffer to exist or otherwise
become directly or indirectly liable (by merger or otherwise) with
respect to (a) any Debt which is subordinate or junior in right of
payment to any Senior Debt and is senior in right of payment to the
Senior Subordinated Notes; (b) any Debt which is subordinate or junior
in right of payment to the Senior Subordinated Notes and which is not
Subordinated Debt; (c) any Debt which by the terms thereof requires
any principal payments prior to the maturity of the Senior
Subordinated Notes and which is either Subordinated Debt or Pari Passu
Debt; (d) any debt which is pari passu in right of payment to the
Senior Subordinated Notes and which is not Pari Passu Debt; or (e)
intercompany Debt between the Company and a Restricted Subsidiary, or
between the Company and a Securitization Subsidiary, or between a
Restricted Subsidiary and a Securitization Subsidiary, or between two
Restricted Subsidiaries, or between two Securitization Subsidiaries,
unless any such intercompany Debt is unsecured and is either (1)
Subordinated Debt, or (ii) in the form of a demand note issued by the
Company to a Subsidiary for the sole and exclusive purpose of
capitalizing such Subsidiary. The Company shall not permit any
Restricted Subsidiary or any Securitization Subsidiary to, directly or
indirectly, create, assume, incur, guarantee, permit or suffer to
exist or otherwise become directly or indirectly liable (by merger or
otherwise) with respect to any Debt except (A) Debt owing to the
Company or another Restricted Subsidiary or another Securitization
Subsidiary in accordance with the terms of this Section 8A(i), (B)
Debt to the extent permitted under Section 8B and secured by a
Permitted Lien pursuant to Section 8B, and (C) Debt in existence on
the date hereof and disclosed on Schedule II.
(ii) The Company shall not permit (a) the ratio of Total Debt to
Consolidated Tangible Net Worth plus Senior Notes Subordinated Debt to
exceed (y) 8.0 to 1.0 or (z) 6.0 to 1.0 calculating the Warehouse
Facilities balances as the average quarterly balances determined using
the Warehouse Facilities principal balances at the end of each month
in the relevant quarter; (b) the ratio of Total Debt, less Warehouse
Facilities principal balances and less Senior Notes Subordinated Debt,
to Senior Notes Subordinated Debt plus Consolidated Tangible Net Worth
to exceed 4.0 to 1.0; (c) the ratio of Senior Notes Subordinated Debt
to Consolidated Tangible Net Worth to exceed 1.0 to 1.0; and (d) its
Interest Coverage Ratio, for the previous four Fiscal Quarters, to be
less than 1.25 to 1.0.
-19-
<PAGE>
(iii)Not less than ten Business Days prior to the Company or any
Restricted Subsidiary or any Securitization Subsidiary directly or
indirectly creating, assuming, incurring, guaranteeing, or otherwise
becoming directly or indirectly liable (by merger or otherwise) with
respect to any Senior Debt, the Company shall provide each Holder with
an Officer's Certificate of the chief financial officer of the Company
demonstrating in reasonable detail the calculation of all financial
tests required to be met by the Company in this Agreement and
certifying the Company's compliance, prior to and immediately
following any such contemplated transaction, with the covenants
contained in Sections 8A, 8B, 8D, and 8L.
8B. Liens. (a) The Company shall not, and shall not permit any Restricted
Subsidiary or any Securitization Subsidiary to, directly or indirectly, create,
incur, assume or permit or suffer to exist any Lien, or file or execute or agree
to the execution of any financing statement, on or with respect to any Property
(including any document or instrument in respect of goods or accounts
receivable) of the Company or any Restricted Subsidiary or any such
Securitization Subsidiary, whether now owned or hereafter acquired, or any
income or profits therefrom except:
(i) Liens created in favor of the Company or a Restricted Subsidiary;
(ii) existing Liens identified on Schedule III, and Liens to secure
replacements, extensions and renewals of the Debt or other obligations
secured by such Liens only if (a) the principal amount of the Debt or
other obligation secured thereby is not increased, and (b) such Lien
does not extend to any Property not previously subject thereto;
(iii)Liens in respect of Debt (other than as contemplated in clause (iv)
below) constituting purchase money security interests provided that
(a) such Liens attach solely to the property acquired or purchased
concurrently with such acquisition or purchase, and (b) the aggregate
amount secured by all such Liens does not at any time exceed the
lesser of 90% of (Y) the then fair market value of the Property
covered by such Lien and (Z) the total purchase price thereof;
(iv) customary Liens incurred in the ordinary course of business to the
extent required to secure Debt under Warehouse Facilities and Senior
Secured Facilities;
-20-
<PAGE>
(v) deposits to secure payment of workers' compensation, unemployment
insurance, old age pensions or other social security obligations, in
the ordinary course of business of the Company or any Subsidiary and
not related to borrowed money or credit extended;
(vi) (a) Liens securing any judgment, award or order that does not
constitute an Event of Default, and (b) Liens arising in the ordinary
course of business (including easements and similar encumbrances) that
arise by operation of law and not related to borrowed money or credit
extended that arise in connection with claims, the payment of which is
not at the time required by Section 7C, but in the case of (a) and (b)
only if such Liens do not individually or in the aggregate materially
interfere with the conduct of the business of the Company or any
Restricted Subsidiaries or any Securitization Subsidiaries and would
not individually or in the aggregate have a Material Adverse Effect;
(vii)deposits to secure the performance of statutory obligations and other
obligations of a like nature incurred in the ordinary course of
business; and
(viii) customary Liens incurred in the ordinary course of business to the
extent required to secure Securitizations, including Liens on amounts
on deposit in Spread Accounts but excluding Liens on any amounts
distributed to the Company or any Subsidiary, or the right to receive
such distributions, pursuant to the terms of Securitizations.
(b) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary or any other Subsidiary to,
directly or indirectly, create, incur, assume or permit or suffer
to exist any Lien on (Y) any Property (including rights and
monies) distributed to the Company or any Subsidiary, or the
right to receive such distributions, from Spread Accounts or
otherwise from or in connection with Securitizations (including,
without limitation, on revenues and income streams represented by
Excess Servicing), or (Z) any other Property paid or distributed
to the Company or any Subsidiary, or the right to receive such
payment or distribution in connection with Securitizations,
Warehouse Facilities or Senior Secured Facilities or the sale of
auto loans or other loans (to the extent not required to secure
such Securitizations, Warehouse Facilities or Senior Secured
Facilities contemplated by this subsection 8B(b)(Z)).
8C. Investments. The Company shall not, and shall not permit any Restricted
Subsidiary or any Securitization Subsidiary to, directly or indirectly, make or
own or maintain any Investment in any Person except:
(i) Investments in Cash Equivalents;
-21-
<PAGE>
(ii) any existing Investment identified on Schedule IV (and renewals
thereof to the extent such Investment is subject to renewals and
provided the amount invested in such Investment is not increased with
any renewal);
(iii)capital stock and other securities of wholly owned bankruptcy remote
special purpose Securitization Subsidiaries, and wholly owned
Restricted Subsidiaries;
(iv) Investments in the form of loans or advances in the ordinary course of
business (including without limitation the investment in subordinated
interests in Auto Receivables loan pools and Spread Accounts in
connection with auto loan Securitizations and the making of auto
loans); and
(v) Investments not otherwise permitted by this Section 8C in a cumulative
amount invested that does not in the aggregate at any time exceed 10%
of Consolidated Tangible Net Worth of the Company, provided that such
Investments are consistent with Section 7D(i).
Notwithstanding the foregoing, none of the Company, any Restricted Subsidiary or
any Securitization Subsidiary shall make any Investment in any Person that, as a
result of such Investment becomes a Subsidiary unless, immediately after such
Person becomes a Subsidiary, all Debt of such Person would then be permitted to
be incurred under Section 8 and all Liens on the property of such Person would
then be permitted under Section 8B and this Section 8C shall be complied with.
8D. Restricted Junior Payments. The Company shall not, and shall not permit
any Restricted Subsidiary or any Securitization Subsidiary to, directly or
indirectly, declare, order, pay, make or set apart any sum for, any Subordinated
Debt or any other Restricted Junior Payment, except that:
(i) if no Default or Event of Default has occurred or is continuing or
would result therefrom, the Company may make payments on Subordinated
Debt in accordance with the terms of any indenture, note or agreement
governing the Subordinated Debt, provided, that at the time of any
such payment, payment is permitted in accordance with the
subordination provisions thereof; or
(ii) if no Default or Event of Default has occurred and is continuing or
would result therefrom the Company may make Restricted Junior Payments
in the form of dividends to shareholders to the extent that, after
giving effect to any such Restricted Junior Payment, the aggregate
amount of all such Restricted Junior Payments from and after the date
of this Agreement would not exceed (a) 50% of Consolidated Net Income
(less 100% of any net loss) of the Company, the Restricted
Subsidiaries and the Securitization Subsidiaries earned subsequent to
the Closing Date, plus (b) the amount of all net cash proceeds of the
issuance and sale of the Company's capital stock received by the
Company after the Closing Date, provided, however, that the foregoing
shall not prevent the retirement of any class of the Company's capital
stock by exchange for, or out of the proceeds of a substantially
concurrent sale of, other shares of its capital stock.
-22-
<PAGE>
Notwithstanding the foregoing, the Company shall not, nor shall the Company
permit any Subsidiary to, in any event, deposit any funds for the purpose of
making any Restricted Junior Payment with a trustee, paying agent or registrar
or other payment intermediary more than 5 Business Days prior to the date such
payment is due.
8E. Merger or Sale of Assets.
(i) The Company covenants that it will not, and it will not permit any
Subsidiary to, enter into any transaction of merger or consolidation
or liquidate or wind up or dissolve itself (or suffer any liquidation
or dissolution), except that (X) the Company may merge or consolidate
if (a) the Company is the surviving entity or the survivor assumes all
of the Company's obligations hereunder and under the Senior
Subordinated Notes and under the other Credit Documents and in either
case remains or is, as applicable, an entity incorporated under the
laws of a state of the United States of America, (b) immediately after
such merger or consolidation (and giving effect thereto) no Default or
Event of Default shall have occurred and be continuing, and (c) after
giving effect to such merger or consolidation, the Company or such
survivor, as applicable, would have Consolidated Tangible Net Worth
not less than the Consolidated Tangible Net Worth of the Company
immediately prior to the transaction, (Y) any Subsidiary may merge or
consolidate with or into the Company or a Restricted Subsidiary, if
the Company or such Restricted Subsidiary is the surviving entity and
remains incorporated under the laws of the state of its present
incorporation, and items (b) and (c) of this Section 8E above would
then be complied with after giving effect to such merger or
consolidation, and (Z) any Subsidiary which is not a Restricted
Subsidiary may merge with another Subsidiary that is not a Restricted
Subsidiary.
(ii) The Company covenants that it will not, and will not permit any
Subsidiary to, sell, dispose of or otherwise convey (by merger,
consolidation, sale of stock of any Subsidiary or otherwise), in any
single or related series of sales, dispositions or conveyances, any
Property of the Company or any Subsidiary, provided such limitation
shall not apply to transactions wherein (a) such transaction is in the
ordinary course of business and does not involve the sale or other
conveyance of all or a substantial part of the Property of the Company
and/or such Subsidiary, as applicable (other than sales or transfers
in the ordinary course of business by Subsidiaries to facilitate
Securitizations or to sell auto loans at a premium sufficient to cover
all costs of obtaining such loans plus provide a profit to the
seller/transferor), and no Default or Event of Default has occurred
and is continuing or would result therefrom, or (b) the Company or a
Restricted Subsidiary sells or transfers its property to another
Restricted Subsidiary or the Company, or a Subsidiary which is not a
Restricted Subsidiary sells or transfers Property to the Company or
another Subsidiary; provided that in all cases of (a) and (b) such
sale or other conveyance does not involve, in any event, any sale or
other conveyance of any rights or interests in Property represented by
Excess Servicing.
-23-
<PAGE>
8F. Securitizations. The Company shall not, and shall not permit any
Subsidiary to, directly or indirectly, engage in any Securitization, except (a)
through Securitization Subsidiaries, all of which shall at all times constitute
special purpose so-called "bankruptcy remote" Securitization Subsidiaries with
no creditors or operations other than those necessary to conduct such purpose
and which have no Liens on their assets (except to the extent required in the
ordinary course of business to secure the relevant Securitizations) and that, to
the fullest extent permitted by law, may freely pay dividends and other
distributions from it to, and shall pay dividends, and other distributions
solely to, the Company or a Restricted Subsidiary, (b) only if there is no
recourse to the Company or the Subsidiaries (except routine recourse which is
customary in auto loan Securitizations or other relevant consumer loan
Securitizations and which in any case is not secured by any Lien on any Property
of the Company or any Subsidiary which is not the relevant Securitization
Subsidiary), and (c) in the ordinary course of business and where the structure
and terms of such Securitization shall have been approved by the Board of
Directors or Executive Committee of the Board of Directors of the Company and
the securities issued in, or at least the senior class of such securities, if
there is a senior subordinated structure in such Securitization, are rated
"investment grade" by Fitch, Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co., or Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies (or their respective successor rating agencies).
8G. Reporting Company Status. The Company covenants that it will not enter
into any transaction or series of transactions or take any other action that
would result, or can reasonably be expected to result, in the Company's loss of
status as a company subject to the reporting requirements of the Exchange Act.
8H. Restriction on Transactions with Affiliates. The Company shall not, and
shall not permit any Subsidiary to, enter into any transaction with any
Subsidiary or Affiliates unless such transaction is fair and reasonable to the
Company or such Subsidiary and no less favorable to the Company or such
Subsidiary than would be obtained in a comparable arm's-length transaction with
a non-affiliated entity.
8I. No Tax Consolidation. The Company shall not, and shall not permit any
Subsidiary to, file, or consent to the filing of, any consolidated income tax
return with any Person other than the Company and the Subsidiaries, for any
period beginning after the Closing Date.
-24-
<PAGE>
8J. Amendments and Waivers of Certain Documents.
8J(i) Charter Documents. The Company shall not, and shall not permit any
Subsidiary to, amend, waive or terminate its Certificate or Articles of
Incorporation or bylaws in any way that would have or could reasonably be
expected to have a Material Adverse Effect.
8J(ii) Debt Documents. The Company shall not amend or otherwise change the
terms of any indenture, note or agreement governing Subordinated Debt in any
manner that has the effect of (i) increasing the applicable rate of interest
payable on the Subordinated Debt, (ii) shortening the maturity of the
Subordinated Debt, (iii) altering the subordination provisions thereof or the
definition of "Senior Debt" (or its equivalent) to exclude, or reduce the
priority of, amounts payable in connection herewith, (iv) providing collateral,
or in any other manner that would or could reasonably be expected to adversely
affect any Holder or the Senior Subordinated Notes.
8K. Margin Regulations. The Company shall not, and shall not permit any
Subsidiary to, directly or indirectly, use any of the proceeds of the issuance
and sale of the Senior Subordinated Notes for the purpose, whether immediate,
incidental or ultimate, of maintaining, purchasing or carrying any stock that is
currently a "margin stock" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended) or
Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or
permit to be taken any action that would result in the issuance and sale of the
Senior Subordinated Notes or the carrying out of any of the other transactions
contemplated hereby or thereby, being violative of such Regulation G or
Regulation U, or of Regulation T (12 C.F.R. 220, as amended), Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board. The Company
covenants, represents and warrants that margin stock does not constitute more
than 25% of the value of the consolidated assets of the Company and the
Subsidiaries and the Company represents that it does not have any present
intention that margin stock will constitute more than 25% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of buying
and carrying" shall have the meanings assigned to them in said Regulation G.
