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, 1997
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 (I.R.S. Employer Identification
of incorporation 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, 1997
Class A Common Stock, without par value 4,016,788 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 :
Condensed Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996 3
Condensed Consolidated Statements of Earnings for the Three
and Nine Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996 5
Condensed Consolidated Statement of Shareholders' Equity for
the Nine Months Ended March 31, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION 16
Signatures 17
<PAGE>
Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
Dollars in thousands, except share data
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
-------------------------------
Assets (Unaudited)
<S> <C> <C>
Cash $ 73,442 $ 13,459
Restricted cash 16,212 14,789
Loans, net 189,465 259,290
Accrued interest receivable 1,650 2,127
Furniture and equipment, net 2,114 2,026
Excess servicing 107,649 83,434
Spread accounts 71,498 63,590
Other assets 17,399 12,480
------------------------------
Total Assets $479,429 $451,195
==============================
Liabilities
Amounts due under warehouse facilities $127,218 $187,756
Long-term debt 221,000 156,000
Accrued interest payable 2,212 5,820
Amounts due to trusts 14,626 7,931
Dealer premiums payable 1,182 3,381
Deferred income tax payable 16,640 8,357
Other payables and accrued expenses 3,308 3,326
------------------------------
Total Liabilities 386,186 372,571
------------------------------
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; 4,016,788 and 4,011,358
shares issued and outstanding 58,270 58,180
Class B Common Stock, without par value,
authorized 20,000,000 shares; 9,200,000 shares
issued and outstanding - -
Net unrealized loss on excess servicing, net of tax (3,891) -
Retained earnings 38,864 20,444
------------------------------
Total Shareholders' Equity 93,243 78,624
------------------------------
Total Liabilities and Shareholders' Equity $479,429 $451,195
==============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statement of Earnings
Dollars in thousands, except share data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- -------------------------------
1997 1996 1997 1996
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Interest on loans $ 7,685 $ 6,732 $ 26,014 $ 20,910
Interest on spread accounts and
restricted cash 1,654 1,317 4,709 4,073
--------------------------- -----------------------------
Total interest income 9,339 8,049 30,723 24,983
Interest expense 6,118 5,359 18,793 16,204
--------------------------- -----------------------------
Net interest margin 3,221 2,690 11,930 8,779
Provision for credit losses 1,180 600 3,028 2,050
--------------------------- -----------------------------
Net interest margin
after provision 2,041 2,090 8,902 6,729
Gain on sales of loans 8,283 7,760 22,948 22,967
Servicing fees, net 6,860 4,796 18,944 11,346
Other 1,011 798 2,856 2,271
--------------------------- -----------------------------
Total revenues 18,195 15,444 53,650 43,313
--------------------------- -----------------------------
Salaries and benefits 4,065 3,232 11,597 8,611
Other 3,480 3,426 10,927 8,368
--------------------------- -----------------------------
Total operating expenses 7,545 6,658 22,524 16,979
--------------------------- -----------------------------
Earnings before provision for
income taxes 10,650 8,786 31,126 26,334
Provision for income taxes 4,341 3,473 12,706 10,659
--------------------------- -----------------------------
Net earnings $ 6,309 $ 5,313 $ 18,420 $ 15,675
============================ ==============================
Net earnings per share $ 0.48 $ 0.40 $ 1.39 $ 1.19
============================ ==============================
Weighted average number of
common shares outstanding 13,216,788 13,211,358 13,214,554 13,208,718
============================ ==============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------------------
1997 1996
-------------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 18,420 $ 15,675
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Gain on sales of loans (32,693) (31,882)
Dealer premiums paid in excess of dealer premium
rebates received on loans held for sale (43,014) (35,156)
Return of excess servicing cashflows 19,779 31,671
Provision for credit losses 3,028 2,050
Spread accounts (7,908) (3,323)
Amortization and depreciation 2,719 3,308
Restricted cash (1,423) (14,961)
Other assets and accrued interest receivable (3,352) (6,624)
Amounts due to trusts 6,695 12,328
Other payables and accrued expenses 4,747 11,861
Loan acquisitions in excess of liquidations (854,758) (667,103)
Securitization of loans held for sale 918,540 679,496
Proceeds on sale of interest only strip 25,979 19,383
----------- -----------
Net cash provided by operating activities 56,759 16,723
----------- -----------
Cash flows used in investing activities:
Purchase of fixed assets (664) (1,136)
----------- -----------
Cash flows provided (used) in financing activities:
Net change in Due to Union Federal, including
regulatory equity distribution - (337,423)
Net change in warehouse facilities (60,538) 159,435
Proceeds from issuance of senior notes 65,000 110,000
Payment of borrowing fees (574) (2,886)
Net proceeds from issuance of common stock - 58,000
----------- -----------
Net cash provided/(used) by financing activities 3,888 (12,874)
----------- -----------
Change in cash 59,983 2,713
Cash, beginning of period 13,459 9,483
----------- -----------
Cash, end of period $ 73,442 $ 12,196
=========== ===========
Supplemental disclosures of cash flow information:
Income taxes paid $ 4,277 $ 5,540
=========== ===========
Interest paid $ 21,983 $ 13,862
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
For the Nine Months Ended March 31, 1997
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Number of Common Net
Shares Outstanding Unrealized
Loss on Excess Total
Common Retained Servicing, Shareholders'
Class A Class B Stock Earnings Net of Tax Equity
<S> <C> <C> <C> <C> <C>
Balance at
June 30, 1996 4,011,358 9,200,000 $58,000 $20,444 - $78,624
Shares issued 5,430 - 90 - - 90
Net earnings - - - 18,420 - 18,420
-----------------------------------------------------------------------------------------------------------
4,016,788 9,200,000 58,270 38,864 - 97,134
Unrealized loss on
excess servicing,
net of tax - - - - (3,891) (3,891)
-----------------------------------------------------------------------------------------------------------
Balance at
March 31, 1997 4,016,788 9,200,000 $58,270 $38,864 ($3,891) $93,243
===========================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended March 31, 1997 and March 31, 1996
(Unaudited)
Note 1 - Basis of Presentation
The forgoing condensed consolidated 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
condensed consolidated financial statements include the accounts of Union
Acceptance Corporation and Subsidiaries (formerly the "Union Division"). On
August 7, 1995, the Company ("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 its former parent, 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 Consolidated Financial Statements" in the Corporation's Annual
Report on Form 10-K for the year ended June 30, 1996.
The condensed consolidated financial statements for the interim period 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
Earnings per share for the nine months ended March 31, 1997 were computed by
dividing the net earnings by the average number of common shares outstanding for
the period. Earnings per share for the nine months ended March 31, 1996 were
computed by dividing net earnings by the average number of 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 less than three percent dilutive and has not been included in the
earnings per share computations.
Note 3 - Excess Servicing
Excess servicing is as follows (in thousands) at:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Estimated value of excess servicing cash
flows, net of estimated prepayments $146,657 $112,564
Allowance for estimated credit losses (51,750) (43,516)
Estimated dealer premium rebates 20,493 13,467
Discount to present value (13,554) (9,535)
-------------------------------------------------------
101,846 72,980
Accrued interest on securitized loans 12,343 10,454
Unrealized loss on excess servicing (6,540) -
-------------------------------------------------------
Excess servicing $107,649 $83,434
=======================================================
Outstanding balance of loans serviced
through securitized trusts $1,727,322 $1,351,480
Allowance for estimated credit losses as
a percentage of securitized loans serviced 3.00% 3.22%
</TABLE>
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Nine Months Ended March 31, 1997 and March 31, 1996
(Unaudited)
Note 4 - Reclassifications
Certain amounts in the fiscal 1996 Condensed Consolidated Financial Statements
have been reclassified to conform to fiscal 1997 presentation.
Note 5 - Current Accounting Pronouncements
During June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. The financial components approach focuses on the assets
and liabilities that exist after the transfer.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted. The
Company adopted SFAS 125 on January 1, 1997. This pronouncement prescribes
methodology for recognition of gain on sales of loans, as well as the valuation
of the retained interests (or "excess servicing" ). Adjustments to market value
based upon the valuation in accordance with SFAS 125 will be recorded, net of
tax, as a separate component of shareholders' equity until realized. The
implementation of SFAS 125 did not have a significant effect on the Company's
accounting for gain on sales of loans. However, as a result of the adoption of
SFAS 125, the Company recognized an unrealized loss on the valuation of its
excess servicing which is defined as an "available for sale security" under the
provisions of SFAS 125.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 provides computation, presentation, and disclosure requirements
for earnings per share. The traditional presentation of primary and fully
diluted earnings per share will be replaced with basic and diluted earnings per
share. The Statement is effective for financial statements for both interim and
annual periods after December 15, 1997, and earlier application is not
permitted. Management does not expect earnings per share to change materially as
a result of this pronouncement as the effect of unexercised stock options are
less than three percent dilutive, and have not been included in the earnings per
share computations for historical periods.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"). SFAS 129 provides guidance for disclosure
regarding dividend policies, voting rights, liquidation preferences and other
miscellaneous items related to capital structure. This Statement is effective
for reporting periods ending after December 15, 1997. There may be disclosure
requirements which apply to the Company as a result of this pronouncement for
the fiscal year ended June 30, 1998.
<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
acquisition, securitization and servicing of automobile loans originated
primarily by dealerships affiliated with major domestic and foreign
manufacturers. To fund the acquisition of loans prior to securitization, the
Company utilizes revolving warehouse 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 the sale of loans and establishes
excess servicing as an asset. Excess servicing cashflows are recorded against
the excess servicing asset as received over the life of the related
securitization.
Acquisition Volume. The Company acquires loans on automobiles made to
borrowers who exhibit a favorable credit profile. The Company currently acquires
loans in 27 states from over 3,000 manufacturer- franchised auto dealerships
("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"). Nearly 900 of the Company's dealerships
participate in the Non-prime program, PAC. The Company continues to expand its
operations by entering new cities, and by signing new dealers in existing
markets. Total loan acquisitions for the three months ended March 31, 1997,
increased 9.1% to $279.8 million over the same quarter of last year, and
increased 25.9% to $883.9 million for the nine months ended March 31, 1997, over
the same period of last year. The Company tightened its credit standards during
the third quarter of fiscal 1997 (described below). These underwriting changes
will most likely have the effect of decreasing loan acquisition growth on a
short-term basis. Third quarter loan acquisitions were lower than the second
quarter of fiscal 1997, and fourth quarter acquisitions are expected to be lower
than the fourth quarter of fiscal 1996.