8L. Maintenance of Consolidated Tangible Net Worth. The Company shall not
permit its Consolidated Tangible Net Worth to be less, at any time, than
$50,000,000, plus 50% of the Company's cumulative Consolidated Net Income (with
no reduction for losses) from and after the Closing Date.
8M. No Public Offering of Senior Subordinated Notes. The Company agrees
that neither it, nor anyone acting on its behalf, will offer the Senior
Subordinated Notes so as to bring the issuance and sale of the Senior
Subordinated Notes within the provisions of Section 5 of the Securities Act nor
offer any similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, or otherwise approach or negotiate with respect
thereto with, anyone if the sale of the Senior Subordinated Notes would be
integrated as a single offering for the purposes of the Securities Act.
-25-
<PAGE>
8N. Foreign Assets Control Regulations, Etc. Neither the sale of the Senior
Subordinated Notes by the Company hereunder nor the Company's use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 C.F.R., Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
8O. Amendment of Senior Notes Note Purchase Agreement. Without the prior
written consent of the Required Holders, the Company shall not amend otherwise
modify Section 8(d)(i) of the Senior Notes Note Purchase Agreement or the
definition of "Subordinated Debt" set forth in Section 12A of the Senior Notes
Note Purchase Agreement as each such Section has been amended as of the date
hereof pursuant to the Amendment and Consent.
8P. Amendment of Section 6.1. Without the prior written consent of the
holders of at least 51% of the Senior Notes then outstanding, the Company shall
not amend or otherwise modify (a) Section 6.1 hereof or (b) any terms defined in
Section 12A hereof and referenced in Section 6.1 hereof as such defined terms
are used in Section 6.1.
9. EVENTS OF DEFAULT.
9A. Default; Acceleration. If any of the following events (each an "Event
of Default") shall occur and be continuing for any reason whatsoever (whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):
(i) the Company shall fail to pay any principal of or premium, if any, on
any Senior Subordinated Note when due, or shall fail to pay any
interest thereon or any other amount payable hereunder within 5 days
of the date due, in either case whether due at stated maturity, upon
acceleration or notice of optional prepayment or otherwise; or
(ii) (a) The Company or any Restricted Subsidiary or any other Subsidiary
shall fail to pay when due (upon maturity, acceleration or otherwise)
any principal, premium, fee or interest or similar amount in an
individual or aggregate amount exceeding $1,000,000 on any Debt or
Swaps or Securitizations or other obligations outstanding beyond any
applicable period of grace (including without limitation in respect of
the Senior Notes, Warehouse Facilities, Senior Secured Facilities and
interest rate protection arrangements), or (b) any other breach,
default or event of default under any instrument or agreement relating
to any Debt or Swaps or Securitizations or other obligations of the
Company, any Restricted Subsidiary or any other Subsidiary shall occur
(including without limitation any breaches or defaults (including for
breaches of representations and warranties) which would entitle any
Persons in connection with any such Debt or Swaps or Securitizations
or other obligations to claim or demand under any indemnities (or
recourse obligations) in an amount in the aggregate of $1,000,000 or
more), and the effect of any such breach or default is to cause, or to
permit the holder or holders of such Debt or Swaps or Securitizations
or other obligations (or a trustee on behalf of such holder or
holders) to cause the suspension or termination of the availability of
an aggregate of $1,000,000 or more in funding of any type (including
without limitation under any Warehouse Facility or Senior Secured
Facility) or early termination of any Swaps in aggregate notional
principal amounts of $1,000,000 or more, or an aggregate amount
exceeding $1,000,000 to become or be declared due prior to its stated
maturity (or the stated maturity of any underlying obligation, as the
case may be), or to be claimed or demanded, as applicable, and such
breach or default shall not have been cured within any applicable
period of grace; or
-26-
<PAGE>
(iii)any representation or warranty or other statement made in any
Officer's Certificate or by any Executive Officer or by the Company,
any Restricted Subsidiary or any other Subsidiary in this Agreement,
any other Credit Document or in any written certificate, instrument or
report furnished in compliance with or in reference to this Agreement
or any other Credit Document shall be false in any material respect on
the date as of which made or renewed; or
(iv) the Company or any Restricted Subsidiary or any Securitization
Subsidiary shall fail duly and punctually to perform or observe (other
than those specified in Section 9A(i)) any covenant, promise or
obligation set forth in (a) Sections 8A, 8B, 8D, 8E, 8L of this
Agreement or Section 7A(iii) if being used to determine compliance
with Section 8A of this Agreement, or (b) any other provision of this
Agreement or any other Credit Document and such default with respect
to such other provision shall not have been corrected or waived within
30 days after any Executive Officer has knowledge thereof or the
Company receives notice thereof from any Holder; or
(v) the Company, any Restricted Subsidiary or any other Subsidiary shall
generally not pay its debts as they become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any bankruptcy
case shall be commenced voluntarily by or involuntarily against the
Company, any Restricted Subsidiary or any other Subsidiary or any
other proceeding shall be instituted voluntarily by or involuntarily
against the Company, any Restricted Subsidiary or any other Subsidiary
seeking the liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
or protection of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its Property and, in
the case of any such case or proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed for
a period of 60 days or any of the actions or relief sought in such
proceeding (including, without limitation, the entry of an order for
relief against it, or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its Property) shall occur; or the board of directors of the
Company, any Restricted Subsidiary or any other Subsidiary shall
authorize it to take, or the Company, any Restricted Subsidiary or any
other Subsidiary shall take any actions in furtherance of, any of the
actions described in this Section 9A(v); or
-27-
<PAGE>
(vi) any judgments or orders (or series of related judgments or orders)
(other than any such judgments or orders (or series of related
judgments or orders) that do not equal or exceed in aggregate
$1,000,000) shall be entered or filed against the Company or any
Restricted Subsidiary or any other Subsidiary or their respective
Properties and shall remain undischarged, unvacated, unbonded or
unstayed for a period of 30 days, or by the date 5 days prior to the
date of any proposed sale thereunder; or
(vii)any provision of this Agreement or any other Credit Document shall
for any reason cease to be valid and binding on or be enforceable
against the Company, or the Company shall state in writing that any
provision of this Agreement or any other Credit Document to which it
is a party is not valid and binding on or enforceable against it in
any respect; or
(viii) any Pension Plan fails to maintain the minimum funding standard
required by Section 412 of the Code for any plan year or a waiver of
such standard is sought or granted under Section 412(d) of the Code,
or any Pension Plan subject to Title IV of ERISA is, has been or is
likely terminated or the subject of termination proceedings under
ERISA, or the Company, any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability under Section 4062, 4063,
4064, 4201 or 4204 of ERISA, and there results from any such event or
events a liability or a material risk of incurring a liability to the
PBGC or any Pension Plan, or Multiemployer Plan which, if incurred,
could have a Material Adverse Effect, or the Company, or a Subsidiary
or any ERISA Affiliate, has engaged in a prohibited transition that
would result in a liability, penalty or tax under ERISA or Section
4975 of the Code, as the ease may be, which could have a Material
Adverse Effect; or
(ix) any event shall occur that, under the terms of any indenture,
instrument or other agreement relating to any Pari Passu Debt or
Subordinated Debt, shall require the Company, any Restricted
Subsidiary or any other Subsidiary to repay, purchase, redeem or
otherwise acquire, or to offer to purchase, redeem or otherwise
acquire, all or any portion of any Pari Passu Debt or Subordinated
Debt; or the Company, any Restricted Subsidiary or any other
Subsidiary shall for any other reason purchase, redeem or otherwise
acquire, or offer to purchase, redeem or otherwise acquire all or any
portion of any Pari Passu Debt or Subordinated Debt; or any parties
holding Liens in respect of any obligations in an aggregate amount of
$1,000,000 or more are or become entitled to, or take any action to,
foreclose on or exercise other remedies against any Property of the
Company, any Restricted Subsidiary or any other Subsidiary as a result
of a breach or default; or
(x) the occurrence of a Change of Control which in the opinion of the
Required Holders could have a Material Adverse Effect;
-28-
<PAGE>
then (a) upon the occurrence of any Event of Default described in Section 9A(v),
the unpaid principal amount of the Senior Subordinated Notes, together with
accrued interest thereon and together with the Yield-Maintenance Premium, if
any, with respect thereto, shall automatically become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company, (b) upon the occurrence and during the continuance
of any other Event of Default, the Required Holders may, at their option and in
addition to any other right, power or remedy permitted by law or in equity, by
notice in writing to the Company, declare all of the Senior Subordinated Notes
to be, and all of the Senior Subordinated Notes shall thereupon be and become,
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Premium, if any, with respect thereto, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company, and (c) upon the occurrence and during the
continuance of an Event of Default described in Section 9A(i) with respect to
any Senior Subordinated Note, the Holder of that Senior Subordinated Note may,
at its option and in addition to any other right, power or remedy permitted by
law or in equity, by notice in writing to the Company, declare all of the Senior
Subordinated Notes held by such Holder to be, and all of such Senior
Subordinated Notes shall thereupon be and become, immediately due and payable
together with interest accrued thereon and together with the Yield-Maintenance
Premium, if any, with respect thereto, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company.
9B. Rescission of Acceleration. At any time after any declaration of
acceleration of any of the Senior Subordinated Notes shall have been made
pursuant to Section 9A by any Holder or Holders and before a judgment or decree
for the payment of money due has been obtained by such Holder or Holders, the
Required Holders may, by written notice to the Company and to the other Holders
rescind and annul such declaration and its consequences but only if (i) the
principal of, premium, if any, and interest on the Senior Subordinated Notes
that shall have become due otherwise than by such declaration of acceleration
shall have been duly and fully paid, and (ii) all Events of Default other than
the nonpayment of principal of, premium, if any, and interest on the Senior
Subordinated Notes that have become due solely by such declaration of
acceleration shall have been cured or shall have been waived by the Required
Holders. No rescission or annulment referred to above shall affect any
subsequent Default or Event of Default or any right, power or remedy arising out
of such subsequent Default or Event of Default. The provisions of this Section
9B are intended merely to bind the Holders to a decision that may be made at the
election of the Required Holders; such provisions are not intended to benefit
the Company, any Restricted Subsidiary or any other Subsidiary and do not give
the Company, any Restricted Subsidiary or any other Subsidiary the right to
require the Holders to rescind or annul any acceleration hereunder, even if the
conditions set forth herein are met.
9C. Other Remedies. If any Event of Default shall occur and be continuing,
any Holder may proceed to protect and enforce its rights under this Agreement
and its Senior Subordinated Notes by exercising such remedies as are available
to such Holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for collection of any payment then due
such Holder under any Senior Subordinated Note, specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the Purchasers or any other Holder is intended to be exclusive of
any other remedy, and each and every such remedy shall be cumulative and shall
be in addition to every other remedy conferred herein or now or hereafter
existing at law or in equity or by statute or otherwise.
-29-
<PAGE>
9D. Subordinated Debt Notices. Any Holder may give notices contemplated by
any subordination clauses of agreements for Subordinated Debt.
9E. Default Rate. Upon the occurrence of a Default or an Event of Default,
the Senior Subordinated Notes shall bear interest, to the fullest extent
permitted by law, at the rate otherwise applicable plus 2% per annum, calculated
from the date such Default or Event of Default has occurred and is outstanding
until the date such Default or Event of Default shall have been cured or waived
in writing or otherwise satisfied in full (the "Default Rate.).
9F. Payments on Subordinated Debt. If an Event of Default shall occur and
be continuing, the Company shall not be permitted to make any payments of
principal, interest or premiums due on Subordinated Debt except to the extent
such payment is permitted in accordance with the subordination provisions of any
indenture, note or agreement governing such Subordinated Debt.
10. REPRESENTATIONS AND WARRANTIES.
The Company represents, covenants and warrants to each Purchaser that, as
of the date of this Agreement and as of the Closing Date:
10A. Organization, Powers, Good Standing, Business and Subsidiaries.
10A(i) Organization and Powers. The Company and each of the Subsidiaries is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Indiana in the case of the Company and
with respect to the Company's Subsidiaries listed on Schedule V, the
state of incorporation listed for each such Subsidiary on Schedule I,
and has all requisite corporate power and authority to own or lease
and operate its Property, to carry on its business as now conducted
and, in the case of the Company, to enter into this Agreement and each
other Credit Document to which it is a party and to issue the Senior
Subordinated Notes and to carry out the transactions contemplated
hereby and thereby.
10A(ii) Good Standing. The Company and each of the Subsidiaries is in good
standing wherever necessary to carry on its present business and
operations, except in jurisdictions in which the failure to be in good
standing has not had, would not have, and could not reasonably be
expected to have, a Material Adverse Effect.
-30-
<PAGE>
10A(iii) Conduct of Business. The Company and the Subsidiaries are engaged
only in the business described in Section 7D(i) and own or hold under
lease all property, and have entered into all contracts and
agreements, necessary to conduct such business.
10A(iv) Subsidiaries; Capital Stock. All of the Company's Subsidiaries are
identified on Schedule V. All of the outstanding capital stock of each
such Subsidiary has been duly authorized and validly issued and is
fully paid and non assessable and such shares of capital stock are
free and clear of any claim, Lien or agreement with respect thereto.
All Subsidiaries are 100% owned by the Company, and are Subsidiaries
of the nature specified in Section 8C(iii).
10B. Authorization of Financing, Etc.
10B(i) Authorization of Financing. The execution, delivery and performance
of this Agreement, the other Credit Documents, the issuance, delivery
and payment of the Senior Subordinated Notes, and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action by the Company.
10B(ii) No Conflict. The execution, delivery and performance by the Company
of each Credit Document to which it is a party and the issuance,
delivery and payment of the Senior Subordinated Notes and the
consummation of the transactions contemplated thereby, do not and will
not (a) violate the Articles of Incorporation or Bylaws of the
Company, any Restricted Subsidiary or any Securitization Subsidiary or
any order, judgment or decree of any court or other agency of any
government binding upon the Company or any Restricted Subsidiary or
any Securitization Subsidiary or upon any property or assets of the
Company, any Restricted Subsidiary or any other Subsidiary, (b)
violate any provision of law, or any rules or regulations of any
governmental authority, applicable to the Company, any Restricted
Subsidiary or any other Subsidiary, (c) violate, conflict with, result
in a material breach of or constitute (with notice or lapse of time or
both) a default under any indenture, mortgage, instrument, contract or
other agreement to which any of the Company, any Restricted Subsidiary
or any other Subsidiary is a party or pursuant to which any of their
properties or assets are bound, (d) result in or require the creation
or imposition of any Lien upon any of the Property of the Company, any
Restricted Subsidiary or any other Subsidiary, or (e) require any
approval or consent of stockholders of the Company, any Restricted
Subsidiary or any other Subsidiary, or require any approval or consent
of any Person under any material indenture, mortgage, instrument,
contract or other agreement to which the Company, any Restricted
Subsidiary or any other Subsidiary is a party or pursuant to which any
of their properties are bound, except for such approvals or consents
as will have been duly obtained on or before the Closing Date, copies
of which will have been provided to the Purchasers on or before the
Closing Date.
-31-
<PAGE>
10B(iii) Governmental Consents. The execution, delivery and performance by
the Company of each Credit Document to which it is a party and the
issuance, delivery and payment of the Senior Subordinated Notes by the
Company and the consummation of the transactions contemplated hereby,
do not and will not require any registration or filing with, consent
or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
10B(iv) Due Execution and Delivery; Binding Obligations. This Agreement has
been duly executed and delivered by the Company and, at the time of
the Closing, each other Credit Document to which the Company is
required by this Agreement to be a party will have been, duly executed
and delivered by the Company. This Agreement is, and, at the time of
the Closing, the Senior Subordinated Notes (when issued and delivered
in accordance herewith) and each other Credit Document to which the
Company is a party will be, the legal, valid and binding obligation of
the Company, enforceable against each such party in accordance with
their respective terms.
10B(v) Securities Law and Trust Indenture Act Exemption. The Senior
Subordinated Notes may be freely issued and sold pursuant to this
Agreement, without any requirement of registration or qualification
under any federal or state securities laws or the Trust Indenture Act
of 1939, as amended.
10B(vi) Other Debt, Etc. As of the commencement of business on April 2,
1996, the outstanding principal balance of Subordinated Debt is $0.00,
the outstanding principal balance of Senior Debt is $110,000,000, the
outstanding principal balance of the Warehouse Facilities is
$166,189,451 and the outstanding principal balance of the Senior
Secured Facilities is $0.00, in each case as of the date hereof. The
Company's and the Subsidiaries' liability, if any, for principal,
interest, indemnity or reimbursement under the Warehouse Facilities
and Senior Secured Facilities is, and shall at all times continue to
be as set forth in the definition of Warehouse Facilities and Senior
Secured Facilities, as applicable, and shall, in any event, be
non-recourse to the Company and its Property, and non-recourse to the
relevant Funding Corporation, except for the obligation of such
Funding Corporation, if any, to pay interest if the yield on the loans
constituting security for the facility is not sufficient to cover
interest costs, and to pay customary fees and for other incidental
costs and routine indemnities, all of which are customary for
non-recourse auto loan or other relevant consumer loan Warehouse
Facilities or for non-recourse Senior Secured Facilities to fund auto
loan or other relevant consumer loans which are not held for sale, as
relevant. No default or event of default exists under any agreement
governing Debt of the Company or any Subsidiary (including any
Warehouse Facility) or any Securitization. Neither the Company nor any
Subsidiary has incurred, guaranteed or otherwise become liable for any
Debt or other obligations not in the ordinary course of its business
other than as set forth on Schedule VI hereto.
-32-
<PAGE>
10C. Financial Condition. The consolidated balance sheet of the Company and
the Subsidiaries as at June 30, 1995, and the related consolidated
statements of income and cash flows for the year then ended, which
have been examined by KPMG Peat Marwick LLP, who delivered an
unqualified opinion with respect thereto, and the consolidated balance
sheet of the Company and the Subsidiaries as at September 30, 1995,
and the related consolidated statements of earnings and cash flows for
the three months then ended, have been included in the Private
Placement Memorandum and were prepared in conformity with GAAP. The
consolidated balance sheet of the Company and the Subsidiaries as at
December 31, 1995, and the related consolidated statement of earnings
and cash flows for the three months then ended, were prepared in
conformity with GAAP. All such financial statements and all financial
statements delivered pursuant to Section 7A after the Closing Date
fairly and will fairly present the consolidated financial position of
the Company and the Subsidiaries as at the respective dates thereof
and the consolidated results of operations and cash flows of the
Company and the Subsidiaries for each of the periods covered thereby,
subject, in the case of any unaudited interim financial statements, to
changes resulting from normal year-end adjustments. Except as set
forth on Schedule VII, neither the Company nor any Subsidiary has any
Contingent Obligation, contingent liability or liability for taxes,
long-term lease or forward or long-term commitment, that is not
reflected in the most recent financial statements, or the notes
thereto, referred to above.
10D. No Material Adverse Change. Since June 30, 1995, there has been no
material adverse change in the financial condition, operations,
assets, prospects or business of the Company and the Subsidiaries,
taken as a whole or event which would have or could reasonably be
expected to have, a Material Adverse Effect, other than as may be
disclosed in the Private Placement Memorandum.
10E. Title to Properties; Liens. The Company and the Subsidiaries have good
and valid title to or beneficial ownership of all their respective
Property reflected in the most recent financial statements, or the
notes thereto referred to in Section 10C, except for assets acquired
or disposed of in transactions that are or, if entered into prior to
the date of this Agreement, would have been, permitted hereunder and
have not had, do not have, and could not reasonably be expected to
have, a Material Adverse Effect.
10F. Litigation; Adverse Facts. There is no governmental investigation of
which the Company, any Restricted Subsidiary or any other Subsidiary
has or could reasonably be expected to have knowledge, and there is no
action, suit, proceeding, governmental arbitration (whether or not
purportedly on behalf of the Company, any Restricted Subsidiary or any
other Subsidiary) at law or in equity or before or by any federal,
state, municipal or governmental department, court, tribunal,
commission, board, bureau, agency or instrumentality, domestic or
foreign, threatened and about which the Company, any Restricted
Subsidiary or any other Subsidiary has or could reasonably be expected
to have knowledge, or pending against or affecting the Company, any
Restricted Subsidiary or any other Subsidiary or any of their
respective Properties which (i) if adversely determined, would have,
or reasonably would be expected to have, a Material Adverse Effect,
(ii) is not routine and does not arise in the ordinary course of
business or (iii) does not result from action taken by the Company to
foreclose or collect in connection with auto and other consumer loans,
as relevant, owned or serviced by the Company. None of the Company,
any Restricted Subsidiary or any other Subsidiary has received any
notice of termination of any material contract, lease or other
agreement or suffered any material damage, destruction or loss,
(whether or not covered by insurance) or had any employee strike, work
stoppage, slow-down or lockout or any substantial or non frivolous
threat of which the Company, any Restricted Subsidiary or any other
Subsidiary has or could reasonably be expected to have knowledge
directed to it of any imminent strike, work stoppage, slowdown or
lock-out, any of which remain pending, that in any case, individually
or in the aggregate, would have or could reasonably be expected to
have a Material Adverse Effect.
-33-
<PAGE>
10G. Payment of Taxes. (a) All tax returns and reports of the Company, each
Restricted Subsidiary or each other Subsidiary required to be filed by
any of them have been duly and timely filed; and (b) all taxes,
assessments, fees and other governmental charges upon the Company,
each Restricted Subsidiary or each other Subsidiary and upon any of
their respective Properties, income and franchises that are due and
payable have been paid when due and payable except as permitted by
Section 7C, and there is no actual or proposed tax assessment against
it, about which the Company, any Restricted Subsidiary or any other
Subsidiary has or could reasonably be expected to have knowledge,
except in any such case as permitted by Section 7C and except for any
failure of filing or payment or assessment that, individually or in
the aggregate, does not have or could not reasonably be expected to
have a Material Adverse Effect.
10H. Materially Adverse Agreements; Performance; Absence of Material
Contracts. None of the Company, any Restricted Subsidiary or any other
Subsidiary is a party to or is otherwise subject to any indenture,
mortgage, instrument, contract or other agreement or charter or other
restriction that has had, or, in the absence of any default or event
of default thereunder, would have or could reasonably be expected to
have a Material Adverse Effect. None of the Company, any Restricted
Subsidiary or any other Subsidiary is in default in the performance,
observance or fulfillment of any of the material obligations,
covenants or conditions contained in any material indenture, mortgage,
instrument, contract or other agreement to which the Company, any
Restricted Subsidiary or any other Subsidiary is a party or pursuant
to which any of such party's or such Subsidiary's properties are
bound, and no condition about which the Company, any Restricted
Subsidiary or any other Subsidiary has or could reasonably be expected
to have knowledge exists that, with the giving of due notice or the
lapse of time or both, would constitute such a default. There exists
no Default or Event of Default.
10I. Governmental Regulation. None of the Company, any Restricted
Subsidiary or any other Subsidiary is subject to registration or
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or the Investment
Company Act of 1940, each as amended, or to any other federal or state
statute or regulation limiting its ability to incur Debt or to create
Liens on any of its properties or assets to secure Debt.
10J. Certain Fees. Other than fees, costs and other expenses described in
Section 5J, and other than fees payable to Prudential Securities
Incorporated which are also for the account of the Company, no
broker's or finder's fee or commission or closing fee is payable with
respect to the offer, issue and sale of the Senior Subordinated Notes.
-34-
<PAGE>
10K. Disclosure. No representation or warranty of the Company, any
Restricted Subsidiary or any other Subsidiary contained in this
Agreement, any Credit Document or any other document, certificate,
schedule or written statement furnished to Purchasers or the Holders
by or on behalf of the Company, any Restricted Subsidiary or any other
Subsidiary (including, without limitation, the Private Placement
Memorandum) for use in connection with the transactions contemplated
by this Agreement or any other Credit Document contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein
not misleading in light of the circumstances in which the same were
made. The projections and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being
recognized by the Purchasers and the Holders that such projections as
to future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may
differ from the projected results. There is no fact known to the
Company, any Restricted Subsidiary or any other Subsidiary that has
had, would have or could reasonably be expected to have a Material
Adverse Effect that has not been expressly disclosed herein or in such
other documents and statements furnished to the Purchasers or the
Holders for use in the transaction contemplated hereby.
10L. Facilities. Schedule VIII sets forth the true and complete address
(including county) of the chief executive office of the Company and
each Subsidiary.
10M. Licenses, Permits and Authorizations. The Company and the Subsidiaries
have all approvals, licenses and other permits of all governmental or
regulatory agencies, whether domestic, federal, state or local,
including without limitation sales finance licenses and permits, the
absence of which could materially impair the business and operations
of the Company or any such Subsidiary as it is presently being
conducted or would have or could reasonably be expected to have a
Material Adverse Effect, and neither the Company nor any Subsidiary is
in violation thereof.
10N. Hazardous Materials. Neither the Company nor any Restricted Subsidiary
nor any other Subsidiary and, to the best of the Company's knowledge,
after due inquiry, no predecessor in title of any such entity, nor any
third person at any time occupying, adjacent to or present on any
property owned or leased by the Company or any Subsidiaries has, at
any time, used, generated, disposed of, discharged, stored,
transported to or from, released or threatened the release of any
Hazardous Materials, in any form, quantity or concentration, on, from,
under or affecting such property in violation of any Environmental
Laws nor are any Hazardous Materials present or existing on, from,
under or affecting any such property in violation of any Environmental
Laws.
-35-
<PAGE>
10O. Offering of Securities. The offering, issuance and sale of the Senior
Subordinated Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act and all state
securities laws. With respect to such offering, issuance and sale of
the Senior Subordinated Notes, no form of general solicitation or
general advertising was used by the Company or Prudential Securities
Incorporated (the only Person authorized or employed by the Company as
agent, broker, dealer or otherwise in connection with the offering or
sale of the Senior Subordinated Notes or any similar security of the
Company), or any other representatives of the Company, including, but
not limited to, advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. The Purchasers are the sole purchasers of the Senior
Subordinated Notes. No securities of the same class as the Senior
Subordinated Notes have been issued and sold by the Company within the
six-month period immediately prior to the date hereof. The Company
understands that, for purposes of rendering the legal opinions to be
delivered pursuant to Section 5I, the Company's counsel and counsel to
the Purchasers will rely on the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
10P. Existing Debt; Securitizations. All existing Debt and securitizations
including the Warehouse Facilities, securitizations and Liens of each
of the Company, each Restricted Subsidiary or each other Subsidiary,
as of the date hereof, are described on Schedule II, except for any
individual item not in excess of $250,000 unless the aggregate of such
individual items is in excess of $1,000,000.
10Q. ERISA. Each of the Company, the Subsidiaries and ERISA Affiliates has
fulfilled its obligations under the minimum funding standards of ERISA
and the Code with respect to each Pension Plan and is in compliance in
all material respects with the provisions of all applicable laws,
including without limitation ERISA and the Code with respect to all
Plans. Neither the Company nor any Subsidiary or ERISA Affiliate has
incurred any liability to the PBGC (other than annual premiums due to
the PBGC) or a Pension Plan under Title I or IV of ERISA, or, to the
Internal Revenue Service under the penalty or excise tax provisions of
the Code relating to employee benefits plans (as such term is defined
in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that would reasonably be expected to result in the
incurrence of any such liability by the Company, a Subsidiary or any
ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Company, a Subsidiary or any ERISA
Affiliate, other than such liabilities or Liens as would not be
individually or in the aggregate Material. The accumulated benefit
obligations under each of the Pension Plans (other than Multiemployer
Plans), determined as of the end of such Pension Plan's most recently
ended plan year on the basis of the actuarial assumptions specified
for funding purposes in such Pension Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the
assets of such Pension Plan. The Company, the Subsidiaries and ERISA
Affiliates have not incurred withdrawal liabilities (and are not
subject to contingent withdrawal liabilities) under section 4201 or
4204 of ERISA in respect of Multiemployer Plans that individually or
in the aggregate are Material. The expected post retirement benefit
obligation (determined as of the last day of the Company's most
recently ended fiscal year in accordance with Financial Accounting
Standards Board Statement No. 106, without regard to liabilities
-36-
<PAGE>
attributable to continuation coverage mandated by section 4980B of the Code) of
the Company and the Subsidiaries and ERISA Affiliates is not Material. There is
no pending or, to the best knowledge of the Company, any Subsidiary or any ERISA
Affiliate, threatened claim, action or lawsuit by any person or governmental
authority with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. The execution and delivery by
the Company of this Agreement and the sale and delivery of the Senior
Subordinated Notes will not involve any prohibited transaction within the
meaning of ERISA or subject to the prohibitions of Section 406 of ERISA or under
the Code. The Company has delivered to the Purchasers a complete list and
accurate description of each Plan and Multiemployer Plan or post retirement
benefit plan maintained or contributed to by the Company, any Subsidiary or any
ERISA Affiliate, as well as the most recent actuarial report of each Pension
Plan.
10R. Agreements with Affiliates. Except as set forth in the Private
Placement Memorandum (or in connection with auto loan Securitizations
disclosed on Schedule II, if any), neither the Company nor any
Subsidiary is a party to any material contract or agreement with, or
any other commitment to, any Affiliate of the Company or any Affiliate
of any Subsidiary.
10S. Patents, Etc. No patents, trademarks, service marks, trade names or
copyrights, or any licenses of any of the foregoing, are necessary for
the operation of the business of the Company and the Subsidiaries
substantially as presently conducted, except as disclosed in the
Private Placement Memorandum. No product, service, process, method,
substance, part or other material presently contemplated to be sold by
or employed by the Company or any Subsidiary in connection with its
business infringes any patent, trademark, service mark, trade name or
copyright, or any license of any of the foregoing, owned by any other
Person, which infringement could have a Material Adverse Effect.