Underwriting changes implemented prior to the beginning of fiscal 1997
included an increase in cut-off scores in several markets where losses were
running at 2.50% or greater over the life of the pools. Additionally, the
Company made significant policy changes during the third quarter of fiscal 1997
including the implementation of a new Risk Scorecard, and an increase in
required discretionary income and total income thresholds. These strategies were
employed in order to improve the overall 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. Company management will
carefully evaluate the impact of these underwriting changes on the performance
of the portfolio, and continue to make improvements to both the underwriting and
collection policies in an effort to achieve an acceptable level of credit
losses, and hence, the desired level of profitability. See "Discussion of
Forward-Looking Statements" below.
Non-prime loans represented approximately 3.1% and 3.8% of total loans
acquired for the three and nine months ended March 31, 1997, respectively. The
Company's marine lending program generated approximately $1.8 million and $3.4
million of loan acquisitions for the three and nine months ended March 31, 1997.
The Company has historically focused its efforts and resources towards the prime
auto segment, and will continue to do so in the future despite expanding its
operations to include other products and programs. Management believes that
there is substantial growth potential in the prime auto segment.
Gross and Net Spreads. The gross and net spreads on the third quarter
securitization of fiscal 1997 were 6.96% and 5.43%, respectively. 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,
upfront costs, ongoing credit enhancement fees and trustee fees, and hedging
gains or losses. Net spreads on securitization transactions experienced steady
compressions beginning in the first quarter of fiscal 1996 as a result of the
lag between changes in market interest rates and loan rates. Net spreads began
to rebound in the second quarter securitization of fiscal 1997 (27 b.p. over the
first quarter securitization), and increased again slightly during the third
quarter transaction. Net spread is slightly lower compared to the same quarter
of last year, but continues to be significantly higher than those spreads
realized in fiscal 1995 and prior
<PAGE>
years. Net spreads are expected to experience some compression in the fourth
quarter securitization due to changes in market interest rates relative to loan
rates.
Looking ahead, management is currently targeting net spreads of 5.00%
to 5.50% on prime securitizations (assuming a pricing spread for asset-backed
certificates over the two-year treasury note of 50 basis points) for the fourth
quarter of fiscal 1997. Management believes that by targeting a spread of 7.00%
to 7.50% between loan rates and the two-year treasury rate, these net spreads
can be achieved. Although management believes these spreads can be achieved,
material factors affecting the net spreads are difficult to predict and could
cause management's projections to be materially inaccurate. 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. See - "Discussion of
Forward-Looking Statements ," below.
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.
Portfolio Performance. Set forth below is certain information
concerning the Company's experience pertaining to delinquencies and net
charge-offs on the Prime fixed rate retail automobile, light truck and van
receivables serviced by the Company. There can be no assurance that future
delinquency and net loss experience on receivables will be comparable to that
set forth below.
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996 March 31, 1996
---------------------- --------------------- ----------------------
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
------- ---------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 171,234 $1,836,305 147,722 $1,548,538 137,346 $1,403,369
Delinquencies
30-59 days 2,484 27,527 1,602 17,030 1,574 17,421
60-89 days 1,561 18,894 694 7,629 785 9,354
90 days or more 705 8,414 333 3,811 530 6,130
------- ---------- ------- ---------- ------- ----------
Total delinquencies 4,750 54,835 2,629 28,470 2,889 32,905
Delinquency as a percentage of
servicing portfolio 2.77% 2.99% 1.78% 1.84% 2.10% 2.34%
</TABLE>
As indicated by the above table, delinquency rates at March 31, 1997,
were higher as compared to the same quarter of last year. Delinquency rates
based upon outstanding loan balances of accounts 30 days past due and over were
2.99% at March 31, 1997, compared to 2.34% at March 31, 1996, for the prime
servicing portfolio. Management believes the increased delinquency is primarily
due to a tightening of the criteria for the deferment of an account which became
effective in February 1997. Bankrupt accounts which are included in delinquency
statistics pending resolution continue to be a significant portion of the
overall delinquency amount. Bankrupt accounts represented 42 b.p. of delinquency
at March 31, 1997.
Non-prime portfolio delinquency was 4.18% based upon outstanding loan
balances of accounts 30 days past due and over at March 31, 1997, compared to
3.35% at June 30, 1996, and 2.57% at March 31, 1996. The Company began acquiring
non-prime loans in October 1994. Management expects fluctuations in delinquency
rates on the non-prime portfolio as it continues to season. The increase in
delinquency is due, in part, to a more strict application of the Company's
deferral policy primarily through the reduction of discretionary deferrals under
such policy. To date, the portfolio is performing within the ranges anticipated
by the Company. The non-prime portfolio makes up only approximately 3.6% of the
Company's total servicing portfolio. The Company has historically focused on the
prime end of the credit spectrum and will continue to do so.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended Fiscal Year Ended
March 31, 1997 June 30, 1996 June 30, 1995
--------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 162,120 1,727,725 132,363 1,343,770 104,455 982,875
Gross charge-offs 4,393 48,923 3,663 40,815 3,493 28,628
Recoveries 19,089 19,543 15,258
--------- --------- -------
Net charge-offs 29,834 21,272 13,370
Gross charge-offs as a percentage
of average servicing portfolio 3.61%* 3.78%* 2.77% 3.04% 3.34% 2.91%
Recoveries as a percentage
of gross charge-offs 39.02% 47.88% 53.30%
Net charge-offs as a percentage
of average servicing portfolio 2.30%* 1.58% 1.36%
</TABLE>
* Annualized
Annualized net charge-offs as a percentage of the average servicing
portfolio were 2.30% for the nine months ended March 31, 1997, compared to 1.58%
for the year ended June 30, 1996, and 1.39% for the nine months ended March 31,
1996. Tightening of the Company's deferral policy, as discussed above,
accelerated losses during the third quarter causing quarterly statistics to be
unusually high. Management believes that the short-term effect of this change
will be to increase delinquency and accelerate net charge-offs; however,
management does not expect overall credit losses in the long-term to increase
materially as a result of the change. Management's expectations with respect to
delinquency and credit loss trends constitute forward-looking statements and are
subject to important factors that could cause actual results to differ
materially from those projected by the Company. Certain such factors are
discussed under "Discussion of Forward-looking Information" in the Management's
Discussion and Analysis section of the Company's Annual Report on Form 10-K.
Portfolio performance continues to be within the parameters of
management's expectations despite the recent increases in delinquency and net
charge-offs. The level of credit loss risk is gauged against the potential for
profit in the underwriting process. Management has implemented various
collections and underwriting changes throughout the year in order to improve
portfolio performance, and continues to monitor closely the performance of the
portfolio, and its response to policy changes.
The increase in net charge-offs for the nine months ended March 31,
1997 compared to the nine months ended March 31, 1996 is a result of both the
increase in gross charge-offs as discussed above, as well as a decline in
recovery rates. Recovery rates with respect to the prime servicing portfolio
have declined from 53.30% for fiscal 1995 to 47.88% for fiscal 1996 and are at
39.02% for fiscal 1997 to date. Management attributes the decline to a softening
in current used car prices. Management is working to improve the recovery
percentage by refocusing on its recovery efforts.
Non-prime net charge-offs totaled approximately $797,000 for the
quarter. Annualized net charge-offs were 3.95% of the average Non-prime
servicing portfolio for the nine months ended March 31, 1997, compared to 2.37%
for the fiscal year ended June 30, 1996, and 2.19% for the nine months ended
March 31, 1996. 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.
Overall, the Company has made strategic changes with respect to pricing
and underwriting, including an increase in cut-off scores in several of its
markets during the third quarter of fiscal 1996, and the implementation of a new
Risk Scorecard in March 1997. Adjustments with respect to cut-off scores were
made in markets whose implied loss statistics indicated losses at 2.50% or above
on a static pool basis. The new scorecard is a composite credit bureau score.
These changes were made with the intent of improving the overall quality of the
contracts being acquired. Management continues to focus on controlled growth
with an emphasis on credit quality. These strategies appear to be providing the
Company with the desired results as the implied loss statistics as of March 31,
1997, indicated that the 1996 loan pools were improved over the 1995 loan pools.
See "Discussion of Forward-Looking Statements" below.
Provisions are made for estimated credit losses in conjunction with
each loan sale. The allowance for estimated credit losses is inherent in the
excess servicing asset recorded upon sale. Management believes that the
allowance for estimated credit losses on securitized loans represents an
appropriate
<PAGE>
estimate of potential credit losses. However, the adequacy of such provisions
cannot be determined with certainty as many factors exist which could result in
credit losses materially different from management's original estimates. The
allowance for estimated undiscounted credit losses as a percentage of
outstanding securitized loans was 3.00% at March 31, 1997, compared to 3.22% at
June 30, 1996, and 3.19% at March 31, 1996. Excess servicing is marked to market
on an aggregate basis in accordance with SFAS 125, and adjustments, net of tax,
are recorded as a component of shareholders' equity.
Results of Operations
Net earnings for the three months and nine months ended March 31, 1997,
were up 18.7% and 17.5% respectively, compared to the three months and nine
months ended March 31, 1996. The increase in net earnings for the quarter is
primarily attributable to increased gain on sales of loans and increased
servicing fees. Improved net earnings for the nine month period are primarily a
result of improved net interest margins and increased servicing fees. The
Company's total loan acquisitions for the quarter increased by 9.1% compared to
the same quarter of last year. Year to date loan acquisitions are up 25.9% over
the comparable periods of fiscal 1996. The servicing portfolio reached over $1.9
billion, a 32.2% increase over a year ago.