10T. Regulation G, Etc. Neither the Company nor any Subsidiary owns or has
any present intention of acquiring any "margin stock" as defined in
Regulation G (12 C.F.R. Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin stock"). None of the
proceeds from the sale of the Senior Subordinated Notes will be used,
directly or indirectly, for the purpose of purchasing or carrying any
margin stock or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry margin
stock or for any other purpose which might constitute this transaction
a "purpose credit" within the meaning of Regulation G. Neither the
Company, any Subsidiary nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Senior
Subordinated Notes to violate Regulation G, Regulation T, Regulation
U, Regulation X or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Exchange Act, in each
case as in effect now or as the same may hereafter be in effect.
10U. Warehouse and Securitization Subsidiaries. The Company and each
Subsidiary have conducted their respective businesses in such a manner
which (i) is consistent in all material respects with the assumptions
made in the "non-consolidation opinions" prepared in connection with
each Securitization and (ii) does not cause the existing Funding
Corporations, and any Subsidiaries existing as of the Closing Date
which have been used to facilitate Securitizations, to cease to be
so-called special purpose "bankruptcy remote" entities. There are no
restrictions on the ability of such Subsidiaries to pay, to the
fullest extent permitted by applicable law, dividends to the Company.
-37-
<PAGE>
11. REPRESENTATIONS OF THE PURCHASERS.
(i) Each Purchaser severally represents that it is not acquiring the
Senior Subordinated Notes to be purchased by it hereunder with a view
to or for sale in connection with any distribution thereof within the
meaning of the Securities Act, provided that the disposition of its
property (including the Senior Subordinated Notes) shall at all times
be and remain within its control. Each Purchaser severally represents
that it is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act of 1933, as amended.
(ii) Each Purchaser severally represents that at least one of the following
statements is reasonably believed by such Purchaser to be an accurate
representation as to each source of funds (a "Source") to be used by
such Purchaser to pay the purchase price of the Senior Subordinated
Notes to be purchased by it hereunder:
(a) if such Purchaser is an insurance company, the Source is either
(i) an insurance company general account" within the meaning of
Department of Labor Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and there is no "employee benefit
plan" (within the meaning of Section 3(3) of ERISA or Section
4975(e)(1) of the Code and treating as a single plan, all plans
maintained by the same employer or employee organization) with
respect to which the amount of the general account reserves and
liabilities for all contracts held by or on behalf of such plan,
exceed ten percent (10%) of the total reserves and liabilities of
such general account (exclusive of separate account liabilities)
plus surplus, as set forth in the NAIC Annual Statement filed
with the state of domicile of such Purchaser, or (ii) a separate
account that is maintained solely in connection with its fixed
contractual obligations under which the amounts payable, or
credited, to any employee benefit plan having an interest therein
or to any participant or beneficiary of such plan (including any
annuitant) are not affected in any manner by the investment
performance of the separate account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption
("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective
investment fund, within the meaning of the PTE 91- 38 (issued
July 12, 1991) and, except as such Purchaser has disclosed to the
Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all
assets allocated to such pooled separate account or collective
investment fund; or
-38-
<PAGE>
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part
V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the
assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the
meaning of Section V(c)(1) of the QPAM Exemption) of such
employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM,
the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in
the Company and the identity of such QPAM and the names of all
employee benefit plans whose assets are included in such
investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
12. DEFINITIONS.
12A. Definitions.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly in control of, controlled by, or under common control with such
Person, whether through power to direct or cause the direction of the management
or policies of such Person, ownership or control of more than 10% of the voting
stock of such Person, or otherwise and any Person who is an officer or director
of such Person; provided, however, that neither any Holder nor any Affiliate of
any Holder shall be deemed to be an Affiliate of the Company or any Subsidiary
solely by reason of its ownership of Senior Subordinated Notes or by reason of
benefiting from any agreements or covenants in this Agreement or in any other
Credit Document.
"Amendment and Consent" means the Amendment and Consent, dated as of
the date hereof, with respect to the Senior Notes Note Purchase Agreement.
-39-
<PAGE>
"Auto Receivables" means consumer installment sale contracts and loans
evidenced by promissory notes secured by new and used automobiles, vans,
minivans and light trucks acquired or originated in the ordinary course of
business by the Company or a Subsidiary from or through motor vehicle dealers.
"Blockage Notice Provider" means (i) a holder or holders of an aggregate of
at least 25% in principal amount of the Senior Notes (other than Senior Notes
held by the Company or an Affiliate of the Company) at the time outstanding, or
(ii) a holder or holders of Senior Debt (other than the Senior Notes) in the
aggregate principal amount then outstanding of not less than $20,000,000.
"Blockage Period" means the period when no Payment may be made or received
pursuant to Section 6.1B(i) or 6.1B(ii) hereof.
"Business Day" means any day excluding (i) Saturday and Sunday, (ii) any
day that is a legal holiday under the laws of the States of New York or Indiana
and (iii) any day on which banking institutions located in New York or Indiana
are authorized or required by law or other governmental action to close.
"Called Principal" means, with respect to any Senior Subordinated Note, the
outstanding principal amount of such Senior Subordinated Note that (i) is to be
prepaid or purchased at the Make-Whole Prepayment Price, or (ii) becomes or is
declared to be immediately due and payable pursuant to Section 9A.
"Capitalized Lease Obligations" means rental obligations under any lease
required to be capitalized in accordance with GAAP, taken at the amount
accounted for as indebtedness (net of interest expense).
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof, (ii) investments
in money market funds having the highest rating available from either Standard &
Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time
neither such rating service shall be rating such obligations, then from such
other nationally recognized rating services acceptable to the Required Holders),
all of whose assets are comprised of securities of the type described in (i) and
(iii) hereof, (iii) commercial paper maturing no more than 270 days from the
date of creation thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc. (or, if at any time neither such rating service shall be rating
such obligations, then from such other nationally recognized rating services
acceptable to the Required Holders), (iv) certificates of deposit with
maturities of one year or less from commercial or savings banks having combined
capital and surplus greater than $250,000,000 and having a long term certificate
of deposit rating of either A by Standard & Poor's Corporation or A2 by Moody's
Investors Service, Inc. or higher (or, if at any time neither such rating
service shall be rating such obligations, then from such other nationally
recognized rating services acceptable to the Required Holders), and (v)
repurchase obligations with a term of not more than 1 day for underlying
securities of the types described in (i) above.
-40-
<PAGE>
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as now or hereafter amended, 42 U.S.C. ss. 9601, et seq.
and 42 U.S.C. ss. 11001 et seq.
"Change of Control" means any transaction or series of transactions by
which:
(i) any "Person" (as such term is used in Section 13(d)3 of the Exchange
Act) other than (a) any Person who was a beneficial owner of the
Company's Class B Common Stock immediately following the Business
Transfer (as such term is defined in the Private Placement
Memorandum), (b) any Person who may become a beneficial owner of Class
B Common Stock in accordance with the Company's Articles of
Incorporation, as currently in effect, or (c) any Person or group of
Persons controlled by Persons included in clauses (a), (b) or (c),
shall acquire (X) beneficial ownership in excess of fifty percent
(50%) of the voting power represented by the outstanding voting shares
having ordinary voting power to elect a majority of the directors of
the Company (irrespective of whether at the time shares of any other
class or classes shall have or might have voting power by reason of
the happening of any contingency) or (Y) all or substantially all of
the Property of the Company, or
(ii) a majority of the Board of Directors of the Company, at any time,
shall be composed of Persons other than (a) Persons who were members
of the Board of Directors of the Company on the date of this
Agreement, or (b) Persons who subsequently become members of the Board
of Directors of the Company and who are either (1) appointed or
recommended for election with the affirmative vote of a majority of
the directors in office as of the date of this Agreement or (2)
appointed or recommended for election with the affirmative vote of a
majority of the Board of Directors of the Company who are described in
clauses (ii)(a) and (ii)(b)(1) above.
"Closing" has the meaning specified in Section 4.
"Closing Date" has the meaning specified in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Commission " means the United States Securities and Exchange Commission
and any successor Federal agency having similar powers.
"Company" has the meaning specified in the introductory paragraph hereof.
"Consolidated" means the Company, the Restricted Subsidiaries and the
Securitization Subsidiaries on a consolidated basis.
-41-
<PAGE>
"Consolidated Assets" means the consolidated assets of the Company, the
Restricted Subsidiaries and the Securitization Subsidiaries determined in
accordance with GAAP.
"Consolidated Liabilities" means the consolidated liabilities of the
Company, the Restricted Subsidiaries and the Securitization Subsidiaries
determined in accordance with GAAP, which shall in all cases include Debt under
Warehouse Facilities and Senior Secured Facilities.
"Consolidated Net Income" means, for any period, the consolidated net
income of the Company, the Restricted Subsidiaries and the Securitization
Subsidiaries determined in accordance with GAAP and, with respect to
Consolidated Net Income for any Fiscal Year, as reported in the Company's
audited consolidated financial statements.
"Consolidated Tangible Net Worth" means the excess, if any, of Consolidated
Assets over Consolidated Liabilities less any goodwill, trade names, trademark,
patents, unamortized debt discount and expense, and other intangibles, except
that Dealer Premium Rebates and Excess Servicing shall not be so deducted,
determined in accordance with GAAP.
"Contingent Obligation" as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Debt, lease, dividend, letter of credit or other obligation of another, if a
purpose or intent of the Person incurring the Contingent Obligation is to
provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof.
Contingent Obligations shall include, without limitation, (i) the direct or
indirect guaranty, endorsement (other than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another; and (ii) any liability of
such Person for the obligations of another through any agreement (contingent or
otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or
any security thereof, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (b) to maintain the solvency or any balance sheet
item, level of income or financial condition of another, or (c) to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, if in the case of any agreement
described under clauses (a), (b) or (c) of this sentence the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation (or portion
thereof) so guaranteed or otherwise supported.
"Credit Documents" means this Agreement, the Senior Subordinated Notes and
each other instrument or agreement executed and delivered by the Company or any
Subsidiary or Affiliate pursuant to any Credit Document or any transactions
contemplated thereby.
"Dealer Premium Rebate" means Dealer Premium Rebate as reported in the
Company's consolidated financial statements for the relevant period in
accordance with GAAP.
-42-
<PAGE>
"Debt" means, with respect to any Person, the sum, without duplication, of
(i) all indebtedness of such Person for borrowed money or credit extended
(whether by loan or the issuance and sale of debt securities or otherwise) or in
respect of letters of credit or bankers' acceptances or credit enhancement and
the like or for the deferred purchase price of property or services (except
trade payables currently payable in the ordinary course of business), or which
otherwise should constitute debt on the balance sheet of such person in
accordance with GAAP, including without limitation Debt under the Senior
Subordinated Notes, Senior Notes, Subordinated Debt, Warehouse Facilities and
Senior Secured Facilities, (ii) all obligations of such Person under Capitalized
Lease Obligations, (iii) all obligations of such Person to purchase, retire or
redeem any capital stock or any other equity interest, whether or not the
performance of such obligation is fixed or contingent, (iv) all Contingent
Obligations of such Person, and all indebtedness and obligations of such Person
or other Persons that are secured by a Lien on any Property of such Person,
whether or not such Person has assumed liability therefor, and (v) other
recourse obligations related to asset sales to the extent not already reflected
in such Person's balance sheet.
"Default" means any event which, subject only to the lapse of a period of
time expressly set forth or referred to in Section 9A or the giving of a notice
expressly set forth or referred to in Section 9A, or both, would constitute an
Event of Default.
"Default Rate" has the meaning specified in Section 9E.
"Discounted Value" means, with respect to the Called Principal of any
Senior Subordinated Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount rate
(applied on a semi-annual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
"Event of Bankruptcy" has the meaning specified in Section 6.1C.
"Environmental Laws" means all federal, state and local environmental,
health or safety laws, ordinances, regulations, rules, statutes, orders, decrees
or policies and matters relating to the common law of nuisance, as the same may
be in effect from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary would be deemed to
be a "single employer" within the meaning of Section 4001 of ERISA.
-43-
<PAGE>
"Event of Default" means any of the events specified in Section 9A.
"Excess Servicing" means Excess Servicing as reported on the Company's
latest available consolidated balance sheet in accordance with GAAP; which
shall, in any case, be determined in accordance with GAAP and include a
provision for credit losses in the calculation thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor statute.
"Executive Officer" means with respect to any matter, any of the Chairman
of its Board of Directors (if an officer) or Chief Executive Officer, President,
Chief Operating Officer, Vice President or Chief Financial Officer of the
Company or any Subsidiary (or equivalent officer).
"Fiscal Quarter" means a fiscal quarter of the Company and the
Subsidiaries.
"Fiscal Year" means a fiscal year of the Company and the Subsidiaries.
"Fitch" means Fitch Investor's Service L.P.
"Funding Corporations" means Union Acceptance Funding Corporation and
Performance Funding Corporation and any other similar in nature and purpose
funding corporations created in the future, each of which shall at all times be
a special purpose bankruptcy remote funding Subsidiary with no creditors or
operations other than those necessary to conduct such purpose of funding
operations of the Company, and which has no Liens on its assets (except as
required in the ordinary course of business to secure the relevant Warehouse
Facility or Senior Secured Facility, as applicable), and which, to the fullest
extent permitted by law, may freely pay dividends and similar distributions to,
and shall pay dividends and other distributions solely to, the Company or
another Restricted Subsidiary, and in respect of which if requested by the
Required Holders, the Company shall have provided an opinion of counsel
reasonably satisfactory to the Required Holders confirming the foregoing with
respect to such Subsidiary, in form and substance satisfactory to the Required
Holders.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession that are applicable to the circumstances as of the date of
determination, applied on a consistent basis.
"Gain on Sale of Loans" means the income reported as Gain on Sale of Loans
in the statement of earnings in the Company's consolidated financial statements
in accordance with GAAP.
-44-
<PAGE>
"Hazardous Materials" means any hazardous, toxic or dangerous wastes,
pollutants, materials or substances including, without limitation, asbestos,
PCBs, petroleum products and by-products, substances defined in or listed as
"hazardous materials, "hazardous substances" or "toxic substances" or similarly
identified in or pursuant to CERCLA; "hazardous materials" identified in or
pursuant to the Hazardous Materials Transportation Act, as now or hereafter
amended, 49 U.S.C. ss. 1801, et seq.; "hazardous wastes" identified in or
pursuant to the Resource Conservation and Recovery Act, as now or hereafter
amended, 42 U.S.C. ss. 6901, et seq.; any chemical substances or mixture
regulated under the Toxic Substances Control Act of 1976, as now or hereafter
amended, 15 U.S.C. ss. 2601 et seq.; any "toxic pollutant" under the Clean Water
Act, as now or hereafter amended, 33 U.S.C. ss. 1251 et seq.; any hazardous air
pollutant under the Clean Air Act, as now or hereafter amended, 42 U.S.C. ss.
7401 et seq.; and any hazardous, toxic, or dangerous material, substance, or
pollutant now or hereafter designated or regulated under any Environmental Laws.
"Holder" means any holder of Senior Subordinated Notes.
"Interest Coverage Ratio" means Consolidated Net Income before Interest
Expense and income taxes less Gain on Sale of Loans plus amortization of Excess
Servicing in accordance with GAAP, divided by Interest Expense.