Net interest margin after provision was relatively unchanged for the
three months ended March 31, 1997, as compared to the three months ended March
31, 1996, but increased 32.3% to $8.9 million for the nine months ended March
31, 1997, compared to $6.7 million for the nine months ended March 31, 1996. The
increase in interest income resulted from an increase in the average monthly
balance of prime loans held for sale to $224.4 million for the nine months ended
March 31, 1997, from $176.9 million for the corresponding period ended March 31,
1996, which was a result of increased loan acquisitions in the nine months ended
March 31, 1997, relative to the nine months ended March 31, 1996. Total interest
expense for the three and nine months ended March 31, 1997, was greater than in
the corresponding periods of the prior fiscal year as a result of increased
average outstanding borrowings (due to increased loan acquisitions and the
issuance of $65 million 7.80% Senior Debt in March 1997). However, interest
expense as a percentage of the average outstanding borrowings has decreased. The
relative decrease in interest expense is a result of the complete amortization
of upfront fees paid in connection with the warehouse facilities in fiscal 1996;
because the warehouse facility agreements initially provided for a term of one
year subject to renewal, the Company amortized all upfront costs over the first
year. The warehouse facilities have subsequently been renewed. The ongoing
interest costs related to the warehouse facilities (through which loan
acquisitions are funded ) are variable and are based on commercial paper rates.
Gain on sales of loans increased slightly to $8.3 million for the three
months ended March 31, 1997, from $7.8 million for the corresponding period
ended March 31, 1996. The Company securitized over $293.3 million in loans
during the third quarter of fiscal 1997 compared to $237.5 million in the third
quarter of fiscal 1996. Although the volume of loans securitized during the
third quarter of fiscal 1997 was increased over prior periods, the net spreads
were less favorable than in the same period of fiscal 1996. Net spreads
rebounded somewhat in the second and third quarter securitizations to 5.37% and
5.43%, respectively from 5.11% in the first quarter. Net spreads suffered
compressions throughout fiscal 1996 due to upward moving market interest rates.
There tends to be a lag between changes in market rates of interest (i.e.
treasury rates) and automobile lending rates. There was compression in gross
spreads for the third quarter securitization, but net spread improved because of
favorable pricing terms obtained with respect to the third quarter transaction.
Further, additional reserves of $1.0 million were recorded in the third quarter
of fiscal 1997.
Servicing fees, net increased 43.0% to $6.9 million for the three
months ended March 31, 1997, compared to $4.8 million for the corresponding
period ended March 31, 1996. Servicing fees consist of contractual servicing
fees (1% on prime securitizations), the accretion of discount on excess
servicing cashflows, and excess rebates. Increased servicing fees were primarily
a result of the increase in the average securitized loans for the three months
ended March 31, 1997, as compared to the same period of the previous year.
Other revenues increased to $1.0 million for the three months ended
March 31, 1997, from $798,000 for the three months ended March 31, 1996. Other
revenue consists primarily of late charge income and origination fee income. The
increase resulted primarily from increases in late charge fee income. The
increase is mainly due to the increased size of the servicing portfolio, but
also due to increased delinquent accounts. Late charge income is not accrued,
but is recorded as income when received.
<PAGE>
Salaries and benefits increased 25.8% to $4.1 million for the three months ended
March 31, 1997, from $3.2 million the corresponding period ended March 31, 1996.
These increases resulted primarily from increased full-time equivalent ("FTE")
employees. Average FTE's for the three months ended March 31, 1997 were 371,
compared to 283 for the comparable period ended March 31, 1996. The Company has
experienced growth in collections, credit, sales, operations, and support
personnel. 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.
Other expense increased only slightly to $3.5 million for the three
months ended March 31, 1997, from $3.4 million for the three months ended March
31, 1996. Other operating expenses include occupancy and equipment costs,
outside and professional services, loan expenses, promotional expenses, travel,
office supplies and other.
Financial Condition
Loans, net includes the principal balance of loans held for sale, net
of unearned discount, allowance for estimated credit losses, loans in process,
and prepaid dealer premiums. The Company's portfolio of loans, net decreased to
$189.5 million at March 31, 1997, from $259.3 million at June 30, 1996. Loan
acquisition volume was higher in the quarter ended June 30, 1996, than in the
quarter ended March 31, 1997, as a result of seasonal fluctuations and the
tightening of credit standards. The Company effected a $293.3 million prime
securitization in the quarter ended March 31, 1997, and a $245.1 million prime
securitization for the quarter ended June 30, 1996.
Excess Servicing increased to $107.6 million as of March 31, 1997, from
$83.4 million as of June 30, 1996. This balance increased by the amount
capitalized upon consummation of the UACSC 1996-C, 1996-D, and 1997-A Auto
Trusts related to excess servicing and estimated dealer premium rebates, and
excess servicing related to the non-prime securitization effected in December
1996. Structuring of the prime securitizations included the sale of "interest
only strips" which generated more cash from the sale, but served to reduce the
initial excess servicing asset recorded. The amount capitalized was offset by
the return of excess cashflows as received over the nine months ended March 31,
1997, related to all outstanding securitizations. The Company made additional
provisions to the allowance for estimated credit losses on securitized loans
during the first three quarters of fiscal 1997 of $4.7 million. The provisions
were charged to gain on sales of loans. Allowance for estimated credit losses on
securitized loans is included as a component of the excess servicing asset. At
March 31, 1997, the undiscounted allowances, related to both prime and non-prime
securitized loans, totaled $51.8 million or 3.00% of the total securitized loan
portfolio. The Company also recorded an unrealized loss on excess servicing of
$6.5 million in accordance with the provisions of SFAS 125 as discussed above.
Spread Accounts increased to $71.5 million at March 31, 1997, from
$63.6 million at June 30, 1996. These balances were increased by deposits made
monthly from excess servicing cashflows, and are reduced by any withdrawals 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 deposit was
made in connection with the last several prime transactions as a result of the
structuring which utilized alternative credit enhancements (i.e. surety bonds)
in lieu of initial spread account deposits.
The Warehouse Facilities, Senior Notes, and Senior Subordinated Notes
constitute the Company's primary funding facilities. The Company issued $110.0
million in 8.53% Senior Notes (Due 2002) in August 1995, in conjunction with the
spin-off from its former parent. In April 1996, the Company issued $46 million
in 9.99% Senior Subordinated Notes (Due 2003) in a private placement. In March
1997, the Company issued $65 million of Senior Notes (Due 2002) in a private
placement with an effective coupon of 7.80%. The balance of the Warehouse
Facilities was $127.2 million at March 31, 1997, compared to $187.8 million at
June 30, 1996. The decrease in total borrowings is due to the relative decrease
in third quarter fiscal 1997 loan acquisitions as compared to the quarter ended
June 30, 1996. Additionally, the Company has realized additional liquidity
through its debt placement, by utilizing alternative credit enhancement features
in its securitizations as discussed above, and by deferring a portion of the
gain on sales of loans for income tax purposes.
The net deferred income taxes payable totaled $16.6 million at March
31, 1997, compared to $8.4 million at June 30, 1996. The increase is a result of
the deferral of a portion of the gain on sales of loans for the securitizations
effected during the first three quarters of fiscal 1997 in excess of previously
deferred income recognized currently for tax purposes.
<PAGE>
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) acquisitions and financing of loans, (ii) payment of Dealer
Premiums, (iii) securitization costs including cash held in Spread Accounts and
similar cash collateral accounts under Warehouse 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, (vii) interest expense, and
(viii) payment of income taxes. 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, (vi) sales of
loans in securitization transactions, and (vii) sales of interest-only strips.
Net cash provided by operating activities increased to $56.8 million for the
nine months ended March 31, 1997, from $16.7 million for the nine months ended
March 31, 1996.
Hedging transactions may represent a source or a use of cash during a
given period depending on the change in interest rates. In the nine months ended
March 31, 1997, hedging transactions have required a use of cash of $5.8
million.
Financing Activities and Credit Facilities. The Company 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 financings including long-term debt and revolving
warehouse credit facilities. 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 up to 100.0% 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 up to 92.0% of the outstanding
principal balance. The advance rate is adjusted monthly based upon actual loss
statistics in order to maintain the necessary enhancement level. The Non-prime
Warehouse Facility provides funding for loan acquisitions at a purchase price of
up to 80.0% (increased to up to 87% in the fourth quarter of fiscal 1997) 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, completed a private placement of $46.0 million in Senior Subordinated
Notes in April 1996 and $65 million in Senior Notes in March 1997. Between
securitization transactions, the Company relies primarily on the 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 Warehouse 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 Warehouse Facilities.
Management believes that the proceeds from the Company's initial public
offering, the Senior Notes, the Senior Subordinated Notes, the Warehouse
Facilities described above, future earnings, and periodic securitization of
loans should provide the necessary capital and liquidity for its operations
during the next twelve months; however, it is management's intent to take full
advantage of favorable market conditions to raise additional working capital as
they occur.
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
<PAGE>
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 raise additional capital including equity securities or additional
debt 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
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 auto leasing, and other non-auto consumer lending. 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. The Company has expanded its
dealer base to include nationally-recognized used rental car outlets and "Used
Car Superstores" which are not manufacturer-franchised dealerships. The Company
currently has 8 dealers signed in three states, and is cashing deals with these
dealers.
On April 3, 1997, the Company closed a $50 million Marine Warehouse
Facility to provide funding for the Company's marine portfolio. There are
provisions for an increase in the Facility to $75 million in March 1998. The
Facility provides funding for loan acquisitions at advance rates of 85% for
boats and 80% for personal watercraft with terms less than 49 months, and 65%
for personal watercraft with terms of 49-60 months. The advance rates may adjust
upward to a maximum of 90% for boats and 85% for personal watercraft with terms
less than 49 months beginning in September 1997 if certain loss and delinquency
triggers are in compliance at that time.
In April 1997, approval for renewal of the Prime and Non-Prime
Warehouse Facilities was obtained for a term of one year. The Prime and
Non-Prime Warehouse Facilities were renewed through June 1998 and July 1998,
respectively. The Company also received a reduction in Program Fees related to
both the Prime and Non-Prime Warehouse Facilities beginning in of May 1997. The
Program Fee on the Prime Facility will be reduced by 14.3%, and the Program Fee
on the Non-Prime Facility will be reduced to 40%. Significant improvement in the
terms of the Non-Prime Facility were also negotiated increasing the advance rate
from 80% to 87% for non-prime loans.