"Interest Expense" means Interest Expense as reported on the Statement of
Earnings of the consolidated financial statements of the Company (Interest
Expense to include imputed interest under Capitalized Lease Obligations)
determined in accordance with GAAP.
"Investment" means, as applied to any Person, any direct or indirect
purchase or other acquisition by that Person of, or a beneficial interest in,
stock or other securities or similar interests of any other Person, or any
direct or indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other Person.
"Lien" means any assignment, mortgage, deed of trust, pledge, security
interest, charge, encumbrance, lien, easement or exception of any kind or any
other preferential arrangement of any kind that has the practical effect of
constituting a security interest or lien (including any conditional sale or
other title retention agreement and any agreement to give any security interest
and any lease in the nature thereof) or the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction.
"Loans Held for Sale" means loans held for sale as reported on the
Company's latest available consolidated balance sheet included in its financial
statements determined in accordance with GAAP.
"Make-Whole Prepayment Price" has the meaning specified in Section 6A.
-45-
<PAGE>
"Material" means material in relation to the business, affairs, financial
condition, assets or properties of the Company and/or the Company and the
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), business, results of operations, prospects,
liabilities (absolute, accrued, contingent or otherwise), properties or assets
(including but not limited to Spread Accounts and Excess Servicing) of the
Company, the Restricted Subsidiaries and the Securitization Subsidiaries taken
as a whole, and/or the Company and the Subsidiaries, taken as a whole, or (ii)
the rights or interests of any Holder under any Credit Document (including,
without limitation, the ability of any Holder to enforce the obligations of the
Company in respect of any Credit Document), or (iii) the Company's ability to
perform its obligations under, or as contemplated by, any Credit Document.
"Multiemployer Plan" means "multiemployer plan" (as such term is defined in
section 4001(a)(3) of ERISA) to which the Company, any Restricted Subsidiary or
any other Subsidiary or any ERISA Affiliate of such entity is making, or is
obligated to make, contributions or has made or has been obligated to make,
contributions.
"Officer's Certificate" means a certificate signed in the name of the
Company by an Executive Officer.
"Pari Passu Debt" means Debt of the Company, including all principal,
interest, premium and fees accruing on such Debt or in connection therewith or
any renewal, extension, amendment, supplement or other modification to any of
the documentation in respect thereof, which is (i) pari passu in right of
payment to the Senior Subordinated Notes and (ii) subordinated or junior in
right of payment to Senior Debt on terms and provisions which are no more
favorable to the holders of such Pari Passu Debt than the terms and provisions
of Section 6.1 are to the Holders.
"Payment" has the meaning specified in Section 6.1B(i).
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" means any employee benefit plan of the Company, a Subsidiary
or any ERISA Affiliate that is subject to the provisions of Title IV of ERISA or
subject to the minimum funding standards of Title I of ERISA or Section 412 of
the Code, and is not a Multiemployer Plan.
"Permitted Liens" means Liens to the extent permitted under Section 8B but
only to the extent the covenants set forth herein do not prohibit such Liens.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, unincorporated organizations or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
-46-
<PAGE>
"Plan" means an "employee benefit plan" within the meaning of Section 3(3)
of ERISA that is maintained or contributed to by the Company or any Subsidiary
or any ERISA Affiliate.
"Private Placement Memorandum" means the private placement memorandum dated
January 1996, prepared by the Company and used by Prudential Securities
Incorporated for purposes of placing the Senior Subordinated Notes.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, including, without
limitation, all interests in real estate and fixtures and all equipment,
inventory and other goods, all accounts, instruments, chattel paper, documents,
money and general intangibles (as such terms are defined in the Uniform
Commercial Code as in effect in all applicable jurisdictions) whether now owned
or hereafter acquired.
"Purchasers" has the meaning specified in the introductory paragraph
hereof.
"Purchaser Schedule" means the schedule of principal amounts and
denominations of Senior Subordinated Notes to be purchased by the Purchasers, as
set out in the initial schedule hereto.
"Reinvestment Yield" means, with respect to the Called Principal of any
Senior Subordinated Note, the yield to maturity implied by the sum of 0.50% plus
(i) the yields reported, as of 10:00 A.M. (New York City time) on the Business
Day immediately preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Page T 500", on the Telerate Service
(or such other display as may replace Page T 500 on the Telerate Service) for
actively traded U.S. Treasury securities having a maturity equal to (or, if not
available, having a maturity closest to) the Remaining Average Life of such
Called Principal as of such Settlement Date or, if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported for
the latest day for which such yields shall have been so reported as of the
Business Day immediately preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15(519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent
yields in accordance with accepted financial practice and (b) by interpolating
linearly between reported yields.
"Remaining Average Life" means, with respect to the Called Principal of any
Senior Subordinated Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) that will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
-47-
<PAGE>
"Remaining Scheduled Payments" means, with respect to the Called Principal
of any Senior Subordinated Note, all payments of such Called Principal and
interest thereon that would be due on or after the Settlement Date, to and
including the scheduled due dates thereof, with respect to such Called Principal
if no payment of such Called Principal were made prior to its scheduled due
dates.
"Reportable Event" means an event described in section 4043(b) of ERISA
with respect to which the 30-day notice requirement has not been waived by the
PBGC.
"Required Holders" means the Holders of at least 51% (but solely for
purposes of the rescission of an acceleration notice under the terms of Section
9B, 66-2/3%) in principal amount of the Senior Subordinated Notes (other than
Senior Subordinated Notes held by the Company or any Affiliate of the Company)
at the time outstanding.
"Restricted Junior Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of the
Company, any Restricted Subsidiary or any Securitization Subsidiary now or
hereafter outstanding (including, without limitation, any payment or
distribution made in any merger or consolidation), except a dividend payable
solely in shares of that class of stock or a junior class of stock to the
holders of that class and except for dividends (and the like) from the
Subsidiaries solely to the Company, to Restricted Subsidiaries or to
Securitization Subsidiaries, (ii) any prepayment, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares or of any outstanding warrants or rights to acquire any shares of any
class of stock of the Company, any Restricted Subsidiary or any Securitization
Subsidiary now or hereafter outstanding, and (iii) any payment of principal,
premium or interest on, or any direct or indirect prepayment, retirement,
defeasance or sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any Subordinated Debt of the Company.
"Restricted Subsidiaries" means all Funding Corporations and any other
Subsidiaries now existing or hereafter formed or acquired which would at such
time constitute a "significant subsidiary" (as such term is defined in
Regulation S-X of the Securities and Exchange Commission as in effect on the
Closing Date) other than Securitization Subsidiaries which satisfy the
requirements therefor under Section 8F(a), and any other Subsidiary including
such Securitization Subsidiaries now or hereafter existing designated as a
"Restricted Subsidiary" for purposes hereof by the Company's Board of Directors,
all of which shall be wholly owned direct or indirect Subsidiaries, all as
identified on Schedule V hereto.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute.
-48-
<PAGE>
"Securitization" means a public or private transfer of auto loan and other
consumer loans and related consumer contracts in the ordinary course of business
which transfer is recorded as a sale according to GAAP as of the date of such
transfer, and by which the Company or one of the Subsidiaries directly or
indirectly securitizes a pool of specified consumer auto loans or other consumer
loans and related contracts including but not limited to any such transactions
involving the sale of specified Auto Receivables to a securitization entity
established for such purpose in connection with the issuance of asset-backed
securities and including without limitation the outstanding UFSB and UACSC
Grantor Trust or Auto Trust securitizations entered into by the Company's
predecessor or the Subsidiaries prior to the date of this Agreement, as
described in the Private Placement Memorandum.
"Securitization Subsidiaries" means a Wholly Owned direct or indirect
present or future Subsidiary which acts as a transferor or otherwise engages in
Securitizations (including without limitation UAC Securitization Corporation and
Performance Securitization Corporation), the nature of which Subsidiary is as
described in Section 8F(a).
"Senior Debt" means Debt of the Company, including all interest and fees
accruing thereon or in connection therewith or any renewal, extension,
amendment, supplement or other modification to any of the documentation in
respect thereof, which Debt was not issued in violation of Section 8A(i) or
Section 8A(ii) and (a) was incurred in respect of the Senior Notes, (b) is
senior in right of payment to or pari passu in right of payment with the Senior
Notes, or (c) was incurred after the date of this Agreement and which is not by
its terms subordinate in right of payment to or pari passu in right of payment
with any of the Senior Subordinated Notes, provided, that solely for the
purposes of Section 8A(iii) hereof, the following shall not constitute Senior
Debt: (i) Debt under Warehouse Facilities or Senior Secured Facilities, (ii)
purchase money Debt qualifying as such under Section 8B(iii) hereof (except that
the portion of any such purchase money Debt which exceeds 90% of the fair market
value at the time of determination of the assets acquired with and securing such
Debt (as such portion is determined by the Company reasonably and in good faith)
shall be included as Senior Debt), or (iii) unsecured intercompany Debt in the
form of a demand note which has been issued by the Company to a Securitization
Subsidiary as a contribution to capital of the Securitization Subsidiary in
connection with a Securitization to the extent required to enable the entity
formed as a vehicle for such Securitization (the "Securitization Entity") to
constitute a partnership for United States tax law purposes and the interest in
the Securitization Entity held by such Securitization Subsidiary to constitute a
general partnership interest for United States tax law purposes, subject to the
limitation that the liability under such demand note does not exceed 10% of the
issue price of securities representing equity interests issued by the
Securitization Entity, or if greater than 10%, as confirmed to be so required by
an opinion of Barnes & Thornburg or other recognized tax counsel acceptable to
the Required Holders.
"Senior Notes" means the senior promissory notes in the original aggregate
principal amount of $110,000,000 issued pursuant to the Senior Notes Note
Purchase Agreement.
-49-
<PAGE>
"Senior Notes Note Purchase Agreement" means the Note Purchase Agreement,
dated as of August 7, 1995, among the Company and the note purchasers named
therein, as amended by the November 21, 1995 letter amendment and by the
Amendment and Consent, as the same may be amended or amended and restated from
time to time.
"Senior Notes Subordinated Debt" means "subordinated debt" as such term is
defined in the Senior Notes Note Purchase Agreement (as in effect on the Closing
Date).
"Senior Subordinated Notes" has the meaning specified in Section 2.
"Senior Secured Facility" means a Debt facility which is non-recourse
(except for the obligation to pay interest if the yield on the loans
constituting security for the facility is not sufficient to cover interest
costs, and to pay customary fees and other routine and incidental costs and
routine and incidental indemnities, all of which are customary for non-recourse
facilities to fund auto loans or other consumer loans which are not held for
sale) Debt of one of the Funding Corporations, which satisfies the requirements
of Section 8B(iv) and is secured by auto loans or other consumer loans acquired
or originated by the Company or a Restricted Subsidiary in the ordinary course
of its consumer finance business, and which provides funding to acquire loans
which are not Loans Held for Sale, and in all cases is without any recourse to
the Company or any other Subsidiary or any of their Property; provided that the
obligor on such Debt shall at all times be a special purpose bankruptcy remote
funding Subsidiary with no creditors or operations other than those necessary to
conduct such purpose and which has no Liens on its assets (except as required in
the ordinary course of business to secure the relevant Senior Secured Facility,
as applicable), and which, to the fullest extent permitted by law, may freely
pay dividends and similar distributions to, and shall pay dividends and other
distributions solely to, the Company or another Restricted Subsidiary.
"Settlement Date" means, with respect to the Called Principal of any Senior
Subordinated Note, the date on which such Called Principal (i) is to be prepaid
or purchased at the MakeWhole Prepayment Price, or (ii) becomes or is declared
to be immediately due and payable pursuant to Section 9A, as the context may
require.
"Significant Holder" means the original Holders of the Senior Subordinated
Notes, their initial transferees (provided such initial transferees are
institutional investors), and with respect to any transferee subsequent to such
original Holders and their initial institutional transferees, any other
institutional investor, i.e., any bank, trust company, finance company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, investment fund, any broker or
dealer, or any other similar financial institution or entity, or holding company
or affiliate thereof, regardless of legal form, holding 5% or more of the
outstanding principal amount of the Senior Subordinated Notes at any time.
"Single-Employer Pension Plan" means a pension plan which is a
"single-employer plan" as defined in section 4001 of ERISA.
-50-
<PAGE>
"Spread Accounts" means accounts (including, without limitation, spread
accounts, cash collateral accounts, reimbursement accounts or funding accounts),
as reported on the Company's latest available consolidated balance sheet in
accordance with GAAP, intended to protect Securitization investors and any
letter of credit provider or credit enhancer with respect to Securitizations
against credit losses.
"Subordinated Debt" means Debt of the Company, in each case including all
principal, interest, premium and fees accruing on such Debt or in connection
therewith or any renewal, extension, amendment, supplement or other modification
to any of the documentation in respect thereof, which is (i) subordinate and
junior in right of payment to the Senior Subordinated Notes on terms and
provisions which are no more favorable to the holders of such Subordinated Debt
than the terms and provisions of Section 6.1 are to the Holders, or (ii)
convertible into or exchangeable for any equity securities of the Company.
"Subsidiary" means any corporation, trust, association, partnership or
other business entity of which more than 50% of the total voting power of shares
of stock or other interests entitled to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by the Company or one or more of the other Subsidiaries or a
combination thereof.
"Swaps" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
"Total Debt" means, as of any time of determination, the then outstanding
aggregate principal amount of all Debt of the Company, the Restricted
Subsidiaries and the Securitization Subsidiaries on a consolidated basis,
excluding Contingent Obligations to the extent already included in Total Debt.
"Transferee" means any direct or indirect transferee of all or any part of
any Senior Subordinated Notes.
-51-
<PAGE>
"Warehouse Facilities" and "Warehouse Facility" means the "Prime Warehouse
Facility" and the "Non-Prime Warehouse Facility" defined in the Senior Notes
Note Purchase Agreement (as in effect on the Closing Date), and any other
warehouse Debt facility, in all such cases, such Debt facility being
non-recourse (except for the obligation to pay interest if the yield on the
loans constituting security for the facility is not sufficient to cover interest
costs, and to pay customary fees and other routine and incidental costs and
routine and incidental indemnities, all of which are customary for non-recourse
warehouse type facilities for auto loans and other consumer loans) Debt of one
of the Funding Corporations, which satisfies the requirements for granting of
Liens under Section 8B(iv) and is secured by auto loans or other consumer loans
acquired or originated by the Company or a Restricted Subsidiary in the ordinary
course of its consumer finance business, and which provide temporary funding to
acquire Loans Held for Sale, and in all cases is without any recourse to the
Company or any other Subsidiary or any of their Property; provided that the
obligor on such Debt shall at all times be a special purpose bankruptcy remote
funding Subsidiary with no creditors or operations other than those necessary to
conduct such purpose and which has no Liens on its assets (except as required in
the ordinary course of business to secure the relevant Warehouse Facility), and
which, to the fullest extent permitted by law, may freely pay dividends and
similar distributions to, and shall pay dividends and other distributions solely
to, the Company or another Restricted Subsidiary.