Discussion of Forward-Looking Information
The above discussions contain forward-looking statements made by the
Company regarding its results of operations, cash flow needs and liquidity, loan
acquisition volume, target spreads, potential credit losses, servicing income,
and other aspects of its business. Similar forward-looking statements may be
made by the Company from time to time. Such forward-looking statements are
subject to a number of important factors that cannot be predicted with certainty
and which could cause such forward-looking statements to be materially
inaccurate. See the "Discussion of Forward-Looking Information" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for fiscal 1996 which is
incorporated herein by this reference.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits- The following Exhibits are filed as a part of this
report:
Exhibit 10.1 - Note Purchase Agreement, dated March 24, 1997,
among Union Acceptance Corporation and certain purchasers
of Senior Notes, due 2002
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
<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.
May 14, 1997 By: /s/ John M. Stainbrook
----------------------
John M. Stainbrook
President
By: /s/ Rick A. Brown
----------------------
Rick A. Brown
VP, Treasurer and Chief Financial Officer
UNION ACCEPTANCE CORPORATION
NOTE PURCHASE AGREEMENT
Senior Notes due 2002
Dated March 24, 1997
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<PAGE>
TABLE OF CONTENTS
Page
1. DEFINED TERMS...........................................................5
2. DESCRIPTION OF SENIOR NOTES.............................................5
2A. Series A Senior Notes..........................................5
2B. Series B Senior Notes..........................................5
3. PURCHASE AND SALE OF SENIOR NOTES.......................................6
4. CLOSING OF SALES OF SENIOR NOTES........................................6
5. CONDITIONS TO CLOSING...................................................7
5A. Compliance With Securities Laws................................7
5B. Purchase Permitted By Applicable Laws; Legal Investment........7
5C. No Adverse Legislation, Action or Decision.....................7
5D. Approvals and Consents.........................................7
5E. Corporate Proceedings..........................................8
5F. Representations and Warranties; No Default.....................8
5G. Other Debt.....................................................8
5H. Senior Notes and Other Credit Documents; Other Documents,
Agreements and Instruments...................................8
5I. Opinions of Counsel............................................9
5J. Payment of Costs and Expenses..................................9
5K. Purchases of Senior Notes.....................................10
5L. Agent for Service of Process..................................10
5M. No Material Adverse Change....................................10
5N. CUSIP Number..................................................10
5O. Rating........................................................10
6. OPTIONAL AND MANDATORY PREPAYMENTS.....................................10
6A. Optional Prepayments..........................................10
6B. Mandatory Prepayments.........................................10
6C. Notice of Prepayments.........................................11
6D. Partial Prepayments Pro Rata..................................11
6E. Acquisition of Senior Notes...................................11
7. AFFIRMATIVE COVENANTS..................................................11
7A. Accounting Systems; Financial Statements
and Other Reports...........................................11
7A(i) Quarterly Financial Statements........................11
7A(ii) Annual Financial Statements...........................12
7A(iii) Officer's Certificate; Portfolio Schedules............12
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7A(iv) Auditors' Review......................................13
7A(v) Auditors' Management Letters..........................13
7A(vi) Reports to Shareholders and Commission;
Press Releases.....................................13
7A(vii) Events of Default, Etc.......................14
7A(viii) Litigation, Governmental Investigations......14
7A(ix) ERISA.................................................14
7A(x) Taxes, Etc............................................15
7A(xi) Notice................................................15
7A(xii) Other Information....................................15
7B. Corporate Existence; Maintenance of Properties................15
7C. Payment Of Taxes And Claims...................................16
7D. Conduct of Business; Insurance................................16
7D(i) Conduct of Business...................................16
7D(ii) Insurance.............................................16
7E. Books and Records; Inspection of Property.....................16
7F. Compliance With Laws, Etc.....................................17
7G. Satisfaction of Obligations...................................17
7H. Hazardous Materials...........................................18
7I. Proceeds of Financing.........................................18
7J. Ranking.......................................................18
8. NEGATIVE COVENANTS.....................................................18
8A. Financial Maintenance Tests...................................18
8B. Liens.........................................................19
8C. Investments...................................................20
8D. Restricted Junior Payments....................................21
8E. Maintenance of Consolidated Tangible Net Worth................21
8F. Merger or Sale of Assets......................................22
8G. Securitizations...............................................22
8H. Reporting Company Status......................................23
8I. Restriction on Transactions with Affiliates...................23
8J. No Tax Consolidation..........................................23
8K. Amendments and Waivers of Certain Documents...................23
8K(i) Charter Documents.....................................23
8K(ii) Debt Documents........................................23
8L. Margin Regulations............................................23
8M. No Public Offering of Senior Notes............................24
8N. Foreign Assets Control Regulations, Etc.......................24
8O. Investment Company............................................24
8P. Amendment of Existing Senior Note Purchase Agreement..........25
8Q. Amendment of Subordinated Note Purchase Agreement.............25
9. EVENTS OF DEFAULT......................................................25
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9A. Default; Acceleration........................................25
9B. Rescission of Acceleration...................................28
9C. Other Remedies...............................................28
9D. Subordinated Debt Notices....................................28
9E. Payment Blockage.............................................28
10. REPRESENTATIONS AND WARRANTIES...............................29
10A. Organization, Powers, Good Standing,
Business and Subsidiaries..................................29
10A(i) Organization and Powers..............................29
10A(ii) Good Standing.......................................29
10A(iii) Conduct of Business................................29
10A(iv) Subsidiaries; Capital Stock.........................29
10B. Authorization of Financing, Etc..............................29
10B(i) Authorization of Financing...........................29
10B(ii) No Conflict.........................................29
10B(iii) Governmental Consents..............................31
10B(iv) Due Execution and Delivery; Binding Obligations.....31
10B(v) Securities Law Exemption and Trust Indenture
Act 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
100. Offering of Securities.......................................35
10P. Existing Debt; Securitizations...............................35
10Q. ERISA........................................................35
10R. Agreements with Affiliates...................................36
10S. Patents, Etc.................................................36
10T. Regulation G, Etc............................................36
10U. Warehouse and Securitization Subsidiaries....................37
11. REPRESENTATIONS OF THE PURCHASERS............................37
12. DEFINITIONS..................................................38
12A. Definitions..................................................38
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<PAGE>
12B. Accounting Terms.............................................49
13. JUDICIAL PROCEEDINGS.........................................50
13A. Consent to Jurisdiction......................................50
13B. Enforcement of Judgments.....................................50
13C. Service of Process...........................................50
13D. Waiver of Jury Trial.........................................50
13E. No Limitation on Service or Suit.............................51
13F. Limitation of Liability......................................51
14. MISCELLANEOUS................................................51
14A. Payments.....................................................51
14B. Expenses; Indemnification....................................51
14B(i) Fees and Expenses....................................52
14B(ii) Indemnification.....................................52
14B(iii) Survival...........................................53
14C. Amendments; Waivers..........................................53
14D. Form, Registration, Transfer and Exchange of
Senior Notes; Lost Senior Notes............................53
14E. Rule 144A Mechanics..........................................54
14F. Persons Deemed Owners; Participants; Identity of Holders.....54
14G. Solicitation; Payment........................................54
(i) Solicitation.........................................54
(ii) Payment..............................................55
14H. Survival of Representations and Warranties;
Entire Agreement...........................................55
14I. Successors and Assigns.......................................55
14J. Disclosure to Other Persons..................................55
14K. Notices......................................................56
14L. Descriptive Headings.........................................56
14M. Satisfaction Requirement.....................................56
14N. Independence of Covenants....................................56
14O. Severability.................................................56
14P. Governing Law................................................56
14Q. Counterparts.................................................56
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<PAGE>
This NOTE PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") dated March 24, 1997, 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 Notes as
more fully set forth in this Agreement, the "Purchasers").
WHEREAS, in order to refinance certain existing Debt provided to the
Company and to finance working capital requirements of the Company, the Company
desires to issue and sell certain senior promissory notes; and
WHEREAS, the Purchasers desire to purchase such senior 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 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 hereof.
2. DESCRIPTION OF SENIOR NOTES. The notes to be sold hereunder shall
consist of $50,000,000 of Series A senior promissory notes and $15,000,000 of
Series B senior promissory notes.
2A. Series A Senior Notes. The Company will authorize the
issuance and sale of its 7.75% Series A senior promissory notes due December 27,
2002 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 "Series A Senior Notes" and each such
note is individually referred to herein as a "Series A Senior Note"), in the
original aggregate principal amount of $50,000,000, bearing interest (computed
on the basis of a 360-day year of twelve 30-day months) from the date of
issuance at the rate of 7.75% per annum (subject to adjustment pursuant to
Section 8A(ii)), payable in arrears semi-annually on the fifteenth day of each
September and March beginning on September 15, 1997 and at maturity. The Series
A Senior 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 in
respect of the Series A Senior Notes 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 any overdue installment of interest shall bear interest, to the fullest
extent permitted by law, during any period from the date an Event of Default has
occurred until the date every Event of Default has been cured, waived in writing
or the Senior Notes have been paid in full in accordance with the terms thereof
and hereof, at the rate otherwise applicable plus 2% per annum.
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<PAGE>
2B. Series B Senior Notes. Subject to the provisions hereof,
the Company will authorize the issuance and sale of its 7.97% Series B senior
promissory notes due December 27, 2002 in substantially the form of Exhibit B
hereto (such notes, together with any notes that may be issued hereunder in
substitution or exchange therefor, are collectively referred to herein as the
"Series B Senior Notes" and each such note is individually referred to herein as
a "Series B Senior Note") in the original aggregate principal amount of
$15,000,000, bearing interest (computed on the basis of a 360-day year of twelve
30-day months) from the date of issuance at the rate of 7.97% per annum (subject
to adjustment pursuant to Section 8A(ii)), payable in arrears semi-annually on
the fifteenth day of each September and March beginning on September 15, 1997
and at maturity. The Series A Senior Notes and Series B Senior Notes are
collectively referred to herein as the "Senior Notes" or individually as a
"Senior Note." The Series B Senior 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 in respect of the Series B Senior Notes 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 any overdue installment of interest
shall bear interest, to the fullest extent permitted by law, during any period
from the date an Event of Default has occurred until the date every Event of
Default has been cured, waived in writing or the Senior Notes have been paid in
full in accordance with the terms thereof and hereof, at the rate otherwise
applicable plus 2% per annum.