"Wholly Owned Subsidiary" means a Person of which all of the issued and
outstanding shares of stock (other than directors' qualifying shares as may be
required by law) or similar equity interests shall be owned by the Company
and/or one or more of its Wholly Owned Subsidiaries.
"Yield-Maintenance Premium" means, with respect to any Senior Subordinated
Note, a premium equal to the excess, if any, of the Discounted Value of the
Called Principal of such Senior Subordinated Note over the sum of such Called
Principal plus interest accrued thereon to (including interest due on) the
Settlement Date with respect to such Called Principal. The Yield-Maintenance
Premium shall in no event be less than zero.
12B. Accounting Terms. For purposes of this Agreement, all accounting terms
not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by the Company pursuant to Section 7 shall be prepared in conformity
with GAAP as in effect at the time of such preparation.
-52-
<PAGE>
13. JUDICIAL PROCEEDINGS.
13A. Consent to Jurisdiction. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or Federal court sitting in the
City of New York over any suit, action or proceeding arising out of or relating
to this Agreement, the Senior Subordinated Notes, the other Credit Documents or
the transactions contemplated hereby or thereby. To the fullest extent they may
effectively do so under applicable law, the Company irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.
13B. Enforcement of Judgments. The Company agrees, to the fullest extent it
may effectively do so under applicable law, that a judgment in any suit, action
or proceeding of the nature referred to in Section 13A brought in any such court
shall be conclusive and binding upon the Company subject to rights of appeal, as
the case may be, and may be enforced in the courts of the United States of
America or the State of New York or of Indiana (or any other courts to the
jurisdiction of which the Company is or may be subject) by a suit upon such
judgment.
13C. Service of Process. The Company hereby designates and appoints CT
Corporation System as its agent to receive on its behalf service of all process
in any action, suit or proceeding of the nature referred to in Section 13A in
New York, such service being hereby acknowledged by the Company to be effective
and binding service in every respect. A copy of any such process so served shall
be mailed by registered mail to the Company at its address specified in or
designated pursuant to Section 14K, except that unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of process. If any agent appointed by the Company refuses to accept
service, the Company hereby agrees that service upon it by mail shall constitute
sufficient notice. Notices hereunder shall be conclusively presumed received as
evidenced by a delivery receipt furnished by the United States Postal Service or
any commercial delivery service. The Company also irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address specified in or designated
pursuant to Section 14K.
13D. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES ITS RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER OR OUT OF THIS
AGREEMENT, THE SENIOR SUBORDINATED NOTES, ANY OTHER CREDIT DOCUMENT OR ANY
ISSUES RELATING HERETO, THERETO OR TO THE SUBJECT MATTER OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of the transactions contemplated hereby, including
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. The Company, each Purchaser and each
-53-
<PAGE>
other Holder acknowledges that this waiver is a material inducement to enter
into a business relationship, that each has already relied on the waiver in
entering into or accepting the benefits of this Agreement and that each will
continue to rely on the waiver in their related future dealings. The Company
further warrants and represents that it has reviewed this waiver with its legal
counsel, and that it knowingly and voluntarily waives its jury trial rights
following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
AGREEMENT, THE SENIOR SUBORDINATED NOTES OR THE OTHER CREDIT DOCUMENTS. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
13E. No Limitation on Service or Suit. Nothing in this Section 13 shall
affect the right of the Purchasers or the Holders to serve process in any manner
permitted by law, or limit any right that the Purchasers or the Holders may have
to bring proceedings against the Company in the courts of any jurisdiction or to
enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
13F. Limitation of Liability. To the fullest extent permitted by applicable
law, the Company agrees that no claim may be made or enforced by the Company,
any Restricted Subsidiary or any other Subsidiary or any other Person against
any Purchaser, any Holder, the Required Holders or any of their respective
Affiliates, directors, officers, employees, attorneys or agents for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, the Senior Subordinated Notes or
the other Credit Documents, or any act, omission or event occurring in
connection herewith or therewith; and the Company (on behalf of itself and each
Restricted Subsidiary and each other Subsidiary) hereby waives, releases and
agrees, to the fullest extent permitted by applicable law, not to sue upon any
claim for any such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
14. MISCELLANEOUS.
14A. Payments. The Company agrees that, so long as any Senior Subordinated
Notes remain outstanding, it will make all payments of principal of, premium, if
any, and interest on, the Senior Subordinated Notes in accordance with the terms
of this Agreement. All such payments shall be by wire transfer of immediately
available funds for credit to the account or accounts (i) if to any Purchaser,
as specified in the Purchaser Schedule attached hereto with respect to such
Purchaser, and (ii) if to any Holder, as specified in the Senior Subordinated
Notes held by such Holder, or, in any case, to such other account or accounts in
the United States as such Purchaser or other Holder may designate to the Company
in writing. Whenever any payment to be made hereunder or under any Senior
Subordinated Note shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or under the Senior Subordinated Notes.
-54-
<PAGE>
14B. Expenses; Indemnification.
14B(i) Fees and Expenses. The Company agrees to pay from time to time on
demand (a) all fees, costs and expenses incurred by the Purchasers and their
Affiliates in connection with the preparation, negotiation, and execution
hereof, each Purchaser in respect of any modification, amendment and enforcement
(whether through negotiations, legal proceedings or otherwise) of this Agreement
and the Senior Subordinated Notes being purchased by the Purchasers hereunder,
any other Credit Document and the transactions contemplated hereby and thereby
and the fulfillment or attempted fulfillment of conditions hereunder and
thereunder and whether or not the Senior Subordinated Notes are purchased,
including, without limitation (1) the reasonable fees and expenses of counsel
for the Purchasers, the Holders and their respective Affiliates (including the
allocated costs of internal counsel) and local or special counsel and/or any
consultants who may be retained by said counsel with respect thereto and with
respect to advising the Purchasers and the Holders as to their respective rights
and responsibilities under the Credit Documents, and (2) reasonable internal and
external audit, legal, due diligence, valuation, consulting, investigation,
computer costs, and travel expenses, filing fees, costs of monitoring
collateral, search fees, duplication costs, courier and postage fees and all
other reasonable out-of-pocket expenses of every type and nature, (b) all taxes
incurred by or assessed against any Holder or any of its Affiliates (together in
each case with interest and penalties, if any, and any income tax payable by any
Holder or such Affiliate in respect of any reimbursement therefor), other than
income taxes payable as a result of income received in respect of the Senior
Subordinated Notes, that may be payable in respect of the execution and delivery
of this Agreement or the other Credit Documents, or the issuance and delivery
to, or purchase by, any Holder of any Senior Subordinated Notes or the
consummation of the transactions contemplated hereby and thereby, and (c) all
fees, costs and expenses incurred by any Holder in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Credit Documents and the other documents to be delivered hereunder and
thereunder, including the reasonable fees and expenses of counsel to any such
Holder (including the allocated costs of internal counsel) and local or special
counsel and/or any consultants who may be retained by said counsel in connection
with any such enforcement or in connection with any work-out, restructuring,
litigation or bankruptcy or insolvency proceeding.
14B(ii) Indemnification. The Company further agrees to defend, indemnify,
pay and hold harmless the Purchasers, the Holders and any Transferee and each of
their respective officers, directors, employees, attorneys, agents and
Affiliates (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits and claims of any nature (collectively,
"Claims") and all losses, liabilities, damages and expenses (including, without
limitation, the reasonable fees and expenses of counsel, whether or not suit is
brought) in connection with any such Claim (herein called the "Indemnified
Liabilities") incurred by any Indemnitee as a result of, or arising out of, or
relating to this Agreement, the Senior Subordinated Notes, any other Credit
-55-
<PAGE>
Document, or, in each case, any other documents, agreements or instruments
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or the enforcement of any of the terms hereof or
thereof or of any such other documents, agreements or instruments and an untrue
statement or alleged untrue statement of a material fact contained in any part
of any Private Placement Memorandum (or other offering or selling document)
relating hereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements in light
of the circumstances under which they were made therein not misleading;
provided, however, that the Company shall not be liable to any Indemnitee for
Indemnified Liabilities consisting of an award of damages assessed against such
Indemnitee in a judicial proceeding in which a final, non-appealable
determination has been made that such damages are directly attributable to the
gross negligence or willful misconduct of such Indemnitee; and provided further
that, if and to the extent such agreement to indemnify may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that shall be permissible
under applicable law.
14B(iii) Survival. The obligations of the Company under this Section 14B
shall survive the transfer of any Senior Subordinated Note and payment of any
Senior Subordinated Note.
14C. Amendments; Waivers. This Agreement may not be changed orally, but
(subject to the provisions of this Section 14C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought. Any term, covenant, agreement or condition of this
Agreement may be amended or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively), if the
Company shall have obtained the consent in writing of the Required Holders;
provided, however, that without the written consent of the Holders of all of the
Senior Subordinated Notes then outstanding, no such amendment or waiver shall be
effective that (i) extends the time of payment of the principal of or premium,
if any, or interest on any Senior Subordinated Note or reduces the principal
amount thereof or rate of interest thereon, (ii) alters any of the prepayment
provisions of Section 6, (iii) changes the currency in which the Senior
Subordinated Notes are payable or purports to reduce the ranking of the Senior
Subordinated Notes in right of payment, or (iv) alters the provisions of this
section or the definition of "Required Holders" in Section 12. The Company shall
promptly send copies of any request for consent, amendment or waiver (and any
request for any such amendment, consent or waiver) relating to this Agreement or
the Senior Subordinated Notes to each Holder. No waiver of any right or remedy
hereunder shall be effective unless in writing and then only with the written
concurrence of the Required Holders or all Holders as set forth above. Any such
waiver shall be effective only in the specific instance and for the specific
purpose for which it was given. No course of dealing between the Company and any
Holder and no failure to exercise or delay in exercising any rights or remedies
hereunder or under any Senior Subordinated Note or any other Credit Document
shall operate as a waiver of any rights or remedies of any Holder, and no single
or partial exercise by any Holder of any right or remedy under this Agreement or
any other Credit Document shall preclude any other or further exercise thereof
or the exercise of any other right or remedy.
-56-
<PAGE>
14D. Form, Registration, Transfer and Exchange of Senior Subordinated
Notes; Lost Senior Subordinated Notes. The Senior Subordinated Notes are
issuable as registered notes only, each without coupons in denominations of at
least $1,000,000 (unless a denomination of at least $500,000 is otherwise agreed
to by the Company) and any larger integral multiple of $100,000; provided,
however, that the Company shall issue Senior Subordinated Notes in denominations
smaller than $1,000,000 upon transfer of any Senior Subordinated Note in an
unpaid principal amount of less than $1,000,000. The Company shall keep at its
principal office a register in which the Company shall provide for the
registration of Senior Subordinated Notes and of transfers of Senior
Subordinated Notes. Upon surrender for registration of transfer of any Senior
Subordinated Note at the principal office of the Company, the Company shall, at
its expense, execute and deliver one or more new Senior Subordinated Notes of
like tenor and of a like aggregate principal amount, which Senior Subordinated
Notes shall be registered in the name of such transferee or transferees. At the
option of the Holder of any Senior Subordinated Note, such Senior Subordinated
Note may be exchanged for Senior Subordinated Notes of like tenor and of any
authorized denominations, of a like aggregate principal amount, upon surrender
of the Senior Subordinated Note to be exchanged at the principal office of the
Company. Whenever any Senior Subordinated Notes are so surrendered for exchange,
the Company shall, at its expense, execute and deliver the Senior Subordinated
Notes that the Holder making the exchange is entitled to receive. Every Senior
Subordinated Note surrendered for registration of transfer or exchange shall be
duly endorsed, or be accompanied by a written instrument of transfer duly
executed, by the Holder of such Senior Subordinated Note or such Holder's
attorney duly authorized in writing. Any Senior Subordinated Note or Senior
Subordinated Notes issued in exchange for any Senior Subordinated Note or upon
transfer thereof shall be dated the date of issuance of the Senior Subordinated
Note so exchanged or transferred and shall carry the rights to unpaid interest
and interest to accrue that were carried by the Senior Subordinated Note so
exchanged or transferred, so that neither gain nor loss of interest shall result
from any such transfer or exchange. Upon receipt of written notice from the
Holder of any Senior Subordinated Note or other evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of such Senior
Subordinated Note and, in the case of any such loss, theft or destruction, upon
receipt of an unsecured indemnity to the Company from a Purchaser, or a surety
bond, or an unsecured indemnity reasonably satisfactory to the Company from any
other Holder, or a surety bond, or in the case of any such mutilation upon
surrender and cancellation of such Senior Subordinated Note, the Company will
make and deliver a new Senior Subordinated Note, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Senior Subordinated Note.
14E. Rule 144A Mechanics. If any Holder desires to transfer any Senior
Subordinated Note pursuant to the exemption from the provisions of Section 5 of
the Securities Act afforded by Rule 144A promulgated thereunder ("Rule 144A"),
the Company hereby agrees to provide (i) at the request of such Holder, to the
Holder and to any prospective transferee designated in writing to the Company by
such Holder, or (ii) at any such prospective transferee's request to the Holder
or to the Company, the information required to satisfy the requirements of
paragraph (d)(4)(i) of Rule 144A (which requirements are incorporated herein by
reference).
-57-
<PAGE>
14F. Persons Deemed Owners; Participants; Identity of Holders. Prior to
due presentment for registration of transfer, the Company may treat the Person
in whose name any Senior Subordinated Note is registered as the owner and holder
of such Senior Subordinated Note for the purpose of receiving payment of
principal of, and premium, if any, and interest on, such Senior Subordinated
Note and for all other purposes whatsoever, whether or not such Senior
Subordinated Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the Holder of any
Senior Subordinated Note may from time to time grant participations in all or
any part of such Senior Subordinated Note to any Person on such terms and
conditions as may be determined by such Holder in its sole and absolute
discretion.
Upon the request of any Holder, the Company agrees immediately to, and in
any event within 2 Business Days of receipt of such request, provide to such
Holder a then current list identifying all other Holders and their contact
information including name, address and contact person.
14G. Solicitation; Payment.
(i) Solicitation. The Company will provide each Holder of the Senior
Subordinated Notes (irrespective of the amount of Senior Subordinated
Notes then owned by it) with sufficient information, sufficiently far
in advance of the date a decision is required, to enable such Holder
to make an informed and considered decision with respect to any
proposed amendment, waiver or consent in respect of any of the
provisions hereof or of the Senior Subordinated Notes. The Company
will deliver executed or true and correct copies of each amendment,
waiver or consent effected pursuant to the provisions of this Section
14G to each Holder of outstanding Senior Subordinated Notes promptly
following the date on which it is executed and delivered by, or
receives the consent or approval of, the requisite Holders of Senior
Subordinated Notes.
(ii) Payment. The Company will not pay any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any
security, to any Holder of Senior Subordinated Notes as consideration
for or as an inducement to the entering into by any Holder of Senior
Subordinated Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each
Holder of Senior Subordinated Notes then outstanding even if such
Holder did not consent to such waiver or amendment.