3. PURCHASE AND SALE OF SENIOR NOTES.
Subject to the terms and conditions set forth herein, the Company
hereby agrees to sell to each of the Purchasers of the Series A Senior Notes and
the Series B Senior Notes and each such Purchaser, severally and not jointly,
agrees to purchase from the Company the Series A Senior Notes and the Series B
Senior Notes, respectively, as designated on the Purchaser Schedule, in the form
of one or more Senior Notes registered in the name of such Purchaser (or that of
its nominee, as such Purchaser shall request), of such series, in such principal
amount 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 SALES OF SENIOR NOTES.
The purchase and delivery of the Senior Notes shall take place at a
closing (the "Closing") at the offices of Cadwalader, Wickersham & Taft in New
York City (or at such other location as the Company and the Purchasers may
agree), on March 24, 1997 or at such other time as the Purchasers and the
Company may agree, but in no event later than March 31, 1997 (the date of such
Closing is referred to herein as the "Closing Date"). The Company shall give
each Purchaser of the Senior Notes at least 3 Business Days' notice of any
proposed change in the time of the Closing. At such Closing, the Company shall
deliver the Senior Notes to be purchased by each 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 the Closing, the Company shall fail to
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<PAGE>
tender to the Purchasers of the Senior Notes any of the Senior Notes to be
purchased by them as provided above in this Section 4, or any of the conditions
specified in Section 5 shall not have been satisfied or waived by such
Purchasers of the Senior Notes, each Purchaser of the Senior Notes 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 of Senior Notes to purchase and pay
for the Senior Notes to be purchased by it on the Closing Date is subject to the
satisfaction of the following conditions precedent which shall be satisfied on
or before the Closing Date, unless provided otherwise:
5A. Compliance With Securities Laws. The offering, issuance
and sale of the Senior 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 purchase of and payment for the Senior 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
pursuant to any applicable 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 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.
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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 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 purchasing Senior Notes on the
Closing Date 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 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 and under the other Credit Documents 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 such
Closing Date hereunder and under the other Credit Documents, no Default or Event
of Default.
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 Existing Senior Note Purchase Agreement, each
completed and outstanding Securitization, the agreement documenting each
Warehouse Facility, any agreement governing Subordinated Debt, and documents and
instruments granting collateral security for, or guaranteeing payment of,
obligations of the Company and its Subsidiaries in connection therewith, all of
which 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 its Subsidiaries.
5H. Senior 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 Series A Senior Notes and the Series B Senior Notes;
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(ii) copies of the bylaws of the Company, each Restricted
Subsidiary and each other Subsidiary of the Company,
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 of the Company, 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;
(vi) written wire transfer instructions satisfactory to
the Purchasers relating to the disbursement of the
proceeds of the sale of the Senior Notes;
(vii) a solvency certificate substantially in the form of
Exhibit C in favor of the Purchasers dated as of the
Closing Date;
(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 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 7D(ii); and
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(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 and
Taft, special New York counsel to the Purchasers, favorable legal opinion
letters, dated the Closing Date, substantially in the forms of Exhibit D and 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 & Taft, special counsel to the Purchasers an amount
equal to the fees and expenses of such counsel in connection herewith to the
extent billed but not paid by the Closing Date, and any other reasonable 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 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 Notes to be issued and sold to each such
Purchaser in accordance with the provisions hereof on such date.
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, 1996 there
shall have been no material adverse change in the financial condition,
liquidity, operations, assets, prospects or business of the Company and its
Subsidiaries, taken as a whole, in the judgment of the Purchasers, other than as
may be disclosed in the interim consolidated financial statements of the Company
which were contained in the Private Placement Memorandum or which have otherwise
been provided to the Purchasers prior to the Closing Date.
5N. CUSIP Number. The Company shall have obtained CUSIP
numbers, or if not available a Private Placement Number (PPN), with respect to
the initial offering, issuance and sale of the Series A Senior Notes and the
Series B Senior Notes.
5O. Rating. The Senior Notes shall have been assigned an
unqualified private letter rating obtained at the Company's expense from Fitch
Investors Service L.P. of at least "BBB" and each Purchaser shall have received
a copy of a letter confirming such rating and such rating will continue to be in
effect as of the Closing Date.
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6. OPTIONAL AND MANDATORY PREPAYMENTS.
6A. Optional Prepayments. The Company may prepay the Senior
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 Notes so prepaid; provided, however, that any such prepayment (a) may be
made only in accordance with the provisions of Sections 6C and 6D, (b) shall, in
the event less than all of the Senior Notes are being prepaid, be in a principal
amount of not less than $1,000,000 and in an integral multiple of $100,000, and
(c) the Senior Notes shall be paid in full or the outstanding principal amount
of Senior Notes after giving effect to such optional prepayment shall not be
less than (x) $20,000,000 if the optional prepayment is made after the mandatory
prepayment was made pursuant to Section 6B hereof or (y) $20,000,000 plus the
amount required to be paid pursuant to Section 6B hereof if such optional
prepayment is made before the mandatory prepayment is made pursuant to such
Section 6B. Any partial prepayment of Senior Notes pursuant to this Section 6A
shall be applied to the Company's obligations to repay or prepay such Senior
Notes at maturity in inverse order of maturity.
6B. Mandatory Prepayments. The Company shall prepay the Senior
Notes as follows: until the Senior Notes shall be paid in full, the Company
shall prepay each Senior Note, without premium (including the Yield Maintenance
Premium), on March 15, 2002, in an amount equal to the lesser of (a) 33J% of the
stated original principal amount of such Senior Note and (b) the then
outstanding principal amount of such Senior Note, and such principal amounts of
each Senior Note, together with all accrued and unpaid interest thereon to and
including the date of such prepayment, shall become due and payable on such
prepayment date. The entire remaining principal amount of each Senior Note,
together with all accrued and unpaid interest thereon, shall become due and
payable in full on December 27, 2002.
6C. Notice of Prepayments. The Company shall give each Holder
written notice of each optional prepayment of Senior Notes pursuant to Section
6A not less than 30 days nor 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 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 (including the Yield-Maintenance
Premium, if any) that would apply to the Senior 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.
6D. Partial Prepayments Pro Rata. No optional partial
prepayment of Senior Notes may be made unless, in the case of each such
prepayment, the aggregate principal amount of
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such prepayment is allocated ratably among all Senior Notes then outstanding in
proportion to the respective unpaid principal amount of each such Senior Note.
6E. Acquisition of Senior Notes. The Company shall not, and
shall not permit any of its Affiliates to, purchase, prepay, redeem or otherwise
acquire any Senior Note from any Holder, except pursuant to a payment or
prepayment in accordance with the specific terms of this Agreement. Any Senior
Note purchased, redeemed or otherwise acquired by the Company or any of its
Subsidiaries shall immediately be retired and discharged, and may not be
reissued.
7. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, until payment in full of all of
the outstanding Senior 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 its 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 ending
after the date hereof (other than the last Fiscal Quarter of a Fiscal Year)
consolidated balance sheets of the Company and its 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 its 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 its
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.
7A(ii) Annual Financial Statements. As soon as practicable and
in any event within 90 days after the end of each Fiscal Year ending after the
date hereof, consolidated balance sheets of the Company and its 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 its 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 in all material respects the
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financial position of the Company and its Subsidiaries as at the dates indicated
and the results of their operations and their cash flows 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 its 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, the
Senior Notes and the Existing Senior Note Purchase Agreement 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 its 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 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 8F; (d) demonstrating in reasonable detail the calculation of all
financial tests required to be met by the Company in the Existing Senior Note
Purchase 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 thereof; and (e) at the request of any Significant 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 F 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 such Holder may from
time to time request.
7A(iv) Auditors' Review. Together with each delivery of
consolidated financial statements of the Company and its 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 forms of Senior Notes attached as exhibits 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
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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 of the Company 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 of the Company 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 of the Company 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 of the Company to its
shareholders (other than the Company or another Subsidiary of the Company), (b)
all regular periodic reports and all registration statements and prospectuses,
if any, filed by the Company, any Restricted Subsidiary or any other Subsidiary
of the Company 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, (c) all press releases and other statements made available by the
Company, any Restricted Subsidiary or any other Subsidiary of the Company to the
public concerning Material developments in the business of the Company and its
Subsidiaries, and (d) if requested by 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 of the
Company to any trustee (or equivalent) or creditor (including credit enhancement
parties) in connection with Warehouse Facilities, Senior Secured Facilities and
Securitizations.
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 of the Company or
taken any other action with respect to a claimed default or event or condition
of the type referred to in Section 9A(ii) or 9A(vi), (d) of any event or
condition that would give rise or could reasonably be expected to give rise to a
Material Adverse Effect or (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 Warehouse Facility or Senior Secured Facility 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 of its Subsidiaries the subject, terms or
conditions of which are Material to the business or financial
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condition of the Company and its Subsidiaries taken as a whole, 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.
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 of the Company, (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 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 material
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 of
the Company with respect to any property 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.
7A(ix) ERISA. Promptly (and in any event within 30 days) after
the Company or any of its Subsidiaries 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 of its Subsidiaries 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 of its Subsidiaries 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 of its
Subsidiaries 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 of its Subsidiaries 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 of its Subsidiaries or any ERISA Affiliate, as
the case may be.
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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 of
the Company 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 of the Company.
7A(xi) Notice. Within 5 Business Days after (i) the transfer
on the books and records of the Company of any Senior Subordinated Notes due
2003 issued under the Subordinated Note Purchase Agreement, (ii) the issuance of
any other Subordinated Debt or (iii) the transfer on the books and records of
the Company of any Subordinated Debt, the Company shall give notice to each
Holder, which notice shall contain the name of the transferor, if any, of
Subordinated Debt and the name and address of the transferee or purchaser of
Subordinated Debt.
7A(xii) 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 of the Company 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 existence, rights
and franchises of the Company and its Subsidiaries (except as specifically
permitted by Section 8E hereof and except that the corporate existence of any of
its Subsidiaries 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 its 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 its 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 its Subsidiaries may be properly and
advantageously conducted, and (c) will, and will cause each of its 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.
7C. Payment Of Taxes And Claims. The Company shall, and shall
cause each Restricted Subsidiary and each other Subsidiary of the Company 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 of
the Company before any penalty or interest in a material amount accrues thereon,
and pay all claims
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(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 of the Company 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, its Restricted
Subsidiaries and its 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
non-risk 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, its Restricted Subsidiaries and its
Securitization Subsidiaries for each Fiscal Year shall be received from the
conduct of consumer financing businesses.
7D(ii) Insurance. The Company and each Restricted 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.
7E. Books and Records; Inspection of Property. The Company
will keep, and will cause each of its 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 its Subsidiaries, to examine
the corporate, financial and operating records of the Company and its
Subsidiaries and make notes and copies thereof and (iii) discuss the affairs,
finances and accounts of any of the Company and its Subsidiaries with the
directors, officers and independent accountants of the Company and its
Subsidiaries, all at such reasonable times and as often as any Significant
Holder may reasonably request.
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7F. Compliance With Laws, Etc. The Company will comply, and
will cause each of its 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 of its
Subsidiaries 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 its 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 its 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 its
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 Notes hereunder shall be used to refinance certain Debt provided to the
Company under the Warehouse Facilities and to acquire consumer finance loans and
for general corporate purposes of the Company and its Subsidiaries.
7J. Ranking. The Company covenants that the Senior Notes shall
at all times rank at least pari passu in right of payment with all existing and
future (unsecured) senior indebtedness of the Company, and will at all times
rank senior to all senior subordinated and other subordinated indebtedness of
the Company.
8. NEGATIVE COVENANTS.
The Company covenants and agrees that, until payment in full of all of
the outstanding Senior Notes and all other amounts payable under this Agreement,
it shall perform all covenants in this Section 8.
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8A. Financial Maintenance Tests.
(i) The Company shall not permit (a) the ratio
of Consolidated Total Debt, less Warehouse
Facilities principal balances and less
Subordinated Debt, to the sum of
Subordinated Debt plus Consolidated Tangible
Net Worth to exceed 3.5 to 1; (b) the ratio
of Subordinated Debt to Consolidated
Tangible Net Worth to exceed 1 to 1; and (c)
its Interest Coverage Ratio, for the
previous four Fiscal Quarters, to be less
than 1.50 to 1.
(ii) If the Interest Coverage Ratio should fall
below 1.65 to 1 for any Fiscal Quarter after
the Closing Date, as measured for the four
most recent Fiscal Quarters ("Interest
Coverage Shortfall"), then the interest rate
on each series of the Senior Notes shall be
increased by 0.25% per annum from the last
day of the Fiscal Quarter that such Interest
Coverage Shortfall occurred, until the last
day of the Fiscal Quarter that the Company
shall achieve an Interest Coverage Ratio of
at least 1.65 to 1 for two consecutive
fiscal quarters, as measured for the four
most recent Fiscal Quarters. An Interest
Coverage Shortfall shall not constitute an
Event of Default if the Interest Coverage
Ratio is not less than 1.50 to 1.
8B. Liens. (a) The Company shall not, and shall not permit any
of its Restricted Subsidiaries or any Securitization Subsidiaries 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, (b) such Lien does not extend to
any Property not previously subject thereto,
and (c) no Event of Default has occurred and
is continuing or will result therefrom;
(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 (Y) the then fair
market value of the Property covered by such
Lien at the time of acquisition of the
Property and (Z) the total purchase price
thereof;
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(iv) customary Liens incurred in the ordinary course of
business to the extent required to secure Debt under
Warehouse Facilities and Senior Secured Facilities;
(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 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 pursuant to the terms of
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.
(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 sub-section 8B(b)(Z)).
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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;
(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
nor 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, the Company would then be in compliance with
the financial maintenance tests set forth in Section 8A(i) 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) the Company may make any mandatory payments on
Subordinated Debt as permitted by the subordination
provisions of the Subordinated Debt Document
governing such Subordinated Debt; 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
optional prepayment on Subordinated Debt or dividends
to
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shareholders to the extent that, after giving effect
to any such Restricted Junior Payment, the aggregate
amount of all 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.
Notwithstanding the foregoing, the Company shall not, nor shall the Company
permit any of its Subsidiaries 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. Maintenance of Consolidated Tangible Net Worth. The
Company shall not permit its Consolidated Tangible Net Worth to be less, at any
time, than $61,300,000, plus 50% of the cumulative Consolidated Net Income (with
no reduction for losses) of the Company from and after the first Fiscal Quarter
ending after the Closing Date.
8F. Merger or Sale of Assets.
(i) The Company covenants that it will not, and it will
not permit any of its Subsidiaries 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 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 and (b) immediately after
such merger or consolidation (and giving effect
thereto) no Default or Event of Default shall have
occurred and be continuing, (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 item (b) of this
Section 8F 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.
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(ii) The Company covenants that it will not, and will not
permit any of its Subsidiaries 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 (provided that sales or
transfers in the ordinary course of business by
Subsidiaries to facilitate Securitizations or to sell
consumer loans at a premium sufficient to cover all
costs of obtaining such loans plus provide a profit
to the seller/transferor are expressly permitted
under this subsection (a)), and no Default or Event
of Default has occurred and is continuing or would
result therefrom, (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; or (c) in transactions other than those
covered in (a) and (b) above, if after giving effect
to such transaction, the total net book value of the
assets to be transferred thereby does not exceed (Y)
10% of the Cumulative Total Assets of the Company
during the fiscal year in which such transfer
occurred and (Z) 25% of the Cumulative Total Assets
of the Company since the Closing Date, 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.
8G. 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 its 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 (X) 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 by Moody's Investors Service, Inc., Standard & Poor's Ratings Group, a
Division of the McGraw-Hill Companies, Fitch Investor's
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<PAGE>
Service L.P., or Duff & Phelps (or their respective successor rating agencies),
or (Y) the structure and terms of such Securitization is approved by the
Required Holders.
8H. 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.
8I. Restriction on Transactions with Affiliates. The Company
shall not, and shall not permit any of its Subsidiaries to, enter into any
transaction with any Subsidiary or Affiliates unless such transaction is 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.
8J. No Tax Consolidation. The Company shall not, and shall not
permit any of its Subsidiaries to, file, or consent to the filing of, any
consolidated income tax return with any Person other than the Company and its
Subsidiaries, for any period beginning after the Closing Date.
8K. Amendments and Waivers of Certain Documents.
8K(i) Charter Documents. The Company shall not, and shall not permit
any of its Subsidiaries 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.
8K(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 Notes as senior Debt of
the Company.
8L. Margin Regulations. The Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, use any of the
proceeds of the issuance and sale of the Senior 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 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
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does not constitute more than 25% of the value of the consolidated assets of the
Company and its 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. Nothing in this Section 8L shall permit the Company, any
Restricted Subsidiary or any Securitization Subsidiary to make any Investments
not permitted under Section 8C.
8M. No Public Offering of Senior Notes. The Company agrees
that neither it, nor anyone acting on its behalf, will offer the Senior Notes so
as to bring the issuance and sale of the Senior 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 Notes would be integrated as a single offering for the purposes of the
Securities Act.
8N. Foreign Assets Control Regulations, Etc. Neither the sale
of the Senior 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 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
8O. Investment Company. The Company shall not, and shall not
permit any of its Subsidiaries to, become, or be controlled by, an "Investment
Company" as such term is defined in the Investment Company Act of 1940, as
amended.
8P. Amendment of Existing Senior Note Purchase Agreement.
Notwithstanding anything to the contrary in this Agreement, without the prior
written consent of the Required Holders, the Company shall not amend or
otherwise modify the covenants in (i) Section 8A(ii)(b) and Section 8A(ii)(d) of
the Existing Senior Note Purchase Agreement so that such covenants shall be more
favorable to the Company, (ii) Sections 8A(ii)(c), 8B, 8C, 8D, 8E and 8L of the
Existing Senior Note Purchase Agreement so that such covenants shall be more
favorable to the Company than the covenants contained in Sections 8A(i)(b), 8B,
8C, 8D, 8E and 8F hereof and (iii) any terms defined in Section 12A thereof as
such defined terms are used in Sections 8A(ii)(b), 8A(ii)(c), 8A(ii)(d), 8B, 8C,
8D, 8E and 8L thereof.
8Q. Amendment of Subordinated Note Purchase Agreement. Without
the prior written consent of the Required Holders, the Company shall not amend
or otherwise modify (a) Section 6.1 of the Subordinated Note Purchase Agreement
or (b) any terms defined in Section 12A thereof and referenced in Section 6.1
thereof as such defined terms are used in such Section 6.1.
9. EVENTS OF DEFAULT.
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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 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,
for any mandatory prepayment, upon acceleration or
notice of optional prepayment or otherwise; or
(ii) (a) The Company or any Restricted Subsidiary or any
other Subsidiary of the Company 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 Warehouse Facilities, Senior Secured
Facilities and interest rate protection
arrangements), or (b) any other breach, default or
event of default (including, without limitation, any
payment 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 of the Company
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 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), and such breach or default shall not
have been cured within any applicable period of
grace; or
(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 of the Company 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 (or in any respect insofar as it
relates to a representation, warranty, covenant or
statement that contains a materiality standard) on
the date as of which made or renewed; or
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(iv) the Company, 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 Sections 7J, 8A(i), 8B, 8D
and 8E of this Agreement; or
(v) the Company, any Restricted Subsidiary or any
Securitization Subsidiary shall fail duly and
punctually to perform or observe (other than those
specified in Section 9A(i) and Section 9A(iv)) any
covenant, promise or obligation set forth in any
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
(vi) the Company, any Restricted Subsidiary or any other
Subsidiary of the Company 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 of
the Company or any other proceeding shall be
instituted voluntarily by or involuntarily against
the Company, any Restricted Subsidiary or any other
Subsidiary of the Company 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 of the Company shall authorize it to take,
or the Company, any Restricted Subsidiary or any
other Subsidiary of the Company shall take any
actions in furtherance of, any of the actions
described in this Section 9A(vi); or
(vii) 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
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their respective Properties and shall remain
undischarged, unvacated, unbonded or unstayed for a
period of 30 days, or, if such Property is to be
sold, by the date 5 days prior to the date of any
proposed sale thereunder; or
(viii) 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
(ix) 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 of its Subsidiaries 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 of
the Company 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 case may be, which could have a
Material Adverse Effect.
Then (a) upon the occurrence of any Event of Default described in Section
9A(vi), the unpaid principal amount of the Senior 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 Notes to be, and all of the
Senior 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 Note, the Holder of that Senior 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 Notes held by such Holder to be, and all of such Senior 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.