-58-
<PAGE>
14H. Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Senior Subordinated Notes, the transfer by
any Holder of any Senior Subordinated Notes or portion thereof or interest
therein and the payment of any Senior Subordinated Note, and may be relied upon
by any Transferee regardless of any investigation made at any time by or on
behalf of the Purchasers, the Holders or any Transferee. Subject to the
preceding sentence, this Agreement, the Senior Subordinated Notes and the other
Credit Documents embody the entire agreement and understanding between the
parties hereto and supersede all prior agreements and understandings, if any,
relating to the subject matter hereof. Without limiting any provisions hereof,
the Company agrees that it shall continue to perform and comply with its
covenants, obligations and duties contained herein until all of the Senior
Subordinated Notes are paid in full and all amounts payable hereunder are paid
in full.
14I. Successors and Assigns. All covenants and agreements in this Agreement
and each other Credit Document by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto (including, without limitation, any Transferee) whether so
expressed or not; provided, however, that the Company may not transfer or assign
any of its rights or obligations under this Agreement or any other Credit
Document without the prior written consent of all Holders.
14J. Disclosure to Other Persons. Each Holder agrees to use reasonable
efforts to hold in confidence and not disclose any written information (other
than information (i) that was publicly known or otherwise known to such Holder,
at the time of disclosure (except pursuant to disclosure in connection with this
Agreement), (ii) that subsequently becomes publicly known through no act or
omission by such Holder, or (iii) that otherwise becomes known to such Holder,
other than through disclosure by the Company pursuant hereto) delivered or made
available by or on behalf of the Company, any Restricted Subsidiary or any
Securitization Subsidiary to such Holder (including without limitation any
non-public information obtained pursuant to Section 7) in connection with or
pursuant to this Agreement that is proprietary in nature and clearly marked or
labeled as being confidential information; provided, however, that nothing
herein shall prevent any Holder from delivering copies of any financial
statements and other documents delivered to such Holder, and disclosing any
other information disclosed to such Holder, by or on behalf of the Company in
connection with or pursuant to this Agreement to (a) such Holder's directors,
officers, employees, agents and professional consultants, (b) any other Holder
of any Senior Subordinated Notes, (c) any Person to which such Holder offers to
sell any Senior Subordinated Notes or any part thereof, (d) any Person to which
such Holder sells or offers to sell a participation in all or any part of any
Senior Subordinated Notes, (e) any federal or state regulatory authority having
jurisdiction over such Holder, (f) the National Association of Insurance
Commissioners or any similar organization or (g) any other Person to which such
delivery or disclosure may be necessary or appropriate or advisable (1) in
compliance with any law, rule, regulation or order applicable to such Holder,
(2) in response to any subpoena or other legal process, (3) in connection with
any litigation to which such Holder is a party or (4) in order to protect such
Holder's investment in any Senior Subordinated Notes.
14K. Notices. All communications provided for hereunder shall be in writing
and sent by telecopier, certified or registered first class mail or nationwide
overnight delivery service (with charges prepaid) and (i) if to a Purchaser,
-59-
<PAGE>
addressed to it at the address specified for such communications on the
Purchaser Schedule attached hereto, or to such other address as such Purchaser
may have designated to the Company in writing, (ii) if to any Holder of any
Senior Subordinated Notes, addressed to such Holder at the registered address of
such Holder as set forth in the register kept by the Company at its principal
office as provided in Section 14D, and (iii) if to the Company, addressed to it
at 250 North Shadeland Avenue, Indianapolis, Indiana 46219 (telecopier number:
(317) 231-7926) Attention: Ms. Cynthia F. Whitaker, or to such other address for
purposes hereof as the Company may have designated in writing to each Holder
(such notice being effective on receipt).
14L. Descriptive Headings. Descriptive headings of sections of this
Agreement are for convenience of reference only and do not constitute a part of
this Agreement.
14M. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any party, the determination by such party of
such satisfaction shall be made by such party in its own independent judgment
exercised in good faith and without regard to what others may consider
reasonable unless a different standard is provided in any specific instance.
14N. Independence of Covenants. All covenants hereunder shall be given
independent effect.
14O. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
14P. Governing Law. THIS AGREEMENT AND THE SENIOR SUBORDINATED NOTES SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES
SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
14Q. Counterparts. This Agreement and any amendments, waivers, consents, or
supplements hereto or hereunder may be executed in any number of counterparts,
and by different parties hereto or thereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution and delivery of a
counterpart hereof by each of the parties hereto. Any Purchaser may deliver its
counterpart signature page hereto by telecopy to the special counsel to the
Purchasers, which delivery shall be binding on such Purchaser, and provided
further that any such Purchaser shall promptly provide such special counsel with
an adequate number (as determined by the such special counsel) of originally
executed signature pages hereto.
-60-
<PAGE>
14R. Dating. This Agreement is dated as of April 3, 1996, for convenience
of reference only and was actually executed and delivered on the Execution Date
set forth on the signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase
Agreement to be duly executed and delivered by their respective duly authorized
officers.
Execution Date: April 3, 1996
UNION ACCEPTANCE CORPORATION,
an Indiana corporation
By:/s/ Cynthia F. Whitaker
--------------------------
Name: Cynthia F. Whitaker
Title: Vice President
THE NOTE PURCHASERS:
OHIO BUREAU OF WORKMEN'S
COMPENSATION,
an Ohio state agency
By: /s/ Terrence W. Gasper
--------------------------
Name: Terrence W. Gasper
Title: Chief Financial Officer
-61-
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY,
an Iowa corporation
By:/s/ John C. Heiny
----------------------------
Name: John C. Heiny
Title: Council
By: /s/ Annette M. Masterson
----------------------------
Name: Annette M. Masterson
Title: Director -
Securities Investment
-62-
<PAGE>
LUTHERAN CHURCH MISSOURI
SYNOD FOUNDATION,
a Missouri not-for-profit
corporation
By: /s/ Fred C. Sticht
----------------------------
Name: Fred C. Sticht
Title: Vice President, Treasury
and Investments
NATIONAL RURAL ELECTRIC
COOPERATIVE ASSOCIATION,
a non-profit trade association
By: /s/ Douglas G. Kern
----------------------------
Name: Douglas G. Kern
Title: Senior Fixed-Income
Portfolio Manager
-63-
<PAGE>
THE OHIO CASUALTY INSURANCE
COMPANY,
an Ohio incorporated property
and casualty insurance company
By: /s/ Richard B. Kelly
----------------------------
Name: Richard B. Kelly
Title: Senior Investment Officer
JOHN ALDEN LIFE INSURANCE
COMPANY,
a Minnesota corporation
By: /s/ Michael E. Halligan
----------------------------
Name: Michael E. Halligan
Title: Vice President
-64-
<PAGE>
EXHIBIT A
[FORM OF SENIOR SUBORDINATED NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT
OR AN EXEMPTION THEREFROM.
UNION ACCEPTANCE CORPORATION
9.99% Senior Subordinated Note
Due March 30, 2003
CUSIP NO. 904832 AA O
No. [___] April 3, 1996
$[----------]
UNION ACCEPTANCE CORPORATION, an Indiana corporation (the "Company"), for
value received, hereby promises to pay to
[Name of Purchaser Registered Transferee]
or registered assigns
on the 30th day of March, 2003
the principal amount of
[INSERT PRINCIPAL AMOUNT IN WORDS] DOLLARS (U.S. $__________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 9.99% per annum from the date hereof until maturity. Interest shall be
payable, to the extent accrued and unpaid, quarterly in arrears on the thirtieth
day of each March, June, September and December in each year (with the first
such payment being due on June 30, 1996) and at maturity (whether on the date
stated, upon acceleration, pursuant to a permitted demand, upon commencement of
bankruptcy or insolvency proceedings or otherwise and upon any optional
prepayment in lieu of the amount prepaid). The Company agrees to pay interest on
any principal and premium not paid when due (whether at maturity, by optional or
mandatory prepayment, upon acceleration, pursuant to a permitted demand, upon
commencement of bankruptcy or insolvency proceedings or otherwise) and on any
overdue installment of interest, to the fullest extent permitted by law, at the
rate which is 2% above the interest rate which is otherwise applicable, payable
on demand. Both the principal hereof and interest hereon and any
Yield-Maintenance Premium (as defined in the Note Purchase Agreement referred to
below) are payable in lawful money of the United States of America and in same
-1-
<PAGE>
day funds in accordance with the instructions with respect to the Purchaser of
this Note set forth on the relevant Purchaser Schedule to that certain Note
Purchase Agreement dated as of April 3, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Note Purchase Agreement"), entered
into by and among the Company and the original Purchasers listed on the
signature pages thereof.
This Note is one of the 9.99% Senior Subordinated Notes due March 30, 2003
(the "Notes") of the Company issued pursuant to the terms and provisions of the
Note Purchase Agreement. This Note and the holder hereof are subject to certain
obligations pursuant to, and are entitled equally and ratably with the holders
of all other Notes outstanding under the Note Purchase Agreement to all the
rights and benefits provided for or referred to in, the Note Purchase Agreement.
Reference is hereby made to the Note Purchase Agreement for a statement of such
obligations, rights and benefits and other terms applicable hereto (including
provisions relating to the enforcement hereof), by each of which the holder and
any transferee of this Note shall be benefited and bound.
This Note and the other Notes outstanding under the Note Purchase Agreement
may be declared due prior to their expressed maturity date, all in the events,
on the terms and in the manner provided in the Note Purchase Agreement.
The Company will make the required payments of principal at maturity and in
the amounts specified in the Note Purchase Agreement. This Note is not subject
to prepayment or redemption at the option of the Company prior to its expressed
maturity date except on the terms and conditions and in the amounts and with the
premium, if any, set forth in the Note Purchase Agreement.
This Note is registered on the books of the Company and is transferable
only by surrender hereof for registration of transfer at the principal office of
the Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the holder of this Note or such holder's attorney duly
authorized in writing. Payment of or on account of principal, Yield Maintenance
Premium, if any, and interest on this Note shall be made only to or upon the
order in writing of the registered holder.
-2-
<PAGE>
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE COMPANY AND ANY HOLDER HEREOF SHALL BE GOVERNED BY, THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
UNION ACCEPTANCE CORPORATION
By:
-------------------------------------
Name:
Title:
-1-
PURCHASE AGREEMENT
This PURCHASE AGREEMENT is made as of this 18th day of January, 1996, by
and among UNION FEDERAL SAVINGS BANK OF INDIANAPOLIS, a federally chartered
savings bank (the "Purchaser"), UNION ACCEPTANCE FUNDING CORPORATION, a Delaware
corporation (the "Seller") and UNION ACCEPTANCE CORPORATION, an Indiana
corporation ("UAC").
WHEREAS, the Purchaser desires to purchase certain Receivables from the
Seller and the Seller desires to sell such Receivables to the Purchaser.
WHEREAS, the Seller purchased Receivables from UAC, and UAC has certain
obligations related to the representations and warranties made to the Seller in
conjunction with such sales. UAC services the Receivables on behalf of UAFC and
expects to service the Receivables on behalf of the Purchaser and to receive the
benefits of acting as servicer in such capacities.
NOW, THEREFORE, in consideration of the foregoing, other good and valuable
consideration and the mutual terms and covenants contained herein, the parties
hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall, unless the context
otherwise requires, have the following meanings (such meanings to be equally
applicable to the singular and plural forms of the terms defined):
"Agreement" means this Purchase Agreement and all amendments hereof and
supplements hereto.
"Assignment" means the document of assignment attached to this Agreement as
Annex A.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in Indianapolis, Indiana are authorized or obligated
by law, executive order or governmental decree to be closed.
"Closing Date" means January 22, 1996.
"Dealer" means the seller of a Financed Vehicle, who originated and
assigned the related Receivable to UAC or the Purchaser under an existing
agreement with UAC or the Purchaser or who arranged for a loan from UAC or the
Purchaser to the purchaser of a Financed Vehicle under an existing agreement
with UAC or the Purchaser.
<PAGE>
"Effective Date" shall mean January 18, 1996.
"Financed Vehicle" means a new or used automobile, light truck or van,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
which attach to the respective Receivable by operation of law.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof.
"Receivable" means any simple interest installment sales contract or
installment loan and security agreement which shall appear on Schedule A to this
Agreement.
"Receivable Files" means the following documents or instruments with
respect to each Receivable:
(i) The original of the Receivable.
(ii) The original credit application fully executed by the Obligor.
(iii)The original certificate of title or such documents that the
Seller or UAC shall keep on file, in accordance with its customary
procedures, evidencing the security interest of the Seller in the Financed
Vehicle.
(iv) Any and all other documents that the Seller shall keep on file,
in accordance with its customary procedures, relating to a Receivable, an
Obligor, or a Financed Vehicle.
"Servicer" means initially the UAC and thereafter any Person appointed as
the successor Servicer.
"UCC" means the Uniform Commercial Code as in effect in the respective
jurisdiction.
-2-
<PAGE>
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
Section 2.01 Purchase and Sale of Receivables.
(a) Purchase and Sale of Receivables. On the Closing Date, the Seller shall
sell, transfer, assign and otherwise convey to the Purchaser, without recourse;
(i) all right, title, and interest of the Seller in and to the
Receivables listed in Schedule A hereto;
(ii) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables;
(iii)any Liquidation Proceeds and any proceeds from claims or refunds
of premiums on any physical damage, lender's single interest, credit life,
disability and hospitalization insurance policies covering Financed
Vehicles or Obligors;
(iv) the interest of the Seller in any proceeds from recourse to
Dealers relating to the Receivables;
(v) all documents contained in the Receivable Files;
(vi) all monies paid thereon, and all monies due thereon, including
Accrued Interest after the Effective Date (but excluding interest paid
prior to the Closing Date), with respect to the Receivables held by the
Servicer; and
(vii) all proceeds of the foregoing.
The Seller does not convey to the Purchaser any interest in any contracts
with Dealers related to any "dealer reserve" or any rights to the recapture of
any dealer reserve.
(b) Receivables Purchase Price. In consideration for the Receivables, the
Purchaser shall on the Closing Date pay to the Seller the purchase price for
such Receivables, equal to the principal balance of such Receivables at the
Effective Date in the amount of $392,185.11.
Section 2.02 Closing the Purchase and Sale.
(a) The Closing. The closing of the sale of Receivables (the "Closing")
shall take place at the offices of the Seller, 250 North Shadeland Avenue,
Indianapolis, Indiana 46219.
-3-
<PAGE>
(b) Documents to be Delivered at the Closing.
(i) The Assignment. On or prior to the Closing, the Seller will
execute and deliver the Assignment. The Assignment shall be in
substantially the form of Annex A hereto.
(ii) Evidence of UCC Filing. The Seller shall record and file, at
its own expense, one or more financing statements with respect to the
Receivables in such manner and in such places as required by law fully
to preserve, maintain and protect the interest of the Purchaser in the
Receivables and other property conveyed to the Purchaser hereunder,
and shall deliver a file-stamped copy of such financing statements or
other evidence of such filings to the Purchaser on or prior to the
Closing Date.
(iii)Schedule of Receivables. The Seller shall at its own
expense, on or prior to the Closing Date, indicate in its computer
files those Receivables that have been sold or otherwise conveyed to
the Purchaser pursuant to this Agreement and deliver to the Purchaser
(or to the Trustee on the Purchaser's behalf) a computer file, hard
copy or microfiche list containing a true and complete list of all
such Receivables.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties Regarding the Seller. The
Seller hereby represents and warrants to the Purchaser as of the date hereof and
as of the Closing Date;
(a) Organization and Good Standing. The Seller has been duly
incorporated and is validly existing as a corporation and in good standing
under the laws of the State of Delaware, and has full corporate power,
authority and legal right to execute and deliver this Agreement and to
perform the terms and provisions hereof.