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9B. Rescission of Acceleration. At any time after any
declaration of acceleration of any of the Senior 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 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 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 of the Company and do not give the Company, any Restricted
Subsidiary or any other Subsidiary of the Company 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 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 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.
9D. Subordinated Debt Notices. Any Holder may give notices
contemplated by any subordination clauses of agreements for Subordinated Debt.
9E. Payment Blockage. An event of default (but not an Event of
Default under this Agreement) shall be deemed to have occurred for purposes of
this Section 9E only upon the failure of the Company to meet the covenants set
forth in the Existing Senior 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 Existing Senior Note Purchase Agreement are amended
so as to be more favorable to the Company, then for the purposes of this Section
9E the provisions as so amended will be substituted for the provisions thereof
as currently in effect. If such an event of default has occurred and is
continuing, a Blockage Notice Provider (as such term is defined in the
Subordinated Note Purchase
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Agreement) shall be entitled to invoke a payment blockage pursuant to Section
6.1B(ii) of the Subordinated Note Purchase Agreement.
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 its
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 I, 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 Notes and to carry out the transactions
contemplated hereby and thereby.
10A(ii) Good Standing. The Company and each of its
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.
10A(iii) Conduct of Business. The Company and its 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
existing 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 of the Company are 100% owned by the Company.
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 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
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the Senior 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, any Restricted Subsidiary or any Securitization Subsidiary or
upon any property or assets of the Company, any Restricted Subsidiary or any
other Subsidiary of the Company, (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 of the Company, (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 of the Company 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 of the Company, or (e) require any
approval or consent of stockholders of the Company, any Restricted Subsidiary or
any other Subsidiary of the Company, 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 of the Company 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 such closing date.
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 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 except that this Agreement and the related
documents are to be filed in a Form 10-Q or Form 10-K of the Company as a
material agreement.
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 Date, 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 Date, the Senior
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 Exemption and Trust Indenture Act
Exemption. The Senior 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.
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10B(vi) Other Debt, Etc. As of the opening of business on
March 24, 1997 (a) the outstanding principal balance of the Existing Senior
Notes is $110,000,000, (b) the outstanding principal balance of Subordinated
Debt is $46,000,000, (c) the outstanding principal balance of the Warehouse
Facilities is approximately $112,000,000, and (d) the outstanding principal
balance of Senior Secured Facilities is $0. The Company's and its 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. All obligations of the
Company to the Holders, whether evidenced by the Senior Notes or arising under
this Agreement or any other Credit Document, will constitute senior indebtedness
of the Company. No default or event of default exists under any agreement
governing Debt of the Company or any of its Subsidiaries (including any
Warehouse Facility) or any Securitization.
10C. Financial Condition. The consolidated balance sheets of
the Company and its Subsidiaries as at June 30, 1995 and June 30, 1996, and the
related consolidated statements of income and cash flows for the years then
ended, which have been examined by KPMG Peat Marwick LLP, who delivered an
unqualified opinion with respect thereto, and the unaudited consolidated balance
sheets of the Company and its Subsidiaries as at September 30, 1996 and December
31, 1996, and the related consolidated statements of earnings and cash flows for
the three and six months then ended, respectively, have been delivered to the
Purchasers and 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 its Subsidiaries as at the respective dates thereof
and the consolidated results of operations and cash flows of the Company and its
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. Neither the Company nor any of its Subsidiaries 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, 1996, there
has been no material adverse change in the financial condition, operations,
assets, prospects or business of the Company and its 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 interim quarterly
consolidated financial statements of the Company contained in the Private
Placement Memorandum or which have otherwise been provided to the Purchasers
prior to the Closing Date.
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10E. Title to Properties; Liens. The Company and its
Subsidiaries have good and valid title to or beneficial ownership of all their
respective Property (which Property as of the date hereof includes all Property
(other than Property previously disposed of in the ordinary course of business)
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 of the Company 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 of the Company) 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 of the
Company has or could reasonably be expected to have knowledge, or pending
against or affecting the Company, any Restricted Subsidiary or any other
Subsidiary of the Company 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 of the Company 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 of the Company 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.
10G. Payment of Taxes. (a) All tax returns and reports of the
Company, each Restricted Subsidiary or each other Subsidiary of the Company
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 of the Company 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 of the Company 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.
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10H. Materially Adverse Agreements; Performance; Absence of
Material Contracts. None of the Company, any Restricted Subsidiary or any other
Subsidiary of the Company 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 of the Company 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 of the Company 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 of the Company 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 regulation or
registration or is controlled by any Person subject to regulation or
registration 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 or making its contracts void or voidable.
10J. Certain Fees. Other than fees, costs and other expenses
described in Section 5J, and other than fees payable to Nesbitt Burns Securities
Inc. 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 Notes.
10K. Disclosure. No representation or warranty of the Company,
any Restricted Subsidiary or any other Subsidiary of the Company 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 of the Company
(including, without limitation, the Private Placement Memorandum delivered to
the Purchasers by Nesbitt Burns Securities Inc. for purposes of placing the
Senior Notes, for use in connection with the transactions contemplated by this
Agreement or any other Credit Document contains or contained any untrue
statement of a material fact or omits or omitted to state a material fact (known
to any such Person in the case of any document not furnished by it) at the time
it was made or furnished, as the case may be, 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
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Subsidiary or any other Subsidiary of the Company 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 VI sets forth (i) 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 its
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 of the Company 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.
10O. Offering of Securities. The offering, issuance and sale
of the Senior 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 Notes, no form of
general solicitation or general advertising was used by the Company, Nesbitt
Burns Securities Inc. (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 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, radio or the internet 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
Notes. No securities of the same class as the Senior 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
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Restricted Subsidiary or each other Subsidiary of the Company, as of the date
hereof, are described on Schedule II, except for any individual item not in
excess of $250,000.
10Q. ERISA. Each of the Company, its 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 such Pension Plans. Neither the
Company nor any Subsidiary of the Company 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 of the Company
or any ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company, a Subsidiary of the Company 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, its 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
attributable to continuation coverage mandated by section 4980B of the Code) of
the Company and its Subsidiaries and ERISA Affiliates is not Material. There is
no pending or, to the best knowledge of the Company, any of its Subsidiaries 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 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 Pension Plan and Multiemployer Plan or post retirement
benefit plan maintained or contributed to by the Company, any Subsidiary of the
Company 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 on Schedule II (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.
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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 its 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 of its Subsidiaries 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 of its
Subsidiaries owns or has any present intention of acquiring any "margin stock"
as defined in Regulation G (12 CFR 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 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 of its Subsidiaries nor any agent acting on its behalf has taken or
will take any action which might cause this Agreement or the Senior 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, as the case may be 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.
11. REPRESENTATIONS OF THE PURCHASERS.
(i) Each Purchaser severally represents on the date
hereof and as of the Closing Date, that it is not
acquiring the Senior Notes to be purchased by it
hereunder with a view to or for sale or in connection
with any distribution thereof within the meaning of
the Securities Act, provided that the disposition of
its property (including the Senior 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.
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(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
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
(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
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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 Notes or
by reason of benefiting from any agreements or covenants in this Agreement or in
any other Credit Document.
"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.
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"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
California, New York or Indiana and (iii) any day on which banking institutions
located in California, New York or Indiana are authorized or required by law or
other governmental action to close.
"Called Principal" means, with respect to any Senior Note, the
outstanding principal amount of such Senior 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.
"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.
"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.
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"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, its Restricted Subsidiaries
and its Securitization Subsidiaries on a consolidated basis.
"Consolidated Assets" means the consolidated assets of the
Company, its Restricted Subsidiaries and its Securitization Subsidiaries
determined in accordance with GAAP.
"Consolidated Liabilities" means the consolidated liabilities
of the Company, its Restricted Subsidiaries and its 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, its Restricted Subsidiaries and its
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, trademarks, 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.
"Consolidated Total Debt" means the outstanding aggregate
principal amount of all Debt of the Company, its Restricted Subsidiaries and its
Securitization Subsidiaries on a consolidated basis, excluding contingent
obligations to the extent already included in Consolidated Total Debt.
"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
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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 and the Senior Notes
and each other instrument or agreement executed and delivered by the Company or
any of its Subsidiaries or Affiliates pursuant to this Agreement, the Senior
Notes or any such instrument or agreement.
"Cumulative Total Assets" means, for a specified period, the
Consolidated Assets as of the beginning of such period: (i) plus the book value
of assets added during such period; (ii) less the book value of assets disposed
during such period; and (iii) less depreciation and amortization accumulated
during such period; provided however, there shall be excluded from Cumulative
Total Assets any goodwill, trade names, trademarks, patents, unamortized debt
discount and expense, and other intangibles, except that Dealer Premium Rebates
and Excess Servicing shall not be so excluded.
"Dealer Premium Rebate" means Dealer Premium Rebate as
reported in the Company's consolidated financial statements for the relevant
period in accordance with GAAP.
"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 Notes, the Existing 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.
"Discounted Value" means, with respect to the Called Principal
of any Senior Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called
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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.
"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 of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA.
"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 of its Subsidiaries (or equivalent officer).
"Existing Senior Notes" means the senior notes issued pursuant
to the Existing Senior Note Purchase Agreement.
"Existing Senior Note Purchase Agreement" means the Note
Purchase Agreement dated August 7, 1995 among the Company and the purchasers
described therein, as amended from time to time, providing for the sale of
$110,000,000 of senior notes due 2002.
"Fiscal Quarter" means a fiscal quarter of the Company and its
Subsidiaries.
"Fiscal Year" means a fiscal year of the Company and its
Subsidiaries.
"Funding Corporations" means Union Acceptance Funding
Corporation, UAC Boat Funding Corp. and Performance Funding Corporation and any
other similar in nature and purpose
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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 of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements that are described in Statement on Auditing Standards No. 69 "The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles in the Independent Auditor's Report" that are applicable to the
circumstances as of the date of determination, applied on a consistent basis;
provided, however, for purposes of this Agreement, in determining Consolidated
Assets, Consolidated Liabilities, Consolidated Net Income, Consolidated Tangible
Net Worth and Consolidated Total Debt, the assets, liabilities, net income,
tangible net worth and total debt, respectively, of the Securitization
Subsidiaries shall be included in such determination notwithstanding any
generally accepted accounting principals which do not require or permit the
Securitization Subsidiaries to be consolidated with the Company.
"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.