(b) Due Authorization. The execution, delivery and performance of this
Agreement by the Seller has been duly authorized by all necessary corporate
action, does not require any approval or consent of any governmental agency
or authority, does not and will not violate or result in a breach which
would constitute a material default under, any agreement for borrowed money
binding upon or applicable to it or such to its property which is material
to it or its subsidiaries (whether or not consolidated) taken as a whole,
or to the best of the Seller's knowledge, any law or governmental
regulation or court decree applicable to it or such material property, and
this Agreement is the valid, binding and enforceable obligation of the
Seller except as the same may be limited by insolvency, bankruptcy or other
similar laws of general application affecting the enforcement of creditors'
rights or general equity principles.
-4-
<PAGE>
(c) Accuracy of Information. All information heretofore furnished by
the Seller in writing to the Purchaser for purposes of or in connection
with this Agreement or any transaction contemplated hereby is true and
accurate in every material respect or based on reasonable estimates on the
date as of which such information is stated or certified.
(d) No Proceedings. There are no proceedings or investigations
pending, or, to the best knowledge of the Seller, threatened against the
Seller before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality seeking any determination or
ruling that, in the reasonable judgment of the Seller, would have a
material adverse effect on the performance by the Seller of its obligations
under this Agreement.
Section 3.02 Representations and Warranties Regarding UAC. UAC hereby
represents and warrants to the Purchaser as of the date hereof and as of the
Closing Date;
(a) Organization and Good Standing. UAC has been duly incorporated and
is validly existing as a corporation and in good standing under the laws of
the State of Indiana and has full corporate power, authority and legal
right to execute and deliver this Agreement and to perform the terms and
provisions hereof.
(b) Due Authorization. The execution, delivery and performance of this
Agreement by UAC has been duly authorized by all necessary corporate
action, does not require any approval or consent of any governmental agency
or authority, does not and will not violate or result in a breach which
would constitute a material default under, any agreement for borrowed money
binding upon or applicable to it or such to its property which is material
to it or its subsidiaries (whether or not consolidated) taken as a whole,
or to the best of UAC's knowledge, any law or governmental regulation or
court decree applicable to it or such material property, and this Agreement
is the valid, binding and enforceable obligation of UAC except as the same
may be limited by insolvency, bankruptcy or other similar laws of general
application affecting the enforcement of creditors' rights or general
equity principles.
(c) Accuracy of Information. All information heretofore furnished by
UAC in writing to the Purchaser for purposes of or in connection with this
Agreement or any transaction contemplated hereby is true and accurate in
every material respect or based on reasonable estimates on the date as of
which such information is stated or certified.
(d) No Proceedings. There are no proceedings or investigations
pending, or, to the best knowledge of UAC, threatened against UAC before
any court, regulatory body, administrative agency or other tribunal or
governmental instrumentality seeking any determination or ruling that, in
the reasonable judgment of UAC, would have a material adverse effect on the
performance by UAC of its obligations under this Agreement.
-5-
<PAGE>
Section 3.03 Representations and Warranties Regarding the Receivables. The
Seller and UAC make the following representations and warranties as to the
Receivables on which the Purchaser relies in purchasing the Receivables. Such
representations and warranties speak as of the execution and delivery of the
Agreement, but shall survive the sale, transfer, and assignment of the
Receivables by the Seller to the Purchaser hereunder.
(a) Characteristics of Receivables. Each Receivable (1) shall have
been either (A) originated in the United States of America by a Dealer for
the retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business, shall have been purchased by UAC or the Purchaser from
such Dealer and shall have been validly assigned by such Dealer to UAC (or
to the Purchaser and by the Purchaser to UAC) in accordance with its terms
and by UAC to the Seller and, pursuant to this Agreement, by the Seller to
the Purchaser or (B) shall have been originated in the United States of
America by UAC (or originated by the Purchaser and validly sold and
assigned by the Purchaser to UAC) and in either case, validly sold and
assigned by UAC to the Seller, and, pursuant to this Agreement, by the
Seller to the Purchaser (2) shall have been fully and properly executed by
the parties thereto, (3) shall have created or shall create a valid,
subsisting, and enforceable first priority perfected security interest in
favor of UAC, the Purchaser or the Seller in the Financed Vehicle, which
security interest shall be assignable and shall have been validly assigned
by the Seller to the Purchaser, (4) shall contain customary and enforceable
provisions such that the rights and remedies of the holder thereof shall be
adequate for realization against the collateral of the benefits of the
security, and (5) shall bear a fixed rate of interest.
(b) Schedule of Receivables. The information set forth in Schedule A
to the Agreement shall be true and correct in all material respects as of
the closing of business on the Effective Date.
(c) Compliance with Law. Each Receivable and each sale of the related
Financed Vehicle shall have complied at the time it was originated or made
and at the execution of the Agreement shall comply in all material respects
with all requirements of applicable federal, State, and local laws, and
regulations thereunder, including, without limitation, usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit 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) Binding Obligation. Each Receivable shall represent the genuine,
legal, valid, and binding payment obligation in writing of the Obligor,
enforceable by the holder thereof in accordance with its terms.
(e) No Government Obligor. None of the Receivables shall be due from
the United States of America or any State or from any agency, department,
or instrumentality of the United States of America, any State or any local
government.
-6-
<PAGE>
(f) Security Interest in Financed Vehicle. Immediately prior to the
sale, assignment, and transfer thereof, each Receivable shall be secured by
a validly perfected first priority security interest in the Financed
Vehicle in favor of UAC, the Purchaser or the Seller as secured party or
all necessary and appropriate actions with respect to such Receivable shall
have been taken to perfect a first priority security interest in the
Financed Vehicle in favor of UAC, the Purchaser or the Seller as secured
party.
(g) Receivables in Force. No Receivable shall have been satisfied,
subordinated, or rescinded, nor shall any Financed Vehicle have been
released from the lien granted by the related Receivable in whole or in
part.
(h) No Waiver. No provision of a Receivable shall have been waived.
(i) No Defenses. No right of rescission, setoff, counterclaim, or
defense shall have been asserted or threatened with respect to any
Receivable.
(j) No Liens. No liens or claims shall have been filed, including
liens for work, labor, or materials relating to a Financed Vehicle that
shall be liens prior to, or equal or coordinate with, the security interest
in the Financed Vehicle granted by the Receivable.
(k) No Default. Except for payment defaults continuing for a period of
not more than 30 days as of the Cutoff Date, no default, breach, violation,
or event permitting acceleration under the terms of any Receivable shall
have 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 Receivable shall have arisen; and
neither UAC, the Seller nor the Purchaser shall have waived any of the
foregoing.
(l) Insurance. Each Obligor has agreed to obtain physical damage
insurance covering the Financed Vehicle.
(m) Title. It is the intention of the Seller that the transfer and
assignment herein contemplated, taken as a whole, constitute a sale of the
Receivables from the Seller to the Purchaser and that the beneficial
interest in and title to the Receivables not be part of the receivership
estate in the event of the appointment of a receiver for the Seller. No
Receivable has been sold, transferred, assigned, or pledged by the Seller
to any Person other than the Purchaser, except for pledges as shall have
been duly and fully released. Immediately prior to the transfer and
assignment herein contemplated, the Seller had good and marketable title to
each Receivable free and clear of all liens, and, immediately upon the
transfer thereof, the Purchaser shall have good and marketable title to
each Receivable, free and clear of all liens and rights of others and the
transfer and assignment herein contemplated has been perfected under the
UCC.
(n) Lawful Assignment. No Receivable shall have been originated in, or
shall be subject to the laws of, any jurisdiction under which the sale,
transfer, and assignment of such Receivable under the Agreement would be
unlawful, void, or voidable.
-7-
<PAGE>
(o) All Filings Made. All filings (including, without limitation, UCC
filings) necessary in any jurisdiction to give the Purchaser ownership of
the Receivables shall have been made.
(p) One Original. There shall be only one original executed copy of
each Receivable.
(q) Marking Records. By the Closing Date, the Seller and UAC will have
caused the portions of the electronic ledger or similar computer records
relating to the Receivables conveyed to the Purchaser hereunder to be
clearly and unambiguously marked to show that such Receivables constitute
property of the Purchaser.
Section 3.04 Repurchase Upon Breach. The Purchaser, UAC or the Seller, as
the case may be, shall inform the other parties promptly, in writing, upon the
discovery of any breach of the representations and warranties under Section
3.03. Unless the breach shall have been cured within sixty (60) days following
the discovery, UAC shall repurchase from the Purchaser any Receivable materially
and adversely affected by the breach. In consideration of the purchase of the
Receivable, UAC shall remit the then outstanding principal amount of the
Receivable to or for the account of the Purchaser. The sole remedy of the
Purchaser shall be to require UAC to repurchase Receivables pursuant to this
Section 3.04. Moreover, the Seller and UAC each hereby authorizes the Purchaser
and its assignee on behalf of Seller or UAC, respectively, to execute and
deliver certificates of title for any Financed Vehicle securing a Receivable
naming Seller or UAC as secured party, and such other documents or certificates
as may be necessary in connection therewith, in order to identify the Purchaser
or its assignee, as appropriate, as the secured party with respect to such
Financed Vehicle.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
The obligation of the Purchaser to purchase Receivables on the Closing Date
is subject to the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Seller or UAC hereunder shall be true and correct on the
Closing Date with the same effect as if then made.
(b) Documents, Other Obligations. The Seller shall have delivered the
documents and performed all other obligations to be performed by it
hereunder.
-8-
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
The Seller agrees with the Purchaser as follows:
Section 5.01 Protection of Right, Title and Interest.
(a) The Seller shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such
manner and in such places as may be required by law fully to preserve,
maintain, and protect the interest of the Purchaser in the Receivables and
in the proceeds thereof. The Seller shall deliver (or cause to be
delivered) to the Purchaser file-stamped copies of, or filing receipts for,
any document filed as provided above, as soon as available following such
filing.
(b) The Seller shall not change its name, identity, or corporate
structure in any manner that would, could, or might make any financing
statement or continuation statement filed by the Seller in accordance with
paragraph (a) above seriously misleading within the meaning of 9-402(7) of
the UCC, unless it shall have given the Purchaser at least 60 days' prior
written notice thereof.
(c) The Seller shall give the Purchaser at least 60 days' prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement (in which case the
Servicer shall file or cause to be filed such amendment or continuation
statement or new financing statement).
(d) The Seller shall cause its computer systems to be maintained so
that, from and after the time of sale under this Agreement of the
Receivables to be maintained such that the master computer records
(including any back-up archives) that refer to a Receivable shall indicate
clearly that such Receivable is owned by the Purchaser. Indication of the
Purchaser's ownership of a Receivable shall be deleted from or modified on
the Servicer's computer systems when, and only when, the Receivable shall
have been paid in full or repurchased.
(e) If at any time the Seller shall propose to sell, grant a security
interest in, or otherwise transfer any interest in automotive receivables
to any prospective purchaser, lender, or other transferee, the Seller shall
give to such prospective purchaser, lender, or other transferee computer
tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any
Receivable, shall indicate clearly that such Receivable has been sold and
is owned by the Purchaser.
-9-
<PAGE>
(f) The Seller shall permit the Purchaser and its agents at any time
during normal business hours to inspect, audit, and make copies of and
abstracts from the Seller's records regarding any Receivable.
Section 5.02 Security Interests. The Seller shall defend the right, title
and interest of the Purchaser in, to and under the Receivables, against all
claims of third parties claiming through or under the Seller.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.01 Obligations of the Seller. The obligations of the Seller to
the Purchaser under this Agreement shall not be affected by reason of any
invalidity, illegality or irregularity of any Receivable.
Section 6.02 Amendment. This Agreement may be amended from time to time by
a written amendment duly executed and delivered by the parties hereto.
Section 6.03 Waivers. No failure or delay on the part of the Purchaser in
exercising any power, right or remedy under this Agreement or the Assignment
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or remedy preclude any other or further exercise thereof
or the exercise of any other power, right or remedy.
Section 6.04 Notices. All communications and notices pursuant hereto to
either party shall be in writing or by telegraph or telex and addressed or
delivered to it at its address (or in case of telex, at its telex number at such
address) shown below or at such other address as may be designated by it by
notice to the other party and, if mailed or sent by telegraph or telex, shall be
deemed given when mailed, communicated to the telegraph office or transmitted by
telex. Such notice shall be sent to (a) in the case of the Seller, Union
Acceptance Funding Corporation, 250 N. Shadeland Avenue, Indianapolis, Indiana
46219, Attention: Cynthia F. Whitaker (b) in the case of UAC, Union Acceptance
Corporation, 250 N. Shadeland Avenue, Indianapolis, Indiana 46219, Attention:
John M. Stainbrook and (c) in the case of the Purchaser, Union Federal Savings
Bank of Indianapolis, 45 North Pennsylvania Street, Suite 250, Indianapolis,
Indiana 46204, Attention: Jerry Von Deylen, or at such other address as shall be
designated by Purchaser in a written notice to Seller.
Section 6.06 Headings and Cross-references. The various headings in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. References in this Agreement
to Section names or numbers are to such sections of this Agreement unless
otherwise specified.
-10-
<PAGE>
Section 6.07 Governing Law. This Agreement and the Assignment shall be
governed by and construed in accordance with the internal laws of the State of
Indiana, without reference to its conflict of laws provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
UNION ACCEPTANCE FUNDING
CORPORATION, Seller
By: /s/ Cynthia F. Whitaker
----------------------------
Its: Vice President
UNION FEDERAL SAVINGS BANK OF
INDIANAPOLIS, Purchaser
By: /s/ Dana H. Dillard
----------------------------
Its: Controller
UNION ACCEPTANCE CORPORATION,
UAC
By: /s/ John Stainbrook
----------------------------
Its: President
-12-
<PAGE>
SCHEDULE A
List of Receivables
The Receivables consisting of motor vehicle retail installment sale contracts
aggregating $392,185.11 in remaining principal amount as of the Effective Date
are listed on the attached pages.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 000927790
<NAME> Union Acceptance Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jul-1-1995
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 140,405
<SECURITIES> 0
<RECEIVABLES> 199,540
<ALLOWANCES> (1,169)
<INVENTORY> 0
<CURRENT-ASSETS> 338,776
<PP&E> 3,662
<DEPRECIATION> (1,591)
<TOTAL-ASSETS> 424,581
<CURRENT-LIABILITIES> 74,398
<BONDS> 277,026
<COMMON> 58,180
0
0
<OTHER-SE> 14,977
<TOTAL-LIABILITY-AND-EQUITY> 424,581
<SALES> 0
<TOTAL-REVENUES> 63,067
<CGS> 0
<TOTAL-COSTS> 16,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,550
<INTEREST-EXPENSE> 16,204
<INCOME-PRETAX> 26,334
<INCOME-TAX> 10,659
<INCOME-CONTINUING> 15,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,675
<EPS-PRIMARY> $1.19
<EPS-DILUTED> $1.19
</TABLE>