"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 Notes.
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"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 Coverage Shortfall" has the meaning specified in
Section 8A(ii).
"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.
"Material" means material in relation to the business,
affairs, financial condition, assets or properties of the Company and/or the
Company and its 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, its Restricted Subsidiaries and its Securitization Subsidiaries
taken as a whole, and/or the Company and its 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
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Subsidiary of the Company 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.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" means any employee benefit plan of the Company,
a Subsidiary of the Company 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.
"Private Placement Memorandum" means the private placement
memorandum dated February 1997, prepared by the Company and used by Nesbitt
Burns Securities Inc. for the purpose of placing the Senior 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) 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 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 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
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
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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 (or, if not available,
having a maturity closest 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 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 of such Called Principal.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Senior 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 more than 50% in
principal amount of the Senior Notes (other than Senior Notes held by the
Company or any Affiliate of the Company) at the time outstanding.
"Required Purchasers" means any initial Purchaser or an
affiliated group of initial Purchasers who is scheduled to purchase on the
Closing Date $10,000,000 or more in principal amount of Senior Notes.
"Reserve Accounts" means that portion of restricted cash
reported on the Company's latest available consolidated balance sheet in
accordance with GAAP which represents cash deposits held in reserve accounts
pursuant to the Warehouse Facilities and the Senior Secured Facilities for the
purpose of protecting the providers of such facilities against credit losses.
"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
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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 its 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.
"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. The
Restricted Subsidiaries as of the date hereof are identified on Schedule V.
"Securities Act" means the Securities Act of 1933, as amended,
and any successor statute.
"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 its 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 or consumer
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 its Subsidiaries
prior to the date of this Agreement.
"Securitization Subsidiaries" means a Wholly Owned direct or
indirect present or future Subsidiary of the Company 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 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
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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 of the Company 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.
"Series A Senior Notes" has the meaning specified in Section
2A.
"Series B Senior Notes" has the meaning specified in Section
2B.
"Settlement Date" means, with respect to the Called Principal
of any Senior Note, the date on which such Called Principal (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, as the context may
require.
"Shareholders' Equity" means, at any time of determination,
the lesser of (i) the shareholders' equity, as determined in conformity with
GAAP, of the Company and its Subsidiaries on a consolidated basis as shown on
the most recent financial statements delivered to the Holders pursuant to
Section 7, and (ii) the actual shareholders' equity, determined in conformity
with GAAP, of the Company and its Subsidiaries on a consolidated basis at such
time, but shall in any event not include any capital stock that the Company or
any of its Subsidiaries is or could become obligated to retire, redeem, purchase
or otherwise acquire for value.
"Significant Holder" means the original Holders of the Senior
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 10% or more of the
outstanding principal amount of the Senior 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.
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"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 (i) issued under
the Subordinated Note Purchase Agreement, or (ii) (a) whose first scheduled
principal payment date is at least 92 days after the maturity date of the Senior
Notes (as such maturity may have been extended at the time of issuance of such
Debt), (b) is (x) subordinated or junior in right of payment to the Senior Notes
on terms and provisions which are no more favorable to the holders thereof than
the terms and provisions of Section 6.1 of the Subordinated Note Purchase
Agreement (as in effect on the date of initial issuance of the senior
subordinated notes described therein) are to the holders of the senior
subordinated notes described therein, and (y) otherwise evidenced by
documentation in form and substance satisfactory to the Required Holders.
"Subordinated Debt Documents" means (i) the Subordinated Note
Purchase Agreement, as in effect on the date of initial issuance of the senior
subordinated notes described therein, or (ii) any other indenture, note or
agreement governing Subordinated Debt which satisfies the requirements of clause
(ii) of the definition of Subordinated Debt.
"Subordinated Note Purchase Agreement" means that certain Note
Purchase Agreement, dated as of April 3, 1996, among the Company and the note
purchasers named therein with respect to the Senior Subordinated Notes due 2003,
as amended, modified and supplemented in accordance with the terms thereof.
"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
of the Company 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.
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"Transferee" means any direct or indirect transferee of all or
any part of any Senior Notes.
"Warehouse Facilities" and "Warehouse Facility" means the
Warehouse Facility existing pursuant to the Transfer and Administration
Agreement among the Company, Union Acceptance Funding Corporation and Enterprise
Funding Corporation, dated as of June 27, 1995, as amended from time to time,
and the Warehouse Facility existing pursuant to the Transfer and Administration
Agreement among the Company, Performance Funding Corporation and Enterprise
Funding Corporation dated as of July 24, 1995, as amended from time to time, 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 of the Company 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
Note, a premium equal to the excess, if any, of the Discounted Value of the
Called Principal of such Senior 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.
13. JUDICIAL PROCEEDINGS.
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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 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 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 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
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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 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 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 of the Company) 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
Notes remain outstanding, it will make all payments and prepayments of principal
of, premium, if any, and interest on, the Senior Notes that comply 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 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 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 Notes.
14B. Expenses; Indemnification.
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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 Required
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 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 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
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 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 Notes, any other Credit 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;
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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 Note and payment of any
Senior 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 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 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 Notes
are payable or purports to reduce the ranking of the Senior 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 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 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.
14D. Form, Registration, Transfer and Exchange of Senior
Notes; Lost Senior Notes. The Senior Notes are issuable as registered notes
only, each without coupons in denominations of at least $500,000 and any larger
integral multiple of $100,000; provided, however, that the Company shall issue
Senior Notes in denominations smaller than $500,000 upon transfer of any Senior
Note in an unpaid principal amount of less than $500,000. The Company shall keep
at its principal office a register in which the Company shall provide for the
registration of Senior Notes and of transfers of Senior Notes. Upon surrender
for registration of transfer of any Senior Note at the principal office of the
Company, the Company shall, at its expense, execute and deliver
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one or more new Senior Notes of like tenor and of a like aggregate principal
amount, which Senior Notes shall be registered in the name of such transferee or
transferees. At the option of the Holder of any Senior Note, such Senior Note
may be exchanged for Senior Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the
Senior Note to be exchanged at the principal office of the Company. Whenever any
Senior Notes are so surrendered for exchange, the Company shall, at its expense,
execute and deliver the Senior Notes that the Holder making the exchange is
entitled to receive. Every Senior 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 Note or such Holder's
attorney duly authorized in writing. Any Senior Note or Senior Notes issued in
exchange for any Senior Note or upon transfer thereof shall be dated the date of
issuance of the Senior Notes of the same series exchanged or transferred and
shall carry the rights to unpaid interest and interest to accrue that were
carried by the Senior 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 Note or other evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of such Senior 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 Note, the Company
will make and deliver a new Senior Note, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Senior Note.
14E. Rule 144A Mechanics. If any Holder desires to transfer
any Senior 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).
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 Note is registered as the owner and holder of
such Senior Note for the purpose of receiving payment of principal of, and
premium, if any, and interest on, such Senior Note and for all other purposes
whatsoever, whether or not such Senior 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 Note may from time to time grant
participations in all or any part of such Senior 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.
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14G. Solicitation; Payment.
(i) Solicitation. The Company will provide each Holder of
the Senior Notes (irrespective of the amount of
Senior 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
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 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 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 Notes as consideration for or as
an inducement to the entering into by any Holder of
Senior 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 Notes then outstanding even if such Holder did
not consent to such waiver or amendment.
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 Notes, the transfer by
any Holder of any Senior Notes or portion thereof or interest therein and the
payment of any Senior 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 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 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.
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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 or any
Restricted 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 Notes, (c) any Person to which such Holder offers to sell any
Senior 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 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 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, 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 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)
231-6469) 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 of 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.
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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 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.
-59-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase
Agreement to be duly executed and delivered by their respective duly authorized
officers.
UNION ACCEPTANCE CORPORATION
By: /s/ Cynthia F. Whitaker
--------------------------------------
Name: Cynthia F. Whitaker
Title: Vice President, Secretary
THE NOTE PURCHASERS:
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Scott Corman
--------------------------------------
Name: Scott Corman
Title: Assistant Vice President
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Raymond J. Henry
--------------------------------------
Name: Raymond J. Henry
Title: 2nd Vice President
THE MINNESOTA MUTUAL LIFE
INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Marilyn Froehlich
--------------------------------------
Name: Marilyn Froehlich
Title: Vice President
THE RELIABLE LIFE INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Marilyn Froehlich
--------------------------------------
Name: Marilyn Froehlich
Title: Vice President
-60-
<PAGE>
FEDERATED MUTUAL LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Marilyn Froehlich
--------------------------------------
Name: Marilyn Froehlich
Title: Vice President
FEDERATED LIFE INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Marilyn Froehlich
--------------------------------------
Name: Marilyn Froehlich
Title: Vice President
-61-
<PAGE>
THE BALTIMORE LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
FARM BUREAU LIFE INSURANCE
COMPANY OF MICHIGAN
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
PIONEER MUTUAL LIFE INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
NATIONAL TRAVELERS LIFE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
-62-
<PAGE>
FIRST NATIONAL LIFE INSURANCE COMPANY OF AMERICA
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
GUARANTEE RESERVE LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
THE CATHOLIC AID ASSOCIATION
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert
--------------------------------------
Name: Guy M. de Lambert
Title: Vice President
-63-
<PAGE>
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
By: New York Life Insurance Company
By: /s/ Scott Corman
--------------------------------------
Name: Scott Corman
Title: Director - Private Finance
-64-
[EXHIBITS OMITTED]
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927790
<NAME> Union Acceptance Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 161,152
<SECURITIES> 0
<RECEIVABLES> 190,304
<ALLOWANCES> (839)
<INVENTORY> 0
<CURRENT-ASSETS> 350,617
<PP&E> 4,446
<DEPRECIATION> (2,332)
<TOTAL-ASSETS> 479,429
<CURRENT-LIABILITIES> 165,186
<BONDS> 221,000
<COMMON> 58,270
0
0
<OTHER-SE> 34,973
<TOTAL-LIABILITY-AND-EQUITY> 479,429
<SALES> 0
<TOTAL-REVENUES> 75,470
<CGS> 0
<TOTAL-COSTS> 22,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,028
<INTEREST-EXPENSE> 18,793
<INCOME-PRETAX> 31,126
<INCOME-TAX> 12,706
<INCOME-CONTINUING> 18,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,420
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
